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Urbancorp Inc. v. 994697 Ontario Inc., 2023 ONCA 126

What is an order that is “made under” the CCAA for the purposes of leave to appeal?

On October 6, 2016, the Urbancorp companies were placed under the protection of the Companies’ Creditors Arrangement Act and The Fuller Landau Group Inc. was appointed as their Monitor. The order at issue in this appeal arose in an action that was originally commenced by the Monitor in April 2018. On May 9, 2018, the Court authorized the assignment of the Monitor’s claim to the CCAA creditors. The Monitor assigned the claim to Guy Gissin in his capacity as the Foreign Representative of the CCAA creditors of the Urbancorp Companies (Gissin and the CCAA creditors collectively referred to as “the respondents”).

In their statement of claim, the respondents sought to set aside or invalidate transfers of condominium units to the appellants under any of the following: oppression under s. 248 of the Ontario Business Corporations Act, transfers at undervalue under s. 96 of the Bankruptcy and Insolvency Act, fraudulent conveyances under the Fraudulent Conveyances Act, and/or fraudulent preferences under the Assignments and Preferences Act. The respondents brought a pleadings motion to strike allegations in certain paragraphs of the appellants’ amended statement of defence on the basis that they were irrelevant as they were related to the appointment of the Foreign Representative. The motion judge agreed and struck certain sections of the amended statement of defence that contained the irrelevant allegations.

The appellants sought to appeal and argued that leave to appeal was not required under s. 13 of the CCAA because the motion judge’s order was not made under the CCAA or in CCAA proceedings but in an independent action, and the order under appeal related to pleadings and could have been made in any action. The appellants also argued that, as the order related to portions of the defence made in response to the respondents’ oppression remedy claim, they had an automatic right of appeal to the Divisional Court under s. 255 of the OBCA, as from “any order made by the court under this Act”. The respondents, on the other hand, argued that leave was required under the CCAA and the OBCA did not apply.

The analytical framework to be followed in determining whether an order requires leave to appeal under s. 13 of the CCAA was set out in Essar Steel Algoma (Re), 2016 ONCA 138. The leave requirement in s. 13 reinforces the CCAA’s goal of enabling a company to deal with creditors while carrying on business by resolving matters and obtaining finality without undue delay. As a result, the words, “made under this Act” in s. 13 must be given a broad interpretation to achieve the Act’s legislative purpose. The relevant indicia for an appellate court to consider when determining whether an order requires leave to appeal under s. 13 of the CCAA are:

  1. whether the order was “necessarily incidental to the proceedings under the CCAA” or “incidental to any order made under the CCAA”;
  2. whether the order required the interpretation of a previous order made in the CCAA proceeding or involved an issue that impacted on the restructuring organization of the insolvent companies; and
  3. if “CCAA considerations informed the decision of and the exercise of discretion by the chambers judge” or “if a claim is being prosecuted by virtue of or as a result of the CCAA”.

Where the jurisdiction of a court emanates from both the CCAA and another statute, it is unhelpful to deconstruct the proceedings to determine which elements of the case fall under the CCAA and therefore require leave. Rather, if a claim is being prosecuted by virtue of or as a result of the CCAA, section 13 applies.

The Court of Appeal held that the motion judge’s order striking out the paragraphs of the amended statement of defence was bound up with and incidental to the CCAA proceedings out of which the present proceedings arose. The foundation of the motion judge’s decision was that the struck paragraphs were irrelevant to the assigned claim of the Monitor that was brought for the benefit of all creditors in the CCAA proceedings. The struck paragraphs related exclusively to Guy Gissin in his personal capacity and, accordingly, were irrelevant. They would not be considered if the Monitor had pursued the claim. By virtue of the assignment, Mr. Gissin stood in the shoes of the Monitor and pursued the claim for the benefit of all creditors. Pleading facts that related to the unique circumstances of Mr. Gissin would indirectly and impermissibly convert the character of the claim from that of the Monitor to one of the assignee creditors, which would lead to distraction and an unfair trial into areas that were not properly considered on an assignment of the claim.

The struck pleadings were connected to the knowledge of the Foreign Representative to whom the claim was assigned. They were aimed specifically at the transfers at undervalue, which were directly connected with the Urbancorp companies’ insolvency and the creditors’ claims under the CCAA. The order striking the paragraphs potentially impacted the restructuring under the CCAA as it defined the scope of available defences in relation to the s. 96 BIA claims. Circumscribing the breadth of the defence may impact the potential success of the insolvency-related causes of action and the resulting recovery on the part of the creditors.

The Court concluded that the motion judge’s order was “made under” the CCAA such that leave to appeal was required pursuant to s. 13 of the CCAA. In the circumstances, the Court denied leave to appeal and dismissed the appeal.

Judges: BenottoRoberts and Harvison Young JJ.A

Counsel: Chris Reed of Laishley Reed for the appellants; Jeremy Sacks of Miller Thomson for the respondents

Fullcase: https://canlii.ca/t/jvt4s

By Matilda Lici