Lifting The Stay - Is The 'Doomed To Fail' Argument Doomed To Fail?

Author:Mr Adam Maerov and Jennifer Cockbill
Profession:McMillan LLP

The British Columbia Supreme Court recently reviewed the considerations to be applied on an application by a secured creditor to lift a stay of proceedings granted in an initial order under the Companies' Creditors Arrangement Act (the "CCAA"). In Re Azure Dynamics Corp.,1 Madam Justice Fitzpatrick confirmed that the classic "doomed to fail" argument will not be persuasive where the applicant creditor is not prejudiced, and where the objectives of the CCAA are best served, by allowing the stay of proceedings to continue.


Azure Dynamics Corporation and its subsidiaries (the "Companies") are a global enterprise in the business of manufacturing and developing automotive technologies for electric and hybrid vehicles. The Companies have established business relationships with commercial vehicle manufacturers and users, including Ford Motor Company, Canada Post, Purolator and Fedex. Earlier this year, the Companies, in need of ongoing financing to fund operations, became insolvent when efforts to close an equity financing fell through as a result of a regulatory issue.

On March 26, 2012, the Companies applied for and obtained relief under the CCAA. The Initial Order provided for a stay of proceedings (the "Stay") until April 25, 2012. On April 13, 2012, faced with insufficient cash flow to continue with their restructuring efforts, the Companies brought an application for approval of debtor in possession, or DIP, financing for four million dollars. At the same time, one of the Companies' secured creditors, Johnson Control Inc. ("JCI"), brought an application to lift the stay of proceedings so that they could move to realize on their purchase-money security interest on certain battery systems provided to the Companies.

Application to lift the stay of proceedings

The CCAA contains no specific guidance with respect to the circumstances in which a Court can or should make an order to lift a stay of proceedings. The Court was referred to the decision in Re Canwest Global Communications Corp.2 in which the Ontario Superior Court of Justice held that a court should have regard to the objectives of the CCAA, the balance of convenience, the relative prejudice to the parties, and the actions of the debtor company. The Ontario Superior Court of Justice outlined various situations where a court will lift a stay order, as follows:

When the plan is likely to fail. The applicant shows hardship (the hardship must be caused by the stay itself and be...

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