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COMPANIES’ CREDITORS ARRANGEMENT ACT (CCAA) matters - Compromises and arrangements - Proposals

Tuesday, November 02, 2021 @ 6:53 AM  

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Appeal by 1296371 B.C. Ltd. (“129”) from a decision of a chambers judge who declined to exercise her discretion to grant an order approving the appellant’s proposal in Companies' Creditors Arrangement Act (“CCAA”) proceedings. 129 made a complex and substantive proposal to which the two secured creditors agreed. Having rejected that proposal, the judge approved an offer from the respondent Solterra Acquisitions to purchase the assets of the Petitioners on terms. The Petitioners were the owners of a real estate project. The construction lender CMLS held a first mortgage against the Project. Aviva held a second mortgage. When CMLS stopped funding construction, the Petitioners commenced CCAA proceedings. By the time of the hearing before the chambers judge, three active asset purchase or liquidation offers under s.36 of the CCAA were outstanding. Solterra’s Backup Offer featured the highest purchase price but would leave CMLS with a shortfall of $576,000 and would pay nothing to Aviva or the other creditors. 129’s proposal intended to provide breathing room to secure new construction financing. The Monitor found that 129’s proposal would result in a materially better outcome for the stakeholders than either of the other offers. The judge rejected the argument that 129’s offer was effectively a redemption of the CMLS mortgage and determined that it was not appropriate to grant the 129 application because there was no evidence of an intention to propose a plan of arrangement or compromise to creditors. Applying the Maple Bay case, she concluded that the relief sought by 129 did not meet the appropriateness criterion applicable under s.11.

HELD: Appeal allowed. The order sought by 129 was approved, subject to terms. Based on new evidence admitted, the materially better outcome of 129’s proposal commented upon by the Monitor had improved since the hearing below. Maple Bay was clearly distinguishable from this case and should not have been regarded as dispositive as a matter of law. 129’s proposal was within the parameters of the sales and investment solicitation plan approved by the chambers judge and would appear now to have a decent chance of achieving the CCAA’s overarching objective and the more specific objectives described in the Callidus case. The absence of a planned compromise in this case should not have weighed as a crucial factor in the chambers judge’s exercise of her discretion in determining appropriateness under s.11. Giving primary importance to the statutory purpose stated in the CCAA’s long title seemed to run contrary to the evolution of the CCAA and its objectives, and to the evolution of the complex and innovative solutions that now characterized CCAA applications. The objectives of the Act were more fundamental and broader than the title of the Act would suggest and went beyond the circumstances of a formal plan of arrangement. The rights of the secured creditors were resolved by 129’s plan, and it presented the best solution as compared to the liquidation offers. It was much more than the kernel of a plan. Unless the chambers judge was implying a lack of good faith in describing Reyes, 129’s and corporate Petitioner’s controlling shareholder, as having no true intention to address creditor claims in the future, she erred in ignoring the evidentiary foundation for 129’s proposal.

Port Capital Development (EV) Inc. (Re), [2021] B.C.J. No. 2163, British Columbia Court of Appeal, M.V. Newbury, P.M. Willcock, R. Goepel, G. Dickson and P.G. Voith JJ.A., October 8, 2021. Digest No. TLD-November12021004