Elan Corp. and Nova Metal Products Inc. v. Comiskey, (1990) 41 O.A.C. 282 (CA)

• Judge: Finlayson, Krever and Doherty, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: November 23, 1990
• Jurisdiction: Ontario
• Citations: (1990), 41 O.A.C. 282 (CA)

Elan Corp. v. Comiskey (1990), 41 O.A.C. 282 (CA)

MLB headnote and full text

In The Matter Of the Companies' Creditors Arrangement Act, R.S.C. 1985, Chapter C-36;

And In The Matter Of a proposed plan of arrangement for the secured creditors of Elan Corporation and Nova Metal Products Inc.

Between: Elan Corporation and Nova Metal Products Inc. (applicants/respondents) v. Michael Comiskey, Trustee of a certain debenture issued to Joseph Comiskey and all secured creditors of Elan Corporation and Nova Metal Products Inc. (respondents)

(Nos. 684/90; 685/90)

Indexed As: Elan Corp. and Nova Metal Products Inc. v. Comiskey

Ontario Court of Appeal

Finlayson, Krever and Doherty, JJ.A.

November 23, 1990.

Summary:

Elan Corp. and Nova Metal Products Inc. were indebted to the Bank of Nova Scotia and RoyNat.

The Ontario Development Corporation had also guaranteed a $500,000.00 loan by RoyNat to Elan and held a debenture from Elan to secure the guarantee. Each company was separately indebted to municipalities for unpaid taxes. Financial problems arose and the Bank demanded full payment of its loan and appointed a receiver-manager. The court, per Saunders, J., stayed the Bank from realizing on its security until further order and allowed the company to carry on business. During the term of this order Elan and Nova, pursuant to trust deeds, issued various debentures to related parties. No repayment was expected, rather the sole purpose of the debentures was to allow the companies to be considered "debtor companies" within the meaning of s. 3 of the Companies' Creditors Arrangement Act. The companies then applied under s. 5 of the Act for an order directing a meeting of secured creditors to vote on a plan of arrangement.

The court, per Hoolihan, J., allowed the application and ordered a meeting of creditors to consider the plan of arrangement filed by Elan and Nova. Hoolihan, J., extended the stay of proceedings against the Bank and allowed the companies to use accounts receivable. This order was extended from time to time. The judge also ordered that there would be two classes of creditors for purposes of voting at the meeting of secured creditors. The first class being the Bank, RoyNat, Ontario Development Corp., and the two municipalities; and the second class being those to whom debentures were issued solely to facilitate the Companies' Creditors Arrangement Act proceedings. The Bank appealed the orders of Hoolihan, J.

The Ontario Court of Appeal, Doherty, J.A., dissenting, allowed the appeal, set aside the order of Hoolihan, J., and dismissed the company's application under the Act.

Creditors and Debtors - Topic 8585

Debtors' relief legislation - Companies' creditors arrangement legislation - Trust deed - Requirement of - [See Creditors and Debtors - Topic 8591 ].

Creditors and Debtors - Topic 8587

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Classes of creditors - The Ontario Court of Appeal discussed how to divide creditors into classes for purposes of a meeting to consider a plan of arrangement under the Companies' Creditors Arrangement Act - See paragraphs 28 to 39.

Creditors and Debtors - Topic 8591

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - When available - Two companies were indebted to a bank et al. - The bank demanded payment and a receiver was appointed - The court, per Saunders, J., stayed the bank from realizing on its security until further order and allowed the companies to carry on business - The companies thereafter issued debentures under trust deeds to related parties solely to take advantage of the Companies' Creditors Arrangement Act - The Ontario Court of Appeal held that the companies lacked the power to issue the debentures and take advantage of the Act, because of the combined effect of the appointment of the receiver and the order of Saunders, J.

Cases Noticed:

Re Hat Development Ltd. (1988), 71 C.B.R.(N.S.) 264 (Alta. Q.B.), affd. (1989), 65 Alta. L.R.(2d) 374 (C.A.), refd to. [paras. 24, 86, 88].

Sovereign Life Assurance Company v. Dodd, [1892] 2 Q.B. 573, refd to. [paras. 33, 34].

Re Wellington Building Corporation Ltd., [1934] O.R. 653, refd to. [paras. 34, 35, 37].

Re Northland Properties Ltd. (1988), 73 C.B.R.(N.S.) 166, (B.C.S.C.) refd to. [paras. 36, 37, 66].

