On May 8, the Supreme Court of Canada released its written reasons1  in 9354-9186 Québec inc. v. Callidus Capital Corp.2  

The unanimous Supreme Court decision reverses the Quebec Court of Appeal's decision, reinstates the supervising judge's order, and enshrines the recognition of an insolvency court's wide discretion to, inter alia, approve a litigation funding agreement as interim financing, and to prevent a creditor from voting on a plan where it is found the creditor is acting for an improper purpose.


Bluberi Gaming Technologies Inc., now 9354-9186 Québec Inc., manufactured, distributed, installed, and serviced electronic casino gaming machines. It also provided management systems for gambling operations.

In 2012, Callidus Capital Corporation, the then-publicly traded arm of Catalyst Capital Group Inc., loaned Bluberi $24 million. Despite missed projections, Callidus continued to extend credit to Bluberi and, by 2015, Bluberi owed approximately $86 million to Callidus, close to half of which comprised interest and fees.

In 2015, Bluberi filed for protection under the Companies' Creditors Arrangement Act, (CCAA) and alleged in its filings that Callidus had deliberately employed predatory lending tactics and consumed the equity value of Bluberi with a view of taking over the business. Bluberi's petition succeeded despite Callidus' objection. 

In 2016, Bluberi proposed a sale solicitation process, which resulted in four offers, with Callidus submitting the winning offer. Pursuant to the sale agreement, Callidus would obtain all of Bluberi's assets in exchange for extinguishing almost the entirety of its $135.7 million secured claim against Bluberi, except for an undischarged $3 million secured claim. Bluberi, on the other hand, was permitted to retain claims for damages against Callidus arising from its alleged involvement in Bluberi's financial difficulties (the retained claims). Since the sale, the retained claims have been Bluberi's sole remaining asset and thus the sole security for Callidus' remaining $3 million claim.

On September 11, 2017, Bluberi filed an application (the application for litigation funding) seeking approval of a $2 million interim financing credit facility to fund the litigation of the retained claim and sought the approval of a $20 million interim lender super-priority charge in favour of the funder, a venture company involving Bentham IMF and Bluberi's former president, founder, and ultimate owner, Gérald Duhamel (the funder). The terms of the litigation funding agreement (LFA) included a success fee based on a percentage of the litigation proceeds. The expended amounts were otherwise not reimbursable and carried no interest.

A week later, and a day short of the hearing of Bluberi's application for litigation funding, Callidus proposed a plan of arrangement, containing a $2.63 million payment to Bluberi creditors, except for itself, in exchange for a release from the retained claims. The supervising judge adjourned the hearing of both applications to October 5, 2017. In the meantime, Bluberi filed its own plan of arrangement, which foresaw half the proceeds of the retained claims, after payment of expenses, would be distributed to the creditors if the net proceeds exceeded $20 million.

After Bluberi's failure to deposit the necessary funds to cover the expenses related to the presentation of its plan, Callidus' plan was the sole plan put to the creditors. On December 15, 2017, SMT Hautes Technologies, Bluberi's second-largest creditor after Callidus, voted against Callidus' plan (as amended), thereby preventing the Callidus plan from achieving two-thirds majority approval.

The application for litigation funding was further postponed and ultimately heard on February 6, 2018. In response, on February 12, 2018, Callidus filed a new plan of arrangement, increasing its contribution to other creditors' recoveries by $250,000. Callidus further valued its security at nil and requested the supervising judge to allow it to exercise its voting rights as unsecured creditor for its $3 million proof of claim. With permission to vote on its own plan, Callidus would likely achieve the two-thirds majority vote required to sanction its plan of arrangement.

The Superior Court of Quebec3

Justice Michaud of the Superior Court approved the LFA, finding that in an insolvency context third-party litigation funding arrangements should generally be approved and did not require the creditors' approval,4 subject to the following principles:

  • The third-party funding agreement must be necessary to provide the plaintiff access to justice that would not otherwise be available to it;
  • The plaintiff's right to instruct counsel and control the litigation should not be diminished by the third-party funding agreement;
  • The third-party funding agreement must not compromise or impair the lawyer and client relationship or the lawyer's duties of confidentiality;
  • The compensation of the third-party funder must be fair and reasonable; and
  • The third-party funder must undertake to keep confidential any confidential or privileged information.

