Co-author: Stephen Brown-Okruhlik, student at law
In a recent decision, the Court of Queen's Bench of Manitoba considered when a stay of proceedings under the Companies' Creditors Arrangement Act ("CCAA") should be lifted to allow parties to bring claims against an insolvent company outside of the CCAA proceeding.1 The case provides new guidance to litigants as to when it is appropriate to lift the stay. It also serves as a reminder that special considerations may apply to companies doing business while insolvent and when restructuring proceedings are contemplated.
Puratone ran a commercial hog production business. It sought protection under the CCAA and the initial order included standard stay provisions, including a stay of existing proceedings as well as further actions against the company without leave of the court. Also, actions against directors and officers for existing claims could not be commenced or continued until a compromise or arrangement was sanctioned by the court or rejected by the creditors.
This was a liquidating CCAA. Through a court-approved sales process substantially all of Puratone's assets were sold to Maple Leaf Foods Inc. A group of farming operators opposed the distribution of the sale proceeds. The operators had supplied grain to Puratone within two weeks of the CCAA filing.
The operators alleged that Puratone and its directors and officers must have been planning its CCAA filing well in advance of ordering the grain and therefore had no intention of paying for it. Among other things, the operators sought damages for negligent misrepresentation against the company, a declaration of an implied or constructive trust, and a declaration that directors and officers acted fraudulently.
Justice Dewar lifted the stay of proceedings to allow the operators to pursue their claim against the company as well as the directors and officers. Central to his decision was the need to balance stakeholder interests in a CCAA proceeding.
He observed that the CCAA does not lay out a test for lifting a stay of proceedings. However, relying on the decision of the Saskatchewan Court of Appeal in ICR Commercial Real Estate (Regina) Ltd. v Bricore Land Group Ltd.,2 Justice Dewar noted that there must be "sound reasons," consistent with the scheme of the CCAA, to relieve against the stay, and that "sound reasons" were measured by a consideration of three factors. Those factors were: the balance of convenience; the...