Kerr Interior Systems Ltd., Re, (2011) 517 A.R. 186 (QB)

• Judge: Topolniski, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: March 30, 2011
• Citations: (2011), 517 A.R. 186 (QB);2011 ABQB 214

Kerr Interior Systems Ltd., Re (2011), 517 A.R. 186 (QB)

MLB headnote and full text

Temp. Cite: [2011] A.R. TBEd. SE.083

In The Matter Of The Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended

In The Matter Of The Plan of Compromise or Arrangement of Kerr Interior Systems Ltd. and Composite Building Systems Inc. (0703 14357; 2011 ABQB 214)

Indexed As: Kerr Interior Systems Ltd., Re

Alberta Court of Queen's Bench

Judicial District of Edmonton

Topolniski, J.

March 30, 2011.

Summary:

Composite Building Systems Inc. manufactured materials for Kerr Interior Systems Ltd. Kerr and Composite (the debtors) found themselves in financial difficulties. With the support of their banker and other major secured creditors they attempted to compromise their debt obligations, satisfy their outstanding contracts and remain in business. The debtors obtained an order declaring that they were entities to which the Companies' Creditors Arrangement Act (CCAA) applied and an order granting a stay of proceedings against them. The debtors prepared a plan for review and approval by the creditors and the court. Should the plan be approved the debtors would settle approximately $5 million in debt for $2.6 million. The debtors applied for court sanction of the plan. Two creditors (Kenroc Building Materials Co. Ltd. and Winroc, a Division of Superior Plus LP) were opposed. Notwithstanding the stay order, Kenroc filed a lien with Land Titles Registry in Saskatchewan against a building owned by a third party (101051991 Saskatchewan Ltd.) who had hired the debtors. Winroc brought an action against Composite in relation to the same third party. The third party encountered difficulties due to the existence of these two liens with the result that it paid the sum of $150,000 into the Saskatchewan Court of Queen's Bench. The plan created a single creditor class, defined as "unsecured creditors" which included Kenroc and Winroc. The debtors applied for an order amending the plan to increase the amount to be paid to the unsecured creditors from $2.4 to $2.6 million and for an order sanctioning the plan. Each of Kenroc and Winroc opposed approval of the plan in its current form. Winroc applied for an order directing that the plan be amended to: a) classify Kenroc and Winroc as the sole secured creditors, and b) order Kenroc and Winroc paid in full from the monies held by the Court of Queen's Bench of Saskatchewan.

The Alberta Court of Queen's Bench, in a decision reported at 449 A.R. 185, dismissed the application. Kenroc and Winroc appealed.

The Alberta Court of Appeal, Watson, J.A., dissenting in part, in a decision reported at 457 A.R. 274; 457 W.A.C. 274, allowed the appeals. Claiming an unexpected downturn in the economy, difficulty collecting accounts receivable, the strain of servicing secured debt and the obligations of a related entity, the debtors sought to present another offer to their creditors. At issue was the court's jurisdiction to authorize debtors to call a further meeting of creditors to reconsider a plan of arrangement made pursuant to the CCAA after court sanction and part performance.

The Alberta Court of Queen's Bench held that a purposive and contextual interpretation of s. 11 of the CCAA vested the court with discretion to grant the relief sought. However, the threshold for summoning a further meeting of creditors after court sanction was high and to succeed the debtor had to establish truly extraordinary circumstances. The debtors in this case had not met the high threshold required for the court to exercise its discretion.

Creditors and Debtors - Topic 8581.2

Debtors' relief legislation - Companies' creditors arrangement legislation - Jurisdiction - At issue in this application was the court's jurisdiction to authorize debtors to call a further meeting of creditors to reconsider a plan of arrangement made pursuant to the Companies' Creditors Arrangement Act (CCAA) after court sanction and part performance - The Alberta Court of Queen's Bench considered ss. 4 to 7 and 11 of the CCAA and held that a purposive and contextual interpretation of s. 11 of the CCAA vested the court with discretion to grant the relief sought - However, the threshold for summoning a further meeting of creditors after court sanction was high and to succeed the debtor had to establish truly extraordinary circumstances - See paragraphs 16 to 51.

