Business Operations in a CCAA Proceeding
| Author | Stephanie Ben-Ishai; Thomas G. W. Telfer |
| Pages | 548-605 |
CHAPTER 13
Business Operations in a CCAA Proceeding
I. INTRODUC TION
This chapter deals with various aspects of carrying on business while subject to Companies’
Creditors Arrangement Act, RSC , c C- (CCAA) proceedings. Section II contains a discus-
sion about the monitor’s role in the proceedings. The CCAA provides for the appointment of
a monitor to perform a watchdog function due to the concerns about how the debtor’s exist-
ing management should operate upon the commencement of restructuring proceedings. The
CCAA establishes a debtor-in-possession regime, on the rationale that, as a general rule, the
debtor’s existing management is likely to do a better job of running the debtor’s business dur-
ing the proceedings than an administrator or the like appointed from outside, who may not
know the ins and outs of the business as well. On the other hand, leaving the current manage-
ment in charge carries with it certain obvious concerns, not the least of which is that the debtor
became insolvent on the current management’s watch and this may reect on its competence.
Section III deals with the duty of the debtor company’s directors to avoid conicts of interest in
the course of CCAA proceedings, with particular reference to the Supreme Court of Canada’s
decision in Sun Indalex Finance, LLC v United Steelworkers. Section IV deals with the debtor’s
right to disclaim, arm, and assign executory contracts in CCAA proceedings. Section V dis-
cusses the special provisions in the CCAA relating to derivatives or “eligible nancial contracts.”
Section VI addresses the question of debtor-in-possession, or interim, nancing. If the debtor
is to carry on business during the restructuring process, it will typically need a fresh injection of
funds. On the other hand, potential new lenders may not be ready to come to the table unless
the debtor can assure them of priority over existing creditors. This creates a conict between
the interest of the stakeholders at large in the debtor being able to continue in business and the
interest of the subset of creditors whose priority position will be aected if the debtor accedes
to the new lender’s demands. Section VIII deals with aspects of the sale process in liquidating
CCAAs. Court approval of a sale is typically the last formal stage of a liquidating CCAA (assum-
ing the absence of a plan). The last formal stage of CCAA restructuring proceedings is typically
court approval of the plan. Approval of CCAA plans is dealt with in Chapter .
II. THE MONITOR
Under CCAA proceedings, the monitor is an ocer of the court. The monitor must ensure
that the court and the creditors receive accurate and timely information about the proceed-
ings by monitoring the business and nancial aairs of the company (CCAA, s .()). The
specic statutory functions and duties are set out in CCAA, section . The Oce of the
Superintendent of Bankruptcy provides for supervision of monitors (CCAA, ss –).
Cha pter : B usiness Operations in a CCA A Proceeding
The monitor’s obligations have been the focus of increased scrutiny over the last two
decades. Until , judges appointed monitors under their inherent or equitable jurisdic-
tion but in , it became mandatory to appoint a monitor in CCAA restructurings. CCAA,
section ., provides that the monitor must be a licensed trustee, and, as a general rule, a
trustee may not be appointed as monitor if the trustee has served as a director or is con-
nected with the debtor in various other specied ways.
The role of the monitor as a possible counterweight to the CCAA “debtor-in-possession”
regime has faced increased scrutiny over the last decade. Once appointed, the monitor, as
an ocer of the court, can only be relieved of their duties by the court. The monitor is not
a representative or advocate of any of the stakeholders, including the debtor company. To
that end, any report or assessment made by the monitor must be independent. Conicts of
interest can arise, however, because in addition to these duties, the monitor must also help
the debtor through the restructuring process. The following excerpts from Canada
Inc, (Re) and Re Winalta Inc address the role of the monitor and potential conicts of interest.
8640025 Canada Inc (Re), BCCA , CBR (th)
The Role of the Monitor
[] T he use of court-appointed monitors has also been an innovation in the courts’
treatment of CCAA cases. Prior to , monitors were appointed pursuant to the inher-
ent jurisdiction of the superior courts. They reviewed the nancial and business aairs
of the debtor, provided independent information to the court on the progress of the pro-
ceedings, and assisted in administrative matters such as notifying creditors and organ-
izing and managing meetings of creditors: see Sarra, Rescue at .
[] The professionalism and impartiality of the monitor ’s role were codied in
following the recommendations of a task force that reported in : see Sarra at .
