Can a receivership order override the validity and priority of the charges contained in an earlier order granted pursuant to the CCAA in the same insolvency proceedings?
Accel Canada Holdings Limited (“Holdings”) and Accel Energy Canada Limited (“Energy” and, together with Holdings, “Accel”) each filed an NOI on October 21, 2019. The NOI proceedings were converted to CCAA proceedings on November 22, 2019. The Amended and Restated Initial Order approved an interim loan provided by DGDP BC Holdings Ltd. (“DGDP”) and two entities affiliated with Third Eye Capital Corporation (collectively, “TEC”), who advanced 46.67% and 53.33% respectively. DGDP and TEC were also granted the benefit of a charge (the “Interim Lenders’ Charge”) to secure the interim loan.
A SISP was conducted and TEC submitted a credit and cash hybrid bid whereby it would purchase substantially all of the assets of Energy predominantly with cash, and substantially all of the assets of Holdings through a credit bid of a material portion of the pre-filing debt owed to it by Holdings. The Court granted an Order declaring the TEC bid to be the successful bid.
On June 12, 2020, TEC applied for a Receivership Order in respect of Accel. DGDP unsuccessfully opposed the application on the basis that the Receivership Order proposed to subordinate the Interim Lenders’ Charge to the Receiver’s Borrowing Charge. DGDP opposed the reordering of the priorities as it was concerned that the asset purchase agreement being negotiated with TEC would ultimately not provide cash consideration sufficient to repay the interim loan. For its part, TEC argued that the supervising judge had a discretion to set the priorities between the various charges in any reasonable fashion and that changes in the “risk profile” justified giving priority to the Receiver’s Borrowings Charge. The supervising judge granted the Receivership Order and appointed PwC as the Receiver. The Receiver ultimately borrowed over $10 million.
DGDP was granted leave to appeal on the following issue: Can an order made in proceedings under the BIA … legally override the validity and priority of the charges contained in an earlier order granted pursuant to the CCAA in the same insolvency proceedings, without the consent of the person in whose favour the provision relating to validity and priority was given? Put differently, can the granting of the Receiver’s Borrowing Charge in the Receivership Order trump the Interim Lenders’ Charge previously granted in the Amended and Restated Initial Order without the consent of DGDP?
On appeal, the DGDP relied on section 11.2(3) of the CCAA, which provides that the priority of the Interim Lenders’ Charge can only be varied with DGDP’s consent. TEC and the Receiver argued that the Receiver’s Borrowings Charge was not a charge granted under the CCAA and therefore did not fit within the provisions of section 11.2(3). They submitted that, since the Receiver’s Borrowings Charge was made under the BIA, it was not subject to the requirement for consent, and the wide jurisdiction given to supervising judges under the BIA allowed this supervising judge to set priorities.
The Alberta Court of Appeal agreed with the Receiver and TEC. The Court stated that the provisions of the CCAA and BIA should be interpreted in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the statutes, the object of the statutes, and the intention of Parliament. Since the two statutes deal with the same topic, they should be interpreted and applied in a complementary way, with due regard to their different focuses. The reference to “the security or charge” in section 11.2(3) of the CCAA can only be a reference to a security or charge under section 11.2(1). While the priority of a section 11.2 charge cannot be subordinated to another charge under that section without the consent of a prior holder of such a charge, that requirement of consent does not extend to charges created through other sources of jurisdiction, such as the BIA. Accordingly, DGDP did not enjoy a veto over the priority of the Receiver’s Borrowings Charge.
The very wide wording of section 243(1)(c) of the BIA gives supervising judges the broadest possible mandate in insolvency proceedings to enable them to react to any circumstances that may arise. The supervising judge had the jurisdiction or discretion to decide that, in the context of this particular insolvency, it was necessary to give priority to the Receiver’s Borrowings Charge to protect the overall interests of all of the stakeholders.
At the time of the application for the Receivership Order, Accel was in dire financial straits and required additional funding in order to keep operating. If Accel had ceased operating, a liquidation may have followed, resulting in losses to many. In that context, it was reasonable for the supervising judge to appoint a receiver, to give the receiver the power to borrow, and to establish the priority of the Receiver’s Borrowings Charge.
Accordingly, the Court dismissed the appeal.
Judges: Watson, Slatter and Khullar JJA
Counsel: Terry Czechowskyj, Q.C. of Miles Davison and Ian Aversa and Sam Babe of Aird & Berlis for DGDP; Chris Simard and Keely Cameron of Bennett Jones for TEC; Robyn Gurofsky and Jessica Cameron of BLG for PwC as Receiver