Clerk’s Stamp COURT FILE NUMBER: 2001-06194

JUDICIAL CENTRE: CALGARY

APPLICANTS: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, RSC 1985, c C- 36, as amended 109424 AND IN THE MATTER OF THE COMPROMISE OR ARRANGEMENT COM Feb 02 2021 OF REDROCK CAMPS INC., J. Jones SOCKEYE ENTERPRISES INC., SWEETWATER HOSPITALITY INC. and BALDR CONSTRUCTION MANAGEMENT INC.

DOCUMENT: BRIEF

ADDRESS FOR SERVICE AND MLT AIKINS LLP CONTACT INFORMATION OF Barristers & Solicitors PARTY FILING THIS DOCUMENT: 2100 Livingston Place – 222 3rd Avenue SW Calgary, AB T2P 0B4 Attention: Ryan Zahara/Catrina Webster Phone: 403.693.5420/403.693.4347 Facsimile: 403.508.4349 File: 0128056.00002

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TABLE OF CONTENTS

PART I – INTRODUCTION ...... 3 PART II – STATEMENT OF FACTS ...... 4 PART III - ISSUE ...... 13 PART IV – LAW AND ARGUMENT ...... 13 A. Approval of Asset Sales ...... 13 B. Approval of the Reverse Vesting Order ...... 14 C. The Purchase Agreement is Appropriate in the Circumstances ...... 14 D. The Reverse Vesting Order is Appropriate in the Circumstances ...... 16 i. Use and Effect of a Reverse Vesting Order ...... 16 ii. Authority to Grant a Reverse Vesting Order ...... 17 iii. The Reverse Vesting Order is Appropriate in the Current Circumstances ...... 20 iv. The Reverse Vesting Order is in the Best Interests of the Companies’ Stakeholders ...... 21 PART V – RELIEF SOUGHT ...... 22 LIST OF AUTHORITIES ...... 23

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PART I – INTRODUCTION

1. This brief is submitted on behalf of BDO Canada Limited, in its capacity as the court- appointed Monitor (“BDO” or the “Monitor”) of Redrock Camps Inc. (“Redrock”), Sockeye

Enterprises Inc. (“Sockeye”), Sweetwater Hospitality Inc. (“Sweetwater”), and Baldr

Construction Management Inc. (“Baldr”, and together with Redrock, Sockeye and Sweetwater, the “Companies”), in support of an Application filed on January 27, 2021 (the “Application”)

seeking, among other things, the following relief: (i) an order (the “SAVO”) approving the Asset

Purchase Agreement dated January 26, 2021 (the “Purchase Agreement”) between Redrock, as vendor, and Invico Holdings Canada Inc. (“IHC”) and Redrock Camps LP (“RC LP”), by its general partner Redrock Camps GP Ltd. (“RC GP”, and together with IHC and RC LP, the

“Purchasers”), as purchasers, and authorizing Redrock and the Monitor to take any and all such steps as are necessary or advisable to implement and close the transaction contemplated by the Purchase Agreement (the “Transaction”); and (ii) transferring and vesting all of

Redrock’s right, title and interest in and to the Excluded Assets (as defined in the Purchase

Agreement) in the name of Baldr, subject to the Encumbrances (as defined in the Purchase

Agreement) (the “Reverse Vesting Order”).

2. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Sixth Report of the Monitor, dated January 27, 2021 (the “Sixth

Report”).1

3. The Purchase Agreement was the only viable transaction that resulted from the Court-

approved sale and investment solicitation, and is in the best interest of the Companies’

stakeholders as it preserves the business of Redrock on a going concern. The Purchase

Agreement, which is conditional on the Reverse Vesting Order, is appropriate in the

1 Sixth Report of the Monitor, dated January 27, 2021 (the “Sixth Report”).

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circumstances and best fulfils the remedial purpose of the Companies’ Creditors Arrangement

Act (the “CCAA”).2

PART II – STATEMENT OF FACTS

4. On May 13, 2020, this Honourable Court granted the Initial Order, among other things:

(a) declaring that the CCAA applies to the Companies; (b) granting a stay of proceedings up to

and including May 25, 2020 (the "Stay Period"); and (c) appointing BDO as the Monitor of the

Companies in these proceedings.3

5. On May 25, 2020, this Honourable Court granted an Amended and Restated CCAA

Initial Order (the “Amended and Restated Initial Order”), among other things, approving an

Amended and Restated Interim Financing Agreement among the Companies, as borrowers, and

Invico Diversified Income LP (“IDI”), as lender.4

6. Since then, and in addition to extending the stay period to February 12, 2021,5 the Court has granted the following orders:

a. On July 14, 2020 – the SISP Approval Order, pursuant to which the Court

approved the sale and investment solicitation process (as amended, the "SISP"),

the engagement of KPMG Corporate Finance Inc. (the "Sale Advisor") as the

sale advisor in respect of the SISP, and certain charges against the Companies'

Property (as defined in the Amended and Restated Initial Order);6 and

b. On July 14, 2020 – the Enhanced Powers Order, pursuant to which the Court

enhanced the powers of the Monitor to enable it to execute any definitive asset

2 Companies’ Creditors Arrangement Act, 1985 RSC c C-36 (the “CCAA”), at TAB 1. 3 Sixth Report, at paras. 2-3. 4 Sixth Report, at para. 5; Fourth Hawkins Affidavit, at para. 11. 5 Affidavit of David Hawkins, affirmed on January 26, 2021 (the “Fourth Hawkins Affidavit”), at para. 13. 6 Sixth Report, at para. 7(b); Fourth Hawkins Affidavit, at para. 12.

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sale agreements or investment agreements for and on behalf of the Companies

in connection with the SISP.7

7. Pursuant to Orders granted by this Honourable Court on July 17, 2020, September 15,

2020, and October 9, 2020, the stay of proceedings has been extended and is currently set to

expire on February 12, 2021.8

8. Pursuant to the SISP, the Monitor is, among other things, authorized to: (a) direct and manage any SISP and all bids made therein; (b) assess the bids in consultation with the Sale

Advisor, the Companies, and the Companies’ creditors, as appropriate; and (c) seek approval from the Court for the consummation of any successful bid.

9. In accordance with the terms of the SISP, the Sale Advisor marketed the business and assets of the Companies under the supervision and control of the Monitor.9 Specifically, pursuant to the SISP, the Sales Advisor and the Monitor have taken numerous actions with respect to the Companies, which include, among others:

a. marketing and selling the Companies’ property, in accordance with the Monitor’s

duties and powers under the SISP and the Initial Order;

b. researching and identifying potentially interested parties, including strategic and

financial investors;

c. preparing a process summary letter (the “Teaser Letter”) and conditional

information memorandum (the “CIM”) with input from the Monitor’s legal counsel

and the Companies;

d. contacting interested parties by email and/or telephone to determine their interest

in the SISP and other potential investors and providing them with a copy of the

Teaser Letter;

e. arranging for notice of the SISP to be published;

7 Sixth Report, at para. 7(a). 8 Sixth Report, at para. 13. 9 Fourth Hawkins Affidavit, at para. 14.

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f. preparing and populating an electronic date site containing information on the

Companies’ assets and operations (the “Data Room”) for prospective

purchasers;

g. obtaining signed non-disclosure agreements (each an “NDA”) from interested

parties and provided those parties with a copy of the CIM and access to the Data

Room; and

h. responding to due diligence requests from potential investors and their

advisors.10

10. A summary of the various bids received by the Monitor as part of the SISP are set out in the Confidential Supplement to the Sixth Report.11

11. Pursuant to the SISP, the Monitor and the Sale Advisor discussed the bids received, including the Purchasers’ bid, with relevant key stakeholders, apart from IDI and Invico Trade

Capital LP (“ITC”, and with IDI, “Invico”).12

12. The Bid Deadline, as defined in the SISP, was August 21, 2020, which deadline was extended by the Monitor to August 28, 2020.13 On August 31, 2020, the Monitor informed Invico

that it had been selected as the Successful Bidder (as defined in the SISP), with respect to the

following property of the Companies:

a. substantially all of the assets of Redrock, not including its shares in Sockeye,

Sweetwater and Baldr (the “Transferred Assets”); and

b. substantially all of the assets of Sockeye (the “Sockeye Assets”).14

13. Invico was the only bidder that submitted a bid to purchase all of the assets of Redrock

and Sockeye on a going concern basis.15

10 Third Report of the Monitor, dated September 11, 2020 (the “Third Report”), at para. 14. 11 Confidential Supplement to the Monitor’s Sixth Report (“Confidential Supplement”), dated January 28, 2021. 12 Fourth Hawkins Affidavit, at para. 14. 13 Third Report, at para. 15. 14 Fourth Hawkins Affidavit, at para. 15.

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14. The sale of the Sockeye Assets was approved pursuant to an order granted on

December 8, 2020 (the “Sockeye SAVO”). The Monitor and Sockeye are currently in the process of finalizing the closing of that transaction and expect that it will be closed imminently.16

Purchase Agreement and Transaction

15. In accordance with the terms of the SISP, the Monitor, the Companies, the Sale Advisor and the Chief Restructuring Advisor, along with the Purchasers, agreed to carry out the

Purchase Agreement.17

16. The Purchase Agreement provides for, among other things, that:

a. upon and subject to the terms and conditions of the Purchase Agreement, in

consideration of the payment of the purchase price contemplated therein,

Redrock will sell, transfer, convey, assign and deliver to RC LP, and RC LP will

purchase, acquire and assume from Redrock, free of all Claims other than

Permitted Encumbrances, all of Redrock’s respective right, title, estate and

interest in and to the Transferred Assets, including the Included Contracts;18 and

b. at Closing (as defined in the Purchase Agreement), RC LP shall assume, and

become responsible for, and agree to discharge and perform when due the

Assumed Liabilities (as defined in the Purchase Agreement).19

17. The Purchase Agreement is conditional upon the following conditions precedent, among others:

a. Redrock and Invico shall file, seek the approval of and implement a plan of

arrangement jointly under the CCAA and Business Corporations Act, RSA 2000,

c B-9, as amended (the “Plan”);

15 Fourth Hawkins Affidavit, at para. 18. 16 Sixth Report, at para. 22. 17 Sixth Report, at para. 25. 18 Purchase Agreement, at s. 2.1(b), at Exhibit “B” of the Fourth Hawkins Affidavit. 19 Purchase Agreement, at s. 2.2, at Exhibit “B” of the Fourth Hawkins Affidavit.

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b. this Honourable Court shall have issued the SAVO, including the assignment and

vesting of the Included Contracts in RC LP, free and clear of any liabilities

accrued and owing to counterparties to such Included Contract;

c. this Honourable Court shall have issued the Reverse Vesting Order;

d. this Honourable Court shall have issued an order sanctioning the Plan;

e. RC LP and Invico shall have entered into the Exit Invico Loan Agreement (as

defined in the Purchase Agreement) on terms satisfactory to RC LP and Invico;

and

f. such approvals or consents and such Permits (as defined in the Purchase

Agreement) will have been obtained from all appropriate governmental

authorities and counterparties as are required to permit the change of ownership

of the Transferred Assets as contemplated in the Purchase Agreement.20

18. Under the Purchase Agreement and the Plan, Redrock and the Purchasers agreed to carry out a series of transactions and steps, pursuant to which:

a. RC LP would acquire the Transferred Assets, consisting of the Included

Contracts, the Tangible Assets, the Included Real Property Interests, the Books

and Records, the Data, the Included Personal Information, the Included

Intangible Assets, the Intellectual Property and the Trademarked and Branded

Assets, as each is defined in the Purchase Agreement;

b. Redrock would retain the Retained Assets consisting of the Included Permits,

any Included Contract which requires the consent of the counterparty or another

Person to assign, which consent is not available, and any Intellectual Property,

Trademarked and Branded Assets and Included Intangible Assets which require

the consent of another Person to assign, which consent is not available;

c. RC LP and Redrock would assume the Assumed Liabilities;

20 Sixth Report, at para. 27.

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d. the Excluded Assets would be vested in Baldr subject to any Encumbrances now

attaching to them, the Excluded Liabilities would be vested in and deemed to be

assumed by Baldr, and Redrock would cease to have any interest in the

Excluded Assets or any obligation for the Excluded Liabilities;

e. Redrock would acquire all of the Existing Securities without any compensation

being payable to the Existing Security Holders;

f. the Plan would cancel the Existing Securities Class and create the New Shares

Class, the latter of which is the class of common shares in the capital of Redrock

created by the Plan;

g. the New Shares would be issued to IHC; and

h. RC GC and Redrock would amalgamate to form Redrock Camps GP (2021) Ltd.

(“Amalco”).21

19. The parties are now in a position to proceed with the Transaction.

Approval of the Purchase Agreement

20. The Monitor, the Purchasers, and Invico, as applicable, negotiated the Purchase

Agreement and the related transaction documents with the assistance of the Sale Advisor. As noted above, the Purchase Agreement is conditional on the approval of this Honourable Court, among other conditions.22

21. Upon completion of the Purchase Agreement, the Transferred Assets conveyed pursuant to the Purchase Agreement were sufficiently exposed to the market in a commercially reasonable and fair marketing process as approved by and in accordance with the terms of the

SISP and the Initial Order.23

22. The price to be paid for the Transferred Assets, pursuant to the Purchase Agreement, represents the highest and best price that can be obtained for the Transferred Assets in the

21 Sixth Report, at para. 26; Fourth Hawkins Affidavit, at para. 17. 22 Sixth Report, at para. 25. 23 Sixth Report of the Monitor, at para. 45.

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current circumstances.24 Invico was the only bidder in the SISP either for the going concern sale, or for a substantial portion of the core assets of Redrock.25

23. The Transaction, as contemplated by the Purchase Agreement, will allow Redrock to

continue to operate as a going concern, which will preserve the employment of more than 50

individuals, among other benefits.26 The Purchase Agreement contemplates the sale of, among

other things, the operating business of Redrock, which is associated with the Transferred

Assets and the Retained Assets. It is anticipated that RC LP will continue to operate such

portion of Redrock’s business after the completion of the Transaction.27

24. Many of the sites of Redrock’s camps are located on public lands owned by the Crown in right of the Province of Alberta. For these sites, Redrock has obtained “dispositions” of public land from the Province (“Dispositions”). The Dispositions allow Redrock to occupy and build and operate service camps on these sites, which Dispositions can only be assigned with the consent of Alberta Parks and Environment (the “AEP”).28

25. Without these Dispositions and the Included Permits associated therewith, Amalco will be unable to continue to carry on the Business. Recent experience has shown there can be significant delays in the AEP approving assignments of dispositions and Included Permits. Such approvals are discretionary and therefore, there is uncertainty with respect to their availability.29

26. The Purchase Agreement is supported by Invico, who is the only creditor with an economic interest in the assets of Redrock.30

27. The Purchase Agreement, as proposed, is in the best interests of the Companies’ estates and their stakeholders.31

24 Sixth Report, at para. 45. 25 Fourth Hawkins Affidavit, at para. 17. 26 Fourth Hawkins Affidavit, at para. 19. 27 Fourth Hawkins Affidavit, at para. 20. 28 Fourth Hawkins Affidavit, at para. 21. 29 Fourth Hawkins Affidavit, at para. 21. 30 Fourth Hawkins Affidavit, at para. 47. 31 Fourth Hawkins Affidavit, at paras. 24 and 27-29.

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Assignment of Included Contracts

28. As part of the Transaction, the Transferred Assets to be acquired by RC LP include the

Included Contracts to which Redrock is a party. A number of the Included Contracts require the applicable counterparty’s consent for assignment to RC LP.32

29. Pursuant to the Purchase Agreement, Redrock is required to use best efforts to obtain all consents required to assign the Included Contracts to RC LP, failing which an Assignment

Order may be required to effectuate the assignment of the Included Contracts.33 While Redock, with the assistance of the Purchasers and the Monitor, has made and continues to make best efforts to obtain those consents and approvals, given the short time between the finalization of the Purchase Agreement and the anticipated closing date of February 26, 2021, it is not possible for all consents relating to the Included Contracts to be obtained in advance of

Closing.34

30. To the extent there are additional Included Contracts for which the required consent has not been obtained (the “Additional Included Contracts”), pursuant to s. 11.3 of the CCAA, the proposed SAVO provides for notice of the assignment to RC LP of the Additional Included

Contracts; a right for the counterparties to object to the assignment; and absent any objection, the assignment to RC LP of any such Additional Included Contract, subject to the satisfaction any Cure Costs (as defined in the Purchase Agreement).35

31. None of the Included Contracts is: (a) an agreement that has been entered into subsequent to the commencement of these CCAA Proceedings; (b) an eligible financial contract; or (c) a collective agreement.36

32. Pursuant to the proposed SAVO, all monetary defaults in respect of the Included

Contracts (and any Additional Included Contracts), other than arising by reason only of the

32 Fourth Hawkins Affidavit, at para. 35. 33 Sixth Report, at para. 32. 34 Fourth Hawkins Affidavit, at para. 37. 35 Fourth Hawkins Affidavit, at para. 40. 36 Fourth Hawkins Affidavit, at para.39.

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insolvency of Redrock, the initiation of these CCAA proceedings, or the failure to perform a non- monetary obligation under the Included Contract (or Additional included Contract), will be required to be satisfied by RC LP.

33. The assignment of the Included Contracts (and any Additional Included Contracts) to RC

LP is required to facilitate the completion of the Transaction for the benefit of Redrock and its stakeholders.

34. Notwithstanding the assignment of the Included Contracts, or any other provisions of the proposed Included Contracts, Redrock shall continue to be entitled to exercise all of its rights to set-off (or any other contractual rights) and apply any and all post-filing amounts that Redrock owes or may come to owe to any party, as the case may be, as against any amounts that are owed by such party to Redrock.

