CCAA Plans and Approval

AuthorStephanie Ben-Ishai; Thomas G. W. Telfer
CCAA Plans and Approval
The goal in a commercial restructuring is to come up with a plan of which the creditors will
approve. This is dierent than a private workout, which is a compromise or arrangement
between debtor and creditors concluded outside a formal insolvency restructuring regime,
and which is governed by ordinary principles of contract law. In order for a CCAA plan to
become binding on creditors, the creditors must approve it. Creditors are separated into dif-
ferent classes and the creditors in each class must vote on the plan. It is not necessary that
this consent be unanimous; rather, only a majority of creditors who hold at least two thirds
of the value of claims in the same class must approve it for it to be binding on all creditors
of that class, even the dissenting ones. If the plan is approved by creditors, it is then put
before the court to be sanctioned. This permits the court to consider the plan’s fairness — an
important check on the actions and conduct of the debtor company and the other creditors.
Sections  and  of the CCAA permit a court to order a meeting of creditors. The court will
issue a meeting and approval order that sets out the rules and procedure for the meeting.
Section  of the CCAA provides that the plan must be approved by a majority in number
representing two-thirds of the value of the creditors (where there is only one class of credit-
ors) or two-thirds of the value of each class of creditors (where there is more than one class
of creditors). The percentage requirements are calculated on the basis of the creditors who
actually vote on the plan, rather than on the basis of all the creditors who are aected by it.
For example, where there are seventy creditors, and fty of them vote on the plan — whether
for or against — the vote must be carried by at least twenty-six of the creditors (a majority in
number) who hold two-thirds of the value of the claims.
A creditor may be related to the debtor company for example, a wholly or partially
owned subsidiary corporation may have made an inter-corporate loan to the parent corpora-
tion. Section () of the CCAA provides that a creditor who is related to the debtor company
may vote against but not for the plan.
The classication of claims is of fundamental importance under the CCAA. It is gov-
erned by CCAA, section , which is largely a codication of the principles that have been
developed in caselaw. Not surprisingly, the debtor company and the various creditors will
attempt to attain a classication scheme that gives them a superior bargaining position. A
creditor would ideally wish to be placed in its own separate class, because this would give it
the power to veto any plan. Failing this, a creditor would wish to be placed in a class in which
Cha pter : CCAA Plans and Approval 
it could block approval of the plan by the other creditors. For example, a creditor who holds
percent of the value of the claims of a class of creditors can prevent approval of the plan
by the class. The debtor, in developing the plan, will attempt to structure the plan in such
a way as to swamp any dissenting creditors within a class of creditors who are inclined to
approve it.
Creditors are typically grouped together based on a “commonality of interest” or a
“non-fragmentation” test, both discussed in the Norcen Energy Resources Ltd v Oakwood Pet-
roleums Ltd (),  Alta LR (d)  (QB) excerpt below. Justice Paperny, in Re Canadian
Airlines Corp (),  CBR (th)  (AltaQB), sets out the following principles for assessing
commonality of interest (at para ):
. Commonality of interest should be viewed based on the non-fragmentation test, not
on an identity-of-interest test;
. The interests to be considered are the legal interests that a creditor holds qua creditor
in relationship to the debtor company prior to and under the plan as well as on
. The commonality of interests are to be viewed purposively, bearing in mind the
object of the CCCA — namely to facilitate reorganizations if at all possible;
. In placing a broad and purposive interpretation on the CCCA, the court should be
careful to resist classication approaches that would potentially jeopardize viable
. Absent bad faith, the motivations of creditors to approve or disapprove are irrelevant;
. The requirement of creditors being able to consult together means being able to
assess their legal entitlement as creditors before or after the plan in a similar manner.