Creditors and Debtors - Topic 8581.2

Debtors' relief legislation - Companies' creditors arrangement legislation - Jurisdiction - Debtors obtained an order declaring that they were entities to which the Companies' Creditors Arrangement Act (CCAA) applied and an order granting a stay of proceedings against them - The debtors prepared a plan for review and approval by the creditors and the court - Should the plan be approved the debtors would settle approximately $5 million in debt for $2.6 million - The debtors obtained court sanction of the plan - Later, claiming an unexpected downturn in the economy, difficulty collecting accounts receivable, the strain of servicing secured debt and the obligations of a related entity, the debtors sought to present another offer to their creditors - At issue was the court's jurisdiction to authorize debtors to call a further meeting of creditors to reconsider a plan of arrangement made pursuant to the CCAA after court sanction and part performance - The Alberta Court of Queen's Bench held that a purposive and contextual interpretation of s. 11 of the CCAA vested the court with discretion to grant the relief sought - In making its determination, the court should consider whether the debtors' application was made in good faith and whether granting the relief would advance the policy objectives of the CCAA, serve and enhance the public's confidence in the process or otherwise serve the ends of justice - The court should also consider the degree of creditor support for the application - The threshold for summoning a further meeting of creditors after court sanction was high and to succeed the debtor had to establish truly extraordinary circumstances - The debtors in this case had not met the high threshold required for the court to exercise its discretion - See paragraphs 52 to 72.

Cases Noticed:

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 22].

Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 22].

Placer Dome Canada Ltd. v. Ontario (Minister of Finance), [2006] 1 S.C.R. 715; 348 N.R. 148; 210 O.A.C. 342; 2006 SCC 20, refd to. [para. 22].

Leroy (Ted) Trucking Ltd. et al., Re (2010), 409 N.R. 201; 296 B.C.A.C. 1; 503 W.A.C. 1; 2010 SCC 60, refd to. [para. 23].

Century Services Inc. v. Canada (Attorney General) - see Leroy (Ted) Trucking Ltd. et al., Re.

Elan Corp. and Nova Metal Products Inc. v. Comiskey (1990), 41 O.A.C. 282; 1 O.R.(3d) 289; 1 C.B.R.(3d) 101 (C.A.), refd to. [para. 23].

Air Canada et al., Re, [2004] O.T.C. 721; 47 C.B.R.(4th) 189 (Sup. Ct.), refd to. [para. 23].

Meridian Developments Inc. v. Toronto-Dominion Bank; Meridian Developments Inc. v. Nu-West Group Ltd. (1984), 53 A.R. 39; 52 C.B.R.(N.S.) 109 (Q.B.), refd to. [para. 23].

Avery Construction Co., Re, [1942] 4 D.L.R. 558; 24 C.B.R.(3d) 17 (Ont. S.C.), refd to. [para. 29].

UTI Energy Corp. v. Fracmaster Ltd. (1999), 245 A.R. 102; 11 C.B.R.(4th) 204; 1999 ABQB 379, affd. (1999), 244 A.R. 93; 209 W.A.C. 93; 11 C.B.R.(4th) 230; 1999 ABCA 178, refd to. [para. 29].

Fracmaster, Re - see UTI Energy Corp. v. Fracmaster Ltd.

First Treasury Financial Inc. v. Cango Petroleums Inc. (1991), 78 D.L.R.(4th) 585; 3 C.B.R.(3d) 232 (Ont. Gen. Div.), refd to. [para. 29].

Cable Satisfaction International Inc. v. Richter & Associés Inc. (2004), 48 C.B.R.(4th) 205 (Que. S.C.), refd to. [para. 30].

