Canadian Airlines Corp., Re,

• Judge: Paperny, J.
• Neutral Citation: 2000 ABQB 442
• Citation: 2000 ABQB 442,(2000), 265 A.R. 201 (QB),[2000] 10 WWR 269,265 AR 201,84 Alta LR (3d) 9,9 BLR (3d) 41,20 CBR (4th) 1,[2000] AJ No 771 (QL),98 ACWS (3d) 334,(2000), 265 AR 201 (QB),265 A.R. 201,[2000] A.J. No 771 (QL)
• Date: 27 June 2000
• Court: Court of Queen's Bench of Alberta (Canada)

Cdn. Airlines Corp., Re (2000), 265 A.R. 201 (QB)

MLB headnote and full text

Temp. Cite: [2000] A.R. TBEd. JL.064

In The Matter Of The Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, As Amended;

And In The Matter Of The Business Corporations Act (Alberta) S.A. 1981, c. B-15, As Amended, Section 185

And In The Matter Of Canadian Airlines Corporation and Canadian Airlines International Ltd.

(Action No. 0001-05071; 2000 ABQB 442)

Indexed As: Canadian Airlines Corp., Re

Alberta Court of Queen's Bench

Judicial District of Calgary

Paperny, J.

June 27, 2000.

Summary:

Canadian Airlines Corporation (CAC) and Canadian Airlines International Ltd. (CAIL) (together referred to as "Canadian") had significant ongoing financial difficulties. Air Canada wished to merge the operations of Canadian and Air Canada subject to Cana­dian completing a debt restructuring. 853350 Alberta Ltd. (10% of the shares of which were owned by Air Canada) purchased 82% of the outstanding shares of CAC. 853350 also purchased all of the preferred shares of CAIL. Canadian filed a plan of arrangement under the Companies' Creditors Arrangement Act (CCAA). Part of the plan proposed a share capital reorganization by having all CAIL common shares held by CAC con­verted into a single retractable share, which would be retracted by CAIL for $1, and all CAIL preferred shares held by 853350 con­verted into CAIL common shares. Canadian sought court sanction of the plan under s. 6 of the CCAA and an order for reorganization pursuant to s. 185 of the Alberta Business Corporations Act (ABCA). The plan was opposed by Resurgence Asset Management LLC, whose clients held unsecured notes issued by CAC. Resurgence sought declar­ations that: the actions of Canadian, Air Canada and 853350 constituted an amalga­m­ation, consolidation or merger with or into Air Canada or a conveyance or transfer of all or substantially all of Canadian's assets to Air Canada; that any plan of arrangement involving Canadian would not affect Resur­gence; and that the actions of Canadian, Air Canada and 853350 were oppressive and unfairly prejudicial to it pursuant to s. 234 of the ABCA. Four shareholders of CAC (the minority shareholders) opposed that portion of the plan that related to the reorganization of CAIL pursuant to s. 185 of the Business Corporations Act. They characterized the transaction as a cancellation of issued shares authorized by s. 167 of the ABCA or, alter­natively, as a violation of s. 183 of the ABCA.

The Alberta Court of Queen's Bench sanc­tioned the plan, finding that it was fair and reasonable. The court also granted an order for reorganization pursuant to s. 185 of the ABCA. The applications brought by Resur­gence and the minority shareholders were dismissed.

Company Law - Topic 1105

Incorporation and organization - Articles of association or incorporation - Amend­ment of - [See first Company Law - Topic 7042 ].

Company Law - Topic 6855

Fundamental changes and shareholders' rights - Sale of substantially all of the property - [See second Company Law - Topic 7042 ].

