Strategic Considerations for the Potential Acquirer of Assets Within
CCAA Proceedings
Prepared For: Legal Education Society of Alberta
43rd Annual Refresher Course – Business Law
Prepared By:
Sean F. Collins
McCarthy Tétrault LLP
Calgary, Alberta
For Presentation In:
Lake Louise – May 1–4, 2010
INTRODUCTION
The Companies’ Creditors Arrangement Act, RSC 1985 c. C-36, (the “CCAA”) permits an insolvent
company to obtain a stay of proceedings against it in order to permit it to propose a plan of
compromise or arrangement to its creditors. In order to qualify for relief under the CCAA, an entity
must be a “debtor company” (essentially, a Canadian corporation or income trust) that is insolvent
and has creditor claims against it which exceed $5,000,000. While the CCAA contemplates the
debtors who seek protection will ultimately file a plan of arrangement to restructure their affairs, in
fact, the CCAA is frequently used as a vehicle by debtors as a means of selling the debtor’s assets.
Questions with respect to the appropriateness of the use of the CCAA to facilitate the sale of the
debtor’s undertaking used to be present to mind in any consideration of a CCAA proceeding that was
undertaken for such purpose.1 The controversy surrounding the appropriateness of utilizing the
CCAA to liquidate the assets and undertaking of the debtor would seem to have been further
diminished by virtue of the fact that recent amendments to the CCAA that came into force in
September 2009 now make express provision for permitting a debtor company to sell all or a portion
of its assets and undertaking.2 In any event, as a result of the combined effect of the advancement of
the jurisprudence and the amendments to the CCAA it is relatively common for a debtor who has
sought protection under the CCAA to seek to sell some or all of its assets under and pursuant to the
processes mandated by the CCAA.
A debtor company subject to CCAA proceedings is quite often (but not always) balance sheet
insolvent such that the value it will obtain from the sale of its assets and undertaking will not be
sufficient to discharge all of its obligations. Accordingly, there will be pressure from creditor
stakeholders to ensure that the highest price possible is achieved. Such an objective is, of course,
consistent with the debtor’s objectives. Having said this, it is important that the sales process is one
that is disciplined and designed to be fair, transparent and one that will encourage participation by the
greatest possible number of parties. The stricture placed on the development and implementation of
sales proceedings may, in certain circumstances, mandate that best value, but not necessarily the
highest value, is realized from the sale of the debtor’s assets. A counterbalance to an undisciplined
process that permits a sale to the highest bidder without regard to issues such as a fundamentally fair
and transparent sales process is the fact that participants in the distressed acquisition market and the
courts supervising such participants are mindful of the underlying policy that is engaged in an
insolvency sales process. The policy considerations engaged transcend the interests of the participants
in the process chosen by the debtor company and are directed at the goal of ensuring that a framework
exists that encourages potential acquirers to participate in the distressed acquisition market generally.
It is against this back-drop that this paper considers some issues and practices that arise in connection
with sale proceedings taken under and pursuant to the CCAA with a view to providing some insight
1
In Alberta, for example, the Alberta Court of Appeal in UTI Energy Corp v. Fracmaster Ltd. (1999), 244 A.R. 93
(C.A.) cast doubt on the ability of the Court to permit a sale of the debtor’s undertaking by way of liquidation in CCAA
proceedings. Over the course of the past decade, however, the impact of Fracmaster was somewhat muted, and indeed,
the decision was frequently distinguished as numerous sale proceedings were undertaken under and pursuant to the
CCAA.
2
See CCAA, section 36.
1
into unique issues that arise and best practices to be employed in advising a potential acquirer in a
CCAA sales process.
THE ROLE OF THE MONITOR
While it is beyond the scope of this paper3 to provide a detailed analysis of the role of the courtappointed officer in connection with CCAA proceedings and sales, it will nevertheless be useful to
provide a brief overview of the importance of the monitor in CCAA proceedings.
The initial order commencing a CCAA proceeding must appoint a licenced trustee as “Monitor”. The
CCAA prescribes certain minimum duties and powers which are often augmented by the terms of the
initial order made in the CCAA proceedings. The Monitor, as a court officer, owes its duty to the
Court and must not be an advocate for the company. The Monitor will be heavily involved in all
aspects of any sales process undertaken by the debtor company. Ultimately, the Monitor will report
to the Court with respect to the sales process and, most importantly, the Monitor will provide its
recommendation to the Court concurrent with any application by the debtor company to the Court
seeking approval of any transaction. Given the Monitor’s role in the proceedings, its support for any
given transaction is absolutely essential. Indeed, one can scarcely imagine a circumstance where a
court would approve a transaction over the objection of the Court-appointed Monitor. Accordingly,
it is important for a potential acquirer to ensure that it has established communications and developed
a rapport with the Monitor from the outset of any sales process that may be undertaken by the debtor
company.
THE SALES PROCESS
Preliminary Legal Considerations
A body of jurisprudence has developed in receivership law surrounding considerations the Court is to
make in connection with implementing and determining whether a sales process has been conducted
in a fair and efficient manner. Notwithstanding the fact that the CCAA process is fundamentally
different from a receivership process inasmuch as the debtor remains in possession and conducts the
sales process (as opposed to the circumstance in a receivership where the board of directors is divested
of its powers and the process is conducted by the receiver), the principles surrounding fairness and
integrity of the process from receivership translate well into CCAA sales processes. The leading and
most frequently cited receivership case on this issue is Royal Bank v Sound Air Corp.4 which
establishes that, in connection with an application to approve a sale, the Court should consider:
1.
whether the receiver has made a sufficient effort to get the best price and has not acted
improvidently;
2.
the interests of all parties affected by the sale;
3
4
See the instructive paper entitled “The Role of the Monitor” prepared by Deryck Helkaa for this panel presentation.
(1991), 4 O.R. (3rd) 1 (C.A.).
2