Canada: Top Insolvency Cases And Highlights From 2017 – Part 1

2017 saw a number of interesting and important developments in Canadian insolvency and restructuring matters. Some of the highlights (which, in certain instances, will continue as issues in 2018 and beyond) are set forth below:

1) Trends: Fewer CCAA Filings and Retail Insolvencies in the News

According to OSB, in the one year period ending September 30, 2017, only twenty-one Companies' Creditors Arrangement Act ("CCAA") proceedings were filed, compared to forty filings in the one year period ending September 30, 2016. Eleven of these proceedings were filed in Ontario, which is relatively consistent with the year prior. Alberta saw the biggest drop in CCAA filings, with only three filings in this period, compared to fourteen in the twelve months leading up to September 30, 2016. CCAA filings continue to be largely in the construction, retail trade, and real estate industries (3 filings each), with a significant decline in mining and oil and gas filings. Retail insolvencies dominated the news in 2017 with the Sears CCAA and liquidation voted the Canadian Press business news story of 2017 and the Toys R Us filing also making headlines, together with much speculation about the future of bricks and mortar retail stores.

2) Stelco Completes Successful Restructuring: Equitable Subordination Appeal Does Not Proceed to SCC

In March 2017, the Supreme Court of Canada ("SCC") granted leave to appeal the Ontario Court of Appeal's decision in Stelco that the doctrine of "equitable subordination" (a form of equitable relief to subordinate the claims of a creditor who has engaged in inequitable conduct) is not available in CCAA proceedings. The Court of Appeal ruled that there was no authority in the CCAA, either express or implied, to apply the doctrine of equitable subordination. The Court of Appeal also indicated that the broad jurisdiction under section 11 of the CCAA was not available to invoke the doctrine since the appellant did not identify how equitable subordination would further the remedial purpose of the CCAA. Finally, the Court noted that there was no provision in the CCAA similar to section 183 of the Bankruptcy and Insolvency Act ("BIA") (investing the bankruptcy court with such jurisdiction at law and in equity as will enable it to exercise its bankruptcy jurisdiction), leaving the door open to different treatment in BIA and CCAA proceedings.

While insolvency professionals awaited Supreme Court guidance on the issue, in June 2017, Stelco successfully implemented a complex restructuring that compromised more than $2 billion in debt, restructured significant pension and benefit obligations, and implemented creative solutions that included monetizing land holdings, addressing environmental matters and implementing new collective agreements. As a result of the successful restructuring (which later saw Stelco completing a $200 million IPO in November 2017), the appellants withdrew the appeal, leaving the Ontario Court of Appeal's decision in Stelco as the latest appellate court view on the issue of equitable subordination.

3) Monitor as Complainant in Oppression Actions

Two Ontario court decisions in 2017 considered whether a monitor could act as a complainant in an oppression action. The two courts reached opposite results on the facts of those cases.

In Ernst & Young Inc. v. Essar Global Fund Limited ("Essar"), the Ontario Court of Appeal upheld the decision authorizing the monitor to bring an oppression action. The Court observed that a monitor generally plays a neutral role though it frequently takes positions (indeed is required by statute to do so), typically in support of a restructuring purpose. The Court noted that it will be a rare occasion that a monitor will be authorized to be a complainant; however, the CCAA does not preclude the making of such an order, and in this case it was appropriate given that, among other things, the oppression action served to remove an insurmountable obstacle to the restructuring (since the transaction at issue gave one company the ability to veto a change of control of the debtor's business) and the Monitor could efficiently advance an oppression claim on behalf of stakeholders who were not organized as a group but who were all affected by the alleged oppressive conduct.

In Urbancorp Cumberland 2 GP Inc., (Re), Myers J. declined to grant the Monitor's motion for directions as to whether certain payments made to creditors were oppressive. He agreed that monitors may be empowered to bring legal proceedings in appropriate circumstances (though he noted the Monitor had not been empowered to do so in this case, and was critical of the attempt to structure the motion as one for directions and to rely on statements in a Monitor's report that were not incorporated into an order). He reasoned that, while the court has broad discretion to empower the Monitor to take steps to facilitate the restructuring or to advance the goals of the CCAA, there was no evidence in this liquidating CCAA that the Monitor bringing proceedings in place of creditors could be said to facilitate the restructuring. He specifically noted that, unlike Essar where the claim addressed a roadblock to the restructuring affecting all parties, this claim simply pit current creditors against creditors paid out earlier and as such was really an inter-creditor proceeding. The Monitor was ordered to pay $40,000 in costs.