Re Northland Properties Ltd. (1988), 73 C.B.R.(N.S.) 175 (B.C.S.C.), refd to. [paras. 36, 66].

Re N.S.C. Diesel Power Inc. (1990), 79 C.B.R.(N.S.) 6, refd to. [para. 38].

Re Avery Const. Co., [1942] 4 D.L.R. 558; 24 C.B.R. 17 (Ont. S.C.), refd to. [para. 56].

Icor Oil and Gas Co. Ltd. et al. v. Canadian Imperial Bank of Commerce et al. (No. 1) (1989), 102 A.R. 161, (Q.B.) refd to. [para. 69].

United Maritime Fishermen Co-op and Bluenose Fisheries Ltd., Re, (1988), 84 N.B.R.(2d) 415; 214 A.P.R. 415; 67 C.B.R.(N.S.) 44, (Q.B.) revsd. (1988), 88 N.B.R.(2d) 253; 224 A.P.R. 253; 69 C.B.R.(N.S.) 161, refd to. [paras. 75, 76, 78, 81].

Residential Tenancies Act of Ontario, Re, [1981] 1 S.C.R. 714; 37 N.R. 158; 123 D.L.R.(3d) 554, refd to. [para. 81].

Meridian Developments Inc. v. Toronto-Dominion Bank (1984), 53 A.R. 39; 54 Alta. R.(3d) 42; 52 C.B.R.(N.S.) 109 (Q.B.), refd to. [para. 104].

Norcen Energy Resources Ltd. v. Oakwood Petroleums Ltd. (1988), 92 A.R. 81; 72 C.B.R.(N.S.) 1 (Q.B.), refd to. [para. 104].

Statutes Noticed:

Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, sect. 3 [paras. 10, 13, 21, 62, 64, 70 et seq.]; sect. 4 [para. 63]; sect. 5 [paras. 12, 22, 63, 64, 88, 90 et seq.]; sect. 6 [paras. 30, 66, 97]; sect. 6(a) [para. 27]; sect. 11 [paras. 21, 68, 102, 103, 105]; sect. 14(2) [para. 88].

Courts of Justice Act, S.O. 1984, c. 11, sect. 144(1) [para. 88].

Interpretation Act, R.S.C. 1985, c. I-21, sect. 12 [para. 61].

Authors and Works Noticed:

Crozier, L., Good Faith and the Companies' Creditors Arrangement Act (1989), 15 Can. Bus. L.J. 89, generally [para. 84].

Edwards, S.E., Reorganizations Under the Companies' Creditors Arrangement Act (1947), 25 Can. Bar Rev. 587, pp. 592 [para. 56]; 593 [paras. 56, 60]; 594, 595 [para. 90].

Goldman, D., Reorganizations Under the Companies' Creditors Arrangement Act (1985), 55 C.B.R.(N.S.) 36, pp. 37-39 [para. 56].

Ham, "Instant" Trust Deeds Under the C.C.A.A. (1988), 2 Commercial Insolvency Register 25, generally [para. 72]; pp. 25, 30 [para. 73].

Houlden and Morawetz, Bankruptcy Law in Canada (3rd Ed. 1989), pp. 2-103 [para. 102].

Kerr on Receivers (16th Ed. 1983), p. 292 [para. 24].

Morawetz, G., Emerging Trends in the Use of the Companies' Creditors Arrangement Act, generally [para. 72].

O'Leary, B., A Review of the Companies' Creditors Arrangement Act (1987), 4 National Insolvency Review 38, pp. 39 [para. 72]; 41 [para. 104].

Counsel:

F.J.C. Newbould, Q.C., and G.B. Morawetz, for the Bank of Nova Scotia;

John Little, for Elan Corporation and Nova Metal Products Inc.;

Michael B. Rotsztain, for RoyNat Inc.;

Kim Twohig and Mel Olanow, for Ontario Development Corporation;

K.P. McElcheran, for the monitor Ernst & Young.

This appeal was heard on October 30 and 31, 1990, before Finlayson, Krever and Doherty, JJ.A., of the Ontario Court of Appeal. The decision of the Court was released on November 23, 1990, including the following opinions:

Finlayson, J.A. (Krever, J.A., concurring) - See paragraphs 1 to 42.

Doherty, J.A., dissenting - See paragraphs 43 to 106.