Restructuring The Canadian Tobacco Industry: A Model For The Future?

Key Takeaways

• On March 6, 2025, the Ontario Superior Court sanctioned three CCAA plans for Imperial Tobacco and two other tobacco companies, resolving over $900 billion in claims against the tobacco companies.
• Each CCAA plan included a global settlement amount totalling $32.5 billion, to be paid over time from the operating profits of the tobacco companies in exchange for a release of all tobacco claims.
• These proceedings offer a potential framework for future CCAA filings among multiple companies that dominate an industry, particularly in the context of large-scale litigation.

On March 6, 2025, the Ontario Superior Court of Justice (Commercial List) (Court) sanctioned [PDF] three historic plans of compromise or arrangement under the Companies' Creditors Arrangement Act (CCAA) in respect of Imperial Tobacco Canada Limited and its subsidiary Imperial Tobacco Company Limited (Imperial), as well as two other major Canadian manufacturers and distributors of tobacco products, JTI-Macdonald Corp. (JTI) and Rothmans Benson & Hedges Inc. (RBH) (collectively referred to below as the Tobacco Companies). The Court's orders represented the culmination of a complex, multi-party restructuring, lasting over six years. The proceeding successfully resolved the multiple litigation proceedings commenced or threatened against the Tobacco Companies in relation to tobacco-related harms caused by their products in a manner designed to be fair and equitable to all affected claimants.

This industry-wide restructuring laid the groundwork for the use of the CCAA in future resolutions of industry-wide claims. The three coordinated proceedings demonstrate the flexible nature of the CCAA and highlight its utility in achieving a global settlement where large-scale litigation precedes — and is an impetus for — the commencement of CCAA proceedings in relation to multiple industry participants.

Osler acted for Imperial.

Impetus for the CCAA restructuring

When the Tobacco Companies obtained protection under the CCAA in March 2019, the Canadian tobacco industry faced an existential threat from litigation across Canada, including multiple smoking and health class actions, claims by every provincial government seeking to recover health care costs in connection with smoking-related disease and other ongoing proceedings. Although the Tobacco Companies disputed liability, the plaintiffs sought an aggregate of hundreds of billions of dollars in damages which, if awarded by a court, would have exceeded the defendants' total assets by many orders of magnitude.

The CCAA filing was precipitated by the issuance of a judgment by the Québec Court of Appeal on March 1, 2019 (Québec Appeal Judgment), upholding findings of liability in two Québec class proceedings brought against the three Tobacco Companies. The Québec Appeal Judgment awarded an unprecedented $13.5 billion against all three defendants.

The objective of the three parallel CCAA proceedings was to achieve a global resolution of all tobacco claims against the Tobacco Companies in a controlled and orderly process that sought to achieve fairness among claimants with the benefit of court and monitor supervision. The CCAA stay of proceedings was critical to permit the Tobacco Companies to continue going-concern operations for the benefit of all stakeholders, while providing the time necessary to achieve this resolution.

Extraordinary aspects of the tobacco restructuring

Several aspects of the Tobacco Companies' restructuring were extraordinary.

The first such aspect was the industry-wide nature of the CCAA filing, involving all three major market participants in Canada. The Tobacco Companies sought to use the CCAA to collectively achieve a global settlement of all claims and potential claims against them. The settlement covered the development, design, manufacture, production, marketing, advertising, distribution, purchase, sale or disposition of tobacco products, the use of or exposure to tobacco products or their emissions, the development of any disease related to the use of tobacco products, or any representation or omission in respect of Canadian tobacco products worldwide.

The second unique feature of these CCAA proceedings was the appointment, on April 5, 2019, of the Honourable Warren K. Winkler, KC to mediate the global settlement of all tobacco claims (Mediator). Then in 2023, following four and a half years of mediation, the Court directed the monitors of each of the Tobacco Companies to work with the Mediator to develop a one-size-fits-all settlement to be implemented through three plans of compromise or arrangement, one for each Tobacco Company (CCAA Plans). The role of the monitors as plan proponents, and the Mediator, as well as the parallel plan approach, were without precedent.

