A new provision in the Companies’ Creditors Arrangement Act came into force in September requiring court approval for any disposition of assets by a CCAA-protected company
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
http://www.lawtimesnews.com/201003226571/Headline-News/CCAA-amendment-changes-game-for-dispositions
Quote, "A new provision in the Companies’ Creditors Arrangement Act came into force in September requiring court approval for any disposition of assets by a CCAA-protected company where the transaction was “outside of the ordinary course of business.”
Edward Sellers was disappointed Justice Sarah Pepall didn’t definitively exclude ‘desirable, good-faith steps taken in effecting a reorganization.’The Industry Canada briefing book on the provision, s. 36, cites its purpose as intending “to provide the debtor company with greater flexibility in dealing with its property while limiting the possibility of abuse” by phoenix corporations.Such abuses arise in the context of owners who engage in serial bankruptcies. These individuals incorporate businesses and then cause them to become bankrupt. The same person purchases the assets at a discount and starts a new business using them. As a result, the owner continues with what amounts to the original business while leaving creditors unpaid.
Reference for the National Post Transfer,
That’s the situation Ontario Superior Court Justice Sarah Pepall faced in the CanWest restructuring. In November, CMI Entities, a group of companies that were under CCAA protection, asked Pepall to approve a transition and reorganization agreement among the various CanWest assets, only some of which were under bankruptcy protection. The idea was to restructure the enterprise by transferring the assets of The National Post to a new entity.
CMI, supported by the monitor, described the transactions involved as “inter-entity arrangements” and asked Pepall to declare that the agreement represented an internal corporate reorganization that wasn’t subject to s. 36. Such a reorganization, it argued, was within the ordinary course of business of the insolvent enterprise and therefore didn’t engage the provision.
But, Pepall noted, not every internal corporate reorganization escaped the purview of s. 36.“Indeed, a phoenix corporation to one may be an internal corporate reorganization to another,” she wrote.In this case, however, the businesses of the Post and the parent of the new subsidiary were “highly integrated and interdependent.” The current arrangement reflected an anomaly that hindered the success of the enterprise and that the agreement aimed to remedy.“The transition and reorganization agreement is an internal reorganization transaction that is designed to realign shared services and assets within the CanWest corporate family so as to rationalize the business structure and to better reflect the appropriate business model,” Pepall noted.It would therefore be “commercially unreasonable” to require the parties to engage in the sale approval process contemplated by s. 36, including putting the Post up for grabs by third parties, before permitting a realignment.“In these circumstances, I am prepared to accept that s. 36 is inapplicable,” Pepall concluded.
But Pepall went on to say that even where the provision didn’t apply, court approval was still necessary when the disposition was to a related person and there existed an apprehension that it wasn’t in the ordinary course of business. But even if the court decided the transaction was so, it could still consider the criteria in s. 36 in assessing whether it was fair.
