The Humber Valley Resort Corporation and related companies
(collectively, "Humber Valley") applied for, and was
granted, an Initial Order from the Newfoundland and Labrador
Supreme Court (Trial Division) staying proceedings against it for
one month under the CCAA. On this same date, the Court authorized a
DIP lending facility of up to $600,000.00, with a first priority
charge over various of Humber Valley's assets. At the end of
the initial stay period, Humber Valley brought two further
applications. The first was for and extension of an additional two
months, and the second for approval of additional secured DIP
financing in the amount of $1,400,000.00.
In assessing these applications, the Court first looked at the
commonly accepted principles of the CCAA, being generally to allow
an insolvent company room to maneuver whilst serving all parties
interested in the outcome of the reorganization. The CCAA, where an
extension of stay is sought, requires an applicant to firstly prove
to the Court that it has acted, and continues to act, in good faith
and with due diligence. In Humber, the Applicant was able to prove
this fairly easily, through evidence of its scaling down of
operations, soliciting the sale of substantial assets, and
maintaining ongoing discussions with investors and the Province.
Secondly, an applicant must prove that an extended stay is
In considering what is "appropriate", the British
Columbia Court of Appeal in Cliffs Over Maple Bay Investments Ltd.
v. Fisgard Capital Corp., 2008 BCCA 327 stated earlier this year
that a CCAA stay of proceedings "should not be granted or
continued if the debtor company does not intend to propose a
compromise or arrangement to its creditors." The reasoning of
the B.C. Court of Appeal was that the purpose of the CCAA, that is
to facilitate a restructuring and compromise between a debtor and
its creditors, would not be fulfilled where a plan or arrangement
was not evidenced in an application for a continued stay.
In Humber, the Court noted that "no plan or arrangement nor
any outline thereof" had been presented or prepared by the
Applicant. The Court did not, however, consider this as grounds to
reject the extension application. Instead, in consideration of all
the circumstances surrounding the resort and its financial
difficulties, the Court granted the extension for the primary
reason that otherwise the resort was likely to fail. The Court
stated that it was "satisfied that the present lack of a plan
[was] not reflective of a situation where the Applicant [had]
engaged the Court only to defer liquidation without any real
prospect of devising a plan acceptable to creditors".
Humber and Maple Bay are seemingly at odds with each other, as
the Court in each focused on a different, yet equally prominent,
underlying principle of the CCAA. In Maple Bay, the Court placed
importance on the goal of the Act being to facilitate compromises,
which necessarily requires evidence of a plan going forward. In
Humber, the Court looked at the ultimate goal of facilitating the
reorganization from a different angle, noting that if the stay were
not granted in that case, the reorganization and ultimately the
resort would fail. Both perspectives have merit.
In considering the application for the additional DIP financing,
the Court did not address the lack of any plan or arrangement, and
presumably therefore did not see it as a relevant consideration to
that part of the application. The Court carefully reviewed the cash
flows presented, noted the amount requested was not sufficient to
greatly prejudice the existing creditors should an eventual plan be
rejected, and granted an Order allowing the additional financing
without stipulation as to how and where it was to be utilized.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On Thursday, September 22, 2016, Dentons hosted a panel discussion about the management of liabilities and risks associated with environmental crises, including potential liabilities for directors and officers and provided insight into risk and liability techniques associated with environmental crisis management.
The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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