CCAA sale triggers duty to consult?

Teal Jones Group (Re), 2025 BCSC 861
Does the approval of a transaction involving a forestry licence trigger the duty to consult?

Summary: In this case, the British Columbia Court considered whether it should approve a purchase agreement involving a forestry licence. The application was opposed by certain First Nations groups whose traditional territories comprised a significant portion of the lands covered under the licence. They argued that the Court should not approve the purchase agreement because the proposed transaction required the Minister’s approval under the Forest Act and that Court approval of the purchase agreement amounted to an “end run” to avoid the Province’s duty to consult them. The Court found that the duty to consult First Nations had not yet arisen, since the purchase agreement in this case did not provide for an immediate disposition of the licence. The interested First Nations would not be impacted until the start of the process to transfer the licence, when the Minister would begin consultations as constitutionally required. The purchase of the licence was expressly subject to the Minister’s duty to consult affected First Nations, as set out in the purchase agreement. Moreover, the purchase agreement expressly provided that First Nations’ rights would be preserved if the licence were transferred. These transactions did not undermine the Minister’s statutory authority to approve any transfer or disposition of the licence under the Forest Act.

The petitioners are a group of companies (the “Group”) who produce forest products. They have substantial operations in BC and five US states. On April 25, 2024, the petitioners were granted creditor protection pursuant to the Companies' Creditors Arrangement Act and a monitor was appointed.

The Group sought and obtained an order allowing the monitor to engage in a sales and investment solicitation process (the “SISP”) to market various assets held by the Group, including Forest Licence A19201 (the “Licence”). The Licence is a replaceable forest licence located in the Fraser Valley and Pitt Lake regions, which allows for an allowable annual cut of approximately 314,380 cubic meters.

The Group sought approval of certain transactions with Western Canadian Timber Products Ltd. (“WCTP”) in relation to the Licence and an order allowing for the distribution of the sale proceeds that will arise from those transactions. The Group’s application was supported by the direct stakeholders who had a substantial financial interest in the proceedings, and opposed by certain First Nations groups (the “Interested Nations”). The Interested Nations’ traditional territories comprise a significant portion of the lands covered under the Licence.

The duty to consult First Nations in Canada, including the Interested Nations in relation to the transfer of the Licence, is uncontroversial. These consultation rights have been expressly recognized in relation to transactions relating to a tree farm licence issued under the Forest Act. The Group, WCTP and the monitor agreed that these consultative rights and protections must be considered in connection with any application to the Minister of Forests to approve a transfer of the Licence. As a result, the contest between the Group and the Interested Nations was whether those rights and protections had yet to be triggered in relation to the WCTP agreements sought to be approved.

The Interested Nations accepted that the Licence, and the rights and obligations attached to it, could be transferred in certain circumstances. However, the Interested Nations argued that this Court should not approve the purchase agreement because the proposed transaction constituted a “disposition” of the Group’s interest in the Licence which, under the Forest Act, required the Minister’s approval. The Interested Nations argued that Court approval of the purchase agreement and its related agreements amounted to an “end run” to avoid the undertaking of and completion of the Province’s duty to consult them. The Group, the monitor and the stakeholders appearing on this application disagreed that these transactions required the Minister’s approval.

The Court noted that the substance of the agreement is a key consideration, but disagreed that the purchase agreement in this case provided for an immediate “disposition” of the Licence. The duty to consult First Nations had not yet arisen. There was no effect, adverse or otherwise, to the Interested Nations until the start of the process to transfer, inter alia, the Licence, when the Minister would begin consultations as constitutionally required. WCTP’s purchase of the Licence was expressly subject to the Minister’s duty to consult affected First Nations, as set out in the purchase agreement. Moreover, the purchase agreement expressly provided that First Nations’ rights would be preserved if the Licence were transferred. These transactions did not undermine the Minister’s statutory authority to approve any transfer or disposition of the Licence under the Forest Act.

The Court noted that it must have regard to the Group and the stakeholders. The benefits of approval of the purchase agreement were far ranging and affected all of the stakeholders. A closing of the transaction would avoid the Group incurring any further holding costs to maintain the Licence, said to be approximately $1.1 million per annum. Some 400 jobs would be saved by the proposed transactions. Given the current economic challenges facing Canada, the Court noted these were significant benefits for the larger stakeholder group affected by the Group’s insolvency, including the local economies where the Group operated or where those persons doing business with the Group operate.

The Court found that the approval of the transactions between the Group and WCTP could be considered by the Court at this time. In doing so, the Court did not usurp the authority of the Minister in respect of the Crown’s duties under the Forest Act. In particular, the approval did not undermine the Minister’s statutory obligations relating to the transfer of the Licence under s. 54 of the Forest Act and the Crown’s obligations with respect to consultations rights for Indigenous groups.

Judge: The Honourable Madam Justice Fitzpatrick

Professionals involved:

• Colin Brousson and Arad Mojtahedi of DLA Piper for the Teal Jones Group

• Michael Shakra, David Rotchtin and Andrew Froh of Bennett Jones for Wells Fargo and EDC

• Peter Bychawski of Blakes for RBC

• Joe Latham and Erik Axell of Goodmans for EY as monitor

• John Burns of First Peoples Law and J. West and T. Hanson for Katzie First Nation and Nlaka’pamux Nation Tribal Council

• K. Davies for Peters First Nation and PFN 3 Feathers Development Corporation

• S. Boucher and T. Boyd for Domtar Inc.