Deferring a sale approval to the US court?

Elevation Gold Mining Corporation (Re), 2024 BCSC 2354
When should the Canadian court defer the approval of a sale transaction to the US court?

Summary: This case involved a dispute as to whether a Canadian court should approve a sale in CCAA “foreign main” proceedings, or defer the matter for determination by the US bankruptcy court. The CCAA debtors were in the business of operating a mine in Arizona. The Canadian parent, a BC company, was the sole shareholder of the only operating company, an Arizona company which was the owner and operator of the mine. Certain parties who claimed an interest in the Arizona lands argued that the Canadian court should defer the sale approval to the US court, since that court was in the process of determining their priority claims. The Canadian court disagreed, finding that it was appropriate to consider the sale approval within the CCAA proceedings. The asset that stood to be transferred was an asset ultimately held by the Canadian parent company. In response to arguments regarding potential issues that might be considered by the US court in for example, a s. 363 analysis, the Canadian court refused to comment on the type of analysis the US court might undertake – that was within the discretion of that court and may be a consideration when recognition of the sale is ultimately sought. The Canadian court did, however, note that its decision was essentially without prejudice to the rights of these parties to assert their claims before the US court.

The petitioners, which were in the business of operating, either directly or indirectly, a mine in Arizona, obtained an initial order under the Companies’ Creditors Arrangement Act on August 1, 2024. On August 27, 2024, the US Bankruptcy Court recognized the CCAA proceedings as foreign main proceedings under Chapter 15 of the US Bankruptcy Code.

Elevation Gold Mining Corporation (“Elevation”) was a BC company and the sole shareholder of the only operating company, being Golden Vertex Corp. (“GVC”), which was an Arizona company. GVC was the owner and operator of the mine in Arizona.

The petitioners applied for an approval and vesting order, pursuant to ss. 36 and 11 of the CCAA. There was a substantial sales and investment solicitation process for many years, even before the CCAA filing. In addition, on August 12, 2024, the Court granted the amended and restated initial order and an order authorizing a sales and investment solicitation process (“SISP”) to be implemented. The SISP gave rise to an offer by EG Acquisition LLC (“EG”), for which approval was sought.

The Monitor supported the petitioners’ motion. The proposed sale had some unusual features. It allowed EG to acquire Elevation’s shares in GVC. Specifically, the proposed transactions required that certain “Residual Liabilities” and “Residual Assets” (i.e., those that EG does not wish to have stay in GVC) be transferred to Elevation. It was anticipated that the sale proceeds, in addition to the Residual Assets, would ultimately rest in Elevation to be distributed in accordance with the priorities that existed at the time.

The priorities were fairly straightforward. Maverix was the main secured creditor, as no other person or party had advanced a claim said to stand in priority to that of Maverix. As such, on the face of things, Maverix had a substantial secured claim against the assets of both Elevation and GVC in an amount of approximately $32.5 million. The proposed sale would not give rise to anything approaching that amount, and, therefore, Maverix would suffer a substantial shortfall.

Patriot Gold Corp. and Nomad Royalty Company Ltd. (collectively, “Patriot”) opposed the sale approval and asserted that they had an interest in the Arizona lands that stood in priority to Maverix's claim. Those positions were previously stated before this Court for some months, and the issue was also before the US Bankruptcy Court for the District of Arizona for a determination of Patriot’s claims. Patriot asserted that this Court should defer the matter of the approval of the sale transaction to the US Bankruptcy Court. Elevation and the Monitor opposed such a result.

The Court agreed with the petitioners and the Monitor that it was appropriate for it to consider the sale approval within these CCAA proceedings. The asset that stood to be transferred here was an asset held by the Canadian parent company. In addition, although the shares held in GVC were in a US company, the shares were physically in Canada and held by Maverix. These factors, among others, provided a significant basis upon which this Court could exercise its jurisdiction.

Patriot's counsel also argued that there could be issues relating to the sale that might be considered by the US court. For example, the US court may undertake a s. 363 analysis, which is the sale provision under the US Bankruptcy Code. The Court made no comment on whether the US court would undertake that type of analysis or any other type of analysis and what that outcome might be. That was within the jurisdiction and discretion of the US Bankruptcy Court and could possibly be a consideration when the Monitor eventually sought to have this sale approval recognized and enforced within the Chapter 15 proceedings.

The EG sale agreement and the order that was sought specifically provided for Patriot’s claims to be determined by the US court. In that respect, the Court agreed with the petitioners and the Monitor that this sale approval was essentially without prejudice to the rights of Patriot to assert their claims in that forum and for the reasons that they advanced in the CCAA proceedings. However, the Court saw no reason to defer the matter of the sale approval for consideration by the US court in the context of these proceedings.

Accordingly, the Court granted the sale approval order.

Judge: The Honourable Madam Justice Fitzpatrick

Counsel: Alexis Teasdale and Angad Bedi of Lawson Lundell for Elevation Gold; Kibben Jackson of Fasken for KSV as monitor; Robin Schwill of Davies for EG Acquisition LLC; David Bish of Torys for Maverix Metals Inc. and Triple Flag Precious Metals Corp.; Tim Pinos of Cassels for Nomad Royalty Company; Lance Williams and Ashley Bowron of McCarthy Tétrault for Patriot Gold Corp.