Contech Enterprises Inc. (Bankrupt), Re, (2015) 369 B.C.A.C. 124 (CA)

• Judge: Newbury, Saunders and Willcock, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: March 06, 2015
• Jurisdiction: British Columbia
• Citations: (2015), 369 B.C.A.C. 124 (CA);2015 BCCA 99

Contech Ent. Inc. (Bankrupt), Re (2015), 369 B.C.A.C. 124 (CA);

    634 W.A.C. 124

MLB headnote and full text

Temp. Cite: [2015] B.C.A.C. TBEd. MR.026

In The Matter Of the Proposal of Contech Enterprises Inc.

Contech Enterprises Inc. and Deloitte Restructuring Inc. (respondents/applicants) v. Vegherb, LLC (appellant/respondent)

(CA042532; 2015 BCCA 99)

Indexed As: Contech Enterprises Inc. (Bankrupt), Re

British Columbia Court of Appeal

Newbury, Saunders and Willcock, JJ.A.

March 6, 2015.

Summary:

Contech Enterprises Inc. filed a Proposal under the Bankruptcy and Insolvency Act (BIA). One of its creditors, Vegherb LLC, opposed approval of the Proposal. Under the Proposal, Vegherb's proprietary interest, namely a license to use certain intellectual property (IP) passed, together with its ownership interest therein, to Contech. Another creditor, HSBC Bank Canada, supported the Proposal. Three applications were brought: (1) the trustee and Contech sought an order approving the Proposal; (2) Contech sought an order declaring that on fulfillment of the Proposal, it would be owner of the IP which was part of a past transaction whereby Contech had purchased Vegherb's assets (except the IP); and (3) alternatively, Vegherb sought an order that if the Proposal was approved, Vegherb be permitted to amend its proof of claim to change its position from that of a secured creditor to that of an unsecured creditor.

The British Columbia Supreme Court, in a decision reported at [2015] B.C.T.C. Uned. 129, approved the Proposal. The court granted a declaration as provided at s. 2.4 of the Proposal, that "upon the conversion date and subject to Contech meeting its obligations to creditors under the Proposal, all Affected Secured Creditors shall release Contech and its directors and officers from all claims that arose before the filing date regardless of the date of crystallization of such claims." Further, Contech was entitled to supplemental language in the declaration to make it more precise and clear that upon the implementation of the Proposal including Vegherb receiving the Contech shares, Vegherb's rights to the IP would be extinguished and Contech would be permitted to take all necessary steps to register the IP in Contech's name. The court dismissed Vegherb's application. Vegherb appealed.

The British Columbia Court of Appeal allowed the appeal, set aside the Chambers judge's order and dismissed Contech's application. The Chambers judge did not err in holding that the licence by its terms created a security interest for purposes of the Personal Property Security Act (PPSA). The Chambers judge did err in applying Re Giffen (1998 S.C.C.) to make the security interest "ineffective" against the trustee of the proposal where the case did not involve a bankruptcy, but a proposal in bankruptcy (which was intended to avoid a bankruptcy), so on its face s. 20(b)(i) of the PPSA did not apply and, more importantly, the interest was a purchase money security interest as defined in the PPSA and entitled to a "super priority" under ss. 22(1) and 34(1) of the PPSA. Further, the classification of the secured creditor under the Proposal was unfair, as was a term of the Proposal that would extinguish Vegherb's retention of ownership of the IP. Therefore, the Chambers judge erred in approving the Proposal as reasonable under s. 59(2) of the BIA.

Bankruptcy - Topic 2103

Proposals - General principles - Application of bankruptcy provisions to proposals - See paragraphs 28 to 33.

Bankruptcy - Topic 2385

Proposals - Court approval - Considerations - Interest of creditors - See paragraphs 39 to 49.

Bankruptcy - Topic 2391

Proposals - Court approval - Considerations - Reasonableness of proposal - See paragraphs 39 to 49.

Personal Property - Topic 6007

Security interests - General - Security agreement defined - See paragraphs 21 to 25.

Personal Property - Topic 6012

Security interests - General - Security agreement - Interpretation - See paragraphs 26 and 27.

Personal Property - Topic 6422

Security interests - Purchase-money security interest - What constitutes - See paragraph 25.

Personal Property - Topic 6426

Security interests - Purchase-money security interests - Priorities - See paragraphs 34 to 38.

Cases Noticed:

Giffen (Bankrupt), Re, [1998] 1 S.C.R. 91; 222 N.R. 29; 101 B.C.A.C. 161; 164 W.A.C. 161, dist. [para. 1].