In Re Woodward’s Ltd (),  CBR (d)  (BCSC), TysoeJ applied a non-fragmentation
test to determine which of the holders of dierent types of unsecured claims (terminated
employees, a debenture holder, equipment nanciers, creditors holding a guarantee from
one debtor’s parent company, and lessors whose lease had been repudiated) could be joined
in a single class for voting on a plan of arrangement. The employees wished to be placed in
their own separate class for the purposes of voting on the plan. Justice Tysoe refused this
request on the ground that the employees and the other unsecured creditors had identical
legal interests. He stated (at paras –):
The legal rights of the terminated employees are the same as the legal rights of the trade
suppliers. They are both creditors with unsecured claims against the Operating Com-
pany (the secured and preferred amounts payable to employees under provincial legis-
lation and the Bankruptcy and Insolvency Act have already been paid to the terminated
employees). In a bankruptcy or other liquidation they would both receive the same pro
rata amount of their claims. They are to receive the same pro rata amount of their claims
under the Reorganization Plan.
The fact that there is a recognized dierence between contracts of employment and
ordinary commercial contracts is not relevant because the contracts of employment
of the terminated employees have come to an end. The terminated employees have
claims for damages against Woodward’s for wrongful dismissal. Once the amount of
damages for an employee has been agreed upon or determined by the Court, the dier-
ence between the two types of contracts becomes historical and the employee has the
same rights as any other unsecured creditor. The dierences between the two types of
contracts may result in the employees receiving higher amounts of damages but the
dierences do not warrant the terminated employees being entitled to a higher distribu-
tion than the other unsecured creditors.
Even if the legal rights of the creditors dier, they may be placed in the same class of
creditors if the dierence in legal rights does not prevent the creditors from sharing a su-
cient commonality of interest. Justice Tysoeheld that this commonality of interest is lacking
when the plan denies some of the creditors a valuable right to which they would otherwise
be entitled. The plan proposed that the same payment (percent of the value of their claim)
would be made to creditors who held claims solely against the debtor company as well as to
creditors who in addition had been given an unsecured guarantee by an aliated company.
Justice Tysoe held that the classication scheme was unfair to the extent that both kinds of
creditors were placed in the same class. He stated (at paras –):
The Reorganization Plan ignores the fact that the holders of guarantees are unsecured
creditors of both companies. It proposes that they receive the same % proportion of
their indebtedness as the other General Creditors and their status as creditors of the
Holding Company is not reected.
In view of the fact that the holders of guarantees do have dierent legal rights from
the other members of the class of General Creditors, it is necessary to decide whether
the rights are so dissimilar that they cannot vote on the Reorganization Plan with a
common interest. It was submitted by counsel for Woodward’s that there is a common
interest because the holders of guarantees will still receive more under the Reorganiza-
tion Plan than they will be paid upon a liquidation of the two companies. I do not think
that this is sucient to create a commonality of interest with the other members in the
class of General Creditors who have lesser legal rights. To the contrary, I believe that this
is an example of what BowenLJ had in mind in the Sovereign Life case [[]  QB 
(CA)], when he used the term “conscation.” By being a minority in the class of General
Creditors, the holders of guarantees can have their guarantees conscated by a vote of
the requisite majority of the class who do not have the same rights. The holders of guar-
antees could be forced to accept the same proportionate amount as the other members
of the class and to receive no value in respect of legal rights that they uniquely enjoy and
that would have value in a liquidation of the two companies.
Sometimes a class of creditor is not brought within the plan. These creditors are typically
referred to as unaected creditors. They do not vote on the plan because their rights are not
compromised or impaired, which consequently means they are not being asked to agree to
a compromise or other alteration of their rights against the debtor company. Once the stay
of proceedings is lifted, they are entitled to exercise and enjoy their full legal rights against
the debtor company.
The ability to bind dissenting creditors applies only within a class of creditors. A court
cannot impose a plan on a class of creditors that does not approve the plan by a dual
majority. Consider the following example: A plan of compromise and arrangement creates
three classes of creditors: ()secured creditors, ()unsecured creditors, and ()lessors.
The secured creditors and unsecured creditors approve the plan by a dual majority, but the
lessors do not. The class of lessors did not vote in favour of the plan and are not bound by
it. An unresolved issue is whether the plan will nevertheless be binding on the two classes
who voted in favour of it, or if the underlying assumption is that all classes must vote
in favour of the plan for it to bind any class of creditor. A plan may contain a “drop-out”
clause providing that a class that does not approve a plan is to be treated as unaected

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