35. Approving the assignment provisions contained in the SAVO is a condition precedent to the implementation of the Plan.

Approval of the Reverse Vesting Order

36. The issuance of the Reverse Vesting Order is a condition precedent to the closing of the

Purchase Agreement. The Purchase Agreement contemplates that Redrock shall amalgamate with RC GP, pursuant to the Plan. To give effect to this, among other items, the Excluded

Assets and the Excluded Liabilities must be transferred to Baldr in order to ensure there are no

Excluded Liabilities and Excluded Assets remaining in Redrock. The nature of the Excluded

Liabilities, including their amount and their secured or unsecured status, will not be affected or altered as a result of their transfer to and vesting in Baldr.37

37 Fourth Hawkins Affidavit, at para. 42.

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37. The Reverse Vesting Order is necessary to carry out the Transaction.38 All assets and liabilities of Redrock shall be transferred to Baldr, subject to appropriate trust conditions, in a

“siloed” approach that will ensure that the priority of all claims and encumbrances is preserved.

PART III - ISSUE

38. The primary issues for this Honourable Court to determine on the within Application is whether the SAVO and Reverse Vesting Order should be approved.

PART IV – LAW AND ARGUMENT

A. Approval of Asset Sales

39. Pursuant to section 36 of the CCAA, this Honourable Court may authorize a debtor

company to sell assets outside the normal course of business, upon taking into consideration

the following factors set out in sections 36(3) and 36(4) of the CCAA:

Factors to be considered

36(3) In deciding whether to grant the authorization, the court is to consider, among other things, (a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances; (b) whether the monitor approved the process leading to the proposed sale or disposition; (c) whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy; (d) the extent to which the creditors were consulted; (e) the effects of the proposed sale or disposition on the creditors and other interested parties; and (f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.

Additional factors — related persons

36(4) If the proposed sale or disposition is to a person who is related to the company, the court may, after considering the factors referred to in subsection (3), grant the authorization only if it is satisfied that:

38 Fourth Hawkins Affidavit, at para. 46.

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(a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the company; and (b) the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition.39

B. Approval of the Reverse Vesting Order

40. As set out in further detail below, Courts expressly invoke s. 11 of the CCAA in conjunction with s. 36 of the CCAA when granting reverse vesting orders. Section 11 states:

General power of court

11 Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act, if an application is made under this Act in respect of a debtor company, the court, on the application of any person interested in the matter, may, subject to the restrictions set out in this Act, on notice to any other person or without notice as it may see fit, make any order that it considers appropriate in the circumstances.40

C. The Purchase Agreement is Appropriate in the Circumstances

41. The approval of the Purchase Agreement is appropriate in the circumstances and is in the best interests of the Companies’ estate and stakeholders. The Purchase Agreement contemplates the sale of, among other things, the portion of Redrock’s operating business associated with the Transferred Assets. The Purchase Agreement and the related Transaction

are intended to allow Redrock’s acquired business to continue as a going concern.

42. Pursuant to section 36 of the CCAA, this Court has the authority to approve the sale of

substantially all of a debtor company’s assets.41

43. In addition to the factors set out under sections 36(3) and 36(4) of the CCAA, Courts will typically also examine those set out in Royal Bank v. Soundair Corp. (“Soundair”)42 to

determine whether a sale of the debtor’s assets is appropriate in the circumstances.

39 CCAA, at s. 36(3) and 36(4), at TAB 1. 40 CCAA, at s. 11, at TAB 1. 41 CCAA, at s. 36, at TAB 1. 42 Royal Bank v Soundair Corp. (1991), 83 DLR (4th) 76 (Ont CA), at para. 16 (“Soundair”), at TAB 2.

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44. In accordance with the factors set out under section 36(3) of the CCAA and Soundair, the Purchase Agreement is appropriate in the circumstances, based on the following:

a. the Transferred Assets being conveyed pursuant to the Purchase Agreement

were sufficiently exposed to the relevant market in a commercially reasonable

and fair marketing process, in accordance with the terms of the SISP and the

Initial Order. The Purchase Agreement was negotiated after a comprehensive,

court-approved SISP, which involved, among other things: (i) researching and

identifying potentially interested parties including strategic and financial investors;

(ii) marketing and selling the Companies’ property, in accordance with the

Monitor’s duties and powers under the SISP and the Initial Order; (iii) preparing

the Teaser Letter and CIM; (iv) contacting interested parties by email and/or

telephone to determine their interest in the SISP and providing them with a copy

of the Teaser Letter; (v) publishing notice of the SISP; (vi) preparing and

populating the Data Room for prospective purchasers; (vii) obtaining signed

NDAs from interested parties and provided those parties with a copy of the CIM

and access to the Data Room; and (viii) responding to due diligence requests

from potential investors and their advisors;

b. the Monitor and the Court approved the SISP process leading to the proposed

sale;

c. the Monitor agrees that the Purchase Agreement would be more beneficial to the

Companies’ creditors than a sale or disposition under a bankruptcy;

d. the Companies’ creditors were extensively consulted;

e. the Monitor is of the view that the Purchase Agreement represents the best

available outcome for all stakeholders;

f. the price to be paid for the Transferred Assets, pursuant to the Purchase

Agreement, represents the highest and best price that can be obtained for the

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Transferred Assets in the current circumstances and is reasonable and fair,

taking into account their market value, as demonstrated by the summary of all

bids received, as set out in the Confidential Supplement;43

g. the interests of the affected parties has been considered and the Purchase

Agreement is supported by Invico, the principal secured lender;

h. the efficacy and integrity of the SISP has been preserved; and

i. there is no unfairness in the working out of the court-approved SISP, as the

Monitor and Sales Agent undertook substantial efforts to obtain the best value

and avoid any conflict of interest which might arise.

D. The Reverse Vesting Order is Appropriate in the Circumstances

i. Use and Effect of a Reverse Vesting Order

45. In recent CCAA proceedings, Courts have approved reverse vesting orders where it was not practical to compromise amounts owed to creditors through a traditional plan of compromise and arrangement, but it was critical to the viability of a transaction to “cleanse” the debtor company.

46. In general, the purpose of a reverse vesting order is to transfer and vest all of the assets and liabilities of a debtor company, which are not subject to a sale, to another company within the same CCAA proceedings. Cleansing the debtor company allows the purchaser to: (i) utilize the debtor company as a go-forward vehicle, without any concern regarding creditors and obligations that may otherwise be “laying in the weeds”; and (ii) make use of the debtor company’s tax attributes and non-transferable regulatory licences.

47. As set out below, this approach is necessary where the parties would otherwise be unable to preserve the value of significant assets that are subject to restraints on alienation and to provide a corresponding realizable benefit for creditors and stakeholders.

43 Confidential Supplement, at para. 6.

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ii. Authority to Grant a Reverse Vesting Order

48. Courts have recently held that the jurisdiction to grant reverse vesting orders exists under sections 11 and 36 of the CCAA.

49. Pursuant to section 11 of the CCAA, this Honourable Court has the jurisdiction to make any order that it considers appropriate in the circumstances, provided that it meets the following

“baseline” requirements identified by the Supreme Court of Canada in 9354-9186 Quebec Inc. v. Callidus Capital Corp.:

“The anchor of this discretionary authority is s. 11, which empowers a judge ‘to make any order that [the judge] considers appropriate in the circumstances’.

[…]

“The discretionary authority conferred by the CCAA, while broad in nature, is not boundless. This authority must be exercised in furtherance of the remedial objectives of the CCAA, which we have explained above. Additionally, the court must keep in mind three ‘baseline considerations’, which the applicant bears the burden of demonstrating: (1) that the order sought is appropriate in the circumstances, and (2) that the applicant has been acting in good faith and (3) with due diligence.”44 [citations and footnotes omitted]

50. Courts have approved reverse vesting orders in the following cases: (i) JMB Crushing

Systems Inc. – Alberta Court of Queen’s Bench;45 (ii) Quest University Canada (Re) – British

Columbia Supreme Court; (iii) Arrangement relatif à Nemaska Lithium inc. – Superior Court of

Québec; (iv) Plasco Energy, Re – Ontario Superior Court of Justice; (v) Stornway Diamond

Corp, Re – Superior Court of Québec;46 (vi) Wayland – Ontario Superior Court of Justice;47 and

(vii) Beleave Inc. – Ontario Superior Court of Justice.

51. In JMB Crushing Systems Inc. (Re) (“JMB”), the Alberta Court of Queen’s Bench upheld the terms of a reverse vesting order, pursuant to which certain assets were transferred to a

44 9354-9186 Quebec Inc. v. Callidus Capital Corp., 2020 SCC 10, at paras. 48-49, at TAB 3. 45 JMB Crushing Systems Inc. (Re), 2020 ABQB 763, at para. 25 (“JMB”), at TAB 4. 46 Stornoway Diamonds Inc. - Approval and Vesting Order of Justice Gouin in the matter of Stornoway Diamonds Inc. et al, dated October 7, 2019, Quebec Superior Court File No. 500-11-057094-191, at TAB 5. 47 Wayland Group Corp. - Approval and Vesting Order of Justice Hainey dated April 21, 2020 in the Matter of Wayland Group Corp. et al, Ontario Superior Court of Justice File No. CV-19-00632079-CL, at TAB 6

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purchasing company, and certain assets were held back and transferred to a numbered

company.48 The Court noted that the debtor’s creditors continued to have all rights, remedies, and recourses against the numbered company as they had against the debtor company. The

Court accepted the Monitor’s opinion that the reverse vesting order was the only realistic way of preserving the tax attributes of the debtor company, which was critical to the business operations being acquired.49

52. In the British Columbia Superior Court case, Quest University Canada (Re) (“Quest”),

Justice Fitzpatrick considered an application to approve a reverse vesting order, pursuant to which the parties would transfer unsecured claims and minor assets to one company, while the debtor continued as a going concern after transferring the bulk of its assets to the purchaser free and clear of encumbrances beyond certain defined liabilities.50

53. At the outset, Justice Fitzpatrick noted:

“There is no dispute between the parties that this Court has authority to grant the RVO [reverse vesting order] under its general statutory jurisdiction found in s. 11 of the CCAA.”51

54. After reviewing several cases where Courts granted a reverse vesting order,52 Justice

Fitzpatrick noted it was appropriate for Courts to grant reverse vesting orders where

preservation of licences were at stake; the proposed transactions were the only option to

preserve the value of the assets and the business; the sale and investment solicitation

processes were valid; and the proposed transactions were in the best interest of the

stakeholders. In deciding to approve the reverse vesting order, Justice Fitzpatrick further noted:

48 JMB, at para. 25, at TAB 4. 49 JMB, at para. 25, at TAB 4. 50 Quest University Canada (Re), 2020 BCSC 1883 (“Quest”), at TAB 7. 51 Quest, at para. 127, at TAB 7. 52 Plasco Energy, Re (July 17, 2015), Doc. Toronto CV-15-10869-00C (Ont SCJ [Commercial List]), discussed at para. 131 of Quest; Stornoway Diamond Corp., Re (October 7, 2019), Doc. Montreal 500- 11-057094-191 (CS Que), discussed at paras. 132-133 of Quest; Wayland Group Corp., Re (April 21, 2020), Doc. Toronto CV-19-00632079-00CL (Ont Gen Div [Commercial List]), discussed at para. 134 of Quest; Beleave Inc., Re (Sep 18, 2020), Doc. Toronto CV-20-00642097-00CL (Ont Gen Div [Commercial List]), discussed at paras. 138-139 of Quest, at TAB 7.

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“There is no provision in the CCAA that prohibits an RVO structure. As is usually the case in CCAA matters, the court must ensure that any relief is ‘appropriate’ in the circumstances and that all stakeholders are treated as fairly and reasonably ‘as the circumstances permit’: Century Services at para. 70.

“As with the sales considered in most of the above RVO cases, including Nemaska Lithium, this is the only transaction that has emerged to resolve the financial affairs of Quest. No other options are before the stakeholders and the Court that would suggest another path forward.”53

55. In addition, Justice Fitzpatrick noted that Quest University Canada (“Quest”), the debtor, could not sell its ability to grant degrees under its statutory authority. As such, it was critical that

Quest continue its operations, which was achieved through the reverse vesting order.54

56. Finally, in Arrangement relatif à Nemaska Lithium inc. (“Nemaska”),55 for the first time, the Court granted a reverse vesting order in contested CCAA proceedings. The decision to grant the reverse vesting order was upheld on appeal, which decision is available in English.

57. Similar to the cases cited above in Quest, the Court in Nemaska noted that the reverse vesting order allowed the purchaser to carry on the debtor’s mining operations by maintaining existing permits, licences and authorizations.56 The Court of Appeal found the CCAA judge, in approving the proposed reverse vesting order, correctly held that approval of a reverse vesting order under s. 36 of the CCAA is subject to the following factors:

“Whether sufficient efforts to get the price have been made and whether the parties acted providently;

The efficacy and integrity of the process followed;

The interests of the parties; and

Whether any unfairness resulted from the process.”57

58. After considering the above factors, the CCAA judge concluded, and the Court of

Appeal agreed, that a reverse vesting order would be appropriate because:

53 Quest, at paras. 157-158, at TAB 7. 54 Quest, at paras. 161-162, at TAB 7. 55 Arrangement relatif à Nemaska Lithium inc.. 2020 QCCS 3218 (Que. Bktcy.); leave to appeal denied, 2020 QCCA 1488 (CA Que) (“Nemaska”), at TAB 8. 56 Nemaska, at para. 5, at TAB 8. 57 Nemaska, at para. 13, at TAB 8.

23832757 000019 - 20 -

“it would serve to maximize creditor recoveries while maintaining the debtor companies as a going concern and allowing an efficient transfer of the necessary permits, licences and authorizations to the purchaser.”58

59. The Court of Appeal further noted that in reaching his decision, the CCAA judge also considered the evolution of CCAA proceedings; the remedial objectives of Canadian insolvency laws; the CCAA’s priority on facilitating a reorganization that avoids social and economic losses resulting from a liquidation; and the CCAA’s wide discretion, subject to the three “baseline considerations” set out by Justice Fitzpatrick in Quest.59

iii. The Reverse Vesting Order is Appropriate in the Current Circumstances

60. Pursuant to the principles set out above, the Reverse Vesting Order is appropriate in the current circumstances, because: (i) Redrock will continue to hold the Retained Assets, including

Dispositions and other Included Permits, enabling Amalco to continue with Redrock’s operations; (ii) as a necessary component of the Purchase Agreement, it is the only option to preserve the value of Redrock’s business and assets; (iii) the SISP was well marketed; and (iv) the Purchase Agreement, with the Reverse Vesting Order component, represents the best available outcome to the Companies’ stakeholders.

61. First, similar to the circumstances in Quest where the debtor’s ability to grant degrees could not be transferred, or in Nemaska where the debtor held permits, licences, authorizations and special contracts, Redrock’s Dispositions and Included Permits cannot easily be transferred. The Reverse Vesting Order is necessary to facilitate the continued business operations pursuant to those Dispositions and Included Permits.

62. Second, the Reverse Vesting Order is the only available option that preserves Redrock’s business as a going concern, while preserving Redrock’s creditors’ claims. After a well marketed SISP, Invico’s offer was the only offer received for the business as a going concern.

58 Nemaska, at para. 14, at TAB 8. 59 Nemaska, at para. 15, at TAB 8.

23832757 000020 - 21 -

As emphasized in the body of case law cited in Quest, where only one option is generated that preserves the debtor’s business, a reverse vesting order is appropriate.

63. Third, the SISP that led to the only offer from Invico, was well marketed and the Monitor is of the opinion that the Purchase Agreement is the best arrangement that could come out of the SISP.60

64. Fourth, the Purchase Agreement, as effected through the Reverse Vesting Order, is in the best interest of all stakeholders as it preserves the value of Redrock’s business, which would be lost in a liquidation.

65. The circumstances facing the debtors in JMC, Nemaska, Plasco, Stornoway, Wayland, and Beleave resemble those facing the Companies. In each case, the debtors: (i) conducted a

SISP process that generated only a single viable transaction; (ii) faced significant funding challenges requiring an expeditious and cost-effective transaction; and, (iii) the transaction at issue represented the best option by which to generate value for creditors and stakeholders, who would otherwise have faced an even greater shortfall in a liquidation.

iv. The Reverse Vesting Order is in the Best Interest of the Companies’

Stakeholders

66. The Reverse Vesting Order is in the best interests of the Companies’ stakeholders, is appropriate in the circumstances, and is consistent with the remedial purpose of the CCAA. The transfer of the Transferred Assets, Excluded Assets and Excluded Liabilities pursuant to the

Reverse Vesting Order meets the requisite criteria as: (i) it advances the within CCAA

Proceedings; (ii) furthers the remedial purpose of the CCAA by permitting the going concern sale of Redrock; (iii) is the result of a Court-approved sales process, in which the Purchase

Agreement was the only viable transactions which would see the continuation of Redrock’s operations; (iv) is a necessary part of the Purchase Agreement; (v) is reasonable and fair in the circumstances, as it is structured in a “siloed” approach to preserve creditors’ priorities and

60 Sixth Report, at para. 45.

23832757 000021 - 22 -

claims and avoid any corresponding prejudice as a result of same; and, (vi) is in the best interests of stakeholders and creditors. Without the Reverse Vesting Order the Transaction cannot be completed, to the ultimate detriment of all of the Companies’ stakeholders, as there is no reasonable alternative.

PART V – RELIEF SOUGHT

67. For the reasons set out above, the Monitor respectfully requests that this Honourable

Court grant the SAVO and the Reverse Vesting Order.

ALL OF WHICH IS RESPECTFULLY SUBMITTED this __ day of January 2021.