Air Canada et al., Re, [2004] O.T.C. 1169; 2 C.B.R.(5th) 4 (Sup. Ct.), refd to. [para. 30].

Central Trust Guaranty Trustco Ltd., Re (1993), 21 C.B.R.(3d) 139 (Ont. Gen. Div.), refd to. [para. 36].

Wandlyn Inns Ltd., Re (1992), 15 C.B.R.(3d) 316 (N.B.T.D.), refd to. [para. 37].

Algoma Steel Corp. v. Royal Bank of Canada et al. (1992), 55 O.A.C. 303; 11 C.B.R.(3d) 11 (C.A.), refd to. [para. 37].

Sammi Atlas Inc., Re (1998), 59 O.T.C. 153; 3 C.B.R.(4th) 171 (Gen. Div.), refd to. [para. 37].

Daon Development Corp., Re (1984), 10 D.L.R.(4th) 216 (B.C.S.C.), refd to. [para. 37].

Northland Properties Ltd., Re (1989), 74 C.B.R.(N.S.) 231 (B.C.S.C.), dist. [para. 39].

Royal Heaters Ltd., Re (1950), 30 C.B.R. 199 (Que. Sup. Ct.), refd to. [para. 40].

Keddy Motor Inns Ltd., Re (1992), 113 N.S.R.(2d) 431; 309 A.P.R. 431; 13 C.B.R.(3d) 262 (T.D.), refd to. [para. 41].

Algoma Steel Corp. v. Royal Bank of Canada et al. (1992), 55 O.A.C. 303; 8 O.R.(3d) 449 (C.A.), leave to appeal denied (1992), 10 O.R.(3d) xv (S.C.C.), refd to. [para. 42].

Canadian Airlines Corp., Re (2001), 306 A.R. 124; 2001 ABQB 983, refd to. [para. 43].

Teragol Investments Ltd. v. Hurricane Hydrocarbons Ltd. (2005), 382 A.R. 383; 2005 ABQB 324, refd to. [para. 48].

Skeena Cellulose Inc. et al., Re (2003), 184 B.C.A.C. 54; 302 W.A.C. 54; 13 B.C.L.R.(4th) 236; 2003 BCCA 344, refd to. [para. 49].

Stelco Inc. et al., Re (2005), 196 O.A.C. 142; 75 O.R.(3d) 5 (C.A.), refd to. [para. 49].

UTI Energy Corp. v. Fracmaster Ltd. (1999), 244 A.R. 93; 209 W.A.C. 93; 1999 ABCA 178, affing. (1999), 245 A.R. 138; 1999 ABQB 425, refd to. [para. 59].

Royal Bank of Canada v. Fracmaster Ltd. - see UTI Energy Corp. v. Fracmaster Ltd.

Norseman Products Ltd., Re, [1950] O.W.N. 81; 30 C.B.R. 71, refd to. [para. 60].

Le Comptoir Cooperatif du Combustible Ltée, Re (1935), 17 C.B.R. 124 (Que. S.C.), refd to. [para. 60].

Statutes Noticed:

Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, sect. 4 [para. 17]; sect. 6 [para. 19]; sect. 7 [para. 20]; sect. 11 [para. 21].

Authors and Works Noticed:

Driedger, Elmer A., Construction of Statutes (3rd Ed. 1994), p. 159 [para. 22].

Houlden, Lloyd W., and Morawetz, Geoffrey B., Bankruptcy and Insolvency Law of Canada (4th Ed. 2009), vol. 4, pp. 11-69, §48 [para. 38], 11-28 [para. 60].

Sarra, Janis P., Annual Review of Insolvency Law 2007 (2008), p. 42 [para. 26].

Counsel:

Darren Bieganek, for the applicant;

James Hanley, for the respondent.

This case was heard by Topolniski, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following memorandum of decision on March 30, 2011.