Barring a creditor from voting at a meeting?

420 Investments Ltd (Re), 2025 ABKB 183
Can a creditor be barred from voting at a meeting?

Summary: In this case, the Court denied a contingent creditor’s right to vote at a meeting to consider a CCAA plan. Although it is generally accepted that creditors with provable claims are usually entitled to vote on plans of arrangement, it is “subject to the proper exercise of discretion by the supervising judge to constrain or bar the creditor’s right to vote”. Barring a creditor from voting at a plan approval meeting should only occur “where the circumstances demand such an outcome”, which is “necessarily a discretionary, circumstance-specific inquiry”. In this case, the contingent creditor’s claim was subject to the trial of an issue that was several years away. To allow the creditor to vote would unduly prejudice the other creditors, particularly the unsecured creditors, who are not awaiting a trial judgment but are presently owed money, and who may be interested in certainty and finality in a speedy process.

On May 29, 2024, the Companies filed a Notice of Intention to Make a Proposal pursuant to section 50.4(1) of the Bankruptcy and Insolvency Act. On September 19, 2024, the Court granted an initial order continuing the NOI Proceedings under the Companies’ Creditors Arrangement Act.

At all material times, one of the Companies, being 420 Parent, owned and operated retail cannabis stores in Alberta. Pursuant to an Arrangement Agreement dated August 28, 2019, Tilray and High Park agreed to acquire 420 Parent. As part of the proposed transaction, pursuant to a Loan Agreement, High Park provided $7 million in bridge financing (the “Bridge Loan”) to 420 Parent to facilitate the continued development of retail stores before the closing of the Arrangement Agreement.

On February 21, 2020, 420 Parent commenced an action against Tilray and High Park. Tilray and High Park subsequently issued a notice of termination, citing 420 Parent’s failure to cure the alleged breaches of the Arrangement Agreement. When 420 Parent refused to repay the Bridge Loan, Tilray and High Park counterclaimed, seeking the repayment of the $7 million advance. The application judge granted High Park’s application for summary judgment, the effect of which was to make enforceable the repayment of the amount advanced under the Bridge Loan plus interest.

420 Parent appealed the High Park Summary Judgment. The appeal was ultimately allowed such that repayment of the Bridge Loan is not currently enforceable by High Park against 420 Parent because its repayment is contingent on whether termination of the Arrangement Agreement has occurred. The issue of whether the Arrangement Agreement has been terminated remains unresolved, and cannot be resolved in a summary manner.

With the context of this litigation, the Companies sought an order permitting the filing of a plan of compromise and arrangement and calling for a meeting of creditors to vote on the plan. High Park opposed the applications and cross-applied for orders that would enhance the Monitor’s powers and direct the Monitor to resume the sale and investment solicitation process that had been commenced.

Where the application for a creditors’ meeting is opposed, courts consider the following non-exhaustive list of circumstances in which a creditors’ meeting order has been refused:

1. the plan is not in the best interests of the debtor and its stakeholders;

2. where there is no reasonable chance the debtor will be able to continue in business;

3. where the plan “lacks economic reality”;

4. where there is no hope creditors would approve the plan, but the Court should not impose too a heavy burden on the proponent to establish the likelihood of success or second guess the probability of success (except where doomed to fail);

5. where the Court would not approve the plan, including where the Court lacks jurisdiction to sanction it;

6. where the plan is inconsistent with court orders or the CCAA process did not unfold fairly and transparently.

High Park argued that the plan was not in the best interests of the Companies and their stakeholders, there was no hope that the creditors would approve the plan, and the CCAA process did not unfold fairly and transparently. High Park also argued that the plan should not be approved because it disregarded and negatively and unfairly impacted High Park, as a secured creditor of 420 Parent, and prohibited High Park from voting on the plan.

The Court noted that in the context of the CCAA proceedings, the quantum of recovery is an important consideration in assessing the best interests of creditors but not the only one. Unsecured creditors strive for the greatest recovery possible, however unsecured creditors are also interested in “certainty and finality in a speedy process”. Certainty and finality can provide a range of value to stakeholders, depending on their circumstances, and are an important consideration in the best interests analysis. Second, while the plan did not offer immediate 100% recovery, it did offer a path to full recovery.

Although it is generally accepted that creditors with provable claims are usually entitled to vote on plans of arrangement, it is “subject to the proper exercise of discretion by the supervising judge to constrain or bar the creditor’s right to vote”. Barring a creditor from voting at a plan approval meeting should only occur “where the circumstances demand such an outcome”, which is “necessarily a discretionary, circumstance-specific inquiry”.

The Companies argued that High Park’s claim was contingent. In High Park’s Counterclaim, the issue for determination was the timing of when the advance of money was repayable, an issue which the Court determined was not capable of being decided in a summary way. Accordingly, as matters stood, the Bridge Loan was not currently repayable and would not be until after a decision has been made at trial several years away.

A trial decision favourable to 420 Parent may result in the Bridge Loan being set off against damages awarded to 420 Parent. If High Park were allowed to vote at the creditors’ meeting, the outcome would be a foregone conclusion. To allow High Park to vote would unduly prejudice the other creditors, particularly the unsecured creditors, who are not awaiting a trial judgment but are presently owed money, and who may be interested in certainty and finality in a speedy process.

Moreover, a failed creditors’ meeting would undoubtedly lead to the resumption of the SISP and the likely liquidation of the Companies. It was not readily apparent that a liquidation of the Companies was required. The Companies had been able to run on a cashflow positive basis in these proceedings without the need for DIP financing. The Court also noted that the Companies commenced these CCAA proceedings as a result of High Park’s enforcement measures, which have since ceased in light of the appellate court’s decision.

Accordingly, the Court exercised its discretion to deny High Park the right to vote on the proposed plan at the Creditors’ Meeting.

Judge: Honourable Justice M.H. Bourque

Professionals involved:

• Karen Fellowes KC, Archer Bell and Matti Lemmens of Stikeman Elliott and Sarah Miller of JSS Barristers (litigation counsel) for the companies

• Kelly Bourassa, Jenna Willis and Nicolas Huertas of Blakes for High Park

• Michael Selnes of Bennett Jones for KSV as monitor

• Linda Galessiere of Camelino Galessiere for RioCan REIT

• Maurice Fleming of Loopstra Nixon for Nomos Capital

• Gaby Schachter of Reconstruct for Stoke Inventory Partners

• Dan Segal of the DOJ for CRA