Company Law - Topic 7042

Fundamental changes and shareholders' rights - Reorganization - Order for reor­ganization - Canadian Airlines Corpor­ation (CAC) and Canadian Airlines Inter­national Ltd. (CAIL) (together "Canadian") had ongoing financial difficulties - Air Canada wished to merge the operations of Cana­dian and Air Canada subject to Cana­dian completing a debt restructuring - 853350 Alberta Ltd. (10% of the shares of which were owned by Air Canada) pur­chased 82% of the outstanding shares of CAC - 853350 also purchased all of the preferred shares of CAIL - Canadian filed a plan of arrangement under the Compa­nies' Credi­tors Arrangement Act (CCAA) - Part of the plan proposed a share capital reorgan­ization by having all CAIL com­mon shares held by CAC converted into a single re­tractable share, which would be retracted by CAIL for $1, and all CAIL preferred shares held by 853350 converted into CAIL common shares - Canadian sought court sanction of the plan and an order for reorganization pursuant to s. 185 of the Alberta Business Corporations Act (ABCA) - Four shareholders of CAC argued that the proposed reorganization effectively cancelled their shares in CAC, contrary to s. 167 of the ABCA - The Alberta Court of Queen's Bench rejected the argument - The reorganization and the proposed amendments to CAIL's articles of incorporation were permitted under s. 167 - See paragraphs 69 to 73.

Company Law - Topic 7042

Fundamental changes and shareholders' rights - Reorganization - Order for reor­ganization - Canadian Airlines Corpor­ation (CAC) and Canadian Airlines Inter­national Ltd. (CAIL) (together "Canadian") had ongoing financial difficulties - Air Canada wished to merge the operations of Cana­dian and Air Canada subject to Cana­dian completing a debt restructuring - 853350 Alberta Ltd. (10% of the shares of which were owned by Air Canada) pur­chased 82% of the outstanding shares of CAC - 853350 also purchased all of the preferred shares of CAIL - Canadian filed a plan of arrangement under the Compa­nies' Credi­tors Arrangement Act (CCAA) - Part of the plan proposed a share capital reorgan­ization by having all CAIL com­mon shares held by CAC converted into a single re­tractable share, which would be retracted by CAIL for $1, and all CAIL preferred shares held by 853350 converted into CAIL common shares - Canadian sought court sanction of the plan and an order for reorganization pursuant to s. 185 of the Alberta Business Corporations Act (ABCA) - Four shareholders of CAC argued that the proposed share reorganiz­ation of CAIL constituted a "sale, lease, or exchange of substantially all the property" of CAC and thus required the approval of CAC shareholders pursuant to s. 183 of the ABCA - The Alberta Court of Queen's Bench disagreed with the shareholders' characterization - The proposed reorganiz­ation was contemplated by s. 185 of the ABCA - The fact that the same end might be achieved under another section did not exclude the section to be relied on - See paragraphs 80 to 81.

Company Law - Topic 7042

Fundamental changes and shareholders' rights - Reorganization - Order for reor­ganization - Canadian Airlines Corpor­ation (CAC) and Canadian Airlines Inter­national Ltd. (CAIL) (together "Canadian") had ongoing financial difficulties - Air Canada wished to merge the operations of Cana­dian and Air Canada subject to Cana­dian completing a debt restructuring - 853350 Alberta Ltd. (10% of the shares of which were owned by Air Canada) pur­chased 82% of the outstanding shares of CAC - 853350 also purchased all of the preferred shares of CAIL - Canadian filed a plan of arrangement under the Compa­nies' Credi­tors Arrangement Act (CCAA) - Part of the plan proposed a share capital reorgan­ization by having all CAIL com­mon shares held by CAC converted into a single re­tractable share, which would be retracted by CAIL for $1, and all CAIL preferred shares held by 853350 converted into CAIL common shares - Canadian sought court sanction of the plan and an order for reorganization pursuant to s. 185 of the Alberta Business Corporations Act (ABCA) - Four shareholders of CAC argued that the proposed reorganization constituted a "related party transaction" under Policy 9.1 of the Ontario Securities Commission and that Canadian was in breach of the disclosure, approval and valuation requirements of the Policy - The Alberta Court of Queen's Bench held that to the extent that the reorganization could be considered a "related party transaction" it would waive the requirements of Policy 9.1 where it found that the plan, including the proposed reorganization, was fair and reasonable - See paragraphs 82 to 84.

