When an owner is unable to meet its financial obligations, it may, under certain circumstances, seek protection under the Companies Creditors Arrangement Act, RSC 1985, c.C-36 ("CCAA").
The CCAA is a remedial statute which grants the court broad
powers to facilitate the making of an arrangement or compromise
between the debtor company and its creditors while the debtor
company either attempts to reorganize its affair. Or, in more
recent times, to sell substantially all of its assets to preserve
it as a going concern under new ownership, or to wind up or
liquidate.1
The outcome of an unreported motion in NewPage Port Hawkesbury
Corp., (Re)2 this summer is a reminder that when faced
with the insolvency of an owner, there are steps you may take to
protect your lien rights and minimize potential losses.
NewPage's builders' lien discharge motion
In September, 2011, NewPage sought and obtained protection under
the CCAA. Among NewPage's creditors were various builders'
lien claimants. On July 27, 2012, counsel for NewPage brought a
motion seeking an order vacating and discharging these
builders' liens, the certificates of pending litigation
registered against lands owned by NewPage and the actions
associated with the liens.
The motion was ultimately successful and on August 1, 2012, Deputy
Prothonotary Wood issued an order vacating the liens, discharging
the certificates of pending litigation and dismissing any actions
associated with them on the effective date set out in the Plan of
Compromise and Arrangement.
The circumstances of the various lien claimants varied. Some
appear to have not perfected their liens within the time prescribed
in the Builders' Lien Act, RSNS 1989, c. 277. Others failed to
file a proof of claim within the time stipulated in the claims
process order. Others consented to being treated as unsecured
creditors.
What can I do?
When an owner enters CCAA protection, it is clear that there is
not enough money to go around. As such, it may not be possible to
recover all that is owed to you. However, by knowing the rights and
remedies available under builders' lien legislation and the
CCAA, you'll put yourself in the best possible position to
maximize recovery.
Preserve and perfect:
Under builders' lien legislation, a lien arises in favour of
a contractor as soon as he or she begins work or furnishes
materials to the project. However, the lien does not become an
effective charge against the owner's interest in land until it
is preserved and perfected. A claimant with a preserved and
perfected lien is a secured creditor for the purposes of the
CCAA3.
A lien is preserved when a claim for lien is registered against
the owner's interest in the subject property pursuant to
legislation.
A lien is perfected by issuing a statement of claim and/or
registering a certificate of pending litigation.
Typically, in a CCAA proceeding, the court will afford protection
to the debtor company by "staying" all proceedings
against the insolvent company. This stay prevents any party from
commencing or continuing any legal action, including the
preservation or perfection of a lien, against the debtor. In these
circumstances, the court will generally permit a claimant to
preserve or perfect its lien either with the consent of the monitor
or by motion.
If you have not preserved or perfected your lien prior to the
debtor company entering CCAA protection, it is critically important
to apply to the court to lift the stay for the purpose of allowing
you to do so before the time in the applicable builders' lien
statute expires. Once this time limit has passed, your lien will
expire and cannot be revived by the court.
Continuing the lien action:
In some builders' lien statutes, such as New Brunswick's
Mechanics' Lien Act, a preserved and perfected lien must be (a)
set down for trial or (b) an application must have been made to the
court to continue the action within a year of being
commenced.4 Much like the time limits within which to
preserve or perfect a lien, once the year elapses without the
required action being taken, the lien expires and cannot be revived
by the court.
Therefore, it is important to be aware of any expiration provision
in builders' lien legislation in the province in which
you're working. and if necessary, to apply to the court to lift
the stay to allow you to continue your lien action before the
expiry of the relevant time period.
Proof of claim:
In proceedings under the CCAA, a court may set out in an order a
claims process which includes a claims bar date. A typical order
will state that if a proof of claim is not filed by the claims bar
date it is "forever barred and extinguished". In ScoZinc
Ltd., (Re.)5, the Nova Scotia Supreme Court affirmed
that authorizing such a process, whereby claims must initially be
identified and assessed by a court appointed monitor, is a valid
exercise of the court's inherent jurisdiction. Therefore, it is
important not to unnecessarily abandon your claim by failing to
file a proof of claim on or before the claims bar date.
However, if you have missed the claims bar date, all may not be
lost. The court may, on application, permit a claimant to file a
claim beyond the claims bar date in certain circumstances. These
circumstances will depend on the specific facts of each
case6 but generally include whether the claimant's
delay was caused by inadvertence, whether the claimant has acted in
good faith and the relative prejudice that may result in allowing
the late claim7.
What this means for you
The best protection against a potentially unpleasant situation is to see it coming. Each of the mechanics' lien statutes in Atlantic Canada allow a lienholder to, at any time, demand specific information from various parties, ranging from the mortgagee to unpaid vendors, contractors, subcontractors or the owner. Although this right appears to be rarely used, it can provide you with valuable information regarding the financial shape of the project, including the names of parties to a contract, the state of various accounts and details of the state of payment under mortgages.
Footnotes
1 First Leaside Wealth Management Inc., Re, 2012 ONSC 1299 2 NSSC, Hfx No. 355063 3 CCAA, s.2
2 NSSC, Hfx No. 355063
3 CCAA, s.2.
4 RSNB 1973, c.M-6, s. 52.1
5 2009 NSSC 136
6 BA Energy Inc. (Re.), [2010] A.J. No. 920 (Q.B.)
7 Blue Range Resources Corp. (Re.), [2000] A.J. No. 1232 (CA).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
