Restructuring and InsolvencyRestructuring and Insolvency Group e-COMMUNIQUÉ - February 2011Published: 02/02/2011 In This Issue
Supreme Court Rules that GST Debt is Unsecured Under CCAABy Larry Ellis The Supreme Court of Canada recently ruled in the Century Servicesi case that Goods and Services Tax (“GST”) deemed trusts under the federal Excise Tax Act (“ETA”) are ineffective in proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). The Century Services case involved Ted LeRoy Trucking Ltd. ( “LeRoy Trucking”) which, in late 2007, obtained a CCAA stay of proceedings against it. On April 29, 2008, the supervising CCAA court made an order approving a payment to LeRoy Trucking’s major secured creditor, Century Services. As a part of that order, LeRoy Trucking proposed to hold back $305,202.30 in unremitted GST, and place it in the Monitor’s trust account until the after the CCAA proceeding was decided, arguing that the ETA creates a deemed trust in favour of the Crown for unremitted GST . On September 3, 2008, having concluded that reorganization was not possible, LeRoy Trucking sought and obtained an order assigning the company into bankruptcy pursuant to the Bankruptcy and Insolvency Act (“BIA”).
Prior to Century Services, the Court of Appeal in Ottawa Senatorsii had held that ETA deemed trusts for GST are enforceable against a CCAA debtor. However, as a result of the Supreme Court’s ruling in Caisse populaire Desjardins de Montmagnyiii, the effect of allowing a bankruptcy assignment was to destroy the Crown’s trust claim and demote the GST obligation to an unsecured claim. This meant that deemed trusts for GST under the ETA were treated differently depending on whether proceedings were bought under the CCAA or the BIA, thereby creating an incentive for debtors to attempt to liquidate the insolvent company under the BIA rather than seeking to restructure the business under the CCAA and have their claims subordinated to the Crown’s claim for unremitted GST.
Writing for the majority of the Supreme Court of Canada, Madam Justice Deschamps concluded that, since GST is not an explicit exception under the CCAA, it should rank as an unsecured claim. In reaching this determination, the Court noted that the intention of Parliament’s recent amendments to the CCAA was to restrict the priority of the Crown to a few specific cases mainly related to employment.
The Supreme Court’s conclusion relied heavily upon a purposive interpretation of the CCAA. The Court recognized that participants in insolvency proceedings depend on the broad and flexible authority of the supervising court to make the orders necessary to facilitate a reorganization. The Supreme Court acknowledged that the CCAA provides a court with the authority to make any order that it considers appropriate in the circumstances. The Supreme Court established a simple two-part analysis to be applied when considering whether there is jurisdiction to make a CCAA order: 1. is the requested order subject to restrictions set out in the CCAA; and 2. will the order usefully further efforts to achieve the remedial purpose of the CCAA.
In the Court’s view, both the CCAA and BIA were part of a broader insolvency regime and neither should be interpreted without consideration of the other. It is important, the Court opined, to promote the production of similar priority outcomes under both Acts, in order to avoid statute shopping and to better foster an harmonious transition between reorganization and liquidation. The Supreme Court’s decision in Century Services will be an important precedent for all CCAA restructurings going forward. The Supreme Court has clearly stated that there is no priority of Crown deemed trusts for GST in CCAA proceedings. The Supreme Court confirmed that the CCAA should be interpreted in a purposive and liberal manner in order to provide the supervising court with the flexibility to make orders in furtherance of the CCAA objectives. Finally, the Supreme Court articulated the importance of bridging gaps between the CCAA and the BIA so as to ensure that the statutes operate in harmony. [i] Ted LeRoy Trucking Ltd., Re (2010), Supreme Court of Canada 2010, CarswellBC 3419
[ii] Re Ottawa Senators Hockey Club Corp. (2005), 73 O.R. (3d) 737 (Ontario Court of Appeal)
[iii] Quebec v. Caisse populaire Desjardins de Montmagny (2009) Supreme Court of Canada 49 2009 CarswellQue 10706
The CCAA Scene: Recent and Notable – February 2011Abitibi On December 9, 2010, AbitibiBowater announced that it completed its reorganization and emerged from CCAA and Chapter 11. Abitibi’s Chapter 11 plan of reorganization was confirmed on November 23, 2010 and its CCAA plan of reorganization was sanctioned on September 23, 2010. Abitibi also announced that it closed $1,450,000,000 in exit financing that will be used to repay remaining DIP facilities, make payments to secured creditors and make other payments required upon its exit. Abitibi also make certain initial distributions to unsecured creditors in the form of common shares.
