CHAPTER 17 Insolvency and Restructuring Proceedings
an operational restructuring of distressed companies in highly regulated industries or owning assets that may be difficult or impossible to transfer. RVOs are also available in receivership. CBCA PROCEEDINGS An arrangement under the CBCA or other Canadian corporate statute is similar to a CCAA restructuring in providing great flexibility for a balance sheet restructuring of a corporation’s debt and equity securities (an operational restructuring generally requires use of a CCAA arrangement, which can be implemented in conjunction with a corporate arrangement). Such reorganizations can often be completed quickly and with less impact and cost compared with a full insolvency proceeding. Like a CCAA reorganization, a corporate arrangement is a court-supervised process, which also may be reviewed at a high level by the corporate regulator, such as the Director under the CBCA. The arrangement process is commenced with an application to the court for an interim order, of which notice must be given to the regulator, who has the right to appear and be heard at the interim order hearing. If the court finds that the proposed plan of arrangement meets the statutory requirements, the court has broad discretion to make any interim order it thinks fit. Typically an interim order will provide for the holding of meetings of securityholders to vote on the arrangement and a stay of proceedings (including claims by creditors). Once the securityholders’ meeting date is set, an information circular and form of proxy will be sent to affected securityholders. The circular will disclose the reasons for the proposed transaction, the steps taken by the corporation’s board of directors to explore alternatives, the proposed mechanics for completing the arrangement, the applicable securityholder approval
thresholds, the date by which the applicant will seek final approval of the arrangement and dissent rights for shareholders whose rights are affected under the arrangement. Generally, one or more fairness opinions will be provided. For an arrangement involving the compromise of debt, a fairness opinion would typically be obtained from an independent financial adviser, demonstrating that each class of securityholders would be better off through the arrangement transaction than if the corporation were liquidated, as well as opining on the fairness of the arrangement between the classes of affected securityholders. In structuring the securityholder votes to approve the plan, debtholders are usually grouped into classes having common interests, and common and preferred shareholders may vote together. The appropriate approval threshold for debtholders is generally two-thirds in value of the total debt held by all the debtholders of each class present, personally or by proxy – the “double majorities” required by the CCAA (a majority in number of votes and two-thirds in value) are not typically required. The corporation must then apply to the court for a final order. Affected securityholders can appear and make submissions at the court hearing. To approve the plan, the court must find that the arrangement is fair and reasonable (which will require that it has a valid business purpose), and that the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way. Although it is rare for a plan to be approved by the court without securityholders having voted in favour of it, securityholder approval is not necessarily required to obtain a final order; a court may be willing to approve an arrangement despite its prejudicial effect on some securityholders if the arrangement is necessary for the corporation’s continued existence.
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