Company Law - Topic 7042

Fundamental changes and shareholders' rights - Reorganization - Order for reor­ganization - [See first Creditors and Debtors - Topic 8590 ].

Company Law - Topic 7145

Fundamental changes and shareholders' rights - Sale or lease of most of property - What constitutes - [See second Com­pany Law - Topic 7042 ].

Company Law - Topic 9785

Actions against corporations and directors -Action for oppressive conduct - Oppres­sion, prejudice or disregard of interests - Canadian Airlines Corporation (CAC) and Canadian Airlines International Ltd. (CAIL) (together "Canadian") had ongoing financial difficulties - Air Canada wished to merge the operations of Cana­dian and Air Canada subject to Canadian completing a debt restructuring - 853350 Alberta Ltd. (10% of the shares of which were owned by Air Canada) purchased 82% of the outstanding shares of CAC - 853350 also purchased all of the preferred shares of CAIL - Canadian filed a plan of arrange­ment under the Companies' Credi­tors Arrangement Act (CCAA) - Part of the plan proposed a share capital reorgan­iza­tion by having all CAIL common shares held by CAC converted into a single re­tractable share, which would be retracted by CAIL for $1, and all CAIL preferred shares held by 853350 converted into CAIL common shares - Canadian sought court sanction of the plan and an order for reorganization pursuant to s. 185 of the Alberta Business Corporations Act (ABCA) - Resurgence, whose clients held unsecured notes issued by CAC, argued that Canadian, 853350 and Air Canada had oppressed or unfairly disregarded its inter­ests under s. 234 of the ABCA - The Alberta Court of Queen's Bench found that Resurgence had not been oppressed - See paragraphs 146 to 158.

Creditors and Debtors - Topic 8590

Debtors' relief legislation - Companies' creditors arrangement legislation - Ar­rangement - Judicial approval - Canadian Airlines Corporation (CAC) and Canadian Airlines International Ltd. (CAIL) (together referred to as "Canadian") had ongoing financial difficulties - Air Canada wished to merge the operations of Cana­dian and Air Canada subject to Canadian completing a debt restructuring - 853350 Alberta Ltd. (10% of the shares of which were owned by Air Canada) purchased 82% of the outstanding shares of CAC - 853350 also purchased all of the preferred shares of CAIL - Canadian filed a plan of arrangement under the Companies' Credi­tors Arrangement Act (CCAA) - Part of the plan proposed a share capital reorgan­ization by having all CAIL common shares held by CAC converted into a single re­tractable share, which would be retracted by CAIL for $1, and all CAIL preferred shares held by 853350 converted into CAIL common shares - Canadian sought court sanction of the plan under s. 6 of the CCAA and an order for reorganization pursuant to s. 185 of the Alberta Business Corporations Act (ABCA) - The Alberta Court of Queen's Bench sanctioned the plan, finding that it was fair and reason­able - The court also granted the applica­tion for an order for reorganization pursu­ant to s. 185 of the ABCA.

Creditors and Debtors - Topic 8590

Debtors' relief legislation - Companies' creditors arrangement legislation - Ar­rangement - Judicial approval - The Alberta Court of Queen's Bench stated that "[p]rior to sanctioning a plan under the [Companies' Creditors Arrangement Act] the court must be satisfied in regard to each of the following criteria: (1) there must be compliance with all statutory requirements; (2) all material filed and procedures carried out must be examined to determine if anything has been done or purported to be done which is not author­ized by the CCAA; and (3) the plan must be fair and reasonable" - See paragraph 60.

