Challenging the single proceeding model

Alderbridge Way GP Ltd. (Re), 2023 BCSC 1718
Does the CCAA court have jurisdiction to order that litigation by and against the debtor be tried within the CCAA proceedings and to customize the procedural rights of the parties in that process?

Overview: In this case, the CCAA debtors and certain guarantors opposed a motion by a secured creditor for an order that various actions by and against the CCAA debtors be tried within the CCAA proceedings. They argued that the actions should be resolved in the fullness of time and with the benefit of the procedural protections of a civil trial outside of the CCAA proceeding. The Court disagreed, finding that it had the jurisdiction to make the order under sections 20 and 11 of the CCAA, and that it should exercise its discretion to do so given the considerable interconnection between the actions and the conduct of the CCAA proceedings.

Significant disputes arose between the CCAA Debtors and two secured creditors, Romspen Investment Corporation (“Romspen”) and GEC Education City (Richmond) Limited Partnership (via its general partner, GEC (Richmond) GP Ltd.) (“GEC”). Those disputes crystallized in various actions filed against Romspen, including by GEC, and an action by Romspen against the CCAA Debtors and guarantors of that debt (collectively, the “Related Actions”). The Related Actions are interrelated and significantly overlap in many, if not most, respects:

1. each of the parties to the Related Actions has an ownership or security interest in the underlying development lands and a contractual nexus to the other parties to the Related Actions; and

2. each of the Related Actions involves claims by or against Romspen and concerns the validity and/or priority of the Romspen Security.

Accordingly, Romspen sought an order that, inter alia, (a) the Related Actions would be tried together in the context of the Debtors’ CCAA proceedings, and (b) set various deadlines for the filing of pleadings, listing of documents and examinations for discovery. The respondents to the application, being the CCAA Debtors/Guarantors and GEC, opposed the relief sought, arguing that the Related Actions should be resolved in the fullness of time and in the usual civil trial process outside of the CCAA proceeding without the CCAA court imposing any case management deadlines at any time.

As at the date of Romspen’s application, the Related Actions were at a very early procedural stage. The Court-appointed Monitor of the CCAA Debtors was of the view that it would be preferable if the outstanding claims in the Related Actions were resolved by Spring 2024 or shortly after a Sale and Investment Solicitation Process is re-started.

The jurisdictional basis for the relief sought by Romspen was two-fold: ss. 20 and 11 of the CCAA. The CCAA specifically mandates that Romspen’s secured claim against the CCAA Debtors must be determined by the Court in these proceedings and on a summary basis. In addition, to the extent that the relief is not specifically provided for in s. 20, s. 11 of the CCAA endows the CCAA court with broad jurisdiction to advance the purposes of the statute by making any order that it considers “appropriate.” A determination in that respect will depend on the unique factual landscape in the restructuring which can be complex.

The Court held that a plain reading of s. 20 of the CCAA led to the conclusion that the Court had jurisdiction to adjudicate the issue as to whether Romspen had a valid debt and security against the development and, if so, in what priority. The substantive issues raised in the Romspen actions defended by the CCAA Debtors or the actions against Rompsen asserted by the CCAA Debtors were to be determined in this proceeding in accordance with the dictates of s. 20 of the CCAA. To the extent that s. 20 of the CCAA did not apply to the issues relating to the Guarantors and GEC, the Court held that it had the jurisdiction to grant the orders sought by Romspen under s. 11 of the CCAA.

The CCAA court has jurisdiction under s. 11 of the CCAA to address the other claims if it is in furtherance of the CCAA’s remedial purposes, including inter-creditor claims. This is entirely consistent with the single proceeding model and the benefits that are intended by that model. The purpose of the model is to provide a “collective proceeding” that “supersedes the usual civil process available to creditors to enforce their claims,” so as to avoid a “free-for-all” among creditors in enforcing remedies against the debtor and its assets. It is indisputable that the CCAA court is attuned to providing a means by which claims can be adjudicated, as they relate to the restructuring proceeding, in an efficient manner and in a manner that is fair to all stakeholders.

As to whether it was appropriate to exercise such jurisdiction in the circumstances, the Court held that it was. The stakeholders were seeking to monetize the development as soon as possible. The priority issues, which were brought to the forefront of the restructuring proceeding in light of the Related Action, were expected to negatively impact the Monitor’s ability to arrange a sale of the development if the disputes in the Related Actions were not resolved beforehand. Each of the Related Actions concerned the CCAA Debtors. The Guarantors were, in each case, either the economic stakeholders of the CCAA Debtors, their controlling minds, or otherwise involved in their business operations leading up to the commencement of these CCAA proceedings. There was considerable interconnection between the Related Actions and the conduct of these CCAA proceedings. Accordingly, it was critical and necessary to determine who held debt and security against the development and the priority of that security. The stakeholders did not enjoy the luxury of taking their time to have the litigation unfold in the Related Actions to resolve those claims in the fulness of time.

The Procedural Order sought by Romspen allowed for the usual civil litigation process, including the filing of the outstanding pleadings, delivery of lists of documents, potential demands for further documents, potential applications to the court to resolve document issues, examinations for discovery and case planning conferences. It did not address the question of the process for determining the claims asserted in the Related Actions after those pre-trial procedures are completed, because it was intended to fully preserve the parties’ rights to argue that the proper procedure for the determination should be a summary trial, a full trial, or a hybrid hearing. The Court held that this approach fully preserved the rights asserted by GEC and the CCAA Debtors/Guarantors and also allowed the parties to have time after the pre-trial procedures to formulate next steps. The Court considered that the benefits from the Procedural Order outweighed any such potential issues down the road.

The Court concluded that the circumstances here dictated that the granting of the Procedural Order was appropriate as it would further the remedial purposes of this CCAA proceeding. Similarly, the Related Actions ought to be determined within the context of these CCAA proceedings, as provided for in the proposed Procedural Order.

Judge: Justice Fitzpatrick

Counsel: Peter Rubin, Peter Bychawski and Roy Lou of Blakes for Romspen 

Howard Shapray, K.C. and Shane Coblin of Kornfeld for the CCAA Debtors

Kibben Jackson and Mishaal Gill for The Bowra Group as Monitor