Adanac
On November 19, 2010, Adanac Molybdenum Corporation announced that the British Columbia Supreme Court approved Adanac’s Plan of Compromise and Arrangement. Upon implementation, Adanac will make distributions of cash or stock to creditors.
Adanac owns the Ruby Creek Project in northern British Columbia.
Bear Mountain
On October 4, 2010, the British Columbia Supreme Court approved the Plan of Arrangement regarding Bear Mountain Master Partnership. On November 5, 2010, certain assets of Bear Mountain, including golf courses, a resort hotel and remaining real estate holdings, were transferred into newly created subsidiaries of HSBC Bank Canada pursuant to the Revised Consolidated Plan of Arrangement. As we previously wrote, the Bear Mountain golf resort and real estate development successfully filed under the CCAA in British Columbia. At that time, Bear Mountain was in default on some of its loans and owed secured creditors more than $300,000,000.
Bruce R. Smith
Bruce R. Smith Limited announced that, effective October 27, 2010, it exited from the CCAA in Ontario and completed a financial recapitalization with an investment group led by Tepper Holdings Inc. Bruce R. Smith filed under the CCAA in the fall of 2009.
Bruce R. Smith provides flatbed and temperature controlled carrier services.
Chemtura
On November 10, 2010, Chemtura Corporation announced that it completed its financial restructuring and exited Chapter 11. It also announced that Chemtura Canada Co. completed its CCAA proceedings and also exited Chapter 11. Under Chemtura Corporation’s Plan of Reorganization, Chemtura Corporation announced it will satisfy creditors’ claims in cash and/or stock in the reorganized Chemtura Corporation.
Chemtura Corporation is a global manufacturer and marketer of specialty chemicals, agrochemicals and pool, spa and home care products.
Davie Yards
On January 18, 2011, Davie Yards Inc. announced that it obtained an order from the Quebec Superior Court extending the stay of proceedings to February 18, 2011. The extension is intended to allow Davie to negotiate an agreement with a potential investor, to work on a response to the request for proposal to become 1 of 2 selected shipyards under the National Shipbuilding Procurement Strategy and to develop a plan of arrangement. Previously, on October 29, 2010, Davie announced that it obtained an order from the Quebec Superior Court extending the stay of proceedings to January 21, 2011.
Davie owns and operates the Davie yard in Quebec and manufactures offshore service vessels and rigs.
Fraser Papers
On January 10, 2011, Fraser Papers Inc. announced that the consolidated plan of compromise or arrangement filed in its Ontario CCAA proceeding did not receive sufficient support from its creditors and the plan will not be implemented. The plan required approval of the majority of creditors in number and 66 2/3% by dollar value of claims filed by creditors. Fraser Papers announced that 98.4% of creditors voted in favour of the plan but only 41.7% of claims based on dollar value voted in favour of the plan.
Jacob
On November 18, 2010, Boutique Jacob Inc. announced that it successfully filed under the CCAA in Quebec.
Jacob sells clothing, accessories and beauty products under the JACOB and other banners.
Tagish Lake
On December 20, 2010, Tagish Lake Gold Corp. announced that it completed its Plan of Arrangement, which previously received court, creditor and shareholder approval. Pursuant to the Plan of Arrangement, Tagish Lake is now a wholly-owned subsidiary of New Pacific Metals Corp. On October 27, 2010, Tagish Lake announced that it entered into a credit agreement with New Pacific for the principal amount of $8,250,000 in order to fund the required payments under the Plan of Arrangement.
