EncoreFX Inc. (Re), 2021 BCSC 750

May 05, 2021

Can bankruptcy proceedings be converted to CCAA proceedings?

EncoreFX was in the business of providing foreign exchange risk management and cross-border payment services to predominantly small- and medium-sized enterprises that import or export products to and from foreign markets. On March 30, 2020, EncoreFX made an assignment in bankruptcy pursuant to the Bankruptcy and Insolvency Act. The administration of the bankruptcy became exceedingly complicated, and the Trustee brought numerous applications to address a myriad of issues related to it.

The Trustee then brought an application to initiate a restructuring proceeding under the Companies’ Creditors Arrangement Act and address the administration of the estate in the BIA proceedings. The overall intention was to present a plan of arrangement to the creditors that would streamline the proceedings and bring about a timelier resolution of the matter as compared to the BIA proceedings.

In the circumstances, the issues to be addressed were:

  1. did EncoreFX qualify for relief under the CCAA?

  2. if so, was EncoreFX barred or limited from that relief by other provisions? and

  3. assuming qualifications were met and no limiting factors arose, should the Court exercise its discretion to grant CCAA relief?

First, EncoreFX satisfied the statutory conditions necessary for any CCAA relief. Pursuant to s. 3(1) of the CCAA, the CCAA applies to a “debtor company” having claims against it in excess of $5 million. “Debtor company” is defined in s. 2(1) as including a company that is bankrupt. In addition, EncoreFX filed the necessary materials pursuant to s. 10(2) of the CCAA, including its projected cash flow and copies of all financial statements, audited or unaudited, prepared within a year of the application.

Secondly, EncoreFX was not barred from bringing this application as a result of s. 11.6(b) of the CCAA. The Trustee had obtained the consent of the Inspectors to bring this application, in accordance with s. 116 of the BIA. EncoreFX’s bankruptcy did not arise from a failed proposal process under the BIA, nor from the refusal or deemed refusal of a proposal by the creditors or the Court or an annulment of a proposal.

Thirdly, even if a bankrupt satisfies the statutory requirements under the CCAA, and is not otherwise barred from relief, the Court retains a discretion as to whether or not the granting of relief under the CCAA is appropriate in the circumstances. Whether relief is appropriate is largely driven by a consideration as to whether it is consistent with the purposes of the CCAA. The Supreme Court has articulated the following general statutory objectives of the CCAA:

  1. to permit the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets;

  2. to provide a means whereby the devastating social and economic effects of bankruptcy or creditor-initiated termination of ongoing business operations can be avoided while a court-supervised attempt to reorganize the financial affairs of the debtor company is made;

  3. to avoid the social and economic losses resulting from liquidation of an insolvent company;

  4. to create conditions for preserving the status quo while attempts are made to find common ground amongst stakeholders for a reorganization that is fair to all.

The Trustee argued that a CCAA process would provide significant benefits to the stakeholders by achieving an overall resolution of the issues arising in the estate than would otherwise be available under the BIA. In particular, if the CCAA order were granted, the Trustee intended to seek unique relief that is commonly considered and granted in CCAA proceedings, including the establishment of a claims bar date, the creation of an oversight committee to replace the Inspectors, and Court approval of the Monitor’s release of certain third parties. An added benefit was the avoidance of paying a levy to the Superintendent of Bankruptcy pursuant s. 147 of the BIA, a circumstance that would further lessen the creditors’ recoveries from the estate’s assets.

The Court agreed that allowing EncoreFX the benefit of a more flexible process under the CCAA would benefit all of EncoreFX’s stakeholders, and granted the relief sought by the Trustee.

Counsel: William E.J. Skelly of MLT Aikins LLP for EncoreFX Inc., by Ernst & Young Inc., in its capacity as Trustee in Bankruptcy and Proposed Monitor; Lee Nicholson of Stikeman Elliott LLP and Heather E. Doi of Nathanson, Schachter & Thompson LLP for Andreas Wrede; Thomas D. Boyd of Lawson Lundell LLP for Controlled Environmental Limited and Robert Allan Ltd.; Lisa Hiebert of Borden Ladner Gervais LLP for Bank of Montreal; John Grieve, Q.C. of Fasken Martineau DuMoulin LLP for Annexair Inc., Casmark Seafoods Ltd., Commerce Rosen Inc., Dynamic Windows and Doors Inc., Metalab Design Ltd., Fraser Valley Packers Inc., Shaw Almex Industries Limited, Trinity Organic Produce Inc., Kefiplant Inc. and Nu Era Logistics Inc.; Haddon Murray of Gowling WLG (Canada) LLP for Electrolab Limited, Roll Tide Solutions Inc., The Hi Tech Gears Canada Inc. and Watt and Stewart Commodities Inc.; Craig Frith of McDougall Gauley LLP for Great Northern Growers Inc.; Peter Vaartnou of Jones Emery Hargreaves Swan LLP and Brandon Barnes Trickett of Fillmore Riley LLP for Gustavson Capital Corporation

Judge: Madam Justice Fitzpatrick