MLT AIKINS LLP

Ryan Zahara/Catrina Webster, Counsel for the Applicant, BDO Canada Limited

23832757 000022 - 23 -

LIST OF AUTHORITIES

Companies’ Creditors Arrangement Act, 1985 RSC c C-36 ...... TAB 1

Royal Bank v. Soundair Corp. (1991), 83 DLR (4th) 76 (Ont CA) ...... TAB 2

9354-9186 Quebec Inc. v. Callidus Capital Corp., 2020 SCC 10 ...... TAB 3

JMB Crushing Systems Inc. (Re), 2020 ABQB 763 ...... TAB 4

Approval and Vesting Order of Justice Gouin in the matter of Stornoway Diamonds Inc. et al, dated October 7, 2019, Quebec Superior Court File No. 500-11-057094-191 ...... TAB 5

Approval and Vesting Order of Justice Hainey dated April 21, 2020 in the Matter of Wayland Group Corp. et al, Ontario Superior Court of Justice File No. CV-19-00632079-CL ...... TAB 6

Quest University Canada (Re), 2020 BCSC 1883 ...... TAB 7

Arrangement relatif à Nemaska Lithium inc.. 2020 QCCS 3218 (Que. Bktcy.); leave to appeal denied, 2020 QCCA 1488 (CA Que) ...... TAB 8

23832757 000023

TAB 1

000024 CANADA

CONSOLIDATION CODIFICATION

Companies’ Creditors Loi sur les arrangements avec Arrangement Act les créanciers des compagnies

R.S.C., 1985, c. C-36 L.R.C. (1985), ch. C-36

Current to January 10, 2021 À jour au 10 janvier 2021

Last amended on November 1, 2019 Dernière modification le 1 novembre 2019

Published by the Minister of Justice at the following address: Publié par le ministre de la Justice à l’adresse suivante : http://laws-lois.justice.gc.ca http://lois-laws.justice.gc.ca 000025 Companies’ Creditors Arrangement Arrangements avec les créanciers des compagnies PART II Jurisdiction of Courts PARTIE II Juridiction des tribunaux Sections 10-11.02 Articles 10-11.02

available to any person specified in the order on any peut être communiqué, aux conditions qu’il estime indi- terms or conditions that the court considers appropriate. quées, à la personne qu’il nomme. R.S., 1985, c. C-36, s. 10; 2005, c. 47, s. 127. L.R. (1985), ch. C-36, art. 10; 2005, ch. 47, art. 127.

General power of court Pouvoir général du tribunal 11 Despite anything in the Bankruptcy and Insolvency 11 Malgré toute disposition de la Loi sur la faillite et Act or the Winding-up and Restructuring Act, if an ap- l’insolvabilité ou de la Loi sur les liquidations et les re- plication is made under this Act in respect of a debtor structurations, le tribunal peut, dans le cas de toute de- company, the court, on the application of any person in- mande sous le régime de la présente loi à l’égard d’une terested in the matter, may, subject to the restrictions set compagnie débitrice, rendre, sur demande d’un intéressé, out in this Act, on notice to any other person or without mais sous réserve des restrictions prévues par la présente notice as it may see fit, make any order that it considers loi et avec ou sans avis, toute ordonnance qu’il estime in- appropriate in the circumstances. diquée. R.S., 1985, c. C-36, s. 11; 1992, c. 27, s. 90; 1996, c. 6, s. 167; 1997, c. 12, s. 124; 2005, c. L.R. (1985), ch. C-36, art. 11; 1992, ch. 27, art. 90; 1996, ch. 6, art. 167; 1997, ch. 12, art. 47, s. 128. 124; 2005, ch. 47, art. 128.

Relief reasonably necessary Redressements normalement nécessaires 11.001 An order made under section 11 at the same 11.001 L’ordonnance rendue au titre de l’article 11 en time as an order made under subsection 11.02(1) or dur- même temps que l’ordonnance rendue au titre du para- ing the period referred to in an order made under that graphe 11.02(1) ou pendant la période visée dans l’ordon- subsection with respect to an initial application shall be nance rendue au titre de ce paragraphe relativement à la limited to relief that is reasonably necessary for the con- demande initiale n’est limitée qu’aux redressements nor- tinued operations of the debtor company in the ordinary malement nécessaires à la continuation de l’exploitation course of business during that period. de la compagnie débitrice dans le cours ordinaire de ses 2019, c. 29, s. 136. affaires durant cette période. 2019, ch. 29, art. 136.

Rights of suppliers Droits des fournisseurs 11.01 No order made under section 11 or 11.02 has the 11.01 L’ordonnance prévue aux articles 11 ou 11.02 ne effect of peut avoir pour effet :

(a) prohibiting a person from requiring immediate a) d’empêcher une personne d’exiger que soient effec- payment for goods, services, use of leased or licensed tués sans délai les paiements relatifs à la fourniture de property or other valuable consideration provided af- marchandises ou de services, à l’utilisation de biens ter the order is made; or loués ou faisant l’objet d’une licence ou à la fourniture de toute autre contrepartie de valeur qui ont lieu après (b) requiring the further advance of money or credit. l’ordonnance; 2005, c. 47, s. 128. b) d’exiger le versement de nouvelles avances de fonds ou de nouveaux crédits. 2005, ch. 47, art. 128.

Stays, etc. — initial application Suspension : demande initiale 11.02 (1) A court may, on an initial application in re- 11.02 (1) Dans le cas d’une demande initiale visant une spect of a debtor company, make an order on any terms compagnie débitrice, le tribunal peut, par ordonnance, that it may impose, effective for the period that the court aux conditions qu’il peut imposer et pour la période considers necessary, which period may not be more than maximale de dix jours qu’il estime nécessaire : 10 days, a) suspendre, jusqu’à nouvel ordre, toute procédure (a) staying, until otherwise ordered by the court, all qui est ou pourrait être intentée contre la compagnie proceedings taken or that might be taken in respect of sous le régime de la Loi sur la faillite et l’insolvabilité the company under the Bankruptcy and Insolvency ou de la Loi sur les liquidations et les restructura- Act or the Winding-up and Restructuring Act; tions;

Current to January 10, 2021 13 À jour000026 au 10 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 Companies’ Creditors Arrangement Arrangements avec les créanciers des compagnies PART III General PARTIE III Dispositions générales Obligations and Prohibitions Obligations et interdiction Section 36 Article 36

Restriction on disposition of business assets Restriction à la disposition d’actifs 36 (1) A debtor company in respect of which an order 36 (1) Il est interdit à la compagnie débitrice à l’égard has been made under this Act may not sell or otherwise de laquelle une ordonnance a été rendue sous le régime dispose of assets outside the ordinary course of business de la présente loi de disposer, notamment par vente, unless authorized to do so by a court. Despite any re- d’actifs hors du cours ordinaire de ses affaires sans l’au- quirement for shareholder approval, including one under torisation du tribunal. Le tribunal peut accorder l’autori- federal or provincial law, the court may authorize the sale sation sans qu’il soit nécessaire d’obtenir l’acquiescement or disposition even if shareholder approval was not ob- des actionnaires, et ce malgré toute exigence à cet effet, tained. notamment en vertu d’une règle de droit fédérale ou pro- vinciale.

Notice to creditors Avis aux créanciers (2) A company that applies to the court for an authoriza- (2) La compagnie qui demande l’autorisation au tribunal tion is to give notice of the application to the secured en avise les créanciers garantis qui peuvent vraisembla- creditors who are likely to be affected by the proposed blement être touchés par le projet de disposition. sale or disposition.

Factors to be considered Facteurs à prendre en considération (3) In deciding whether to grant the authorization, the (3) Pour décider s’il accorde l’autorisation, le tribunal court is to consider, among other things, prend en considération, entre autres, les facteurs sui- vants : (a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances; a) la justification des circonstances ayant mené au projet de disposition; (b) whether the monitor approved the process leading to the proposed sale or disposition; b) l’acquiescement du contrôleur au processus ayant mené au projet de disposition, le cas échéant; (c) whether the monitor filed with the court a report stating that in their opinion the sale or disposition c) le dépôt par celui-ci d’un rapport précisant que, à would be more beneficial to the creditors than a sale son avis, la disposition sera plus avantageuse pour les or disposition under a bankruptcy; créanciers que si elle était faite dans le cadre de la faillite; (d) the extent to which the creditors were consulted; d) la suffisance des consultations menées auprès des (e) the effects of the proposed sale or disposition on créanciers; the creditors and other interested parties; and e) les effets du projet de disposition sur les droits de (f) whether the consideration to be received for the tout intéressé, notamment les créanciers; assets is reasonable and fair, taking into account their market value. f) le caractère juste et raisonnable de la contrepartie reçue pour les actifs compte tenu de leur valeur mar- chande.

Additional factors — related persons Autres facteurs (4) If the proposed sale or disposition is to a person who (4) Si la compagnie projette de disposer d’actifs en fa- is related to the company, the court may, after consider- veur d’une personne à laquelle elle est liée, le tribunal, ing the factors referred to in subsection (3), grant the au- après avoir pris ces facteurs en considération, ne peut ac- thorization only if it is satisfied that corder l’autorisation que s’il est convaincu :

(a) good faith efforts were made to sell or otherwise a) d’une part, que les efforts voulus ont été faits pour dispose of the assets to persons who are not related to disposer des actifs en faveur d’une personne qui n’est the company; and pas liée à la compagnie;

(b) the consideration to be received is superior to the b) d’autre part, que la contrepartie offerte pour les ac- consideration that would be received under any other tifs est plus avantageuse que celle qui découlerait de

Current to January 10, 2021 46 À jour000027 au 10 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 Companies’ Creditors Arrangement Arrangements avec les créanciers des compagnies PART III General PARTIE III Dispositions générales Obligations and Prohibitions Obligations et interdiction Section 36 Article 36

offer made in accordance with the process leading to toute autre offre reçue dans le cadre du projet de dis- the proposed sale or disposition. position.

Related persons Personnes liées (5) For the purpose of subsection (4), a person who is re- (5) Pour l’application du paragraphe (4), les personnes lated to the company includes ci-après sont considérées comme liées à la compagnie :

(a) a director or officer of the company; a) le dirigeant ou l’administrateur de celle-ci;

(b) a person who has or has had, directly or indirectly, b) la personne qui, directement ou indirectement, en control in fact of the company; and a ou en a eu le contrôle de fait;

(c) a person who is related to a person described in c) la personne liée à toute personne visée aux alinéas paragraph (a) or (b). a) ou b).

Assets may be disposed of free and clear Autorisation de disposer des actifs en les libérant de restrictions (6) The court may authorize a sale or disposition free (6) Le tribunal peut autoriser la disposition d’actifs de la and clear of any security, charge or other restriction and, compagnie, purgés de toute charge, sûreté ou autre res- if it does, it shall also order that other assets of the com- triction, et, le cas échéant, est tenu d’assujettir le produit pany or the proceeds of the sale or disposition be subject de la disposition ou d’autres de ses actifs à une charge, to a security, charge or other restriction in favour of the sûreté ou autre restriction en faveur des créanciers tou- creditor whose security, charge or other restriction is to chés par la purge. be affected by the order.

Restriction — employers Restriction à l’égard des employeurs (7) The court may grant the authorization only if the (7) Il ne peut autoriser la disposition que s’il est convain- court is satisfied that the company can and will make the cu que la compagnie est en mesure d’effectuer et effec- payments that would have been required under para- tuera les paiements qui auraient été exigés en vertu des graphs 6(5)(a) and (6)(a) if the court had sanctioned the alinéas 6(5)a) et (6)a) s’il avait homologué la transaction compromise or arrangement. ou l’arrangement.

Restriction — intellectual property Restriction à l’égard de la propriété intellectuelle (8) If, on the day on which an order is made under this (8) Si, à la date à laquelle une ordonnance est rendue à Act in respect of the company, the company is a party to son égard sous le régime de la présente loi, la compagnie an agreement that grants to another party a right to use est partie à un contrat qui autorise une autre partie à uti- intellectual property that is included in a sale or disposi- liser un droit de propriété intellectuelle qui est compris tion authorized under subsection (6), that sale or disposi- dans la disposition d’actifs autorisée en vertu du para- tion does not affect that other party’s right to use the in- graphe (6), cette disposition n’empêche pas l’autre partie tellectual property — including the other party’s right to d’utiliser le droit en question ni d’en faire respecter l’uti- enforce an exclusive use — during the term of the agree- lisation exclusive, à condition que cette autre partie res- ment, including any period for which the other party ex- pecte ses obligations contractuelles à l’égard de l’utilisa- tends the agreement as of right, as long as the other party tion de ce droit, et ce, pour la période prévue au contrat continues to perform its obligations under the agreement et pour toute prolongation de celle-ci dont elle se prévaut in relation to the use of the intellectual property. de plein droit. 2005, c. 47, s. 131; 2007, c. 36, s. 78; 2017, c. 26, s. 14; 2018, c. 27, s. 269. 2005, ch. 47, art. 131; 2007, ch. 36, art. 78; 2017, ch. 26, art. 14; 2018, ch. 27, art. 269.

Current to January 10, 2021 47 À jour000028 au 10 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019

TAB 2

000029 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

1991 CarswellOnt 205 Ontario Court of Appeal

Royal Bank v. Soundair Corp.

1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321, 4 O.R. (3d) 1, 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76

ROYAL BANK OF CANADA (plaintiff/respondent) v. SOUNDAIR CORPORATION (respondent), CANADIAN PENSION CAPITAL LIMITED (appellant) and CANADIAN INSURERS' CAPITAL CORPORATION (appellant)

Goodman, McKinlay and Galligan JJ.A.

Heard: June 11, 12, 13 and 14, 1991 Judgment: July 3, 1991 Docket: Doc. CA 318/91

Counsel: J. B. Berkow and S. H. Goldman , for appellants Canadian Pension Capital Limited and Canadian Insurers' Capital Corporation. J. T. Morin, Q.C. , for Air Canada. L.A.J. Barnes and L.E. Ritchie , for plaintiff/respondent Royal Bank of Canada. S.F. Dunphy and G.K. Ketcheson , for Ernst & Young Inc., receiver of respondent Soundair Corporation. W.G. Horton , for Ontario Express Limited. N.J. Spies , for Frontier Air Limited.

Subject: Corporate and Commercial; Insolvency Headnote Receivers --- Conduct and liability of receiver — General conduct of receiver Court considering its position when approving sale recommended by receiver. S Corp., which engaged in the air transport business, had a division known as AT. When S Corp. experienced financial difficulties, one of the secured creditors, who had an interest in the assets of AT, brought a motion for the appointment of a receiver. The receiver was ordered to operate AT and to sell it as a going concern. The receiver had two offers. It accepted the offer made by OEL and rejected an offer by 922 which contained an unacceptable condition. Subsequently, 922 obtained an order allowing it to make a second offer removing the condition. The secured creditors supported acceptance of the 922 offer. The court approved the sale to OEL and dismissed the motion to approve the 922 offer. An appeal was brought from this order. Held: The appeal was dismissed. Per Galligan J.A.: When a court appoints a receiver to use its commercial expertise to sell an airline, it is inescapable that it intends to rely upon the receiver's expertise and not upon its own. The court should be reluctant to second-guess, with the benefit of hindsight, the considered business decisions made by its receiver. The conduct of the receiver should be reviewed in the light of the specific mandate given to him by the court. The order appointing the receiver did not say how the receiver was to negotiate the sale. The order obviously intended, because of the unusual nature of the asset being sold, to leave the method of sale substantially to the discretion of the receiver. To determine whether a receiver has acted providently, the conduct of the receiver should be examined in light of the information the receiver had when it agreed to accept an offer. On the date the receiver accepted the OEL offer, it had only two offers: that of OEL, which was acceptable, and that of 922, which contained an unacceptable condition. The decision made was a sound one in the circumstances. The receiver made a sufficient effort to obtain the best price, and did not act improvidently.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000030 1 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

The court must exercise extreme caution before it interferes with the process adopted by a receiver to sell an unusual asset. It is important that prospective purchasers know that, if they are acting in good faith, bargain seriously with a receiver and enter into an agreement with it, a court will not lightly interfere with the commercial judgment of the receiver to sell the assets to them. Per McKinlay J.A. (concurring in the result): It is most important that the integrity of procedures followed by court-appointed receivers be protected in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers. In all cases, the court should carefully scrutinize the procedure followed by the receiver. While the procedure carried out by the receiver in this case was appropriate, given the unfolding of events and the unique nature of the asset involved, it may not be a procedure that is likely to be appropriate in many receivership sales. Per Goodman J.A. (dissenting): It was imprudent and unfair on the part of the receiver to ignore an offer from an interested party which offered approximately triple the cash down payment without giving a chance to the offeror to remove the conditions or other terms which made the offer unacceptable to the receiver. The offer accepted by the receiver was improvident and unfair insofar as two creditors were concerned.

Appeal from order approving sale of assets by receiver.

Galligan J.A. :

1 This is an appeal from the order of Rosenberg J. made on May 1, 1991. By that order, he approved the sale of Air Toronto to Ontario Express Limited and Frontier Air Limited, and he dismissed a motion to approve an offer to purchase Air Toronto by 922246 Ontario Limited.

2 It is necessary at the outset to give some background to the dispute. Soundair Corporation ("Soundair") is a corporation engaged in the air transport business. It has three divisions. One of them is Air Toronto. Air Toronto operates a scheduled airline from Toronto to a number of mid-sized cities in the United States of America. Its routes serve as feeders to several of Air Canada's routes. Pursuant to a connector agreement, Air Canada provides some services to Air Toronto and benefits from the feeder traffic provided by it. The operational relationship between Air Canada and Air Toronto is a close one.

3 In the latter part of 1989 and the early part of 1990, Soundair was in financial difficulty. Soundair has two secured creditors who have an interest in the assets of Air Toronto. The Royal Bank of Canada (the "Royal Bank") is owed at least $65 million dollars. The appellants Canadian Pension Capital Limited and Canadian Insurers' Capital Corporation (collectively called "CCFL") are owed approximately $9,500,000. Those creditors will have a deficiency expected to be in excess of $50 million on the winding up of Soundair.

