Debtor appeals creditor-led CCAA initial order

Angus A2A GP Inc (Re), 2024 ABKB 769
Can a debtor appeal a creditor-led CCAA initial order?

Summary: In this case, a group of real estate investment companies that raise money from investors through the exempt securities market were placed under CCAA protection on application by a group of Canadian investors. The investors presented themselves as contingent creditors and adduced evidence to show that the debtors had more than $5 million in debt, were not meeting their obligations as they came due, and were woefully delinquent in their communications with investors and possibly running a fraudulent scheme.

In addition to seeking to set aside the order at the comeback hearing (which was scheduled to be continued at a later date), the debtors sought leave to appeal the initial order. The Court dismissed the application. The Court acknowledged that parties who wish to challenge a CCAA initial order have two options (seeking to set aside the order on the comeback hearing, or seeking leave to appeal the order) which may be pursued in tandem. However, the Court found that the duplication of processes—resulting from the fact that the proposed appeal and the set aside application raised the same issues—would only deplete the assets of the debtor companies and, in turn, potentially reduce the recovery of stakeholders. An appeal of the initial order would provide the Court of Appeal with a thin record on which to decide potentially important issues for insolvency and restructuring practice. The whole point of a comeback application is for a court to make a decision with the benefit of a more robust evidential record and, as in this case, more developed argument from responding parties. This, in turn, provides a better foundation for an appellate court to decide an appeal. The Court held that the Court of Appeal would be in a much better position to hear and decide the issues raised by the debtors on an appeal arising from the continuation of the comeback hearing.

Fossil Creek A2A Developments, LLC and Windridge A2A Developments, LLC (the “US LLC Applicants”) and the remainder of the debtor companies (the “Canadian Applicants” and together, the “Applicants”) sought an extension of time to commence an application for leave to appeal an Initial Order granted pursuant to the Companies’ Creditors Arrangement Act.

A group of investors applied for an Initial Order pursuant to the CCAA on November 14, 2024. The investors presented themselves as contingent creditors and adduced evidence to show that the Applicants had more than $5 million in debt, were not meeting their obligations as they came due, and were woefully delinquent in their communications with investors. The facts presented by the investors were consistent with a failing business or possibly a fraudulent scheme. The application was presented as an urgent matter on the basis that one of the three main properties owned by the Canadian Applicants was to be sold the next day on questionable terms. The Applicants were represented at the Initial Order hearing by their corporate counsel, who advised that he had not had enough time to provide a substantive response to the application.

At the comeback hearing, the Applicants sought to set aside the Initial Order. The Court granted an amended and revised Initial Order (the “ARIO”), finding that it did not have a sufficient evidential record to decide the Applicants’ request to set aside the Initial Order. The Court scheduled a continuation of the comeback hearing to deal with, among other things, the Applicants’ motion to set aside the Initial Order. The Applicants also filed an application for leave to appeal the Court’s decision granting the ARIO with the Court of Appeal.

When determining whether to extend time to commence an appeal, a court must consider the following factors, first set out in Cairns v. Cairns:

1. whether there was a bona fide intention to appeal while the right to appeal existed, and whether there was some special circumstance that would excuse or justify the failure to appeal in time;

2. any explanation for the delay and whether the other side was not so seriously prejudiced by the delay that it would be unjust to disturb the judgment, having regard to the position of both parties;

3. whether the appellant has taken the benefits of the judgment from which appeal is sought; and

4. whether the appeal would have a reasonable chance of success if allowed to proceed.

In addition to the above factors, “surrounding circumstances must be considered and weighed collectively in deciding whether an extension of time is warranted.” The court has jurisdiction to extend time where it is required by the “interests of justice” even where not all the factors have been satisfied.

A court’s evaluation of an application for the extension of time to seek leave to appeal an order made pursuant to the CCAA must account for the distinctive features of the CCAA regime and the circumstances of the specific CCAA proceeding. The CCAA judge must consider the status of the CCAA proceeding, the importance of the appeal to the parties and the CCAA proceeding, and the effect of granting an extension of time to appeal on the CCAA proceeding. This is a context-specific iteration of the “surrounding circumstances” and “interests of justice” considerations that the Court of Appeal weighs along with the Cairns factors.

Parties subject to a CCAA Initial Order have two options if they disagree with the Court: (1) they may seek leave to appeal the Initial Order to the Court of Appeal; or (2) they may move to set aside the Initial Order in the Court of King’s Bench. The options are not exclusive; they may be pursued in tandem.

In the absence of evidence, the Court declined to conclude that there was a reasonable explanation for the Applicants’ delay in commencing an application for leave to appeal the Initial Order. There was prejudice to stakeholders in permitting an extension of time to commence an application for leave to appeal the Initial Order. The duplication of processes—resulting from the fact that the proposed appeal and the set aside application raised the same issues—would only deplete the assets of the debtor companies and, in turn, potentially reduce the recovery of stakeholders.

An appeal of the Initial Order would provide the Court of Appeal with a thin record on which to decide potentially important issues for insolvency and restructuring practice. The whole point of a comeback application is for a court to make a decision with the benefit of a more robust evidential record and, as in this case, more developed argument from responding parties. This, in turn, provides a better foundation for an appellate court to decide an appeal. The Court held that the Court of Appeal would be in a much better position to hear and decide the issues raised by the Applicants on an appeal arising from the continuation of the comeback hearing.

The Applicants did not adduce any evidence to show that they had a bona fide intention to seek leave to appeal within the appeal period nor did they adduce any evidence to explain their failure to seek leave to appeal within the appeal period. There was no overriding interest of justice that demanded that an extension of time to apply for leave to appeal be granted despite the lack of evidence supporting the application. Indeed, to the contrary, the interests of justice weighed against granting an extension of time to apply for leave to appeal. The Applicants were not prejudiced by the denial of their application for an extension of time to apply for leave to appeal because their set aside application would be heard at the continuation of the comeback hearing and, if they were unsuccessful, they would have the right to seek leave to appeal that decision.

The Court dismissed the application to extend the time for leave to appeal the Initial Order.

Judge: Honourable Justice Colin C.J. Feasby

Professionals involved:

• Robyn Gurofsky and Kaitlyn Wong of Fasken for the Canadian Investors

• Howard Gorman, KC and Daniel Stethem of Norton Rose Fulbright for the Offshore Investors

• Jeffrey Oliver and Danica Jorgenson of Cassels for A&M as monitor

• Kyle Kashuba of Torys for Pillar Capital Corp. (the Interim Lender)

• Kelsey Meyer and Luc Rollingson of Bennett Jones for Fossil Creek A2A Developments, LLC and Windridge A2A Developments, LLC

• Daniel Jukes of Miles Davison and Sammy Lee and Stephen Barbier of Metcalfe, Blainey & Burns for Angus A2A GP Inc. et al.