Creditors and Debtors - Topic 8590

Debtors' relief legislation - Companies' creditors arrangement legislation - Ar­rangement - Judicial approval - Canadian Airlines Corporation and Canadian Airlines International Ltd. sought court sanction of a plan of arrangement filed under the Companies' Creditors Arrangement Act - The Alberta Court of Queen's Bench stated that "[t]he sanction of the court of a credi­tor-approved plan is not to be considered as a rubber stamp process. Although the majority vote that brings the plan to a sanction hearing plays a significant role in the court's assessment, the court will con­sider other matters as are appropriate in light of its discretion. In the unique cir­cumstances of this case, it is appropriate to consider a number of additional matters: a. The composition of the unsecured vote; b. What creditors would receive on liquida­tion or bankruptcy as compared to the plan; c. Alternatives available to the plan and bankruptcy; d. Oppression; e. Unfair­ness to shareholders of CAC; and f. The public interest" - See paragraph 96.

Creditors and Debtors - Topic 8594.3

Debtors' relief legislation - Companies' creditors arrangement legislation - Ar­rangement - Releases - Canadian Airlines Corporation (CAC) and Canadian Airlines International Ltd. (CAIL) (together referred to as "Canadian) sought court sanction of the plan of arrangement filed under the Companies' Creditors Arrange­ment Act - Resurgence Asset Management LLC, whose clients held unsecured notes issued by CAC, argued that the release of direc­tors and other third parties contained in the plan did not comply with s. 5.1 of the CCAA insofar as it applied to individ­uals beyond directors and to a broad spec­trum of claims beyond obligations of Canadian for which their directors were by law liable - Canadian asserted that the release was not intended to override s. 5.1(2) and that that could be expressly incorporated into the form of release by adding the word "excluding the claims excepted by s. 5.1(2) of the CCAA" and clarifying the language in s. 5.1 of the plan - The Alberta Court of Queen's Bench held that it was appropriate to amend the proposed release to expressly comply with s. 5.1(2) of the CCAA and to clarify s. 5.1 of the Plan - See paragraphs 85 to 93.

Securities Regulation - Topic 107

Definitions - Related party transaction - [See third Company Law - Topic 7042 ].

Cases Noticed:

Northland Properties Ltd., Re (1988), 73 C.B.R.(N.S.) 175 (B.C.S.C.), affd. (1989), 73 C.B.R.(N.S.) 195 (B.C.C.A.), refd to. [para. 61].

Sammi Atlas Inc., Re (1998), 59 O.T.C. 153; 3 C.B.R.(4th) 171 (Ont. Gen. Div.), refd to. [para. 61].

Eaton (T.) Co., Re, [1999] O.T.C. Uned. C56 (S.C.), refd to. [para. 61].

Olympia & York Developments Ltd. v. Royal Trustco (1993), 17 C.B.R.(3d) 1 (Ont. Gen. Div.), refd to. [para. 64].

Cadillac Fairview Inc., Re (1995), 53 A.C.W.S.(3d) 305 (Ont. Gen. Div.), refd to. [para. 64].

Royal Oak Mines Inc., Re, [1999] O.T.C. Uned. 771 (S.C.), refd to. [para. 77].

Amoco Acquisition Co. v. Savage, [1988] A.J. No. 68 (Alta. Q.B.), affd. (1988), 87 A.R. 321; 68 C.B.R.(N.S.) 154 (C.A.), refd to. [para. 81].

Barrette v. Crabtree (Succession de), [1993] 1 S.C.R. 1027; 150 N.R. 272; 53 Q.A.C. 279; 10 B.L.R.(2d) 1, refd to. [para. 88].

Bruce Agra Foods Inc. et al. v. Everfresh Beverages Inc. (1996), 22 O.T.C. 247; 45 C.B.R.(3d) 169 (Gen. Div.), refd to. [para. 88].

Norcen Energy Resources Ltd. v. Oakwood Petroleums Ltd., [1989] 2 W.W.R. 566 (Alta. Q.B.), refd to. [para. 95].

Northland Properties Ltd. v. Excelsior Life Insurance Co. of Canada, [1989] 3 W.W.R. 363 (B.C.C.A.), refd to. [para. 95].

Quintette Coal Ltd., Re (1992), 13 C.B.R.(3d) 146 (B.C.S.C.), refd to. [para. 98].

Alabama, New Orleans, Texas and Pacific Junction Railway Co., Re (1890), 60 L.J. Ch. 221 (C.A.), refd to. [para. 98].

