Canwest: A Winning Case for Rep Counsel

Published: 07/29/2010

By David Ward

The latest in a growing line of interesting Canwest Global Communications CCAA decisions addresses the subject of representative counsel appointments and how far should a Court go to assist vulnerable creditors where there is no obvious source of funding for counsel fees.

In Canwest, the question was addressed on a motion brought by a number of retirees and former salaried employees of the company. The moving parties sought appointment of representative counsel on the basis that they otherwise had little means of protecting their rights in what was an extremely complex CCAA proceeding. It was argued that process efficiencies would be accrued from ensuring that the moving parties had effective CCAA representation, and that there was a “social benefit” to be derived from representation of the group.

The representation counsel motion and associated funding request was opposed by the Canwest debtors, the major secured creditors, and even the Monitor. The basis for the opposition was that the restructuring efforts under way unfortunately did not contemplate any recoveries for unsecured creditors such as the moving party retirees and former employees. It was suggested that counsel for the proposed representatives should reapply to the Court at a later time, if and when their clients could show a legitimate recovery expectation.

Those opposing the relief sought even submitted that employees and retirees best keep an eye on the Monitor’s website, and expect notice from the Monitor in the event that changed circumstances improved recovery prospects.

Noting that “this watch and wait suggestion is unhelpful” to individual creditors who “find themselves in uncertain times facing legal proceedings of significant complexity,” Justice Pepall granted the representation order sought.

The “check the Monitor’s website” submission was also explicitly rejected. The Court noted that the Monitor already had very extensive responsibilities, and that it was unrealistic to expect the Monitor to be fully responsible to the needs and demands of all of the former salaried employees and retirees in an efficient and timely manner.

Justice Pepall noted that it was “false economy” to watch and wait. The appointment of representative counsel should facilitate the administration of the CCAA proceeding, improve information flows, and enhance process efficiencies.

Lastly, and perhaps most interestingly, the Court addressed the argument put forward by the senior secured lenders that there was no source of funding for representative counsel because the debtors were contractually forbidden from paying for legal advisors by the term of a Court-approved “support agreement.”

Dismissing this argument, Justice Pepall directed the affected parties to meet and identify a source of funding. Her Honour ruled that by executing agreements such as the Support Agreement parties cannot oust the jurisdiction of the Court and that the Court has the power to compel the senior secured lenders to facilitate funding, or to fund.

The Canwest decision is important because it is illustrative of the Courts' increasing acceptance of representative counsel orders in Canada. Even in the face of significant debtor, secured creditor, and Monitor opposition, there may still be a winning case to be made for estate funded rep counsel.

For a copy of the Canwest decision, please e-mail dward@casselsbrock.com.