Section .() now requires that a monitor be appointed by a court on the initial appli-
cation and that the person so appointed be a trustee within the meaning of s. () of the
BIA. Section .() disqualies certain persons who would have an interest in the debtor
or would not be seen to be impartial. As ocers of the court, monitors must remain
impartial and “objectively look out for be concerned for the interests of all stakeholders”:
see Re Laidlaw Inc () C.B.R. (th) (Ont. S.C.J.), per Farley J.
[] Section sets out the various duties of monitors, which apply unless the court
orders otherwise. Generally, these are duties of monitoring the company’s business
aairs and reporting to the court thereon, carrying out appraisals or investigations con-
sidered necessary by the monitor, assisting the company’s creditors in certain respects,
advising the court on the “reasonableness and fairness” of any proposed compromise or
arrangement, making certain documents publicly available and carrying out “any other
functions in relation to the company that the court may direct.” Courts have used s. ()
(k) liberally to assign additional functions to monitors that go beyond investigating and
reporting to the court. As noted by Yaad Rotem in “Contemplating a Corporate Govern-
ance Model for Bankruptcy Reorganizations: Lessons from Canada”, () Va. L.&
Bus. Rev. , monitors have been authorized to act as nancial advisors to the parties
or the court, to facilitate or mediate between management and creditors, and to fulll
certain functions of directors or managers. (At .) The monitor may even eec tively
replace the board of directors and senior management of a corporation: see Re Royal
Oak Mines Inc () C.B.R. (th) (Ont. Gen. Div.) Thus Professor Sarra writes:
BANKRUPTCY AND INSOLVENCY LAW IN CANADA: CASES, MATERIALS, AND PROBLEMS
Long gone are the days when the monitor acted as a passive observer, reporting to the court.
Monitors now play a range of roles, including mediator or facilitator in the negotiations, debtor
advisor, creditor assuager and ocer of the court. The recent amendments bolster this author-
ity, requiring in a number of instances, such as DIP Financing and the sale of assets to related
parties, that the court consider the views of the monitor. However, the court has observed that
while the support or approval of the monitor is an important factor, it is not decisive in and of
itself. The courts continue to stress the need for independence and impartiality of the monitor.
In approving a series of agreements that provided the debtors with certainty with respect to
ongoing funding, the resolution of inter-company issues, and a settlement with taxing author-
ities, the court held it was appropriate to place reliance on the views of the monitor who
had the benet of intensive involvement for over a year and was active in the negotiations
leading up to the proposed settlement. [Evolution, supra at –; emphasis added.]
In this case, it will be recalled, the April order ‘enhanced’ the Monitor’s powers: it con-
templated that the Monitor would carry out the day-to-day management of the petition-
ers’ operations.
[] In recent years, Canadian courts have also adopted the practice of appoint-
ing claims ocers to assist in determining the “amount represented by a claim of
any secured or unsecured creditor” under s. of the CCAA. Various provinces have
developed model claims process orders, but these vary widely across Canada. Where
the order provides for the appointment of a claims ocer, that ocer may be given
the authority to determine the procedure for adjudicating such claims and may reach a
determination of the value that is often stated to be nal and binding on the company or
creditor, subject to any further order of the court.
Appeal allowed.
Re Winalta Inc, ABQB , CBR (th)
Topolniski J: . . .
[] The Winalta Group’s operations and assets are located in Alberta, except for a small
holding in Saskatchewan. Its head oce is in Edmonton.
[] In November , HSBC entered into a forbearance agreement with the Win-
alta Group, which owed it in excess of million (the “Forbearance Agreement”). The
Winalta Group agreed to Deloitte & Touche Inc. being retained as HSBC’s private mon-
itor, commonly called a “look see” consultant. The Winalta group also agreed to give
HSBC a consent receivership order that could be led with no strings attached.
[] The Winalta Group was not a party to the private monitor agreement between
HSBC and Deloitte & Touche Inc., although it was responsible for payment of the pri-
vate monitor’s fees pursuant to the security held by HSBC. It was aware that the private
monitor agreement provided for a six percent at “administration fee” that would be
charged by Deloitte & Touche Inc. in lieu of “customary disbursements such as post-
age, telephone, faxes, and routine photocopying.” Charges for “reasonable out of pocket
expenses” for travel expenses were not included in the “administration fee.”
[] Clearly, HSBC was in the position of power. It agreed to support the Winalta
Group’s restructuring and to fund its operations throughout the CCAA process on the
following conditions:
(i) the monitor would be Deloitte & Touche Inc. (the Monitor) and a Vancouver partner
of that rm, Jervis Rodriquez, would be the “partner in charge” of the le;
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