Haibeck v. No. 40 Taurus Ventures Ltd. (1991), 59 B.C.L.R.(2d) 229 (S.C.), refd to. [para. 9].

DaimlerChrysler Financial Services (Debis) Canada Inc. v. Mega Pets Ltd. et al. (2002), 166 B.C.A.C. 298; 271 W.A.C. 298; 2002 BCCA 242, refd to. [para. 12].

Resurgence Asset Management LLS v. Canadian Airlines Corp. (1990), 19 C.B.R.(4th) 12 (Alta. Q.B.), refd to. [para. 16].

Sovereign Life Assurance Co. v. Dodd, [1892] 2 Q.B. 575 (C.A.), refd to. [para. 16].

WorkGroup Designs Inc., Re (2008), 234 O.A.C. 166; 40 C.B.R.(5th) 1 (C.A.), refd to. [para. 19].

Manning Jamison Ltd. v. Registrar of Travel Services, 1999 BCCA 185, refd to. [para. 21].

674921 B.C. Ltd. v. Advanced Wing Technologies Corp. et al. (2006), 222 B.C.A.C. 104; 368 W.A.C. 104; 2006 BCCA 49, refd to. [para. 23].

Giffen (Bankrupt), Re (1994), 90 B.C.L.R.(2d) 326 (S.C.), refd to. [para. 28].

Perimeter Transportation (Bankrupt), Re (2010), 294 B.C.A.C. 304; 498 W.A.C. 304; 2010 BCCA 509, refd to. [para. 28].

PSINet Ltd. et al., Re, [2002] O.T.C. Uned. A40; 30 C.B.R.(4th) 226 (Ont. Sup. Ct.), affd. [2002] O.A.C. Uned. 104; 32 C.B.R.(4th) 102 (C.A.), refd to. [para. 33].

Mercantile Steel Products Ltd., Re (1978), 20 O.R.(2d) 237 (S.C.), refd to. [para. 33].

Hupfer, Re (2003), 41 C.B.R.(4th) 187 (Alta. Q.B.), refd to. [para. 33].

Kitchener Frame Ltd. (Bankrupt) et al., Re, [2012] O.T.C. Uned. 234; 2012 ONSC 234, refd to. [para. 43].

Magnus One Energy Corp., Re, [2009] A.R. Uned. 292; 2009 ABQB 200, refd to. [para. 43].

Sovereign Life Assurance Co. v. Dodd, [1892] 2 Q.B. 573 (C.A.), refd to. [para. 45].

Stelco Inc. et al., Re (2005), 204 O.A.C. 205 (C.A.), refd to. [para. 45].

Elan v. Comiskey (1990), 41 O.A.C. 282; 1 O.R.(3d) 289 (C.A.), refd to. [para. 45].

Wellington Building Corp., Re (1934), 16 C.B.R. 48 (Ont. H.C.), refd to. [para. 45].

Sklar-Pepler Furniture Corp. v. Bank of Nova Scotia (1991), 86 D.L.R.(4th) 621 (Ont. Gen. Div.), refd to. [para. 45].

Campeau Corp., Re (1990), 10 C.B.R.(3d) 100 (Ont. Gen. Div.), refd to. [para. 45].

Northland Properties Ltd., Re (1988), 31 B.C.L.R.(2d) 35 (S.C.), affd. (1988), 32 B.C.L.R.(2d) 309 (C.A.), refd to. [para. 46].

Northland Properties Ltd., Re (1988), 73 C.B.R.(N.S.) 175 (B.C.S.C.), affd. (1989), 34 B.C.L.R.(2d) 122 (C.A.), refd to. [para. 46].

Gardner, Re (1921), 1 C.B.R. 424, refd to. [para. 50].

Statutes Noticed:

Personal Property Security Act, R.S.B.C. 1996, c. 369, sect. 20(b)(i) [para. 28 et seq., Appendix].

Authors and Works Noticed:

Cuming, R.C., and Wood, R.J., British Columbia Personal Property Security Act Handbook (1998), s. 2[7] [para. 14].

Duggan, Anthony, The Status of Unperfected Security Interests in Insolvency Proceedings (2008), 24 B.F.L.R. 103, pp. 106 to 111 [para. 33].

Counsel:

G.N. Harney, for the appellant;

K. Jackson and D. Toigo, for the respondents.

This appeal was heard at Vancouver, B.C., on February 19 and March 2 and 5, 2015, by Newbury, Saunders and Willcock, JJ.A., of the British Columbia Court of Appeal. Newbury, J.A., delivered the following written reasons for the court on March 6, 2015.