Coverage of the latest Canadian insolvency filings, court cases, news and more
Zenabis Global Inc. & al. (the “Zenabis Group”), a medical and recreational cannabis cultivator which up until recently licensed approximately 1 million square feet of cultivation space in Atholville, New Brunswick, Stellarton, Nova Scotia, and Langley, British Columbia, obtained CCAA protection on June 17. The Zenabis Group was previously a publicly traded company on the TSX. On June 1, 2021, the Zenabis Group was acquired by Hexo Corp., which has been supporting the Zenabis Group’s financial losses and providing operational and other support since that time. The Zenabis Group has consistently produced negative cash flows due to a variety of factors, including market pressures caused by the fragmentation of the overall cannabis industry and the resulting downwards pressure on margins and general operational and financial underperformance by the group. These factors were compounded by the financial pressures resulting from the group’s obligations to its creditors, including its first ranking secured creditor, 2657408 Ontario Inc. The restructuring plan of the group will involve, among other things, the monetization of the current cannabis inventory of the Zenabis Group and the implementation of a SISP for the Atholville and Stellarton facilities. EY was appointed monitor. Counsel is Norton Rose for the Zenabis Group, Osler for the monitor and McCarthy Tétrault for the senior secured creditor.
By Dina Milivojevic
Armstrong Flooring, Inc., AFI Licensing LLC, Armstrong Flooring Latin America, Inc. and Armstrong Flooring Canada Ltd.
Armstrong Flooring, Inc., AFI Licensing LLC, Armstrong Flooring Latin America, Inc. and Armstrong Flooring Canada Ltd., leading US-based producers of resilient flooring products for use primarily in the construction and renovation of commercial, residential and institutional buildings, had their Chapter 11 proceedings recognized under the CCAA on June 8. For the 12-month period ended December 31, 2021, the companies have incurred net losses of US$35.7 million and has an accumulated deficit of US$349.1 million, with further losses of US$25 million incurred from January through April 2022. 26. The companies’ small cash balance impugns their ability to cover short-term financial obligations as they come due; however, barring significant impairment to its inventories and property, plant, and equipment, the companies’ assets as represented in its financial statements should be sufficient to enable payment of all its liabilities. Grant Thornton was appointed as Information Officer in the Canadian proceedings. Canadian counsel for Armstrong Flooring Inc. is BLG, and counsel for the Information Officer is Lax O’Sullivan Lisus Gottlieb.
By Dina Milivojevic
Canadian Dehua International Mines Group Inc., a British Columbia-based mining company, obtained protection under the CCAA on June 3. The company owns 100% of the shares of two mining projects and a service company, as well as partial ownership interests in several other mining projects. Various factors contributed to the company’s CCAA filing, including: (a) delays in achieving commercial production beyond what was originally planned for certain projects, resulting in the assumption of significant debt and limited revenues; (b) two creditors, Zhonghe Canada Zhonghe Investment Ltd. and China Shougang International Trade & Engineer Corporation (“Shougang”), obtaining default judgements against the company in the approximate amounts of $5.2 million and $20.8 million respectively; and (c) the commencement of bankruptcy proceedings by Shougang seeking to obtain a bankruptcy order as against the company. FTI was appointed Monitor. Counsel is DLA Piper for the company.
By Dina Milivojevic
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Canada’s cannabis industry is starting to experience growing pains. It is grappling with a lack of capital, a mismatch in supply and demand, and many of the other challenges that can be expected in a nascent industry.
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Chandos Construction Ltd. v. Deloitte Restructuring Inc.: Anti-Deprivation Rule Exists in Bankruptcy Law
Romain Viel, Hilary Gilroy and Colin Boyd of McInnes Cooper discuss the key takeaways from the Supreme Court of Canada’s decision in Chandos Construction Ltd. v. Deloitte Restructuring Inc. and provide guidance on the precise scope of the anti-deprivation rule, including the types of clauses that would not violate the rule.