The CCAA Plans were fair and reasonable

After much negotiation, the three CCAA Plans were unanimously approved by each of the Tobacco Companies' creditors at the respective creditor meetings. On March 6, 2025, the Court sanctioned Imperial's CCAA Plan [PDF], as well as the CCAA Plans for the other two Tobacco Companies.

For a CCAA plan to be sanctioned, the court must conclude that the plan is fair and reasonable. The court will consider, among other things, possible alternatives to the plan and their likely outcomes. In sanctioning Imperial's CCAA Plan, Chief Justice Morawetz noted that the Tobacco Companies faced aggregate liability of approximately $1 trillion arising from the tobacco claims. Since the "astronomical" dollar value of potential claims was "clearly beyond the ability for any or all of the [Tobacco Companies] to satisfy," the likely outcome if the CCAA Plans were not sanctioned was the liquidation or bankruptcy of the Tobacco Companies.

Unique structural aspects of the CCAA Plans

Each CCAA Plan was substantially identical in nature, premised on a global settlement amount totalling $32.5 billion. This amount is to be paid over time from the operating profits of the Tobacco Companies in exchange for a release of all tobacco claims.

The CCAA Plans included a number of unique elements. First, compensation is provided to creditors based on future earnings of the Tobacco Companies. Second, the CCAA Plans are to be implemented and administered over an estimated 20-year contribution period. Finally, there will be continuing oversight of the Tobacco Companies by the monitors throughout the contribution period. The Tobacco Companies' respective parent companies and relevant affiliates committed to provide shared services and other operational support to the Tobacco Companies during the contribution period to support the ongoing operations of their businesses.

The CCAA Plans involved the establishment of several "funds" and distribution schemes designed to cover a broad range of claimants, thereby providing greater certainty that the CCAA Plans will comprehensively and effectively release all tobacco claims. These funds included a fund for prospective claimants residing in other provinces and territories, a cy-près fund and a fund for miscellaneous claims.

A cy-près fund is generally designed to provide for the distribution of proceeds where the proceeds are unable to be distributed to the class members. The adoption of a cy-près fund in this context was unique. It was designed to provide indirect compensation through the research, programs and initiatives focused on improving outcomes in tobacco-related diseases for potential "claimants" residing in any province or territory who were otherwise not eligible to receive direct compensation.

Class action counsel costs

Class counsel for the Québec plaintiffs in the Québec class actions moved to have their fees approved by the CCAA Court. The Court ultimately approved [PDF] counsel fees in the amount of approximately $900 million. The Court noted that these fees could not be said to be unreasonable in the circumstances given the duration of the proceedings and that it could not find a principled basis to reduce the quantum sought.

In reluctantly approving this enormous amount, which was "unheard of in Canadian legal history," Chief Justice Morawetz stated that this costs award was not intended to have any precedential value. Remarkably, he also encouraged counsel to consider contributing a portion of their award to charitable organizations devoted to anti-tobacco causes.

The path forward for litigation-oriented restructurings in Canada

Given the first-of-its-kind nature of these proceedings, the process implemented by the Court throughout was necessarily unique. Nonetheless, these proceedings provide a potential framework for future CCAA proceedings involving multiple companies that dominate an industry, particularly in the context of large-scale litigation. Other industries may be ripe for this multi-company approach.

While coordinated proceedings of this type can provide an effective framework for resolution of national litigation and disparate claims across an industry, the adoption of such a coordinated approach to CCAA filings also introduces risk where the companies are not aligned or have bespoke interests that cannot be addressed on an industry-wide basis.

Such proceedings also give rise to certain conceptual and procedural questions that may need to be resolved in the future. For example, it will be interesting to see whether certain unique aspects of the CCAA plans, including the use of a cy-près fund, are adopted or challenged in future plans.

Finally, these proceedings are particularly valuable precedents as they represent examples of three CCAA plans being sanctioned in an environment where few plans are being proposed and sanctioned in Canada.

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