Winalta
On October 22, 2010, Winalta Inc. announced that it received court and creditor approval for its Plan of Arrangement in connection with its CCAA proceedings in Alberta. On November 1, 2010, Winalta announced that, pursuant to the Plan of Arrangement, it was amalgamated with its subsidiaries Winalta Carriers Inc., Winalta Oilfield Rentals Inc. and Baywood Property Management Inc., emerging from CCAA as Winalta Inc.
Winalta Inc. is an oilfield rentals provider that leases portable industrial accommodations and catering services to the energy sector.
Insolvency and Restructuring, 2011 – CanadaBruce Leonard, Deborah Grieve, and David Ward contributed the Chapter on Canadian bankruptcy and reorganization proceedings to Getting the Deal Through: Restructuring & Insolvency 2011 published by Law Business Research of London, England. Restructuring & Insolvency 2011 provides a distinctive overview of the major issues that are encountered in restructurings and liquidations around the world. Published annually in London, the book surveys important insolvency issues in 50 countries and includes succinct descriptions of the ways in which the issues are dealt with in each country. The Country Contributors are selected from among the most prominent and experienced insolvency practitioners in all 50 countries and their collected reports are among the most authoritative descriptions of international insolvency issues available anywhere.
A special value of Restructuring & Insolvency 2011 is its comparative analysis. This focuses on 39 major insolvency and creditors’ remedies topics, each of which are analyzed and reported on by experienced and prominent authors from the countries involved. This book also has quick reference tables at the end to allow for convenient comparisons among the countries surveyed. You can link to the Canada Chapter in Restructuring & Insolvency 2011 here. Bruce Leonard has been privileged to serve as to the Contributing Editor to Getting the Deal Through: Restructuring & Insolvency 2011, for many years and is privileged to set the questions for the Country Chapters. If any of our readers find that there are intriguing issues that they would like to see referenced in future editions of this unique publication, please do not hesitate to pass them along to Bruce at bleonard@casselsbrock.com. We appreciate everyone’s interest in this publication and in the Canada Chapter. 2011 Prize in International Insolvency StudiesThe International Insolvency Institute (“III”) is pleased to announce its 2011 Prize in International Insolvency Studies. The Prize in International Insolvency Studies comprises a Gold Medal Prize for the winning submission as well as a Silver Medal Prize, a Bronze Medal Prize, and several Finalist Prizes. The Prizes are accompanied by a honorarium for the Medal winners. The III Prize is awarded for original legal research, commentary or analysis on topics of international insolvency and restructuring significance and on comparative international analysis of domestic insolvency and restructuring issues and developments. The Prize Competition is open to full and part-time undergraduate and graduate students and to practitioners in practice for less than seven years. Entries must not have been published prior to October 2010 and must be available to be posted on the International Insolvency Institute website at www.iiiglobal.org. Medal-winning entries will be considered for publication in the Norton Journal of Bankruptcy Law and Practice (West), the Norton Annual Review of International Insolvency (West) and for inclusion in the Westlaw electronic database.
Entries will be judged by a distinguished panel of leading international insolvency academics and practitioners. Entries may be of any length but a limit of 40,000 words is preferred. Entries must be received by March 15, 2011. The Gold Medal winner will be honoured at the III’s Eleventh Annual International Insolvency Conference in New York on June 13-14, 2011 and will have expenses paid and all conference registration fees waived. All Medal Winners and Finalists will be invited to attend the Conference as guests of the III. For further details and the terms of the III Prize in International Insolvency Studies, please contact Michael Casey at (416) 642-7454 or mcasey@casselsbrock.com. Professional Note - February 2011On February 4, 2011, Deborah S. Grieve will be speaking on a panel on the topic of "Cross-Border Cooperation at Work" at the 8th Annual Review of Insolvency Law Conference presented by the University of British Columbia National Centre of Business Law, and presenting her paper "The New Canadian Cross-Border Insolvency Provisions—Reflections After the First Year." |