4 On April 26, 1990, upon the motion of the Royal Bank, O'Brien J. appointed Ernst & Young Inc. (the "receiver") as receiver of all of the assets, property and undertakings of Soundair. The order required the receiver to operate Air Toronto and sell it as a going concern. Because of the close relationship between Air Toronto and Air Canada, it was contemplated that the receiver would obtain the assistance of Air Canada to operate Air Toronto. The order authorized the receiver:

(b) to enter into contractual arrangements with Air Canada to retain a manager or operator, including Air Canada, to manage and operate Air Toronto under the supervision of Ernst & Young Inc. until the completion of the sale of Air Toronto to Air Canada or other person.

Also because of the close relationship, it was expected that Air Canada would purchase Air Toronto. To that end, the order of O'Brien J. authorized the Receiver:

(c) to negotiate and do all things necessary or desirable to complete a sale of Air Toronto to Air Canada and, if a sale to Air Canada cannot be completed, to negotiate and sell Air Toronto to another person, subject to terms and conditions approved by this Court.

5 Over a period of several weeks following that order, negotiations directed towards the sale of Air Toronto took place between the receiver and Air Canada. Air Canada had an agreement with the receiver that it would have exclusive negotiating rights during that period. I do not think it is necessary to review those negotiations, but I note that Air Canada had complete

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000031 2 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... access to all of the operations of Air Toronto and conducted due diligence examinations. It became thoroughly acquainted with every aspect of Air Toronto's operations.

6 Those negotiations came to an end when an offer made by Air Canada on June 19, 1990, was considered unsatisfactory by the receiver. The offer was not accepted and lapsed. Having regard to the tenor of Air Canada's negotiating stance and a letter sent by its solicitors on July 20, 1990, I think that the receiver was eminently reasonable when it decided that there was no realistic possibility of selling Air Toronto to Air Canada.

7 The receiver then looked elsewhere. Air Toronto's feeder business is very attractive, but it only has value to a national airline. The receiver concluded reasonably, therefore, that it was commercially necessary for one of Canada's two national airlines to be involved in any sale of Air Toronto. Realistically, there were only two possible purchasers, whether direct or indirect. They were Air Canada and Canadian Airlines International.

8 It was well known in the air transport industry that Air Toronto was for sale. During the months following the collapse of the negotiations with Air Canada, the receiver tried unsuccessfully to find viable purchasers. In late 1990, the receiver turned to Canadian Airlines International, the only realistic alternative. Negotiations began between them. Those negotiations led to a letter of intent dated February 11, 1990. On March 6, 1991, the receiver received an offer from Ontario Express Limited and Frontier Airlines Limited, who are subsidiaries of Canadian Airlines International. This offer is called the OEL offer.

9 In the meantime, Air Canada and CCFL were having discussions about making an offer for the purchase of Air Toronto. They formed 922246 Ontario Limited ("922") for the purpose of purchasing Air Toronto. On March 1, 1991, CCFL wrote to the receiver saying that it proposed to make an offer. On March 7, 1991, Air Canada and CCFL presented an offer to the receiver in the name of 922. For convenience, its offers are called the "922 offers."

10 The first 922 offer contained a condition which was unacceptable to the receiver. I will refer to that condition in more detail later. The receiver declined the 922 offer and on March 8, 1991, accepted the OEL offer. Subsequently, 922 obtained an order allowing it to make a second offer. It then submitted an offer which was virtually identical to that of March 7, 1991, except that the unacceptable condition had been removed.

11 The proceedings before Rosenberg J. then followed. He approved the sale to OEL and dismissed a motion for the acceptance of the 922 offer. Before Rosenberg J., and in this court, both CCFL and the Royal Bank supported the acceptance of the second 922 offer.

12 There are only two issues which must be resolved in this appeal. They are:

(1) Did the receiver act properly when it entered into an agreement to sell Air Toronto to OEL?

(2) What effect does the support of the 922 offer by the secured creditors have on the result?

13 I will deal with the two issues separately.

1. Did the Receiver Act Properly in Agreeing to Sell to OEL?

14 Before dealing with that issue, there are three general observations which I think I should make. The first is that the sale of an airline as a going concern is a very complex process. The best method of selling an airline at the best price is something far removed from the expertise of a court. When a court appoints a receiver to use its commercial expertise to sell an airline, it is inescapable that it intends to rely upon the receiver's expertise and not upon its own. Therefore, the court must place a great deal of confidence in the actions taken and in the opinions formed by the receiver. It should also assume that the receiver is acting properly unless the contrary is clearly shown. The second observation is that the court should be reluctant to second- guess, with the benefit of hindsight, the considered business decisions made by its receiver. The third observation which I wish to make is that the conduct of the receiver should be reviewed in the light of the specific mandate given to him by the court.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000032 3 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

15 The order of O'Brien J. provided that if the receiver could not complete the sale to Air Canada that it was "to negotiate and sell Air Toronto to another person." The court did not say how the receiver was to negotiate the sale. It did not say it was to call for bids or conduct an auction. It told the receiver to negotiate and sell. It obviously intended, because of the unusual nature of the asset being sold, to leave the method of sale substantially in the discretion of the receiver. I think, therefore, that the court should not review minutely the process of the sale when, broadly speaking, it appears to the court to be a just process.

16 As did Rosenberg J., I adopt as correct the statement made by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 60 O.R. (2d) 87, 67 C.B.R. (N.S.) 320n, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) , at pp. 92-94 [O.R.], of the duties which a court must perform when deciding whether a receiver who has sold a property acted properly. When he set out the court's duties, he did not put them in any order of priority, nor do I. I summarize those duties as follows:

1. It should consider whether the receiver has made a sufficient effort to get the best price and has not acted improvidently.

2. It should consider the interests of all parties.

3. It should consider the efficacy and integrity of the process by which offers are obtained.

4. It should consider whether there has been unfairness in the working out of the process.

17 I intend to discuss the performance of those duties separately.

1. Did the Receiver make a sufficient effort to get the best price and did it act providently?

18 Having regard to the fact that it was highly unlikely that a commercially viable sale could be made to anyone but the two national airlines, or to someone supported by either of them, it is my view that the receiver acted wisely and reasonably when it negotiated only with Air Canada and Canadian Airlines International. Furthermore, when Air Canada said that it would submit no further offers and gave the impression that it would not participate further in the receiver's efforts to sell, the only course reasonably open to the receiver was to negotiate with Canadian Airlines International. Realistically, there was nowhere else to go but to Canadian Airlines International. In do ing so, it is my opinion that the receiver made sufficient efforts to sell the airline.

19 When the receiver got the OEL offer on March 6, 1991, it was over 10 months since it had been charged with the responsibility of selling Air Toronto. Until then, the receiver had not received one offer which it thought was acceptable. After substantial efforts to sell the airline over that period, I find it difficult to think that the receiver acted improvidently in accepting the only acceptable offer which it had.

20 On March 8, 1991, the date when the receiver accepted the OEL offer, it had only two offers, the OEL offer, which was acceptable, and the 922 offer, which contained an unacceptable condition. I cannot see how the receiver, assuming for the moment that the price was reasonable, could have done anything but accept the OEL offer.

21 When deciding whether a receiver had acted providently, the court should examine the conduct of the receiver in light of the information the receiver had when it agreed to accept an offer. In this case, the court should look at the receiver's conduct in the light of the information it had when it made its decision on March 8, 1991. The court should be very cautious before deciding that the receiver's conduct was improvident based upon information which has come to light after it made its decision. To do so, in my view, would derogate from the mandate to sell given to the receiver by the order of O'Brien J. I agree with and adopt what was said by Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 112 [O.R.]:

Its decision was made as a matter of business judgment on the elements then available to it . It is of the very essence of a receiver's function to make such judgments and in the making of them to act seriously and responsibly so as to be prepared to stand behind them.

If the court were to reject the recommendation of the Receiver in any but the most exceptional circumstances, it would materially diminish and weaken the role and function of the Receiver both in the perception of receivers and in the

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000033 4 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

perception of any others who might have occasion to deal with them. It would lead to the conclusion that the decision of the Receiver was of little weight and that the real decision was always made upon the motion for approval. That would be a consequence susceptible of immensely damaging results to the disposition of assets by court-appointed receivers.

[Emphasis added.]

22 I also agree with and adopt what was said by Macdonald J.A. in Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , at p. 11 [C.B.R.]:

In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement.

[Emphasis added.]

23 On March 8, 1991, the receiver had two offers. One was the OEL offer, which it considered satisfactory but which could be withdrawn by OEL at any time before it was accepted. The receiver also had the 922 offer, which contained a condition that was totally unacceptable. It had no other offers. It was faced with the dilemma of whether it should decline to accept the OEL offer and run the risk of it being withdrawn, in the hope that an acceptable offer would be forthcoming from 922. An affidavit filed by the president of the receiver describes the dilemma which the receiver faced, and the judgment made in the light of that dilemma:

24. An asset purchase agreement was received by Ernst & Young on March 7, 1991 which was dated March 6, 1991. This agreement was received from CCFL in respect of their offer to purchase the assets and undertaking of Air Toronto. Apart from financial considerations, which will be considered in a subsequent affidavit, the Receiver determined that it would not be prudent to delay acceptance of the OEL agreement to negotiate a highly uncertain arrangement with Air Canada and CCFL . Air Canada had the benefit of an 'exclusive' in negotiations for Air Toronto and had clearly indicated its intention take itself out of the running while ensuring that no other party could seek to purchase Air Toronto and maintain the Air Canada connector arrangement vital to its survival. The CCFL offer represented a radical reversal of this position by Air Canada at the eleventh hour. However, it contained a significant number of conditions to closing which were entirely beyond the control of the Receiver. As well, the CCFL offer came less than 24 hours before signing of the agreement with OEL which had been negotiated over a period of months, at great time and expense.

[Emphasis added.] I am convinced that the decision made was a sound one in the circumstances faced by the receiver on March 8, 1991.

24 I now turn to consider whether the price contained in the OEL offer was one which it was provident to accept. At the outset, I think that the fact that the OEL offer was the only acceptable one available to the receiver on March 8, 1991, after 10 months of trying to sell the airline, is strong evidence that the price in it was reasonable. In a deteriorating economy, I doubt that it would have been wise to wait any longer.

25 I mentioned earlier that, pursuant to an order, 922 was permitted to present a second offer. During the hearing of the appeal, counsel compared at great length the price contained in the second 922 offer with the price contained in the OEL offer. Counsel put forth various hypotheses supporting their contentions that one offer was better than the other.

26 It is my opinion that the price contained in the 922 offer is relevant only if it shows that the price obtained by the receiver in the OEL offer was not a reasonable one. In Crown Trust Co. v. Rosenberg , supra, Anderson J., at p. 113 [O.R.], discussed the comparison of offers in the following way:

No doubt, as the cases have indicated, situations might arise where the disparity was so great as to call in question the adequacy of the mechanism which had produced the offers. It is not so here, and in my view that is substantially an end of the matter.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000034 5 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

27 In two judgments, Saunders J. considered the circumstances in which an offer submitted after the receiver had agreed to a sale should be considered by the court. The first is Re Selkirk (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) , at p. 247:

If, for example, in this case there had been a second offer of a substantially higher amount, then the court would have to take that offer into consideration in assessing whether the receiver had properly carried out his function of endeavouring to obtain the best price for the property.

28 The second is Re Beauty Counsellors of Canada Ltd. (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) , at p. 243:

If a substantially higher bid turns up at the approval stage, the court should consider it. Such a bid may indicate, for example, that the trustee has not properly carried out its duty to endeavour to obtain the best price for the estate.

29 In Re Selkirk (1987), 64 C.B.R. (N.S.) 140 (Ont. S.C.) , at p. 142, McRae J. expressed a similar view:

The court will not lightly withhold approval of a sale by the receiver, particularly in a case such as this where the receiver is given rather wide discretionary authority as per the order of Mr. Justice Trainor and, of course, where the receiver is an officer of this court. Only in a case where there seems to be some unfairness in the process of the sale or where there are substantially higher offers which would tend to show that the sale was improvident will the court withhold approval. It is important that the court recognize the commercial exigencies that would flow if prospective purchasers are allowed to wait until the sale is in court for approval before submitting their final offer. This is something that must be discouraged.

[Emphasis added.]

30 What those cases show is that the prices in other offers have relevance only if they show that the price contained in the offer accepted by the receiver was so unreasonably low as to demonstrate that the receiver was improvident in accepting it. I am of the opinion, therefore, that if they do not tend to show that the receiver was improvident, they should not be considered upon a motion to confirm a sale recommended by a court-appointed receiver. If they were, the process would be changed from a sale by a receiver, subject to court approval, into an auction conducted by the court at the time approval is sought. In my opinion, the latter course is unfair to the person who has entered bona fide into an agreement with the receiver, can only lead to chaos, and must be discouraged.

31 If, however, the subsequent offer is so substantially higher than the sale recommended by the receiver, then it may be that the receiver has not conducted the sale properly. In such circumstances, the court would be justified itself in entering into the sale process by considering competitive bids. However, I think that that process should be entered into only if the court is satisfied that the receiver has not properly conducted the sale which it has recommended to the court.

32 It is necessary to consider the two offers. Rosenberg J. held that the 922 offer was slightly better or marginally better than the OEL offer. He concluded that the difference in the two offers did not show that the sale process adopted by the receiver was inadequate or improvident.

33 Counsel for the appellants complained about the manner in which Rosenberg J. conducted the hearing of the motion to confirm the OEL sale. The complaint was that when they began to discuss a comparison of the two offers, Rosenberg J. said that he considered the 922 offer to be better than the OEL offer. Counsel said that when that comment was made, they did not think it necessary to argue further the question of the difference in value between the two offers. They complain that the finding that the 922 offer was only marginally better or slightly better than the OEL offer was made without them having had the opportunity to argue that the 922 offer was substantially better or significantly better than the OEL offer. I cannot understand how counsel could have thought that by expressing the opinion that the 922 offer was better, Rosenberg J. was saying that it was a significantly or substantially better one. Nor can I comprehend how counsel took the comment to mean that they were foreclosed from arguing that the offer was significantly or substantially better. If there was some misunderstanding on the part of counsel, it should have been raised before Rosenberg J. at the time. I am sure that if it had been, the misunderstanding would have been cleared up quickly. Nevertheless, this court permitted extensive argument dealing with the comparison of the two offers.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000035 6 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

34 The 922 offer provided for $6 million cash to be paid on closing with a royalty based upon a percentage of Air Toronto profits over a period of 5 years up to a maximum of $3 million. The OEL offer provided for a payment of $2 million on closing with a royalty paid on gross revenues over a 5-year period. In the short term, the 922 offer is obviously better because there is substantially more cash up front. The chances of future returns are substantially greater in the OEL offer because royalties are paid on gross revenues, while the royalties under the 922 offer are paid only on profits. There is an element of risk involved in each offer.

35 The receiver studied the two offers. It compared them and took into account the risks, the advantages and the disadvantages of each. It considered the appropriate contingencies. It is not necessary to outline the factors which were taken into account by the receiver because the manager of its insolvency practice filed an affidavit outlining the considerations which were weighed in its evaluation of the two offers. They seem to me to be reasonable ones. That affidavit concluded with the following paragraph:

24. On the basis of these considerations the Receiver has approved the OEL offer and has concluded that it represents the achievement of the highest possible value at this time for the Air Toronto division of SoundAir.

36 The court appointed the receiver to conduct the sale of Air Toronto, and entrusted it with the responsibility of deciding what is the best offer. I put great weight upon the opinion of the receiver. It swore to the court which appointed it that the OEL offer represents the achievement of the highest possible value at this time for Air Toronto. I have not been convinced that the receiver was wrong when he made that assessment. I am, therefore, of the opinion that the 922 offer does not demonstrate any failure upon the part of the receiver to act properly and providently.

37 It follows that if Rosenberg J. was correct when he found that the 922 offer was in fact better, I agree with him that it could only have been slightly or marginally better. The 922 offer does not lead to an inference that the disposition strategy of the receiver was inadequate, unsuccessful or improvident, nor that the price was unreasonable.

38 I am, therefore, of the opinion the the receiver made a sufficient effort to get the best price, and has not acted improvidently.

2. Consideration of the Interests of all Parties

39 It is well established that the primary interest is that of the creditors of the debtor: see Crown Trust Co. v. Rosenberg , supra, and Re Selkirk , supra (Saunders J.). However, as Saunders J. pointed out in Re Beauty Counsellors , supra at p. 244 [C.B.R.], "it is not the only or overriding consideration."

40 In my opinion, there are other persons whose interests require consideration. In an appropriate case, the interests of the debtor must be taken into account. I think also, in a case such as this, where a purchaser has bargained at some length and doubtless at considerable expense with the receiver, the interests of the purchaser ought to be taken into account. While it is not explicitly stated in such cases as Crown Trust Co. v. Rosenberg , supra, Re Selkirk (1986), supra, Re Beauty Counsellors , supra, Re Selkirk (1987), supra, and (Cameron ), supra, I think they clearly imply that the interests of a person who has negotiated an agreement with a court-appointed receiver are very important.

41 In this case, the interests of all parties who would have an interest in the process were considered by the receiver and by Rosenberg J.

3. Consideration of the Efficacy and Integrity of the Process by which the Offer was Obtained

42 While it is accepted that the primary concern of a receiver is the protecting of the interests of the creditors, there is a secondary but very important consideration, and that is the integrity of the process by which the sale is effected. This is particularly so in the case of a sale of such a unique asset as an airline as a going concern.