Of apparent significance was that the funder charged no fees or interest on the amounts funded, had expended significant resources in assessing the merits of the claim itself and therefore had no collateral interest in unduly drawing out the proceedings to earn greater interest or fees. The monitor had also noted the litigation against Callidus was the only option that may result in recovery for the creditors.

Justice Michaud, relying mainly on the Nova Scotia Court of Appeal's 1998 decision in Laserworks,5 further noted Callidus' behaviour had been contrary to the "requirements of appropriateness, good faith, and due diligence [that] are baseline considerations that a court should always bear in mind when exercising CCAA authority." He observed Callidus:

  • Initially contested the appropriateness of the CCAA proceedings to prevent Bluberi from pursuing its claim in damages against Callidus;
  • Allowed the monitor and debtors to work on a valuation of the business, then appointing a chief restructuring officer, only to adopt a different position before the court to exhaust Mr. Duhamel financially; and
  • Filed its plan of arrangement, which provided releases from the claims against it, at 3 p.m. the day before the scheduled hearing for the application for litigation funding. Callidus was in effect "buying releases from creditors who have no interests in the awarding of such release."

The Quebec Court of Appeal6

In a unanimous decision, the Court of Appeal reversed the supervising judge's ruling, stating that:

  • The CCAA court committed an error in principle and an unreasonable exercise of its discretion by relying "on allegations of a yet to be instituted lawsuit" to preclude Callidus, as the plan sponsor, from exercising its fundamental right to vote on its plan;
  • In the case at hand, the LFA was not equivalent to interim financing, the purpose of which is to allow a debtor to continue operations during its restructuring process, but rather the LFA was akin to a plan of arrangement pursuant to which Bluberi would make payments to its unsecured creditors upon settling or winning a lawsuit against Callidus. Consequently, the LFA must be put to creditors for a vote; and
  • Litigation funding forming the basis of a CCAA plan of arrangement must be disclosed in full to creditors, subject only to litigation privilege. It is up to the creditors to decide whether to accept the risks of the LFA by having full knowledge as to the level of recovery in various litigation outcome scenarios.

The Court of Appeal therefore ordered that a creditors' meeting be held to allow creditors to vote on the Callidus plan or, if Bluberi files a plan consisting of the LFA (as amended), to vote on whether to approve the Callidus plan or Bluberi's plan, with Callidus having the right to vote upon either plan.

The Supreme Court of Canada

Instead of addressing all legal issues raised by this matter, the Supreme Court focused its attention on two issues: whether the supervising judge erred in (1) barring Callidus from voting upon its own plan, and (2) approving the LFA as interim financing pursuant to s. 11.2 of the CCAA.

Before delving into the core of the matter, the court offered useful guidance on (i) the CCAA's evolving objectives CCAA; (ii) the supervising judge's discretion; and (iii) degree of deference owed by appellate courts to the decisions made by the supervising judge.

Preliminary Considerations

As regards the CCAA's evolving overarching remedial objectives, the court noted they include: "providing for timely, efficient and impartial resolution of a debtor's insolvency; preserving and maximizing the value of a debtor's assets; ensuring fair and equitable treatment of the claims against a debtor; protecting the public interest; and, in the context of a commercial insolvency, balancing the costs and benefits of restructuring or liquidating the company." 

The court recognized that "CCAA proceedings have evolved to permit liquidating CCAAs, wherein the outcome does not result in the emergence of the pre-filing debtor company in a restructured state, but rather involve some form of liquidation of the debtor's assets."

The court noted "[that] the typical CCAA case has historically involved an attempt to facilitate the reorganization and survival of the pre-filing debtor company in an operational state — that is, as a going concern. [W]hen a reorganization of the pre-filing debtor company is not a possibility, a liquidation that preserves going-concern value and the ongoing business operations of the pre-filing company may become the predominant remedial focus. Moreover, where a reorganization or liquidation is complete and the court is dealing with residual assets, the objective of maximizing creditor recovery from those assets may take centre stage. Moreover, where a reorganization or liquidation is complete and the court is dealing with residual assets, the objective of maximizing creditor recovery from those assets may take centre stage."7

Confirming once more the supervising judge's broad discretionary authority, the court stated this discretion must be exercised in furtherance of the CCAA's remedial objectives and with three baseline considerations in mind: (1) the order sought is appropriate in the circumstances, (2) the applicant has been acting in good faith and (3) with due diligence. The due diligence consideration discourages parties from sitting on their rights and ensures creditors do not strategically manoeuvre or position themselves to gain an advantage. It includes acting with due diligence in valuing one's claims and security.

