When can a debtor avoid automatic bankruptcy if it has not filed a proposal after 6 months?
Dundee Oil & Gas Limited (“General Partner”) is the general partner of Dundee Energy Limited Partner (“Limited Partner”). Both companies filed Notices of Intention to Make a Proposal pursuant to s. 50.4(1) of the Bankruptcy and Insolvency Act (“BIA”), and a sales process was commenced. Pursuant to s. 50.4(8)(a) of the BIA, if no proposal is filed by the end of the last BIA stay period, the insolvent person shall be deemed to have made an assignment in bankruptcy. It was unlikely that the sales process would be completed before the end of the six month time limit for BIA proposal proceedings—on February 15, 2018—so the General Partner petitioned the Court to stay the bankruptcy proceedings in respect of the Limited Partner.
The debtor companies, the proposal trustee and the secured creditor were all in favour of continuing an orderly sales process to maximize creditor recoveries and minimize the adverse effects of a “lights-out” liquidation. They agreed to cause the proceedings to be continued under the auspices of the Companies’ Creditors Arrangement Act (“CCAA”)—pursuant to s. 11.6 of the CCAA—to enable the sales process to continue and permit the trustee to continue in an analogous role as Monitor.
The General Partner is not precluded from continuing under the CCAA. The same cannot be said for the Limited Partner because only a “company” may be an applicant under the CCAA, and the definition of that term does not explicitly include limited partnerships. Absent the Court’s discretion, the Limited Partner would be deemed to have made an assignment in bankruptcy on February 15, 2018.
At the time of the hearing, the impact of a bankruptcy order on the interests of the affected stakeholders was unknown. The outcome of a misjudgment could result in a significant loss of value for the stakeholders of the Limited Partner. There was also a concern about the potential duplication and conflict between the BIA proceedings involving the Limited Partner and the CCAA proceedings involving the General Partner.
The Court considered whether it had the jurisdiction to stay the bankruptcy proceedings in respect of the Limited Partner. It concluded that it did and provided several reasons. Firstly, the sufficiently broad language of s. 187(11) of the BIA, which permits the Court to extend the time for doing anything on such terms as the Court deems fit, gives the Court the authority to extend the time for the Limited Partner being deemed to make an assignment in bankruptcy. Secondly, the Court’s broad jurisdiction under s. 11 of the CCAA over a given CCAA application can be exercised harmoniously with the jurisdiction granted to it by s. 187(11) of the BIA, having regard for the collective objects of the CCAA and the BIA. Finally, separate proceedings with respect to the Limited Partner would inevitably affect the interests of the General Partner insofar as the claims against the General Partner may be subject to two simultaneous and potentially conflicting insolvency proceedings. The Court held that such conflict and duplication cannot have been an intended outcome of neither the CCAA nor the BIA.
The facts of this case required the Court to exercise its jurisdiction to prevent a potential conflict between the CCAA and BIA regimes, which share a common legislative objective. The Court found no justifiable reason to cause the current orderly sales process to implode. It allowed the General Partner to commence CCAA proceedings and extended the time for the Limited Partner to be deemed to make an assignment in bankruptcy.
Counsel: Patrick Shea of Gowlings WLG for the Applicants, Grant Moffatt of Thornton Grout Finnigan LLP for the Proposal Trustee and Aubrey Kauffman of Fasken Martineau DuMoulin LLP for the National Bank of Canada
Full case: http://canlii.ca/t/hqdj6