43 The importance of a court protecting the integrity of the process has been stated in a number of cases. First, I refer to Re Selkirk , supra, where Saunders J. said at p. 246 [C.B.R.]:

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000036 7 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

In dealing with the request for approval, the court has to be concerned primarily with protecting the interest of the creditors of the former bankrupt. A secondary but important considera tion is that the process under which the sale agreement is arrived at should be consistent with commercial efficacy and integrity.

In that connection I adopt the principles stated by Macdonald J.A. of the Nova Scotia Supreme Court (Appeal Division) in Cameron v. Bank of N.S. (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , where he said at p. 11:

In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement. On the contrary, they would know that other bids could be received and considered up until the application for court approval is heard — this would be an intolerable situation.

While those remarks may have been made in the context of a bidding situation rather than a private sale, I consider them to be equally applicable to a negotiation process leading to a private sale. Where the court is concerned with the disposition of property, the purpose of appointing a receiver is to have the receiver do the work that the court would otherwise have to do.

44 In Salima Investments Ltd. v. Bank of Montreal (1985), 59 C.B.R. (N.S.) 242, 41 Alta. L.R. (2d) 58, 65 A.R. 372, 21 D.L.R. (4th) 473 at p. 476 [D.L.R.], the Alberta Court of Appeal said that sale by tender is not necessarily the best way to sell a business as an ongoing concern. It went on to say that when some other method is used which is provident, the court should not undermine the process by refusing to confirm the sale.

45 Finally, I refer to the reasoning of Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 124 [O.R.]:

While every proper effort must always be made to assure maximum recovery consistent with the limitations inherent in the process, no method has yet been devised to entirely eliminate those limitations or to avoid their consequences. Certainly it is not to be found in loosening the entire foundation of the system. Thus to compare the results of the process in this case with what might have been recovered in some other set of circumstances is neither logical nor practical .

[Emphasis added.]

46 It is my opinion that the court must exercise extreme caution before it interferes with the process adopted by a receiver to sell an unusual asset. It is important that prospective purchasers know that, if they are acting in good faith, bargain seriously with a receiver and enter into an agreement with it, a court will not lightly interfere with the commercial judgment of the receiver to sell the asset to them.

47 Before this court, counsel for those opposing the confirmation of the sale to OEL suggested many different ways in which the receiver could have conducted the process other than the way which he did. However, the evidence does not convince me that the receiver used an improper method of attempting to sell the airline. The answer to those submissions is found in the comment of Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 109 [O.R.]:

The court ought not to sit as on appeal from the decision of the Receiver, reviewing in minute detail every element of the process by which the decision is reached. To do so would be a futile and duplicitous exercise.

48 It would be a futile and duplicitous exercise for this court to examine in minute detail all of circumstances leading up to the acceptance of the OEL offer. Having considered the process adopted by the receiver, it is my opinion that the process adopted was a reasonable and prudent one.

4. Was there unfairness in the process?

49 As a general rule, I do not think it appropriate for the court to go into the minutia of the process or of the selling strategy adopted by the receiver. However, the court has a responsibility to decide whether the process was fair. The only part of this

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000037 8 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... process which I could find that might give even a superficial impression of unfairness is the failure of the receiver to give an offering memorandum to those who expressed an interest in the purchase of Air Toronto.

50 I will outline the circumstances which relate to the allegation that the receiver was unfair in failing to provide an offering memorandum. In the latter part of 1990, as part of its selling strategy, the receiver was in the process of preparing an offering memorandum to give to persons who expressed an interest in the purchase of Air Toronto. The offering memorandum got as far as draft form, but was never released to anyone, although a copy of the draft eventually got into the hands of CCFL before it submitted the first 922 offer on March 7, 1991. A copy of the offering memorandum forms part of the record, and it seems to me to be little more than puffery, without any hard information which a sophisticated purchaser would require in or der to make a serious bid.

51 The offering memorandum had not been completed by February11, 1991. On that date, the receiver entered into the letter of intent to negotiate with OEL. The letter of intent contained a provision that during its currency the receiver would not negotiate with any other party. The letter of intent was renewed from time to time until the OEL offer was received on March 6, 1991.

52 The receiver did not proceed with the offering memorandum because to do so would violate the spirit, if not the letter, of its letter of intent with OEL.

53 I do not think that the conduct of the receiver shows any unfairness towards 922. When I speak of 922, I do so in the context that Air Canada and CCFL are identified with it. I start by saying that the receiver acted reasonably when it entered into exclusive negotiations with OEL. I find it strange that a company, with which Air Canada is closely and intimately involved, would say that it was unfair for the receiver to enter into a time-limited agreement to negotiate exclusively with OEL. That is precisely the arrangement which Air Canada insisted upon when it negotiated with the receiver in the spring and summer of 1990. If it was not unfair for Air Canada to have such an agreement, I do not understand why it was unfair for OEL to have a similar one. In fact, both Air Canada and OEL in its turn were acting reasonably when they required exclusive negotiating rights to prevent their negotiations from being used as a bargaining lever with other potential purchasers. The fact that Air Canada insisted upon an exclusive negotiating right while it was negotiating with the receiver demonstrates the commercial efficacy of OEL being given the same right during its negotiations with the receiver. I see no unfairness on the part of the receiver when it honoured its letter of intent with OEL by not releasing the offering memorandum during the negotiations with OEL.

54 Moreover, I am not prepared to find that 922 was in any way prejudiced by the fact that it did not have an offering memorandum. It made an offer on March 7, 1991, which it contends to this day was a better offer than that of OEL. 922 has not convinced me that if it had an offering memorandum, its offer would have been any different or any better than it actually was. The fatal problem with the first 922 offer was that it contained a condition which was completely unacceptable to the receiver. The receiver, properly, in my opinion, rejected the offer out of hand because of that condition. That condition did not relate to any information which could have conceivably been in an offering memorandum prepared by the receiver. It was about the resolution of a dispute between CCFL and the Royal Bank, something the receiver knew nothing about.

55 Further evidence of the lack of prejudice which the absence of an offering memorandum has caused 922 is found in CCFL's stance before this court. During argument, its counsel suggested as a possible resolution of this appeal that this court should call for new bids, evaluate them and then order a sale to the party who put in the better bid. In such a case, counsel for CCFL said that 922 would be prepared to bid within 7 days of the court's decision. I would have thought that, if there were anything to CCFL's suggestion that the failure to provide an offering memorandum was unfair to 922, that it would have told the court that it needed more information before it would be able to make a bid.

56 I am satisfied that Air Canada and CCFL have, and at all times had, all of the information which they would have needed to make what to them would be a commercially viable offer to the receiver. I think that an offering memorandum was of no commercial consequence to them, but the absence of one has since become a valuable tactical weapon.

57 It is my opinion that there is no convincing proof that if an offering memorandum had been widely distributed among persons qualified to have purchased Air Toronto, a viable offer would have come forth from a party other than 922 or OEL.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000038 9 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

Therefore, the failure to provide an offering memorandum was neither unfair, nor did it prejudice the obtaining of a better price on March 8, 1991, than that contained in the OEL offer. I would not give effect to the contention that the process adopted by the receiver was an unfair one.

58 There are two statements by Anderson J. contained in Crown Trust Co. v. Rosenberg , supra, which I adopt as my own. The first is at p. 109 [O.R.]:

The court should not proceed against the recommendations of its Receiver except in special circumstances and where the necessity and propriety of doing so are plain. Any other rule or approach would emasculate the role of the Receiver and make it almost inevitable that the final negotiation of every sale would take place on the motion for approval.

The second is at p. 111 [O.R.]:

It is equally clear, in my view, though perhaps not so clearly enunciated, that it is only in an exceptional case that the court will intervene and proceed contrary to the Receiver's recommendations if satisfied, as I am, that the Receiver has acted reasonably, prudently and fairly and not arbitrarily.

In this case the receiver acted reasonably, prudently, fairly and not arbitrarily. I am of the opinion, therefore, that the process adopted by the receiver in reaching an agreement was a just one.

59 In his reasons for judgment, after discussing the circumstances leading to the 922 offer, Rosenberg J. said this:

They created a situation as of March 8th, where the Receiver was faced with two offers, one of which was in acceptable form and one of which could not possibly be accepted in its present form. The Receiver acted appropriately in accepting the OEL offer.

I agree.

60 The receiver made proper and sufficient efforts to get the best price that it could for the assets of Air Toronto. It adopted a reasonable and effective process to sell the airline which was fair to all persons who might be interested in purchasing it. It is my opinion, therefore, that the receiver properly carried out the mandate which was given to it by the order of O'Brien J. It follows that Rosenberg J. was correct when he confirmed the sale to OEL.

II. The effect of the support of the 922 offer by the two secured creditors.

61 As I noted earlier, the 922 offer was supported before Rosenberg J., and in this court, by CCFL and by the Royal Bank, the two secured creditors. It was argued that, because the interests of the creditors are primary, the court ought to give effect to their wish that the 922 offer be accepted. I would not accede to that suggestion for two reasons.

62 The first reason is related to the fact that the creditors chose to have a receiver appointed by the court. It was open to them to appoint a private receiver pursuant to the authority of their security documents. Had they done so, then they would have had control of the process and could have sold Air Toronto to whom they wished. However, acting privately and controlling the process involves some risks. The appointment of a receiver by the court insulates the creditors from those risks. But, insulation from those risks carries with it the loss of control over the process of disposition of the assets. As I have attempted to explain in these reasons, when a receiver's sale is before the court for confirmation, the only issues are the propriety of the conduct of the receiver and whether it acted providently. The function of the court at that stage is not to step in and do the receiver's work, or change the sale strategy adopted by the receiver. Creditors who asked the court to appoint a receiver to dispose of assets should not be allowed to take over control of the process by the simple expedient of supporting another purchaser if they do not agree with the sale made by the receiver. That would take away all respect for the process of sale by a court-appointed receiver.

63 There can be no doubt that the interests of the creditor are an important consideration in determining whether the receiver has properly conducted a sale. The opinion of the creditors as to which offer ought to be accepted is something to be taken into account. But if the court decides that the receiver has acted properly and providently, those views are not necessarily

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000039 10 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... determinative. Because, in this case, the receiver acted properly and providently, I do not think that the views of the creditors should override the considered judgment of the receiver.

64 The second reason is that, in the particular circumstances of this case, I do not think the support of CCFL and the Royal Bank of the 922 offer is entitled to any weight. The support given by CCFL can be dealt with summarily. It is a co-owner of 922. It is hardly surprising and not very impressive to hear that it supports the offer which it is making for the debtor's assets.

65 The support by the Royal Bank requires more consideration and involves some reference to the circumstances. On March 6, 1991, when the first 922 offer was made, there was in existence an inter-lender agreement between the Royal Bank and CCFL. That agreement dealt with the share of the proceeds of the sale of Air Toronto which each creditor would receive. At the time, a dispute between the Royal Bank and CCFL about the interpretation of that agreement was pending in the courts. The unacceptable condition in the first 922 offer related to the settlement of the inter-lender dispute. The condition required that the dispute be resolved in a way which would substantially favour CCFL. It required that CCFL receive $3,375,000 of the $6 million cash payment and the balance, including the royalties, if any, be paid to the Royal Bank. The Royal Bank did not agree with that split of the sale proceeds.

66 On April 5, 1991, the Royal Bank and CCFL agreed to settle the inter-lender dispute. The settlement was that if the 922 offer was accepted by the court, CCFL would receive only $1 million, and the Royal Bank would receive $5 million plus any royalties which might be paid. It was only in consideration of that settlement that the Royal Bank agreed to support the 922 offer.

67 The Royal Bank's support of the 922 offer is so affected by the very substantial benefit which it wanted to obtain from the settlement of the inter-lender dispute that, in my opinion, its support is devoid of any objectivity. I think it has no weight.

68 While there may be circumstances where the unanimous support by the creditors of a particular offer could conceivably override the proper and provident conduct of a sale by a receiver, I do not think that this is such a case. This is a case where the receiver has acted properly and in a provident way. It would make a mockery out of the judicial process, under which a mandate was given to this receiver to sell this airline if the support by these creditors of the 922 offer were permitted to carry the day. I give no weight to the support which they give to the 922 offer.

69 In its factum, the receiver pointed out that, because of greater liabilities imposed upon private receivers by various statutes such as the Employment Standards Act , R.S.O. 1980, c. 137, and the Environmental Protection Act , R.S.O. 1980, c. 141, it is likely that more and more the courts will be asked to appoint receivers in insolvencies. In those circumstances, I think that creditors who ask for court-appointed receivers and business people who choose to deal with those receivers should know that if those receivers act properly and providently, their decisions and judgments will be given great weight by the courts who appoint them. I have decided this appeal in the way I have in order to assure business people who deal with court-appointed receivers that they can have confidence that an agreement which they make with a court-appointed receiver will be far more than a platform upon which others may bargain at the court approval stage. I think that persons who enter into agreements with court-appointed receivers, following a disposition procedure that is appropriate given the nature of the assets involved, should expect that their bargain will be confirmed by the court.

70 The process is very important. It should be carefully protected so that the ability of court-appointed receivers to negotiate the best price possible is strengthened and supported. Because this receiver acted properly and providently in entering into the OEL agreement, I am of the opinion that Rosenberg J. was right when he approved the sale to OEL and dismissed the motion to approve the 922 offer.

71 I would, accordingly, dismiss the appeal. I would award the receiver, OEL and Frontier Airlines Limited their costs out of the Soundair estate, those of the receiver on a solicitor-client scale. I would make no order as to the costs of any of the other parties or intervenors.

McKinlay J.A. :

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72 I agree with Galligan J.A. in result, but wish to emphasize that I do so on the basis that the undertaking being sold in this case was of a very special and unusual nature. It is most important that the integrity of procedures followed by court- appointed receivers be protected in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers. Consequently, in all cases, the court should carefully scrutinize the procedure followed by the receiver to determine whether it satisfies the tests set out by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 67 C.B.R. (N.S.) 320n, 60 O.R. (2d) 87, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) . While the procedure carried out by the receiver in this case, as described by Galligan J.A., was appropriate, given the unfolding of events and the unique nature of the assets involved, it is not a procedure that is likely to be appropriate in many receivership sales.

73 I should like to add that where there is a small number of creditors who are the only parties with a real interest in the proceeds of the sale (i.e., where it is clear that the highest price attainable would result in recovery so low that no other creditors, shareholders, guarantors, etc., could possibly benefit therefore), the wishes of the interested creditors should be very seriously considered by the receiver. It is true, as Galligan J.A. points out, that in seeking the court appointment of a receiver, the moving parties also seek the protection of the court in carrying out the receiver's functions. However, it is also true that in utilizing the court process, the moving parties have opened the whole process to detailed scrutiny by all involved, and have probably added significantly to their costs and consequent shortfall as a result of so doing. The adoption of the court process should in no way diminish the rights of any party, and most certainly not the rights of the only parties with a real interest. Where a receiver asks for court approval of a sale which is opposed by the only parties in interest, the court should scrutinize with great care the procedure followed by the receiver. I agree with Galligan J.A. that in this case that was done. I am satisfied that the rights of all parties were properly considered by the receiver, by the learned motions court judge, and by Galligan J.A.

Goodman J.A. (dissenting):

74 I have had the opportunity of reading the reasons for judgment herein of Galligan and McKinlay JJ.A. Respectfully, I am unable to agree with their conclusion.

75 The case at bar is an exceptional one in the sense that upon the application made for approval of the sale of the assets of Air Toronto, two competing offers were placed before Rosenberg J. Those two offers were that of OEL and that of 922, a company incorporated for the purpose of acquiring Air Toronto. Its shares were owned equally by CCFL and Air Canada. It was conceded by all parties to these proceedings that the only persons who had any interest in the proceeds of the sale were two secured creditors, viz., CCFL and the Royal Bank of Canada. Those two creditors were unanimous in their position that they desired the court to approve the sale to 922. We were not referred to, nor am I aware of, any case where a court has refused to abide by the unanimous wishes of the only interested creditors for the approval of a specific offer made in receivership proceedings.

76 In British Columbia Developments Corp. v. Spun Cast Industries Ltd. (1977), 26 C.B.R. (N.S.) 28, 5 B.C.L.R. 94 (S.C.) , Berger J. said at p. 30 [C.B.R.]:

Here all of those with a financial stake in the plant have joined in seeking the court's approval of the sale to Fincas. This court does not have a roving commission to decide what is best for investors and businessmen when they have agreed among themselves what course of action they should follow. It is their money.

77 I agree with that statement. It is particularly apt to this case. The two secured creditors will suffer a shortfall of approximately $50 million. They have a tremendous interest in the sale of assets which form part of their security. I agree with the finding of Rosenberg J. that the offer of 922 is superior to that of OEL. He concluded that the 922 offer is marginally superior. If by that he meant that mathematically it was likely to provide slightly more in the way of proceeds, it is difficult to take issue with that finding. If, on the other hand, he meant that having regard to all considerations it was only marginally superior, I cannot agree. He said in his reasons:

I have come to the conclusion that knowledgeable creditors such as the Royal Bank would prefer the 922 offer even if the other factors influencing their decision were not present. No matter what adjustments had to be made, the 922 offer results

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in more cash immediately. Creditors facing the type of loss the Royal Bank is taking in this case would not be anxious to rely on contingencies especially in the present circumstances surrounding the airline industry.

78 I agree with that statement completely. It is apparent that the difference between the two offers insofar as cash on closing is concerned amounts to approximately $3 million to $4 million. The bank submitted that it did not wish to gamble any further with respect to its investment, and that the acceptance and court approval of the OEL offer in effect supplanted its position as a secured creditor with respect to the amount owing over and above the down payment and placed it in the position of a joint entrepreneur, but one with no control. This results from the fact that the OEL offer did not provide for any security for any funds which might be forthcoming over and above the initial down payment on closing.