Hochberger v. Rittenberg (1916), 36 D.L.R. 450 (S.C.C.), refd to. [para. 102].

Keddy Motor Inns Ltd., Re (1992), 13 C.B.R.(3d) 245 (N.S.C.A.), refd to. [para. 106].

Campeau Corp., Re (1992), 10 C.B.R.(3d) 104 (Ont. Gen. Div.), refd to. [para. 106].

Skydome Corp. et al., Re, [1999] O.T.C. Uned. 204; 87 A.C.W.S.(3d) 421 (Gen. Div.), refd to. [para. 106].

Algoma Steel Corp. v. Royal Bank (1992), 11 C.B.R.(3d) 1 (Ont. Gen. Div.), refd to. [para. 106].

Eaton (T.) Co., Re, [1999] O.T.C. Uned. C58 (S.C.), refd to. [para. 137].

First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 40 B.L.R. 28 (Alta. Q.B.), refd to. [para. 140].

Diligenti v. RMWD Operations Kelowna Ltd. (1976), 1 B.C.L.R. 36 (S.C.), refd to. [para. 141].

Pente Investment Management Ltd. et al. v. Schneider Corp. et al. (1998), 113 O.A.C. 253; 42 O.R.(3d) 177 (C.A.), refd to. [para. 142].

Cadillac Fairview, Re, [1995] O.J. No. 707 (S.C.), refd to. [para. 143].

Repap British Columbia Inc. et al., Re, [1998] B.C.T.C. Uned. 17; 1 C.B.R. 449 (S.C.), refd to. [para. 173].

Canadian Red Cross Society, Re (1998), 72 O.T.C. 99; 5 C.B.R.(4th) 299 (Gen. Div.), refd to. [para. 173].

Wandlyn Inns Ltd., Re (1992), 15 C.B.R.(3d) 316 (N.B.T.D.), refd to. [para. 178].

Statutes Noticed:

Business Corporations Act, S.A. 1981, c. B-15, sect. 167 [para. 71]; sect. 185(2) [para. 66].

Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, sect. 5.1 [para. 87]; sect. 6 [para. 59].

Authors and Works Noticed:

Dickerson, R., Proposals for a New Busi­ness Corporation Law for Canada, Com­mentary (Dickerson Report), vol. 1 [para. 74].

Edwards, Stanley, Reorganizations Under the Companies' Creditors Arrangement Act (1947), 25 Can. Bar Rev. 587, p. 593 [para. 172].

Counsel:

A.L. Friend, Q.C., H.M. Kay, Q.C., R.B. Low, Q.C., and L. Goldbach, for the petitioners;

S.F. Dunphy, P. O'Kelly and E. Kolers, for Air Canada and 853350 Alberta Ltd.;

D.R. Haigh, Q.C., D.N. Nishimura, A.Z.A. Campbell and D. Tay, for Resurgence Asset Management LLC;

L.R. Duncan, Q.C., and G. McCue, for Neil Baker, Michael Salter, Hal Metheral and Roger Midiaty;

F.R. Foran, Q.C., and P.T. McCarthy, Q.C., for the Monitor, PWC;

G.B. Morawetz, R.J. Chadwick and A. McConnell, for the Senior Noteholders and the Bank of Nova Scotia Trust Co.;

C.J. Shaw, Q.C., for the unionized employees;

T. Mallett and C. Feasby, for Amex Bank of Canada;

E.W. Halt, for J. Stephens Allan, Claims Officer;

M. Hollins, for Pacific Coastal Airlines;

P. Pastewka, for JHHD Aircraft Leasing No. 1 and No. 2;

J. Thom, for the Royal Bank of Canada;

J. Medhurst-Tivadar, for Canada Customs and Revenue Agency;

R. Wilkins, Q.C., for the Calgary and Edmonton Airport Authority.

These matters were heard on June 5 to 19, 2000, before Paperny, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following reasons for decision on June 27, 2000.