1057863 B.C. Ltd. (Re), 2022 BCSC 876

June 01, 2022

What is the test for a stay extension that is opposed?

The Petitioner, 1057863 B.C. Ltd., a British Columbia company, was the parent company of the other Petitioners. Together, the group operated a pulp mill in Pictou County, Nova Scotia. They also conducted related forestry activities in Nova Scotia to support those operations. On January 31, 2020, the Petitioners were required to shut down the Pulp Mill, resulting in a complete cessation of its business activities. The reason for the shutdown was an Effluent Treatment Facility (“ETF”) that became inoperable after that date by operation of Nova Scotia’s Boat Harbour Act. The Petitioners sought to establish a replacement ETF, which entailed an approval process and environmental assessment.

The Petitioners commenced proceedings under the Companies’ Creditors Arrangement Act in June 2020. Since that time, the Petitioners continued their efforts toward a way forward that would result in a “successful” restructuring, but encountered challenges. They sought an order to, among other things, extend the stay of proceedings (which expired on April 30, 2022) to October 31, 2022.

The primary debt owed by the Petitioners was to the Province of Nova Scotia and its Ministry of the Environment. Nova Scotia opposed all of the relief sought and took the position that these proceedings should come to an end. It expressed grave concerns regarding the progress of the Petitioners’ efforts, and submitted that it no longer believed the Petitioners were committed to completing the Nova Scotia environmental assessment process (“EA Process”) in good faith and with due diligence. Rather, Nova Scotia suggested that the Petitioners were just using the process of the CCAA to attack the integrity of the EA Process.

Subsection 11.02 of the CCAA allows the court to exercise its broad discretion to allow a debtor time and space to advance its restructuring efforts. As with other CCAA relief, the baseline considerations and requirements are that the stay is “appropriate” and that the debtors have been and are acting in good faith and with due diligence.

The Petitioners referred to the oft-quoted statement in Century Services Inc v. Canada (Attorney General), 2010 SCC 60 that the appropriateness of any order sought is to be considered from the perspective as to whether it will advance the policy objectives of the CCAA. The purpose of the CCAA is to facilitate the survival of going concern entities by permitting them to continue to carry on their business and, if possible, avoid the social and economic costs of liquidating their assets. The stay of proceedings is the central tool by which a court maintains the status quo for the debtor, which allows the debtor to continue its ongoing operations. This allows a debtor the necessary time, flexibility, and “breathing room” to carry out a supervised restructuring or organized sale process.

The Petitioners argued that it was important to take steps to pursue the EA Process. They outlined in detail their efforts since October 2021 toward the Pulp Mill hibernation and maintenance, the continuation of its woodland operations and the efforts and steps taken in the EA Process. Nova Scotia argued that the Petitioners had not achieved any progress or any material progress in the EA process, and were simply engaging in a “public relations” exercise that did nothing to advance that process, while also improperly using the CCAA proceedings to fund litigation against Nova Scotia.

The Court disagreed with Nova Scotia. As confirmed by the Monitor, substantial milestones had been achieved in the EA Process since April 2021. Significantly, the environmental assessment registration document was filed in November 2021. The Court accepted that the Petitioners’ “kernel of a plan” remained intact, namely, advancing the EA Process toward obtaining the necessary environmental approvals that would allow the Pulp Mill to resume operations, in conjunction with a settlement or agreement with Nova Scotia. While there had been some delays and setbacks in advancing the matters, that was not entirely unexpected given the complexity of the issues.

The Court also considered the length of the proposed stay period to October 2022. Determining what amount of time is appropriate involves a balancing of various factors, including what are reasonable estimates to complete anticipated steps, whether a debtor has the financial means to continue over that time and the cost of bringing forward any further stay extension application. The Petitioners argued that, given the complexity of the various activities, six months were required to allow sufficient time for progress to be made and a material update to be provided to the Court on the status of the proceeding. The Court accepted this evidence and concluded that a six-month extension was appropriate. The extension would allow the Petitioners sufficient time to advance the matter.

The Court granted the relief sought by the Petitioners.

Judge: Fitzpatrick J.

Counsel: Harvey Morrison, Q.C. and John Roberts of McInnes Cooper and Sean Collins, Lance Williams and Nathan Stewart of McCarthy Tétrault for the Petitioners; Robert Grant, Q.C., and Maurice Chiasson, Q.C. of Stewart McKelvey and Sean Foreman, Q.C. for the Province of Nova Scotia; P.J. Reardon of Nathanson Schachter & Thompson for Paper Excellence Canada Holdings Corporation; Elizabeth Pillon and Lee Nicholson of Stikeman Elliott for the Monitor, Ernst & Young Inc.; Brendan Brammall of Chernos Flaherty Svonki for Pacific Harbor North American Resources Ltd.; Brian Hebert of McKiggan Hebert for Pictou Landing First Nation; Jeremy Smith and Daniel Boyle for the Nova Scotia Superintendent of Pensions

By Matilda Lici