79 In Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , Hart J.A., speaking for the majority of the court, said at p. 10 [C.B.R.]:

Here we are dealing with a receiver appointed at the instance of one major creditor, who chose to insert in the contract of sale a provision making it subject to the approval of the court. This, in my opinion, shows an intention on behalf of the parties to invoke the normal equitable doctrines which place the court in the position of looking to the interests of all persons concerned before giving its blessing to a particular transaction submitted for approval. In these circumstances the court would not consider itself bound by the contract entered into in good faith by the receiver but would have to look to the broader picture to see that that contract was for the benefit of the creditors as a whole. When there was evidence that a higher price was readily available for the property the chambers judge was, in my opinion, justified in exercising his discretion as he did. Otherwise he could have deprived the creditors of a substantial sum of money.

80 This statement is apposite to the circumstances of the case at bar. I hasten to add that in my opinion it is not only price which is to be considered in the exercise of the judge's discretion. It may very well be, as I believe to be so in this case, that the amount of cash is the most important element in determining which of the two offers is for the benefit and in the best interest of the creditors.

81 It is my view, and the statement of Hart J.A. is consistent therewith, that the fact that a creditor has requested an order of the court appointing a receiver does not in any way diminish or derogate from his right to obtain the maximum benefit to be derived from any disposition of the debtor's assets. I agree completely with the views expressed by McKinlay J.A. in that regard in her reasons.

82 It is my further view that any negotiations which took place between the only two interested creditors in deciding to support the approval of the 922 offer were not relevant to the determination by the presiding judge of the issues involved in the motion for approval of either one of the two offers, nor are they relevant in determining the outcome of this appeal. It is sufficient that the two creditors have decided unanimously what is in their best interest, and the appeal must be considered in the light of that decision. It so happens, however, that there is ample evidence to support their conclusion that the approval of the 922 offer is in their best interests.

83 I am satisfied that the interests of the creditors are the prime consideration for both the receiver and the court. In Re Beauty Counsellors of Canada Ltd. (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) , Saunders J. said at p. 243:

This does not mean that a court should ignore a new and higher bid made after acceptance where there has been no unfairness in the process. The interests of the creditors, while not the only consideration, are the prime consideration.

84 I agree with that statement of the law. In Re Selkirk (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) , Saunders J. heard an application for court approval of the sale by the sheriff of real property in bankruptcy proceedings. The sheriff had been previously ordered to list the property for sale subject to approval of the court. Saunders J. said at p. 246:

In dealing with the request for approval, the court has to be concerned primarily with protecting the interests of the creditors of the former bankrupt. A secondary but important consideration is that the process under which the sale agreement is arrived at should be consistent with commercial efficacy and integrity.

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85 I am in agreement with that statement as a matter of general principle. Saunders J. further stated that he adopted the principles stated by Macdonald J.A. in Cameron , supra, quoted by Galligan J.A. in his reasons. In Cameron , the remarks of Macdonald J.A. related to situations involving the calling of bids and fixing a time limit for the making of such bids. In those circumstances the process is so clear as a matter of commercial practice that an interference by the court in such process might have a deleterious effect on the efficacy of receivership proceedings in other cases. But Macdonald J.A. recognized that even in bid or tender cases where the offeror for whose bid approval is sought has complied with all requirements, a court might not approve the agreement of purchase and sale entered into by the receiver. He said at pp. 11-12 [C.B.R.]:

There are, of course, many reasons why a court might not approve an agreement of purchase and sale, viz., where the offer accepted is so low in relation to the appraised value as to be unrealistic; or, where the circumstances indicate that insufficient time was allowed for the making of bids or that inadequate notice of sale by bid was given (where the receiver sells property by the bid method); or, where it can be said that the proposed sale is not in the best interest of either the creditors or the owner. Court approval must involve the delicate balancing of competing interests and not simply a consideration of the interests of the creditors.

86 The deficiency in the present case is so large that there has been no suggestion of a competing interest between the owner and the creditors.

87 I agree that the same reasoning may apply to a negotiation process leading to a private sale, but the procedure and process applicable to private sales of a wide variety of businesses and undertakings with the multiplicity of individual considerations applicable and perhaps peculiar to the particular business is not so clearly established that a departure by the court from the process adopted by the receiver in a particular case will result in commercial chaos to the detriment of future receivership proceedings. Each case must be decided on its own merits, and it is necessary to consider the process used by the receiver in the present proceedings and to determine whether it was unfair, improvident or inadequate.

88 It is important to note at the outset that Rosenberg J. made the following statement in his reasons:

On March 8, 1991 the trustee accepted the OEL offer subject to court approval. The Receiver at that time had no other offer before it that was in final form or could possibly be accepted. The Receiver had at the time the knowledge that Air Canada with CCFL had not bargained in good faith and had not fulfilled the promise of its letter of March 1st. The Receiver was justified in assuming that Air Canada and CCFL's offer was a long way from being in an acceptable form and that Air Canada and CCFL's objective was to interrupt the finalizing of the OEL agreement and to retain as long as possible the Air Toronto connector traffic flowing into Terminal 2 for the benefit of Air Canada.

89 In my opinion there was no evidence before him or before this court to indicate that Air Canada, with CCFL, had not bargained in good faith, and that the receiver had knowledge of such lack of good faith. Indeed, on his appeal, counsel for the receiver stated that he was not alleging Air Canada and CCFL had not bargained in good faith. Air Canada had frankly stated at the time that it had made its offer to purchase, which was eventually refused by the receiver, that it would not become involved in an "auction" to purchase the undertaking of Air Canada and that, although it would fulfil its contractual obligations to provide connecting services to Air Toronto, it would do no more than it was legally required to do insofar as facilitating the purchase of Air Toronto by any other person. In so doing, Air Canada may have been playing "hardball," as its behaviour was characterized by some of the counsel for opposing parties. It was nevertheless merely openly asserting its legal position, as it was entitled to do.

90 Furthermore, there was no evidence before Rosenberg J. or this court that the receiver had assumed that Air Canada and CCFL's objective in making an offer was to interrupt the finalizing of the OEL agreement and to retain as long as possible the Air Toronto connector traffic flowing into Terminal 2 for the benefit of Air Canada. Indeed, there was no evidence to support such an assumption in any event, although it is clear that 922, and through it CCFL and Air Canada, were endeavouring to present an offer to purchase which would be accepted and/or approved by the court in preference to the offer made by OEL.

91 To the extent that approval of the OEL agreement by Rosenberg J. was based on the alleged lack of good faith in bargaining and improper motivation with respect to connector traffic on the part of Air Canada and CCFL, it cannot be supported.

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92 I would also point out that rather than saying there was no other offer before it that was final in form, it would have been more accurate to have said that there was no unconditional offer before it.

93 In considering the material and evidence placed before the court, I am satisfied that the receiver was at all times acting in good faith. I have reached the conclusion, however, that the process which he used was unfair insofar as 922 is concerned, and improvident insofar as the two secured creditors are concerned.

94 Air Canada had been negotiating with Soundair Corporation for the purchase from it of Air Toronto for a considerable period of time prior to the appointment of a receiver by the court. It had given a letter of intent indicating a prospective sale price of $18 million. After the appointment of the receiver, by agreement dated April 30, 1990, Air Canada continued its negotiations for the purchase of Air Toronto with the receiver. Although this agreement contained a clause which provided that the receiver "shall not negotiate for the sale ... of Air Toronto with any person except Air Canada," it further provided that the receiver would not be in breach of that provision merely by receiving unsolicited offers for all or any of the assets of Air Toronto. In addition, the agreement, which had a term commencing on April 30, 1990, could be terminated on the fifth business day following the delivery of a written notice of termination by one party to the other. I point out this provision merely to indicate that the exclusivity privilege extended by the receiver to Air Canada was of short duration at the receiver's option.

95 As a result of due negligence investigations carried out by Air Canada during the months of April, May and June of 1990, Air Canada reduced its offer to $8.1 million conditional upon there being $4 million in tangible assets. The offer was made on June 14, 1990, and was open for acceptance until June 29, 1990.

96 By amending agreement dated June 19, 1990, the receiver was released from its covenant to refrain from negotiating for the sale of the Air Toronto business and assets to any person other than Air Canada. By virtue of this amending agreement, the receiver had put itself in the position of having a firm offer in hand, with the right to negotiate and accept offers from other persons. Air Canada, in these circumstances, was in the subservient position. The receiver, in the exercise of its judgment and discretion, allowed the Air Canada offer to lapse. On July 20, 1990, Air Canada served a notice of termination of the April 30, 1990 agreement.

97 Apparently as a result of advice received from the receiver to the effect that the receiver intended to conduct an auction for the sale of the assets and business of the Air Toronto division of Soundair Corporation, the solicitors for Air Canada advised the receiver by letter dated July 20, 1990, in part as follows:

Air Canada has instructed us to advise you that it does not intend to submit a further offer in the auction process.

98 This statement, together with other statements set forth in the letter, was sufficient to indicate that Air Canada was not interested in purchasing Air Toronto in the process apparently contemplated by the receiver at that time. It did not form a proper foundation for the receiver to conclude that there was no realistic possibility of selling Air Toronto [to] Air Canada, either alone or in conjunction with some other person, in different circumstances. In June 1990, the receiver was of the opinion that the fair value of Air Toronto was between $10 million and $12 million.

99 In August 1990, the receiver contacted a number of interested parties. A number of offers were received which were not deemed to be satisfactory. One such offer, received on August 20, 1990, came as a joint offer from OEL and Air Ontario (an Air Canada connector). It was for the sum of $3 million for the good will relating to certain Air Toronto routes, but did not include the purchase of any tangible assets or leasehold interests.

100 In December 1990, the receiver was approached by the management of Canadian Partner (operated by OEL) for the purpose of evaluating the benefits of an amalgamated Air Toronto/Air Partner operation. The negotiations continued from December of 1990 to February of 1991, culminating in the OEL agreement dated March 8, 1991.

101 On or before December 1990, CCFL advised the receiver that it intended to make a bid for the Air Toronto assets. The receiver, in August of 1990, for the purpose of facilitating the sale of Air Toronto assets, commenced the preparation of

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102 During the period December 1990 to the end of January 1991, the receiver advised CCFL that the offering memorandum was in the process of being prepared and would be ready soon for distribution. He further advised CCFL that it should await the receipt of the memorandum before submitting a formal offer to purchase the Air Toronto assets.

103 By late January, CCFL had become aware that the receiver was negotiating with OEL for the sale of Air Toronto. In fact, on February 11, 1991, the receiver signed a letter of intent with OEL wherein it had specifically agreed not to negotiate with any other potential bidders or solicit any offers from others.

104 By letter dated February 25, 1991, the solicitors for CCFL made a written request to the receiver for the offering memorandum. The receiver did not reply to the letter because he felt he was precluded from so doing by the provisions of the letter of intent dated February 11, 1991. Other prospective purchasers were also unsuccessful in obtaining the promised memorandum to assist them in preparing their bids. It should be noted that, exclusivity provision of the letter of intent expired on February 20, 1991. This provision was extended on three occasions, viz., February 19, 22 and March 5, 1991. It is clear that from a legal standpoint the receiver, by refusing to extend the time, could have dealt with other prospective purchasers, and specifically with 922.

105 It was not until March 1, 1991, that CCFL had obtained sufficient information to enable it to make a bid through 922. It succeeded in so doing through its own efforts through sources other than the receiver. By that time the receiver had already entered into the letter of intent with OEL. Notwithstanding the fact that the receiver knew since December of 1990 that CCFL wished to make a bid for the assets of Air Toronto (and there is no evidence to suggest that at that time such a bid would be in conjunction with Air Canada or that Air Canada was in any way connected with CCFL), it took no steps to provide CCFL with information necessary to enable it to make an intelligent bid, and indeed suggested delaying the making of the bid until an offering memorandum had been prepared and provided. In the meantime, by entering into the letter of intent with OEL, it put itself in a position where it could not negotiate with CCFL or provide the information requested.

106 On February 28, 1991, the solicitors for CCFL telephoned the receiver and were advised for the first time that the receiver had made a business decision to negotiate solely with OEL and would not negotiate with anyone else in the interim.

107 By letter dated March 1, 1991, CCFL advised the receiver that it intended to submit a bid. It set forth the essential terms of the bid and stated that it would be subject to customary commercial provisions. On March 7, 1991 CCFL and Air Canada, jointly through 922, submitted an offer to purchase Air Toronto upon the terms set forth in the letter dated March 1, 1991. It included a provision that the offer was conditional upon the interpretation of an inter-lender agreement which set out the relative distribution of proceeds as between CCFL and the Royal Bank. It is common ground that it was a condition over which the receiver had no control, and accordingly would not have been acceptable on that ground alone. The receiver did not, however, contact CCFL in order to negotiate or request the removal of the condition, although it appears that its agreement with OEL not to negotiate with any person other than OEL expired on March 6, 1991.

108 The fact of the matter is that by March 7, 1991, the receiver had received the offer from OEL which was subsequently approved by Rosenberg J. That offer was accepted by the receiver on March 8, 1991. Notwithstanding the fact that OEL had been negotiating the purchase for a period of approximately 3 months, the offer contained a provision for the sole benefit of the purchaser that it was subject to the purchaser obtaining "a financing commitment within 45 days of the date hereof in an amount not less than the Purchase Price from the Royal Bank of Canada or other financial institution upon terms and conditions acceptable to them. In the event that such a financing commitment is not obtained within such 45 day period, the purchaser or OEL shall have the right to terminate this agreement upon giving written notice of termination to the vendor on the first Business Day following the expiry of the said period." The purchaser was also given the right to waive the condition.

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109 In effect, the agreement was tantamount to a 45-day option to purchase, excluding the right of any other person to purchase Air Toronto during that period of time and thereafter if the condition was fulfilled or waived. The agreement was, of course, stated to be subject to court approval.

110 In my opinion, the process and procedure adopted by the receiver was unfair to CCFL. Although it was aware from December 1990 that CCFL was interested in making an offer, it effectively delayed the making of such offer by continually referring to the preparation of the offering memorandum. It did not endeavour during the period December 1990 to March 7, 1991, to negotiate with CCFL in any way the possible terms of purchase and sale agreement. In the result, no offer was sought from CCFL by the receiver prior to February 11, 1991, and thereafter it put itself in the position of being unable to negotiate with anyone other than OEL. The receiver then, on March 8, 1991, chose to accept an offer which was conditional in nature without prior consultation with CCFL (922) to see whether it was prepared to remove the condition in its offer.

111 I do not doubt that the receiver felt that it was more likely that the condition in the OEL offer would be fulfilled than the condition in the 922 offer. It may be that the receiver, having negotiated for a period of 3 months with OEL, was fearful that it might lose the offer if OEL discovered that it was negotiating with another person. Nevertheless, it seems to me that it was imprudent and unfair on the part of the receiver to ignore an offer from an interested party which offered approximately triple the cash down payment without giving a chance to the offeror to remove the conditions or other terms which made the offer unacceptable to it. The potential loss was that of an agreement which amounted to little more than an option in favour of the offeror.

112 In my opinion the procedure adopted by the receiver was unfair to CCFL in that, in effect, it gave OEL the opportunity of engaging in exclusive negotiations for a period of 3 months, notwithstanding the fact that it knew CCFL was interested in making an offer. The receiver did not indicate a deadline by which offers were to be submitted, and it did not at any time indicate the structure or nature of an offer which might be acceptable to it.

113 In his reasons, Rosenberg J. stated that as of March 1, CCFL and Air Canada had all the information that they needed, and any allegations of unfairness in the negotiating process by the receiver had disappeared. He said:

They created a situation as of March 8, where the receiver was faced with two offers, one of which was acceptable in form and one of which could not possibly be accepted in its present form. The Receiver acted appropriately in accepting the OEL offer.

If he meant by "acceptable in form" that it was acceptable to the receiver, then obviously OEL had the unfair advantage of its lengthy negotiations with the receiver to ascertain what kind of an offer would be acceptable to the receiver. If, on the other hand, he meant that the 922 offer was unacceptable in its form because it was conditional, it can hardly be said that the OEL offer was more acceptable in this regard, as it contained a condition with respect to financing terms and conditions "acceptable to them ."

114 It should be noted that on March 13, 1991, the representatives of 922 first met with the receiver to review its offer of March 7, 1991, and at the request of the receiver, withdrew the inter-lender condition from its offer. On March 14, 1991, OEL removed the financing condition from its offer. By order of Rosenberg J. dated March 26, 1991, CCFL was given until April 5, 1991, to submit a bid, and on April 5, 1991, 922 submitted its offer with the inter-lender condition removed.

115 In my opinion, the offer accepted by the receiver is improvident and unfair insofar as the two creditors are concerned. It is not improvident in the sense that the price offered by 922 greatly exceeded that offered by OEL. In the final analysis it may not be greater at all. The salient fact is that the cash down payment in the 922 offer con stitutes proximately two thirds of the contemplated sale price, whereas the cash down payment in the OEL transaction constitutes approximately 20 to 25 per cent of the contemplated sale price. In terms of absolute dollars, the down payment in the 922 offer would likely exceed that provided for in the OEL agreement by approximately $3 million to $4 million.

116 In Re Beauty Counsellors of Canada Ltd. , supra, Saunders J. said at p. 243 [C.B.R.]:

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If a substantially higher bid turns up at the approval stage, the court should consider it. Such a bid may indicate, for example, that the trustee has not properly carried out its duty to endeavour to obtain the best price for the estate. In such a case the proper course might be to refuse approval and to ask the trustee to recommence the process.

117 I accept that statement as being an accurate statement of the law. I would add, however, as previously indicated, that in determining what is the best price for the estate, the receiver or court should not limit its consideration to which offer provides for the greater sale price. The amount of down payment and the provision or lack thereof to secure payment of the balance of the purchase price over and above the down payment may be the most important factor to be considered, and I am of the view that is so in the present case. It is clear that that was the view of the only creditors who can benefit from the sale of Air Toronto.