The court consequently held that since great deference is owed to the supervising judge's discretionary decisions, appellate intervention will only be justified if the supervising judge erred in principle or exercised his or her discretion unreasonably.

Issues on Appeal

With the aforementioned guidelines in mind, the court recognized the primacy of a creditor's right to vote but subjected it to the supervising judge's discretion to bar a creditor from voting to circumstances that demand such an outcome. For example, the supervising judge can bar a creditor from voting in the same class as other creditors where it lacks a sufficient commonality of interest (s. 22(1) and (2) CCAA) or where the creditor is acting for an improper purpose. 

To arrive at this conclusion, the court was inspired by parallels to similar discretion that exists under the Bankruptcy and Insolvency Act (BIA) as recognized in Laserworks.8 The court therefore imported this discretion into the CCAA, because "the CCAA 'offers a more flexible mechanism with greater judicial discretion' than the BIA" and because of the "benefits of harmonizing the two statutes" and "to avoid the ills that can arise from [insolvency] 'statute-shopping'."

Although it noted the enactment of s. 18.6 CCAA and the codification of the duty of good faith, the court found that the supervising judge's authority to bar a creditor from voting rested on s. 11 CCAA and his factual determination as to whether said creditor acted with due diligence or whether its conduct frustrated, undermined or ran counter to the objectives of the CCAA and basic fairness that permeates insolvency legislation and practice. 

Given the wide discretion the supervising judge enjoys, the court deferred to Justice Michaud's qualification as to whether the LFA should be approved as interim financing in the case at hand, taking into consideration the text of s. 11.2 of the CCAA and the CCAA's remedial objectives more generally. The court elected not to provide any definitive guidance for lower courts on the conditions for approval of litigation funding agreements, but recognized that the jurisprudence on such agreements is still evolving and "insofar as third party litigation funding agreements are not per se illegal, there is no principled basis upon which to restrict supervising judges from approving such agreements as interim financing in appropriate cases." 

The court agreed the LFA and the charge in favour of the funder did not constitute a plan of arrangement and formal creditor approval with the double majority was therefore not mandated. The court agreed with the Ontario Court of Appeal's analysis in Crystallex and the supervising judge's reliance on that case having concluded that Callidus should be barred from voting on its proposed new plan. In Crystallex, similar to the case at hand, the debtor's single significant asset was an arbitration claim against Venezuela. Like Callidus, certain creditors in Crystallex argued the litigation funding agreement at issue was a plan of arrangement and not interim financing. 

The Ontario Court of Appeal rejected their argument and held that s. 11.2 "does not restrict the ability of the supervising judge, where appropriate, to approve the grant of a charge securing financing before a plan is approved that may continue after the company emerges from CCAA protection."9


As the global economy faces a growing number of reorganizations and liquidations, as well as more difficult access to liquidity, the Supreme Court's decision in Bluberi lends support to the increasingly interventionist role of the CCAA supervising judge, the legitimacy of liquidating CCAAs and using litigation funding agreements as interim financing. In parallel, the formal recognition of the doctrine of improper purpose in CCAA proceedings is likely to give rise to further scrutiny of stakeholder conduct by the court. Given the economic challenges that lie ahead, practitioners will need to continue finding innovative solutions based on the remedial purposes of the CCAA, mindful of the underlying principles of fairness that permeate Canadian insolvency law. 


1 Oral judgment was previously rendered from the bench on January 23, 2020.

2 2020 SCC 10 [Bluberi].

3 Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.) -and- Ernst & Young Inc., 2018 QCCS 1040.

4 Relying on Crystallex (Re), 2012 ONCA 404 [Crystallex].

5 3004876 Nova Scotia Ltd v. Laserworks Computer Services Inc., 1998 CanLII 2550 (NS CA) [Laserworks].

6 Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.), 2019 QCCA 171.

7 Bluberi at paras 41 and 46.

8 See for example ss. 43(7), 108(3), and 187(9) of the BIA.

9 Crystallex at para 68.

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