Canada: Plans Of Arrangement Under CBCA: Lessons From Connacher Oil

In early 2015, 9171665 Canada Ltd. and Connacher Oil and Gas Ltd. (together Connacher) applied to the Alberta Court of Queen's Bench (Court) for a final order pursuant to section 192 of the Canada Business Corporations Act (CBCA) for the approval of a plan of arrangement to restructure Connacher (Arrangement). On April 2, 2015, Justice C.M. Jones rejected Connacher's restructuring proposal for the reasons set out below.

Under the Arrangement, Connacher sought to convert approximately C$1-billion of second secured lien notes (Second Lien Notes) to equity and to issue C$35-million of new second lien convertible notes. The Arrangement was approved by at least two-thirds of the votes cast at the shareholders' and noteholders' meetings (the required amount of support as established by precedent). Connacher did not invite the first secured lien noteholders (First Lien Noteholders) to vote on the Arrangement as they did not consider the First Lien Noteholders' interests to be affected. The proposal was opposed by Credit Suisse, the agent for the First Lien Noteholders.

Prior to this hearing, on February 2, 2015, in anticipation of the restructuring of the Second Lien Notes, Connacher did not pay the interest due on the Second Lien Notes. As a result, the First Lien Noteholders sued Connacher in the state of New York (the governing jurisdiction of the first lien note agreement) on the basis that this failure to pay interest was a default under the first lien note agreement. Connacher contested that it was in default on the basis that the failure to pay interest was part of a Second Lien Note restructuring, an action permitted under the first lien note agreement. The New York courts had not yet ruled on the action at the time these proceedings were taking place in the Court. A finding of default under the first lien note agreement would result in an acceleration of the First Lien Notes (such that the entire outstanding principal sum would immediately become due and payable).

In its application for the Arrangement, Connacher sought to have the alleged default waived or cured by the Court so that the Arrangement could proceed. Credit Suisse asserted that any Arrangement rescinding the alleged default by Connacher would compromise the rights of the First Lien Noteholders. Credit Suisse also argued that the Court could not approve an arrangement under section 192 of the CBCA where it could not be demonstrated that the restructured entity would emerge solvent. A determination of whether or not there was a default under the first lien note agreement and the potential acceleration would heavily influence whether Connacher could emerge solvent from the Arrangement.

Ultimately, Justice Jones did not approve the Arrangement. He was not satisfied that Connacher would emerge from the Arrangement solvent or that the Arrangement was fair and reasonable under the circumstances.

Justice Jones held that non-insolvency post-emergence is a requirement for the exercise of judicial authority under section 192 of the CBCA. He stated that "non-insolvency of the emergent entity ... is an essential requirement for the exercise of [the court's] power to approve [a] Plan of Arrangement."

Justice Jones also said that a stay or no-default order that may be issued to maintain the status quo should not be easily extended to claims that have already been advanced on the basis of an alleged existing default.

Pending the resolution of the New York action, Justice Jones was unable to conclude whether Connacher would emerge from the Arrangement solvent unless he exercised his jurisdiction to retroactively eliminate the basis for the New York action altogether. Justice Jones declined to take such steps. 

In his analysis, Justice Jones quoted the following excerpt from an article written by William Kaplan, titled "Stay of Proceedings Under the Canada Business Corporations Act - a Question of Balance," Annual Review of Insolvency Law, Carswell (2011):

... the CBCA arrangement provisions were not designed to deal with the full range of issues affecting multiple parties that many insolvencies can present. It is a focused remedy and requires focus for its proper use. Where an applicant requires broader third party orders restraining otherwise lawful conduct, especially on a permanent basis, one must question whether the proceeding is more properly administered under true insolvency process as opposed to the CBCA. The broader the third party impact requested, the more searching the analysis of whether the CBCA truly should be applied.

Relying on this excerpt, Justice Jones stated that he was "hesitant to use ... section 192 of the CBCA ... to potentially affect the resolution of the rights of parties to significant contracts affecting an applicant, which are the subject of a present action in another jurisdiction which Connacher appears to have attorned to." Justice Jones held that the Arrangement was unfair and unreasonable because it purported to extinguish a right that may have accrued to the First Lien Noteholders without the chance for them to even vote on the Arrangement.

Justice Jones also considered the policy implications of interfering with Credit Suisse's default claim. He questioned the impact of such interference on the attitude of lenders, in particular foreign lenders, such that agreements "with Canadian borrowers negotiated in good faith and at some considerable expense, containing provisions designed specifically to address possible responses to adverse economic circumstances, can be nullified, or at least compromised by a CBCA Court convened to respond to those very adverse economic circumstances...."

Additionally, in support of his finding that the Arrangement was unreasonable, Justice Jones was unable to find a valid business purpose underlying the Arrangement. He was not satisfied on the evidence before him that Connacher — as restructured — would remain a going concern absent an increase in oil prices and an improvement in the exchange rate between Canadian and U.S. currencies.


Overall, this decision may provide insight as to the courts' application of section 192 of the CBCA. First, it proposes that section 192 should only be used to affect a plan of arrangement where a court is satisfied that the emerging entity will be solvent. Second, it suggests that a plan of arrangement that significantly impacts the rights and claims of third parties may be better dealt with under the insolvency statutes rather than the CBCA. 

After this decision, Connacher and the First Lien Noteholders reached a settlement. As part of this settlement, the First Lien Noteholders withdrew their action against Connacher in New York and entered into a waiver and settlement agreement. The Arrangement was also amended to reflect the terms of the settlement. The amended Arrangement was approved by the Court on April 23, 2015 and Connacher announced on May 11, 2015 that it had closed. The Court's approval raises the question of how it was able to overcome its prior assertion that the recapitalization of Connacher is unlikely to have a valid business purpose and is thus unreasonable.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions