RVO approved over CRA objections while CRO appointed

The Court has rendered a key decision in the CCAA proceedings of the Atlas Global Brands group, approving an RVO for one business line over the objections of CRA and appointing a CRO to the other business line.

The Ontario-based cannabis companies obtained CCAA protection on June 20 after a cease-trade order was issued by the OSC and enforcement steps were taken by CRA following Atlas’s failure to remit source deductions, among other things.

Recently, the companies sought approval of an RVO (a credit bid by Shalcor, the DIP lender, and AgriRoots, the first mortgagee) for their international business line — one of two business lines operated by the companies which is operated under AgMedica Bioscience Inc.

Stoke Canada Finance Corp., a secured creditor, sought the appointment of Steinberg Advisory as CRO of the companies’ other business line, GreenSeal Cannabis Company Ltd., which principally operates in the domestic market.

CRA opposed the RVO, arguing that an RVO cannot be used to vest out a deemed trust claim for unremitted source deductions. For their part, the companies acknowledged the overarching legislative scheme confirming the sanctity of deemed trust claims for source deductions. However, they argued that in relation to the source deductions liability, CRA’s claim ranks behind the first-ranking claims of the DIP lender and first mortgagee. As a credit bid, the AgMedica transaction does not provide cash proceeds to satisfy the lower-ranking CRA claim, and there is no basis on which a credit-bidding purchaser can be required to provide cash proceeds to satisfy lower priority claims; the credit bidder need only pay out higher ranking claims to obtain the secured assets in exchange for its debt.

The Court agreed with the companies, stating: “While I too acknowledge the critical importance of the deemed trust for source deductions, and the benefits of the Crown’s interest prevailing in many if not most scenarios, I must also presume that Parliament intended the technical result yielded by the language of the relevant legislative and regulatory provisions and, subject to a change in that law, my task is to enforce those provisions as written, regardless of sympathies. I view this not as succumbing to the tyranny of the market, but rather to adhering to and enforcing the legislation as written.”

The Court also appointed Steinberg Advisory as the CRO of GreenSeal, finding that it makes sense for Stoke and Your Neighborhood Credit Union, another secured creditor whose funds are at stake, to be more directly involved in the negotiation and exploration of potential ways forward for GreenSeal.

Professionals involved: Steinberg Advisory is the CRO. Counsel is Osler for the company, McCarthy Tétrault for EY as monitor, Miller Thomson for the DIP lender, TGF for Your Neighborhood Credit Union, and Reconstruct for Stoke Canada Finance Corp.

Further information can be found HERE.