118 I note that in the case at bar the 922 offer in conditional form was presented to the receiver before it accepted the OEL offer. The receiver, in good faith, although I believe mistakenly, decided that the OEL offer was the better offer. At that time the receiver did not have the benefit of the views of the two secured creditors in that regard. At the time of the application for approval before Rosenberg J., the stated preference of the two interested creditors was made quite clear. He found as fact that knowledgeable creditors would not be anxious to rely on contingencies in the present circumstances surrounding the airline industry. It is reasonable to expect that a receiver would be no less knowledgeable in that regard, and it is his primary duty to protect the interests of the creditors. In my view, it was an improvident act on the part of the receiver to have accepted the conditional offer made by OEL, and Rosenberg J. erred in failing to dismiss the application of the receiver for approval of the OEL offer. It would be most inequitable to foist upon the two creditors, who have already been seriously hurt, more unnecessary contingencies.

119 Although in other circumstances it might be appropriate to ask the receiver to recommence the process, in my opinion, it would not be appropriate to do so in this case. The only two interested creditors support the acceptance of the 922 offer, and the court should so order.

120 Although I would be prepared to dispose of the case on the grounds stated above, some comment should be addressed to the question of interference by the court with the process and procedure adopted by the receiver.

121 I am in agreement with the view expressed by McKinlay J.A. in her reasons that the undertaking being sold in this case was of a very special and unusual nature. As a result, the procedure adopted by the receiver was somewhat unusual. At the outset, in accordance with the terms of the receiving order, it dealt solely with Air Canada. It then appears that the receiver contemplated a sale of the assets by way of auction, and still later contemplated the preparation and distribution of an offering memorandum inviting bids. At some point, without advice to CCFL, it abandoned that idea and reverted to exclusive negotiations with one interested party. This entire process is not one which is customary or widely accepted as a general practice in the commercial world. It was somewhat unique, having regard to the circumstances of this case. In my opinion, the refusal of the court to approve the offer accepted by the receiver would not reflect on the integrity of procedures followed by court- appointed receivers, and is not the type of refusal which will have a tendency to undermine the future confidence of business persons in dealing with receivers.

122 Rosenberg J. stated that the Royal Bank was aware of the process used and tacitly approved it. He said it knew the terms of the letter of intent in February 1991, and made no comment. The Royal Bank did, however, indicate to the receiver that it was not satisfied with the contemplated price, nor the amount of the down payment. It did not, however, tell the receiver to adopt a different process in endeavouring to sell the Air Toronto assets. It is not clear from the material filed that at the time it became aware of the letter of intent that it knew that CCFl was interested in purchasing Air Toronto.

123 I am further of the opinion that a prospective purchaser who has been given an opportunity to engage in exclusive negotiations with a receiver for relatively short periods of time which are extended from time to time by the receiver, and who then makes a conditional offer, the condition of which is for his sole benefit and must be fulfilled to his satisfaction unless waived by him, and which he knows is to be subject to court approval, cannot legitimately claim to have been unfairly dealt with if the court refuses to approve the offer and approves a substantially better one.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000047 18 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...

124 In conclusion, I feel that I must comment on the statement made by Galligan J.A. in his reasons to the effect that the suggestion made by counsel for 922 constitutes evidence of lack of prejudice resulting from the absence of an offering memorandum. It should be pointed out that the court invited counsel to indicate the manner in which the problem should be resolved in the event that the court concluded that the order approving the OEL offer should be set aside. There was no evidence before the court with respect to what additional information may have been acquired by CCFL since March 8, 1991, and no inquiry was made in that regard. Accordingly, I am of the view that no adverse inference should be drawn from the proposal made as a result of the court's invitation.

125 For the above reasons I would allow the appeal one set of costs to CCFL-922, set aside the order of Rosenberg J., dismiss the receiver's motion with one set of costs to CCFL-922 and order that the assets of Air Toronto be sold to numbered corporation 922246 on the terms set forth in its offer with appropriate adjustments to provide for the delay in its execution. Costs awarded shall be payable out of the estate of Soundair Corporation. The costs incurred by the receiver in making the application and responding to the appeal shall be paid to him out of the assets of the estate of Soundair Corporation on a solicitor-client basis. I would make no order as to costs of any of the other parties or intervenors. Appeal dismissed.

End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000048 19

TAB 3

000049 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773...

2020 SCC 10, 2020 CSC 10 Supreme Court of Canada

9354-9186 Québec inc. v. Callidus Capital Corp.

2020 CarswellQue 3772, 2020 CarswellQue 3773, 2020 SCC 10, 2020 CSC 10, 1 B.L.R. (6th) 1, 317 A.C.W.S. (3d) 532, 444 D.L.R. (4th) 373, 78 C.B.R. (6th) 1

9354-9186 Québec inc. and 9354-9178 Québec inc. (Appellants) and Callidus Capital Corporation, International Game Technology, Deloitte LLP, Luc Carignan, François Vigneault, Philippe Millette, Francis Proulx and François Pelletier (Respondents) and Ernst & Young Inc., IMF Bentham Limited (now known as Omni Bridgeway Limited), Bentham IMF Capital Limited (now known as Omni Bridgeway Capital (Canada) Limited), Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals (Interveners)

IMF Bentham Limited (now known as Omni Bridgeway Limited) and Bentham IMF Capital Limited (now known as Omni Bridgeway Capital (Canada) Limited (Appellants) and Callidus Capital Corporation, International Game Technology, Deloitte LLP, Luc Carignan, François Vigneault, Philippe Millette, Francis Proulx and François Pelletier (Respondents) and Ernst & Young Inc., 9354-9186 Québec inc., 9354-9178 Québec inc., Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals (Interveners)

Wagner C.J.C., Abella, Moldaver, Karakatsanis, Côté, Rowe, Kasirer JJ.

Heard: January 23, 2020 Judgment: May 8, 2020 Docket: 38594

Proceedings: reasons in full to 9354-9186 Québec inc. v. Callidus Capital Corp. (2020), 2020 CarswellQue 237, 2020 CarswellQue 236, Abella J., Côté J., Karakatsanis J., Kasirer J., Moldaver J., Rowe J., Wagner C.J.C. (S.C.C.); reversing Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.) (2019), 2019 QCCA 171, EYB 2019-306890, 2019 CarswellQue 94, Dumas J.C.A. (ad hoc), Dutil J.C.A., Schrager J.C.A. (C.A. Que.)

Counsel: Jean-Philippe Groleau, Christian Lachance, Gabriel Lavery Lepage, Hannah Toledano, for Appellants / Interveners, 9354-9186 Québec inc. and 9354-9178 Québec inc. Neil A. Peden, for Appellants / Interveners IMF Bentham Limited (now known as Omni Bridgeway Limited) and Bentham IMF Capital Limited (now known as Omni Bridgeway Capital (Canada) Limited) Geneviève Cloutier, Clifton P. Prophet, for Respondent, Callidus Capital Corporation Jocelyn Perreault, Noah Zucker, François Alexandre Toupin, for Respondents, International Game Technology, Deloitte LLP, Luc Carignan, François Vigneault, Philippe Millette, Francis Proulx and François Pelletier Joseph Reynaud, Nathalie Nouvet, for Intervener, Ernst & Young Inc. Sylvain Rigaud, Arad Mojtahedi, Saam Pousht-Mashhad, for Interveners, Insolvency Institute of Canada and the Canadian Association of Insolvency and Restructuring Professionals

Subject: Civil Practice and Procedure; Insolvency Headnote Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Arrangements — Miscellaneous Debtor sought protection under Companies' Creditors Arrangement Act (CCAA) — Debtor brought application seeking authorization of funding agreement and requested placement of super-priority charge in favour of lender — After its first plan

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000050 1 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... of arrangement was rejected, secured creditor submitted second plan and sought authorization to vote on it — Supervising judge dismissed secured creditor's application, holding that secured creditor was acting with improper purpose — After reviewing terms of proposed financing, supervising judge found it met criteria set out by courts — Finally, supervising judge imposed super-priority charge on debtor's assets in favour of lender — Secured creditor appealed supervising judge's order — Court of Appeal allowed appeal, finding that exercise of judge's discretion was not founded in law nor on proper treatment of facts — Debtor and lender, supported by monitor, appealed to Supreme Court of Canada — Appeal allowed — By seeking authorization to vote on second version of its own plan, secured creditor was attempting to circumvent creditor democracy CCAA protects — By doing so, secured creditor acted contrary to expectation that parties act with due diligence in insolvency proceeding and was properly barred from voting on second plan — Supervising judge considered proposed financing to be fair and reasonable and correctly determined that it was not plan of arrangement — Therefore, supervising judge's order should be reinstated. Faillite et insolvabilité --- Loi sur les arrangements avec les créanciers des compagnies — Arrangements — Divers Débitrice s'est placée sous la protection de la Loi sur les arrangements avec les créanciers des compagnies (LACC) — Débitrice a déposé une requête visant à obtenir l'autorisation de conclure un accord de financement et a demandé l'autorisation de grever son actif d'une charge super-prioritaire en faveur du prêteur — Après que son premier plan d'arrangement ait été rejeté, la créancière garantie a soumis un deuxième plan et a demandé l'autorisation de voter sur ce plan — Juge surveillant a rejeté la demande de la créancière garantie, estimant que la créancière garantie agissait dans un but illégitime — Après en avoir examiné les modalités, le juge surveillant a conclu que le financement proposé respectait le critère établi par les tribunaux — Enfin, le juge surveillant a ordonné que les actifs de la débitrice soient grevés d'une charge super-prioritaire en faveur du prêteur — Créancière garantie a interjeté appel de l'ordonnance du juge surveillant — Cour d'appel a accueilli l'appel, estimant que l'exercice par le juge de son pouvoir discrétionnaire n'était pas fondé en droit, non plus qu'il ne reposât sur un traitement approprié des faits — Débitrice et le prêteur, appuyés par le contrôleur, ont formé un pourvoi devant la Cour suprême du Canada — Pourvoi accueilli — En cherchant à obtenir l'autorisation de voter sur la deuxième version de son propre plan, la créancière garantie tentait de contourner la démocratie entre les créanciers que défend la LACC — Ce faisant, la créancière garantie agissait manifestement à l'encontre de l'attente selon laquelle les parties agissent avec diligence dans les procédures d'insolvabilité et a été à juste titre empêchée de voter sur le nouveau plan — Juge surveillant a estimé que le financement proposé était juste et raisonnable et a eu raison de conclure que le financement ne constituait pas un plan d'arrangement — Par conséquent, l'ordonnance du juge surveillant devrait être rétablie. The debtor manufactured, distributed, installed, and serviced electronic casino gaming machines. The debtor sought financing from a secured creditor, the debt being secured in part by a share pledge agreement. Over the following years, the debtor lost significant amounts of money, and the secured creditor continued to extend credit. Eventually, the debtor sought protection under the Companies' Creditors Arrangement Act (CCAA). In its petition, the debtor alleged that its liquidity issues were the result of the secured creditor taking de facto control of the corporation and dictating a number of purposefully detrimental business decisions in order to deplete the corporation's equity value with a view to owning the debtor's business and, ultimately, selling it. The debtor's petition succeeded, and an initial order was issued. The debtor then entered into an asset purchase agreement with the secured creditor whereby the secured creditor would obtain all of the debtor's assets in exchange for extinguishing almost the entirety of its secured claim against the debtor. The agreement would also permit the debtor to retain claims for damages against the creditor arising from its alleged involvement in the debtor's financial difficulties. The asset purchase agreement was approved by the supervising judge. The debtor brought an application seeking authorization of a proposed third-party litigation funding agreement (LFA) and the placement of a super-priority charge in favour of the lender. The secured creditor submitted a plan of arrangement along with an application seeking the authorization to vote with the unsecured creditors. The supervising judge dismissed the secured creditor's application, holding that the secured creditor should not be allowed to vote on its own plan because it was acting with an improper purpose. He noted that the secured creditor's first plan had been rejected and this attempt to vote on the new plan was an attempt to override the result of the first vote. Under the circumstances, given that the secured creditor's conduct was contrary to the requirements of appropriateness, good faith, and due diligence, allowing the secured creditor to vote would be both unfair and unreasonable. Since the new plan had no reasonable prospect of success, the supervising judge declined to submit it to a creditors' vote. The supervising judge determined that the LFA did not need to be submitted to a creditors' vote because it was not a plan of arrangement. After reviewing the terms of the LFA, the supervising judge found it met the criteria for approval of third-party litigation funding set out by the courts. Finally, the

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000051 2 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... supervising judge imposed the litigation financing charge on the debtor's assets in favour of the lender. The secured creditor appealed the supervising judge's order. The Court of Appeal allowed the appeal, finding that the exercise of the judge's discretion was not founded in law nor on a proper treatment of the facts so that irrespective of the standard of review applied, appellate intervention was justified. In particular, the Court of Appeal identified two errors. First, the Court of Appeal was of the view that the supervising judge erred in finding that the secured creditor had an improper purpose in seeking to vote on its plan. The Court of Appeal relied heavily on the notion that creditors have a right to vote in their own self-interest. Second, the Court of Appeal concluded that the supervising judge erred in approving the LFA as interim financing because, in its view, the LFA was not connected to the debtor's commercial operations. In light of this perceived error, the Court of Appeal substituted its view that the LFA was a plan of arrangement and, as a result, should have been submitted to a creditors' vote. The debtor and the lender, supported by the monitor, appealed to the Supreme Court of Canada. Held: The appeal was allowed. Per Wagner C.J.C., Moldaver J. (Abella, Karakatsanis, Côté, Rowe, Kasirer JJ. concurring): Section 11 of the CCAA empowers a judge to make any order that the judge considers appropriate in the circumstances. A high degree of deference is owed to discretionary decisions made by judges supervising CCAA proceedings. As such, appellate intervention will only be justified if the supervising judge erred in principle or exercised their discretion unreasonably. This deferential standard of review accounts for the fact that supervising judges are steeped in the intricacies of the CCAA proceedings they oversee. A creditor can generally vote on a plan of arrangement or compromise that affects its rights, subject to any specific provisions of the CCAA that may restrict its voting rights, or a proper exercise of discretion by the supervising judge to constrain or bar the creditor's right to vote. One such constraint arises from s. 11 of the CCAA, which provides supervising judges with the discretion to bar a creditor from voting where the creditor is acting for an improper purpose. For example, a creditor acts for an improper purpose where the creditor is seeking to exercise its voting rights in a manner that frustrates, undermines, or runs counter to the objectives of the CCAA. Supervising judges are best placed to determine whether the power to bar a creditor from voting should be exercised. Here, the supervising judge made no error in exercising his discretion to bar the secured creditor from voting on its plan. The supervising judge was intimately familiar with the debtor's CCAA proceedings and noted that, by seeking an authorization to vote on a second version of its own plan, the first one having been rejected, the secured creditor was attempting to strategically value its security to acquire control over the outcome of the vote and thereby circumvent the creditor democracy the CCAA protects. By doing so, the secured creditor acted contrary to the expectation that parties act with due diligence in an insolvency proceeding. Hence, the secured creditor was properly barred from voting on the second plan. Interim financing is a flexible tool that may take on a range of forms, and third-party litigation funding may be one such form. Ultimately, whether proposed interim financing should be approved is a question that the supervising judge is best placed to answer. Here, there was no basis upon which to interfere with the supervising judge's exercise of his discretion to approve the LFA as interim financing. The supervising judge considered the LFA to be fair and reasonable, drawing guidance from the principles relevant to approving similar agreements in the class action context. While the supervising judge did not canvass each of the factors set out in s. 11.2(4) of the CCAA individually before reaching his conclusion, this was not itself an error. It was apparent that the supervising judge was focused on the fairness at stake to all parties, the specific objectives of the CCAA, and the particular circumstances of this case when he approved the LFA as interim financing. The supervising judge correctly determined that the LFA was not a plan of arrangement because it did not propose any compromise of the creditors' rights. The super-priority charge he granted to the lender did not convert the LFA into a plan of arrangement by subordinating creditors' rights. Therefore, he did not err in the exercise of his discretion, no intervention was justified and the supervising judge's order should be reinstated. La débitrice fabriquait, distribuait, installait et entretenait des appareils de jeux électroniques pour casino. La débitrice a demandé du financement à la créancière garantie que la débitrice a garanti partiellement en signant une entente par laquelle elle mettait en gage ses actions. Au cours des années suivantes, la débitrice a perdu d'importantes sommes d'argent et la créancière garantie a continué de lui consentir du crédit. Finalement, la débitrice s'est placée sous la protection de la Loi sur les arrangements avec les créanciers des compagnies (LACC). Dans sa requête, la débitrice a fait valoir que ses problèmes de liquidité découlaient du fait que la créancière garantie exerçait un contrôle de facto à l'égard de son entreprise et lui dictait un certain nombre de décisions d'affaires dans l'intention de lui nuire et de réduire la valeur de ses actions dans le but de devenir propriétaire de l'entreprise de la débitrice et ultimement de la vendre. La requête de la débitrice a été accordée et une ordonnance initiale a été émise. La

