Expanding Court Discretion In Court-Approved Arrangements Under The Alberta Business Corporations Act

The Business Corporations Act (Alberta) (ABCA) received an overhaul this week. Bill 84, Business Corporations Amendment Act, 2021 came into force on May 31, 2022. That Bill introduced several changes to the ABCA. These amendments are intended to modernize Alberta's corporate legislation to attract investment and make Alberta the leading province for corporations in Canada.

The focus of this bulletin is on the amendments to the plan of arrangement provisions of the ABCA. These amendments expand a court's discretion to make interim and final orders, and allow more flexibility in mergers and acquisitions and debt restructurings or reorganizations.

THE PERCEIVED SHORTFALLS OF THE FORMER PLAN OF ARRANGEMENT PROVISIONS OF THE ABCA

The ABCA, like the Canada Business Corporations Act (Canada) (CBCA) and other provincial Business Corporations Acts, allows court-approved plans of arrangement for completing transactions, reorganizations or other fundamental corporate changes. Plans of arrangement are frequently used for mergers and acquisitions, especially those involving publicly listed companies. In recent years, the plan of arrangement provisions of the CBCA have also been used by corporations to restructure or reorganize their debt, as an alternative to filing for creditor protection under Canada's insolvency statutes.

One of the key reasons why financially distressed corporations chose to pursue debt restructuring using the CBCA, as opposed to the ABCA, is the flexibility and broad discretion that the CBCA provides to a court to "make any interim or final order it thinks fit" in connection with a plan of arrangement. By contrast, the equivalent provisions in the ABCA were perceived by some restructuring corporations to only provide a court with limited powers in respect of plans of arrangement. The powers provided under the pre-amendment ABCA were perceived to be restricted to the ordering of meetings of stakeholders affected by the proposed arrangement, and, if approved by the requisite stakeholder class majorities, approving the arrangement. It was unclear if the ABCA provided a court with the power to order an interim stay of proceedings, among other relief often required by a financially distressed restructuring corporation.

The broad and flexible powers of a court pursuant to the CBCA were considered to provide advantages to a financially distressed corporation, including:

1. The court has the ability to grant a stay of proceedings to allow a corporation time to complete its arrangement.
2. The court has discretion to consider whether shareholder approval of an arrangement is required. The ABCA previously required a meeting and vote by a corporation's shareholders except when there was a unanimous shareholder resolution, even when the arrangement did not otherwise require shareholder approval.
3. There is no minimum voting threshold for affected stakeholders. The pre-amendment ABCA required two-thirds majority approvals from each class of shareholders, creditors and holders of debt obligations.

These differences between the CBCA and ABCA often caused distressed companies, incorporated under the ABCA, to change their incorporation from the ABCA to the CBCA in the pursuit of an arrangement. As a result of the amendments, Alberta corporations will not need to consider this step going forward.

THE UPDATES TO THE PLAN OF ARRANGEMENT PROVISIONS OF THE ABCA

Bill 84 amends the plan of arrangement provisions of the ABCA to give a court broad discretion to "make any interim or final order it thinks fit", allowing an applicant corporation to seek, and a court to grant, a stay of proceedings. Further, the amendments to the ABCA give a court discretion to approve an arrangement without requiring a shareholder vote in circumstances in which shareholder rights are not affected or material to the arrangement. In addition, no predetermined voting thresholds are set.

While the ABCA has adopted and incorporated the plan of arrangement provisions of the CBCA that provide flexibility to a court, the ABCA did not incorporate all the plan of arrangement provisions from the CBCA. In particular, the amended ABCA does not have a solvency threshold requirement for a corporation to pursue a plan of arrangement. In contrast, the CBCA requires that corporations applying to a court for approval of an arrangement not be insolvent. Further, the ABCA will continue to expressly permit an arrangement in the nature of a compromise between a corporation and its creditors. As a result, the ABCA will likely become the preferred corporate statute for plans of arrangement involving debt restructurings or reorganizations.

COMMENTARY

The amendments to the plan of arrangement provisions of the ABCA enhance the flexibility and discretion of a court, similar to the CBCA. At the same time, the ABCA maintains the provisions which are more beneficial than the CBCA plan of arrangement provisions to financially distressed companies, including by not having a solvency requirement, and expressly allowing a compromise between a corporation and its creditors.

The plan of arrangement amendments will likely make the ABCA the first-choice corporate statute for corporations seeking a debt restructuring.

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