When will the court replace a CCAA monitor?
Teliphone Corp (“Teliphone”), the former parent company of the Petitioner, applied for an order replacing the court appointed monitor. Teliphone had submitted “proofs of claim” to the monitor, which were rejected. A group of the Petitioner’s creditors opposed Teliphone’s application. The Canada Revenue Agency also opposed the application on the basis that a change of monitors would be harmful “to the process”.
Teliphone argued that the monitor had played an excessively adversarial role in these proceedings, which led to “long delay and great cost” and therefore a “fresh set of eyes” were necessary to “lead to resolution of all of the disputes”. Teliphone also argued that the monitor owed a duty of impartiality, relying on case law for the proposition that a monitor is, above all, an officer of the court. Instead, the monitor—it was argued—had become the principal advocate for its own reports, recommendations and decisions. The monitor’s conduct allegedly caused long delays and raised costs.
Pursuant to s. 11.7(3) of the Companies’ Creditors Arrangement Act (the “CCAA“), a creditor of a company may apply to replace the monitor by appointing another trustee to monitor the affairs of the company. Teliphone’s claim that it was a creditor could not be substantiated. It had not submitted a timely proof of claim in accordance with the claims process order. Therefore, unless Teliphone could establish that it was a creditor—which it had failed to do—it was not entitled to take advantage of the CCAA provision.
Additionally, even if Teliphone could demonstrate that it was a creditor, it had failed to demonstrate that replacing the monitor was appropriate in the circumstances. It is not correct that no cause need be shown to substitute the monitor. A court must balance a potential risk to creditors arising from the alleged potential conflict of interest against the prejudice to creditors arising from inevitable delay, duplication of effort and high costs involved with replacing the monitor at a late stage of the proceeding.
Teliphone offered no evidence that the monitor had done anything wrong in performing its role. It only put forward a submission that the monitor had been too adversarial. The Court held that a monitor is an officer of the court—as are lawyers and various others who perform roles under the supervision of the court. There was no impropriety in an officer of the court advocating an outcome of a proceeding.
An attack on the monitor “is an attack on the integrity of the CCAA process”. The conduct of the monitor complained of by Teliphone did not support a conclusion that it had failed to meet its obligation to the court and must be removed. Moreover, there was no evidence that the proposed monitor had the experience, expertise and resources to perform the role of monitor in the present circumstances.
Section 11.7(2) of the CCAA provides that no trustee may be appointed as a monitor if the trustee was, in the previous two years, a director, officer or employee of the company; was related to the company, or to a director or officer of the of the company; or was the auditor, or accountant, or a partner of an employee of the company. No evidence was offered to satisfy those statutory requirements.
- to permit an insolvent company to avoid bankruptcy;
- to preserve the insolvent company as a viable operation and to reorganize its affairs to the benefit not only of the debtor but of creditors;
- to maintain the status quo for a period of time to provide a structured environment in which an insolvent company can continue to carry on business;
- to protect an insolvent company from proceedings by creditors that would prevent it from carrying out the terms of a compromise or arrangement; and
- in appropriate circumstances to affect a sale, winding up or liquidation of the debtor company and its assets.
The Court denied the application.
Counsel: H.C. Ritchie Clark, Q.C. of Lunny Atmore LLP for Teliphone Corp., Gordon Plottel and Sarah Nelligan of Miller Thomson for the Monitor, Ernst & Young Inc., Jordan Schultz of Dentons Canada LLP for Telus Corp., Lisa Hiebert of Borden Ladner Gervais LLP for Bell Canada, Northwestel Inc., Bell Mobility Inc. and Bell Aliant Regional Communications Inc., Ronald Argue of Munro & Crawford for Bond Capital Fund Limited and Heather Ferris of Lawson Lundell LLP for Navigata Communication Ltd.