October 4, 2021
No “Stranger” to the Proceeding: CCAA Court Reaffirms Single Proceeding Model
By Rachel Nicholson and Adrienne Ho.1
The single proceeding model, which is a core tenet in insolvency proceedings, was recently reaffirmed in the Companies’ Creditors Arrangement Act (“CCAA”) proceedings of Bloom Lake in Re Bloom Lake, 2021 QCCS 3402.
The CCAA proceedings for multiple insolvent debtors (the “CCAA Parties”) were commenced in 2015 in Quebec. Twin Falls Power Corporation (“TwinCo”) was a joint venture formed by the Churchill Falls (Labrador) Corporation Limited (“CFLCo”), two of the insolvent debtors (Wabush Iron Co. Limited, Wabush Resources Inc., collectively, “Wabush”), as well as some other parties.
Twinco filed a proof of claim in the CCAA proceedings. A plan of compromise and arrangement was approved in 2018. Further to this plan, much of the CCAA Parties’ estates had been sold, with the exception of certain equity interests held in Twinco by Wabush. Until these remaining assets are sold, the estate distribution cannot be completed.
Outstanding issues remained in dispute, including over environmental liabilities and an accounting of monies spent, between the CCAA Parties, TwinCo, and its majority shareholder CFLCo. Unable to reach a resolution, in November 2020, the CCAA Parties filed a motion before the CCAA Court (defined below) seeking, among other things, an order to wind-up and dissolve TwinCo under the Canada Business Corporations Act.2 (referred to as the “CBCA Motion”).
In January 2021, CFLCo filed an application for a court-supervised liquidation regarding Twinco, also under the Canada Business Corporations Act in the Supreme Court of Newfoundland and Labrador. The Monitor also obtained an order for expanded powers to demand information from Twinco and CFLCo.
The narrow issue before the Quebec Superior Court (Commercial Division) (the “CCAA Court”) was whether it had the jurisdiction to hear the CBCA Motion, or whether the motion was properly heard in Newfoundland and Labrador. The argument was that Newfoundland and Labrador was the governing law of the underlying material contracts and the jurisdiction where both TwinCo and CFLCo are headquartered.
In concluding that the CCAA Court, as a “national court”, had the jurisdiction to hear the CBCA Motion, the CCAA Court considered the following:
(i) the single proceeding model, which applies to insolvency proceedings (including CCAA proceedings), and favours litigation concerning an insolvent company to be dealt within a single jurisdiction rather than fragmented in separate proceedings;
(ii) the court overseeing the insolvency proceedings sits as a national court pursuing the objectives of a federal statute that establishes a centralized “command centre” for all proceedings related to a debtor; and
(iii) a creditor who cannot claim to be “a stranger to the bankruptcy” but desires to fragment the proceedings, in spite of the single-control model, has the burden of demonstrating sufficient cause to send the “trustee scurrying to multiple jurisdictions”.
On the final point, the CCAA Court concluded that neither TwinCo nor CFLCo were “strangers” to the CCAA proceedings, given that among other reasons, they filed a proof of claim and received a partial distribution in the proceedings. The CCAA Court noted that filing a proof of claim amounts to an attornment and consent by TwinCo to the jurisdiction of the CCAA Court. The CCAA Court also noted that the CCAA Parties are bringing the CBCA Motion in an effort to monetize the equity interests in TwinCo such that those proceeds would be distributed to creditors, which in turn includes TwinCo itself. Given the objective of the CBCA Motion is to recover assets to the CCAA Parties’ estates, the CCAA Court has jurisdiction (particularly since it had been managing the proceedings since 2015).
The CCAA Court also considered whether it should decline to exercise its jurisdiction based on the doctrine of forum non conveniens. The CCAA Court determined that it was not appropriate to transfer the motion to Newfoundland and Labrador since, inter alia: (i) the CBCA Motion relates to an asset of the CCAA Parties, the administration of the CCAA parties’ estate as well as the implementation of a court-sanctioned plan; (ii) that the parties would incur additional expense and transferring the CBCA Motion would result in a multiplicity of proceedings, (iii) the CCAA Court is already familiar with the details of the CCAA proceedings and the parties, (iv) given COVID, all evidence is being adduced electronically, and (v) with the exception of some contractual provisions that are governed by Newfoundland law, the actual issues in the CBCA Motion are in respect of federal corporate jurisdiction.
This follows a long line of cases dictating that the single control model in insolvency proceedings should be followed, which is the most efficient and convenient way for all disputes to be dealt with in one forum on an all-encompassing basis.3 This includes the decision of the Honourable Justice Newbould, as he then was,4 in the Nortel proceedings,5 where Newbould J. unequivocally determined that all disputes involving an insolvent company should be decided in the forum presiding over the insolvency proceedings, including claims arising out of extraterritorial governing law contracts.
Absent sufficient cause to disrupt the model and displace the CCAA court’s jurisdiction to keep all claims within a single proceeding, the insolvency courts remain reluctant to fragment disputes involving the debtor company.
At the time of writing this piece, CFLCo has sought leave to appeal this decision. We will continue to monitor the developments in this case.
Published (forthcoming) in National Creditor/Debtor Review (LexisNexis), and republished with permission.
2R.S.C., 1985, c. C-44.
3 See for example, Sam Lévy & Associés Inc. v. Azco Mining Inc., 2001 SCC 92, Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67, and Montréal, Maine & Atlantic Canada Co., Re., 2013 QCCS 5194, and Essar Steel Algoma Inc. et al, 2016 ONSC 595.
4Frank Newbould is now retired from the bench and acts as Counsel with Thornton Grout Finnigan LLP.
5Nortel Networks Corp., Re, 2015 ONSC 1354.