Does a CCAA debtor have standing to oppose a sale of its assets to a competitor?
The petitioners were two companies which were involved in the business of selling telephone services. The Monitor had previously effected, with court approval, sales of two tranches of the petitioners’ assets to the current proposed purchaser. The Monitor now sought approval to sell the remaining assets of the petitioners on terms that included a release in favour of the proposed purchaser and a prohibition against certain companies and persons bringing claims and suits against the purchaser. The Monitor advised that, without the releases and court ordered prohibition, the purchaser would not complete the transaction.
The Monitor was concerned that if this final asset sale were further delayed, the purchaser would walk away, leaving the Monitor to engage in renewed attempts to sell the petitioners’ remaining assets with attendant further costs, which in turn would reduce the recovery to the petitioners’ secured creditors.
The proposed sale was opposed by the petitioners. The petitioners did not contest the purchase price. Instead, they contended that the Monitor had not properly identified all of the petitioners’ remaining assets and, as a result, was attempting to sell assets that did not belong to the petitioners. The petitioners argued that the purchaser, who was their competitor, should not obtain assets it could not lawfully purchase in order to enhance its business to the detriment of the petitioners’ possible plan to re-engage in the telephone services business. They also objected to the release and order prohibiting suits.
A threshold question raised by the Monitor on this application was whether the petitioners had standing to appear with separate counsel and oppose inasmuch as they had not obtained consent from the Monitor or court approval. The petitioners argued that, since they had an interest in the outcome of the sale, there was no court order in place abrogating their rights to dispute matters in court, and as debtors who brought the proceeding and remained as parties, they had standing.
The Court found that it did not need to decide the standing issue because it concluded that, even if the petitioners did have standing, the petitioners’ substantive objections to the proposed sale were without merit, and the sale was fair and reasonable and should be approved.
The Court concluded that the petitioners had not identified any specific assets proposed to be sold as assets which they did not own. Knowledge of the provenance and ownership of any of the impugned assets to be sold should be within the means of knowledge of the petitioners’ former employees or other officers and directors, and they failed to adduce such evidence. Further, there were no other parties whose claims to assets remained outstanding. Any such claims had been decided long ago.
The petitioners’ rationale to oppose the proposed sale on the basis that it may help a business competitor of the petitioners’ failed business or of the petitioners’ solvent affiliates, or impede their possible plan to return to the field in some other capacity, was not a proper basis to oppose the sale. To deny the Monitor’s application in these circumstances would result in pointless delay and expense and would be to the ongoing prejudice of the petitioners’ secured creditors.
As to the release sought, the Court considered the highly contentious issues surrounding ownership of assets and concluded that the release was appropriate in the circumstances in order to effect the sale of the petitioners’ remaining assets. The purchaser’s concern over buying assets coupled with the very real prospect of litigation in respect of the sale was well founded. The proposed release, limited in scope to the instant and prior court-approved transactions and vesting orders was necessary and essential to further this liquidating CCAA and rationally connected to the purpose of the plan to liquidate the petitioners’ remaining assets (which will benefit all remaining creditors entitled to recovery). The proposed sale and final implementation of the liquidation plan would not succeed without it, and the Court was satisfied that the release language was fair and reasonable in the circumstances. Accordingly, the Court approved the sale.
Counsel: Daniel Le Dressay of Le Dressay & Company for the Petitioners, 8640025 Canada Inc. and Teliphone Data Centers Inc.; John R. Shewfelt of Miller Thomson LLP for the Monitor, Ernst & Young; Ronald J. Argue of Munro & Crawford for Bond Capital Fund Limited; Lisa C. Hiebert of Borden Ladner Gervais LLP for Bell Canada, Northwestel Inc., Bell Mobility Inc. and Bell Aliant Regional Communications Inc.; William L. Roberts of Lawson Lundell LLP for Navigata Communication Ltd.; John R. Sandrelli of Dentons Canada LLP for Telus Corp.
Judge: Justice Walker