Both cases acknowledge that a monitor may be empowered to bring an oppression action in exceptional circumstances. In determining whether such circumstances exist, the test developed by the Court of Appeal in Essar (considering whether there is a prima facie case for oppression, whether the proposed action has a restructuring purpose/materially advances or removes an impediment to a restructuring and whether any other stakeholder is better placed to be a complainant) will likely guide courts in future cases.

4) Quebec Court Treats Pension Deemed Trusts the Same in Liquidating CCAAs as in BIA

In September 2017, the Quebec Superior Court in the Wabush Mines CCAA proceedings issued a detailed decision holding that the deemed trusts created under the federal Pension Benefits Standards Act and provincial pensions acts in Newfoundland and Labrador and Quebec do not apply in the context of a liquidating CCAA. The Court held that only employee contributions and normal cost payments are protected in a liquidating CCAA to the extent provided for by sections 6(6) and 36(7) of the CCAA, consistent with the priorities in a BIA distribution.

Building on comments from the SCC in Century Services Inc. v. Canada (Attorney General), the Court noted that the scheme of distribution under the BIA should apply in a liquidating CCAA unless there is a contradiction between the two. With respect to the deemed trusts at issue, the Court held that the provincial deemed trust created under Newfoundland and Labrador law was inoperable as a matter of federal paramountcy (the CCAA does not expressly invalidate deemed trusts in favour of parties other than the Crown; however, it would frustrate Parliament's purpose by protecting amounts in addition to the specific protections in 6(6) and 36(7) of the CCAA) and the federal deemed trust was similarly ineffective since the CCAA, which protects only normal payments and employee contributions, was more specific and enacted after the federal pension act. Leave to appeal this decision to the Court of Appeal has been granted so this may not be the final word on pension deemed trusts in liquidating CCAAs.

5) Priority of Source Deduction Deemed Trust v. Court-Ordered Charges Still in Flux

In 2017, courts in Nova Scotia and Alberta issued seemingly inconsistent decisions as to whether a deemed trust for unremitted source deductions under the Income Tax Act ("ITA") has priority over a DIP charge. As explained in our previous post, 1) in Rosedale Farms Limited, Hassett Holdings Inc., Resurgam Resources (Re), the Supreme Court of Nova Scotia held that the ITA deemed trust takes priority over all security interests, including a DIP charge in a BIA proposal (noting that while property may be sold by the debtor free from the trust, this does not mean that charges could supercede the trust); and, 2) in Canada North Group Inc. (Companies' Creditors Arrangement Act) ("Canada North"), the Alberta Court of Queen's Bench held that the DIP charge had priority over the ITA deemed trust in CCAA proceedings (noting that the deemed trust was unlike a proprietary interest, reviewing the importance of super-priority charges to restructurings, and concluding that the intent of Parliament was to grant priority to the relevant deemed trusts over all security interests other than the "super-priority" charges ordered by the CCAA court as necessary for the restructuring). Leave to appeal the decision in Canada North was granted late last year.

6) Strengthening GST/HST Deemed Trust as Against Secured Creditors

In July, 2017, the Federal Court of Appeal issued its decision in Canada v. Callidus Capital Corporation, which is widely seen as strengthening the deemed trust for GST/HST. As summarized here, the Court (with one dissent) held that, while the deemed trust is rendered ineffective with respect to property of the tax debtor at the time of bankruptcy, the CRA could still enforce the deemed trust for GST/HST as against a secured creditor who received proceeds from the sale of a debtor's assets prior to bankruptcy. The decision has caused lenders to consider whether an early bankruptcy filing is preferable rather than forbearing and taking the risk that payments made to them will be clawed back by the CRA. Leave to appeal this decision to the SCC has been filed

We will provide a second set of highlights arising from 2017 matters next week.

To view the original article click here

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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