2023 CBA Insolvency Law Conference: The Judges’ Perspective: Hot Topics & Practical Advice

The 2023 CBA Insolvency Law Conference, which was held on September 29, featured an impressive panel of insolvency judges who provided perspectives and practical advice on a range of issues, including orders under the Companies' Creditors Arrangement Act, including first-day relief and first vesting orders, the use of Court-directed alternative dispute resolution (“ADR”) mechanisms in insolvency proceedings, and on cross-border challenges for both judges and counsel.

Participating in the panel were:

• The Honourable Jessica Kimmel, Ontario Superior Court of Justice

•  The Honourable Christian Immer, Superior Court of Québec

• The Honourable David J. Kroft, Manitoba Court of Appeal

• Ian Aversa, Partner, Aird & Berlis LLP (moderator)

Forms of Orders

The judges began by discussing the modifications and deviations from the model orders developed by the courts. They agreed that orders should be restricted to the relief the parties actually need, as well as supported by evidence, law and jurisprudence, as applicable, even more so when deviating from the standard order form.

Mr. Justice Kroft noted that any nonstandard relief must be supported by law and jurisprudence and that counsel must expect questions. It is as such of utmost importance that this is taken into consideration when planning court appearances and court time. A word of advice for counsel: better come prepared. Mr. Justice Kroft adds that the more the standard order forms are modified by counsel, the more important become the local review committees to modernize, revisit and update same. Indeed, referring to the blacklines used by counsel to separate the standard from the specific, Mr. Justice Kroft specifies that it is now “more red than black”.

Madam Justice Kimmel, referring to Royal Bank of Canada v. Distinct Infrastructure Group Inc., 2022 ONSC 5878, added that parties should not assume that the court will automatically grant sealing or confidentiality orders. Although sealing orders are frequent, they require evidence and must be supported by law. The court must balance private and public interests when deciding whether a sealing order should be rendered in the appropriate circumstances. For example, regarding vesting orders in a sale and investment solicitation process (“SISP”) context, if it is requested that only the received bids be sealed in order to preserve commercial trade secrets in case no bid goes through, the order should be rendered. However, the whole report should not be sealed. Something must truly be confidential in order for it to be sealed. Counsel must also be careful regarding the duration of the sealing, which usually should come to an end when the sealing/confidentiality is no longer necessary. Regarding key employee retention plans and the divulgation of compensations and salaries, a debtor could be worried about the dynamics within the organization, in which case the sealing could be more debatable. Similarly, Madam Justice Kimmel adds that when preparing the initial order and modifying the standard order form, counsel should ask itself what is truly and strictly necessary during the ten days before the comeback hearing.

Mr. Justice Immer explained that, in Quebec, Bill 96 has many implications regarding applications to the court, including that any proceeding filed by a corporation must be filed in French, or provide a French translation, although some dispositions are currently suspended, pending the resolution of the constitutional challenges. As such, applications and submission in the commercial division are increasingly made in French. Regarding confidentiality, Mr. Justice Immer added that it is a legitimately important interest to protect and agreed that counsel must ask for the right type of confidentiality order, protecting only what is strictly necessary. Adding to this idea, Mr. Justice Immer specified that shortened service delays and modifications, which can at times be substantial, made to materials after service in the days leading to the hearing can jeopardize the parties’ rights and the effective administration of justice. Indeed, transparency is necessary for a full debate at the hearing.

ADR in Insolvency Proceedings

The judges then turned to the role of ADR in insolvency matters.

Madam Justice Kimmel began by stating that the court is very supportive of mediation and that in Ontario, it can even be ordered, which is what happened, for example, in Sears and Imperial Tobacco. Justice Kimmel also added that in judicial mediation, it is the judge that tries to settle the case. This is cheaper for the parties, but difficult to concretely apply because of scarce judicial resources, which is why private mediation remains a good idea. Madam Justice Kimmel added that some issues can be addressed, and determinations can be made via arbitration, which can also be ordered in Ontario. Transparency however still remains the key.

Mr. Justice Immer then specified that in an insolvency proceeding, the principle of a single control center by one court remains paramount, in order to ensure the efficacy of the process. In Quebec, mediation is solely voluntary and cannot be ordered by the court. However, there is a distinct ADR mechanism called a settlement conference, which is handled by a judge, although this remains mostly used in family law matters, Justice Immer specified never having seen it used in the context of an insolvency proceeding. Indeed, even if some debates in an insolvency proceeding could be mediated, in Quebec, the commercial division is a “business court” and is as such much faster and more efficient than a settlement conference or a mediation. The court can even bypass an arbitration clause.

Mr. Justice Kroft concluded by indicating that judges have a broad jurisdiction and discretion in regard to whether ADR can assist a specific process. The following questions can help make that determination:

• What is the significance of ADR?

• Will ADR help narrow or solve the issue at hand?

• What is the impact of ADR on the whole process? Will it slow it down?

• Is the subject of the ADR better addressed by the court?

• How long will the ADR take?

• How much will it cost?

Reverse Vesting Orders

Finally, the judges discussed reverse vesting orders (“RVO”) and agreed that although they are used increasingly often, they remain nonstandard and exceptional.

Mr. Justice Immer opened the discussion by declaring that Arrangement relatif à Nemaska Lithium inc., 2020 QCCS 3218 and Arrangement relatif à Blackrock Metals Inc., 2022 QCCS 2828 resulted in RVOs being considered as available to parties in an insolvency proceeding. It is of note that in Arrangement relatif à Blackrock Metals Inc., 2022 QCCS 2828, Chief Justice Marie-Anne Paquette applied the criteria of section 36(3) of the Companies' Creditors Arrangement Act in determining whether an RVO was appropriate in the circumstances. However, RVOs remain an uncertain and unsettled issue in Quebec. Indeed, both aforementioned decisions were in natural resources contexts, in which, at the time they were rendered, permits, licenses, claims, etc., could not be easily transferred. Mr. Justice Immer stated that as those same permits, licenses, claims, etc., can now be more easily transferred, it would be possible to use a standard approval and vesting order with more creative thinking. Consequently, there is no definitive “green light” in Quebec regarding the use of RVOs, even if counsel sometimes refer to RVOs and approval and vesting orders as being interchangeable and part of the same standard “buffet” available to a debtor.

Mr. Justice Kroft added that as RVOs deviate from the statutory framework, their status remains uncertain, even more so as there is no specific judgement in Manitoba regarding their use and application.

Madam Justice Kimmel further asserted that as RVOs are nonstandard and exceptional, they necessitate an explanation and justification as to their use. In Ontario, Harte Gold Corp. (Re), 2022 ONSC 653 provided a “roadmap” on RVOs and their use.