Insolvency Institute of Canada Annual Conference and General Meeting St. John s Newfoundland and Labrador

Transcription

1 Insolvency Institute of Canada Annual Conference and General Meeting St. John s Newfoundland and Labrador Corporate Arrangements: Abuse of Process or Viable Tool for Restructuring? Ken Atlas Sean Dunphy Bill Kaplan Borden Ladner Stikeman Elliott Blakes Gervais (PowerPoint attached)

2 Introduction At first blush, a CBCA Arrangement is an unlikely candidate for inclusion in the insolvency restructuring tool box: CBCA explicitly does not apply in the case of insolvency For provincial companies, exclusive Federal insolvency power under Constitution Act Seems to contemplate securities, including debt securities, but not other debt

3 Introduction Savage v. Dome Petroleum, Trizec Corporation and St. Lawrence & Hudson Railway, cases in the 1980 s and early 1990 s: Recognized fig leaf solution of a shell company applicant amalgamating with the troubled debtor on closing to form a solvent exit company Policy of the CBCA Director has also explicitly recognized the legitimacy of CBCA plans as potential tools of the insolvency practitioner s toolbox

4 Advantages No bankruptcy stigma Management remains in control, no Monitor, although a Monitor was named in Look Communications

5 Requirements Statutory procedures fulfilled The proposed transaction is an arrangement One entity is solvent or all will be upon completion of the arrangement, as mentioned above It isn t practicable to do what s intended otherwise under the CBCA Notice to the Director Application is in good faith

6 Requirements (continued) Arrangement is fair and reasonable, meaning (per SCC in BCE): That it has a valid business purpose; and That the objections of those whose legal rights are affected are being resolved in a fair and balanced way, considering: the burden to those arranged vs. the benefit to the corporation a vote supports it, or if no vote yet, an honest and intelligent businessperson would support it reasonableness

7 What can be Arranged? Primary tool of restructuring via Arrangement is exchange of securities exchange of old debt security for new security (may be debt, equity or both) Definition of security in CBCA s. 2(1) (via the definition of debt obligation ) is a bond, debenture, note or other evidence of indebtedness or guarantee of a corporation Generally considered to exclude trade creditors as well as contingent, unliquidated creditors Director s Policy enshrines this understanding Accordingly, best candidate for CBCA restructuring is a pure balance sheet restructuring Likely inappropriate if material operational/other restructuring also required (for example, rejection of onerous contracts, compromise of trade, material litigation claims, etc)

8 Who is a Candidate? Non-CBCA entities, income trusts (see Re Acadian Timber Income Fund, 2009 O.J. No. 5517), foreign corporations and limited partnerships, have all been arranged under the CBCA Mega Brands approved CBCA Plan ultimately compromised syndicated bank debt and debentures guaranteed by non-cbca affiliates, including a New Jersey corporation and a Delaware LP

9 Who is a Candidate? Foreign Recognition US debt and recognition Tembec Chapter 15 Recognition Order put to rest residual fears that US courts may not recognize compromise outside borders of Canada, though no real contestation MegaBrands to same effect, without contestation Virtually all of the cases cited involved debt issued in the United States markets US debt market often the main focus of arrangements involving Canadian debtors

10 Particular Issues Stay of Proceedings

11 Particular Issues- Stays (cont d) Courts have been willing to accept stay of proceedings and Director of CBCA has not opposed them See Enron case for example of courts applying stay mutatis mutandis similar to CCAA and BIA (i.e. not staying eligible financial contracts) Main cases: Trizec, Abitibi and Tembec suggest courts still view stay as being somewhat exceptional and will seek to apply only the minimum stay necessary

12 Particular Issues- Credit Default Swaps In Abitibi, the issue was whether CDS counterparties would be incented to defeat a plan so as to ensure they had a clean default that would trigger their CDS Market has had time to clean up the language in CDS Issue unlikely to arise in the future

13 Particular Issues-Asset Sales Look Communications Inc., a public company, was solvent but did not have the means to build out its wireless network Could not sell due to issues of certainty surrounding sale Arrangement established a Sales Process approved by shareholders and the court Monitor appointed to manage sales process, evaluate offers along with company, and ultimately complete the sale

14 Particular Issues-Shareholder Votes Not necessarily required (Compton Petroleum), but cannot be summarily dispensed with either, based on recent experience in MegaBrands

15 Conclusions CBCA plans are still perceived by the market as being quicker and cleaner means of effecting a balance sheet restructuring where the affected stakeholders are limited Not just for pre-packs although pre-packs or quasi-prepacks (where substantial stakeholder support and plan largely negotiated in advance) are the norm The broader the intended restructuring, the less likely that the CBCA arrangement will be effective Courts have shown willingness to apply same level of pragmatic flexibility in applying any order it thinks fit discretion in fashion similar to exercise of CCAA discretion

16 Sample Orders Most of the orders mentioned have now been provided to and can be downloaded from the IIC website, specifically: a) Director s Policy re s. 192 Arrangements b) Stay Order Trizec c) Interim Order Abitibi d) Interim and Final Order Look Communications e) Interim and Final Order Mega Brands f) Interim Order and Final Order Ainsworth g) Interim Order and Final Order Tembec h) Chapter 15 recognition order Tembec