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000052 3 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... débitrice a alors signé une convention d'achat d'actifs avec la créancière garantie en vertu de laquelle la créancière garantie obtiendrait l'ensemble des actifs de la débitrice en échange de l'extinction de la presque totalité de la créance garantie qu'elle détenait à l'encontre de la débitrice. Cette convention prévoyait également que la débitrice se réservait le droit de réclamer des dommages-intérêts à la créancière garantie en raison de l'implication alléguée de celle-ci dans ses difficultés financières. Le juge surveillant a approuvé la convention d'achat d'actifs. La débitrice a déposé une requête visant à obtenir l'autorisation de conclure un accord de financement du litige par un tiers (AFL) et l'autorisation de grever son actif d'une charge super-prioritaire en faveur du prêteur. La créancière garantie a soumis un plan d'arrangement et une requête visant à obtenir l'autorisation de voter avec les créanciers chirographaires. Le juge surveillant a rejeté la demande de la créancière garantie, estimant que la créancière garantie ne devrait pas être autorisée à voter sur son propre plan puisqu'elle agissait dans un but illégitime. Il a fait remarquer que le premier plan de la créancière garantie avait été rejeté et que cette tentative de voter sur le nouveau plan était une tentative de contourner le résultat du premier vote. Dans les circonstances, étant donné que la conduite de la créancière garantie était contraire à l'opportunité, à la bonne foi et à la diligence requises, lui permettre de voter serait à la fois injuste et déraisonnable. Comme le nouveau plan n'avait aucune possibilité raisonnable de recevoir l'aval des créanciers, le juge surveillant a refusé de le soumettre au vote des créanciers. Le juge surveillant a décidé qu'il n'était pas nécessaire de soumettre l'AFL au vote des créanciers parce qu'il ne s'agissait pas d'un plan d'arrangement. Après en avoir examiné les modalités, le juge surveillant a conclu que l'AFL respectait le critère d'approbation applicable en matière de financement d'un litige par un tiers établi par les tribunaux. Enfin, le juge surveillant a ordonné que les actifs de la débitrice soient grevés de la charge liée au financement du litige en faveur du prêteur. La créancière garantie a interjeté appel de l'ordonnance du juge surveillant. La Cour d'appel a accueilli l'appel, estimant que l'exercice par le juge de son pouvoir discrétionnaire n'était pas fondé en droit, non plus qu'il ne reposât sur un traitement approprié des faits, de sorte que, peu importe la norme de contrôle appliquée, il était justifié d'intervenir en appel. En particulier, la Cour d'appel a relevé deux erreurs. D'une part, la Cour d'appel a conclu que le juge surveillant a commis une erreur en concluant que la créancière garantie a agi dans un but illégitime en demandant l'autorisation de voter sur son plan. La Cour d'appel s'appuyait grandement sur l'idée que les créanciers ont le droit de voter en fonction de leur propre intérêt. D'autre part, la Cour d'appel a conclu que le juge surveillant a eu tort d'approuver l'AFL en tant qu'accord de financement provisoire parce qu'à son avis, il n'était pas lié aux opérations commerciales de la débitrice. À la lumière de ce qu'elle percevait comme une erreur, la Cour d'appel a substitué son opinion selon laquelle l'AFL était un plan d'arrangement et que pour cette raison, il aurait dû être soumis au vote des créanciers. La débitrice et le prêteur, appuyés par le contrôleur, ont formé un pourvoi devant la Cour suprême du Canada. Arrêt: Le pourvoi a été accueilli. Wagner, J.C.C., Moldaver, J. (Abella, Karakatsanis, Côté, Rowe, Kasirer, JJ., souscrivant à leur opinion) : L'article 11 de la LACC confère au juge le pouvoir de rendre toute ordonnance qu'il estime indiquée dans les circonstances. Les décisions discrétionnaires des juges chargés de la supervision des procédures intentées sous le régime de la LACC commandent un degré élevé de déférence. Ainsi, les cours d'appel ne seront justifiées d'intervenir que si le juge surveillant a commis une erreur de principe ou exercé son pouvoir discrétionnaire de manière déraisonnable. Cette norme déférente de contrôle tient compte du fait que le juge surveillant possède une connaissance intime des procédures intentées sous le régime de la LACC dont il assure la supervision. En général, un créancier peut voter sur un plan d'arrangement ou une transaction qui a une incidence sur ses droits, sous réserve des dispositions de la LACC qui peuvent limiter son droit de voter, ou de l'exercice justifié par le juge surveillant de son pouvoir discrétionnaire de limiter ou de supprimer ce droit. Une telle limite découle de l'art. 11 de la LACC, qui confère au juge surveillant le pouvoir discrétionnaire d'empêcher le créancier de voter lorsqu'il agit dans un but illégitime. Par exemple, un créancier agit dans un but illégitime lorsque le créancier cherche à exercer ses droits de vote de manière à contrecarrer, à miner les objectifs de la LACC ou à aller à l'encontre de ceux-ci. Le juge surveillant est mieux placé que quiconque pour déterminer s'il doit exercer le pouvoir d'empêcher le créancier de voter. En l'espèce, le juge surveillant n'a commis aucune erreur en exerçant son pouvoir discrétionnaire pour empêcher la créancière garantie de voter sur son plan. Le juge surveillant connaissait très bien les procédures fondées sur la LACC relatives à la débitrice et a fait remarquer que, en cherchant à obtenir l'autorisation de voter sur la deuxième version de son propre plan, la première ayant été rejetée, la créancière garantie tentait d'évaluer stratégiquement la valeur de sa sûreté afin de prendre le contrôle du vote et ainsi contourner la démocratie entre les créanciers que défend la LACC. Ce faisant, la créancière garantie agissait manifestement à l'encontre de l'attente selon laquelle

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000053 4 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... les parties agissent avec diligence dans les procédures d'insolvabilité. Ainsi, la créancière garantie a été à juste titre empêchée de voter sur le nouveau plan. Le financement temporaire est un outil souple qui peut revêtir différentes formes, et le financement d'un litige par un tiers peut constituer l'une de ces formes. Au bout du compte, la question de savoir s'il y a lieu d'approuver le financement temporaire projeté est une question à laquelle le juge surveillant est le mieux placé pour répondre. En l'espèce, il n'y avait aucune raison d'intervenir dans l'exercice par le juge surveillant de son pouvoir discrétionnaire d'approuver l'AFL à titre de financement temporaire. Se fondant sur les principes applicables à l'approbation d'accords semblables dans le contexte des recours collectifs, le juge surveillant a estimé que l'AFL était juste et raisonnable. Bien que le juge surveillant n'ait pas examiné à fond chacun des facteurs énoncés à l'art. 11.2(4) de la LACC de façon individuelle avant de tirer sa conclusion, cela ne constituait pas une erreur en soi. Il était manifeste que le juge surveillant a mis l'accent sur l'équité envers toutes les parties, les objectifs précis de la LACC et les circonstances particulières de la présente affaire lorsqu'il a approuvé l'AFL à titre de financement temporaire. Le juge surveillant a eu raison de conclure que l'AFL ne constituait pas un plan d'arrangement puisqu'il ne proposait aucune transaction visant les droits des créanciers. La charge super-prioritaire qu'il a accordée au prêteur ne convertissait pas l'AFL en plan d'arrangement en subordonnant les droits des créanciers. Par conséquent, il n'a pas commis d'erreur dans l'exercice de sa discrétion, aucune intervention n'était justifiée et l'ordonnance du juge surveillant devrait être rétablie.

APPEAL by debtor from judgment reported at Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.) (2019), EYB 2019-306890, 2019 CarswellQue 94, 2019 QCCA 171 (C.A. Que.), finding that debtor's scheme amounted to plan of arrangement and that funding request should be submitted to creditors for approval.

POURVOI formé par la débitrice à l'encontre d'une décision publiée à Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.) (2019), EYB 2019-306890, 2019 CarswellQue 94, 2019 QCCA 171 (C.A. Que.), ayant conclu que la proposition de la débitrice constituait un plan d'arrangement et que la demande de financement devrait être soumise aux créanciers pour approbation.

Wagner C.J.C., Moldaver J. (Abella, Karakatsanis, Côté, Rowe and Kasirer JJ. concurring):

I. Overview

1 These appeals arise in the context of an ongoing proceeding instituted under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA"), in which substantially all of the assets of the debtor companies have been liquidated. The proceeding was commenced well over four years ago. Since then, a single supervising judge has been responsible for its oversight. In this capacity, he has made numerous discretionary decisions.

2 Two of the supervising judge's decisions are in issue before us. Each raises a question requiring this Court to clarify the nature and scope of judicial discretion in CCAA proceedings. The first is whether a supervising judge has the discretion to bar a creditor from voting on a plan of arrangement where they determine that the creditor is acting for an improper purpose. The second is whether a supervising judge can approve third party litigation funding as interim financing, pursuant to s. 11.2 of the CCAA.

3 For the reasons that follow, we would answer both questions in the affirmative, as did the supervising judge. To the extent the Court of Appeal disagreed and went on to interfere with the supervising judge's discretionary decisions, we conclude that it was not justified in doing so. In our respectful view, the Court of Appeal failed to treat the supervising judge's decisions with the appropriate degree of deference. In the result, as we ordered at the conclusion of the hearing, these appeals are allowed and the supervising judge's order reinstated.

II. Facts

4 In 1994, Mr. Gérald Duhamel founded Bluberi Gaming Technologies Inc., which is now one of the appellants, 9354-9186 Québec inc. The corporation manufactured, distributed, installed, and serviced electronic casino gaming machines. It also provided management systems for gambling operations. Its sole shareholder has at all material times been Bluberi Group Inc.,

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000054 5 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... which is now another of the appellants, 9354-9178 Québec inc. Through a family trust, Mr. Duhamel controls Bluberi Group Inc. and, as a result, Bluberi Gaming (collectively, "Bluberi").

5 In 2012, Bluberi sought financing from the respondent, Callidus Capital Corporation ("Callidus"), which describes itself as an "asset-based or distressed lender" (R.F., at para. 26). Callidus extended a credit facility of approximately $24 million to Bluberi. This debt was secured in part by a share pledge agreement.

6 Over the next three years, Bluberi lost significant amounts of money, and Callidus continued to extend credit. By 2015, Bluberi owed approximately $86 million to Callidus — close to half of which Bluberi asserts is comprised of interest and fees.

A. Bluberi's Institution of CCAA Proceedings and Initial Sale of Assets

7 On November 11, 2015, Bluberi filed a petition for the issuance of an initial order under the CCAA. In its petition, Bluberi alleged that its liquidity issues were the result of Callidus taking de facto control of the corporation and dictating a number of purposefully detrimental business decisions. Bluberi alleged that Callidus engaged in this conduct in order to deplete the corporation's equity value with a view to owning Bluberi and, ultimately, selling it.

8 Over Callidus's objection, Bluberi's petition succeeded. The supervising judge, Michaud J., issued an initial order under the CCAA. Among other things, the initial order confirmed that Bluberi was a "debtor company" within the meaning of s. 2(1) of the Act; stayed any proceedings against Bluberi or any director or officer of Bluberi; and appointed Ernst & Young Inc. as monitor ("Monitor").

9 Working with the Monitor, Bluberi determined that a sale of its assets was necessary. On January 28, 2016, it proposed a sale solicitation process, which the supervising judge approved. That process led to Bluberi entering into an asset purchase agreement with Callidus. The agreement contemplated that Callidus would obtain all of Bluberi's assets in exchange for extinguishing almost the entirety of its secured claim against Bluberi, which had ballooned to approximately $135.7 million. Callidus would maintain an undischarged secured claim of $3 million against Bluberi. The agreement would also permit Bluberi to retain claims for damages against Callidus arising from its alleged involvement in Bluberi's financial difficulties ("Retained Claims"). 1 Throughout these proceedings, Bluberi has asserted that the Retained Claims should amount to over $200 million in damages.

10 The supervising judge approved the asset purchase agreement, and the sale of Bluberi's assets to Callidus closed in February 2017. As a result, Callidus effectively acquired Bluberi's business, and has continued to operate it as a going concern.

11 Since the sale, the Retained Claims have been Bluberi's sole remaining asset and thus the sole security for Callidus's $3 million claim.

B. The Initial Competing Plans of Arrangement

12 On September 11, 2017, Bluberi filed an application seeking the approval of a $2 million interim financing credit facility to fund the litigation of the Retained Claims and other related relief. The lender was a joint venture numbered company incorporated as 9364-9739 Québec inc. This interim financing application was set to be heard on September 19, 2017.

13 However, one day before the hearing, Callidus proposed a plan of arrangement ("First Plan") and applied for an order convening a creditors' meeting to vote on that plan. The First Plan proposed that Callidus would fund a $2.5 million (later increased to $2.63 million) distribution to Bluberi's creditors, except itself, in exchange for a release from the Retained Claims. This would have fully satisfied the claims of Bluberi's former employees and those creditors with claims worth less than $3000; creditors with larger claims were to receive, on average, 31 percent of their respective claims.

14 The supervising judge adjourned the hearing of both applications to October 5, 2017. In the meantime, Bluberi filed its own plan of arrangement. Among other things, the plan proposed that half of any proceeds resulting from the Retained Claims, after payment of expenses and Bluberi's creditors' claims, would be distributed to the unsecured creditors, as long as the net proceeds exceeded $20 million.

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15 On October 5, 2017, the supervising judge ordered that the parties' plans of arrangement could be put to a creditors' vote. He ordered that both parties share the fees and expenses related to the presentation of the plans of arrangement at a creditors' meeting, and that a party's failure to deposit those funds with the Monitor would bar the presentation of that party's plan of arrangement. Bluberi elected not to deposit the necessary funds, and, as a result, only Callidus's First Plan was put to the creditors.

C. Creditors' Vote on Callidus's First Plan

16 On December 15, 2017, Callidus submitted its First Plan to a creditors' vote. The plan failed to receive sufficient support. Section 6(1) of the CCAA provides that, to be approved, a plan must receive a "double majority" vote in each class of creditors — that is, a majority in number of class members, which also represents two-thirds in value of the class members' claims. All of Bluberi's creditors, besides Callidus, formed a single voting class of unsecured creditors. Of the 100 voting unsecured creditors, 92 creditors (representing $3,450,882 of debt) voted in favour, and 8 voted against (representing $2,375,913 of debt). The First Plan failed because the creditors voting in favour only held 59.22 percent of the total value being voted, which did not meet the s. 6(1) threshold. Most notably, SMT Hautes Technologies ("SMT"), which held 36.7 percent of Bluberi's debt, voted against the plan.

17 Callidus did not vote on the First Plan — despite the Monitor explicitly stating that Callidus could have "vote[d] ... the portion of its claim, assessed by Callidus, to be an unsecured claim" (Joint R.R., vol. III, at p.188).

D. Bluberi's Interim Financing Application and Callidus's New Plan

18 On February 6, 2018, Bluberi filed one of the applications underlying these appeals, seeking authorization of a proposed third party litigation funding agreement ("LFA") with a publicly traded litigation funder, IMF Bentham Limited or its Canadian subsidiary, Bentham IMF Capital Limited (collectively, "Bentham"). Bluberi's application also sought the placement of a $20 million super-priority charge in favour of Bentham on Bluberi's assets ("Litigation Financing Charge").

19 The LFA contemplated that Bentham would fund Bluberi's litigation of the Retained Claims in exchange for receiving a portion of any settlement or award after trial. However, were Bluberi's litigation to fail, Bentham would lose all of its invested funds. The LFA also provided that Bentham could terminate the litigation of the Retained Claims if, acting reasonably, it were no longer satisfied of the merits or commercial viability of the litigation.

20 Callidus and certain unsecured creditors who voted in favour of its plan (who are now respondents and style themselves the "Creditors' Group") contested Bluberi's application on the ground that the LFA was a plan of arrangement and, as such, had to be submitted to a creditors' vote. 2

21 On February 12, 2018, Callidus filed the other application underlying these appeals, seeking to put another plan of arrangement to a creditors' vote ("New Plan"). The New Plan was essentially identical to the First Plan, except that Callidus increased the proposed distribution by $250,000 (from $2.63 million to $2.88 million). Further, Callidus filed an amended proof of claim, which purported to value the security attached to its $3 million claim at nil. Callidus was of the view that this valuation was proper because Bluberi had no assets other than the Retained Claims. On this basis, Callidus asserted that it stood in the position of an unsecured creditor, and sought the supervising judge's permission to vote on the New Plan with the other unsecured creditors. Given the size of its claim, if Callidus were permitted to vote on the New Plan, the plan would necessarily pass a creditors' vote. Bluberi opposed Callidus's application.

22 The supervising judge heard Bluberi's interim financing application and Callidus's application regarding its New Plan together. Notably, the Monitor supported Bluberi's position.

III. Decisions Below

A. Quebec Superior Court (2018 QCCS 1040 (C.S. Que.)) (Michaud J.)

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23 The supervising judge dismissed Callidus's application, declining to submit the New Plan to a creditors' vote. He granted Bluberi's application, authorizing Bluberi to enter into a litigation funding agreement with Bentham on the terms set forth in the LFA and imposing the Litigation Financing Charge on Bluberi's assets.

24 With respect to Callidus's application, the supervising judge determined Callidus should not be permitted to vote on the New Plan because it was acting with an "improper purpose" (para. 48). He acknowledged that creditors are generally entitled to vote in their own self-interest. However, given that the First Plan — which was almost identical to the New Plan — had been defeated by a creditors' vote, the supervising judge concluded that Callidus's attempt to vote on the New Plan was an attempt to override the result of the first vote. In particular, he wrote:

Taking into consideration the creditors' interest, the Court accepted, in the fall of 2017, that Callidus' Plan be submitted to their vote with the understanding that, as a secured creditor, Callidus would not cast a vote. However, under the present circumstances, it would serve an improper purpose if Callidus was allowed to vote on its own plan, especially when its vote would very likely result in the New Plan meeting the two thirds threshold for approval under the CCAA.

As pointed out by SMT, the main unsecured creditor, Callidus' attempt to vote aims only at cancelling SMT's vote which prevented Callidus' Plan from being approved at the creditors' meeting.

It is one thing to let the creditors vote on a plan submitted by a secured creditor, it is another to allow this secured creditor to vote on its own plan in order to exert control over the vote for the sole purpose of obtaining releases. [paras. 45-47]

25 The supervising judge concluded that, in these circumstances, allowing Callidus to vote would be both "unfair and unreasonable" (para. 47). He also observed that Callidus's conduct throughout the CCAA proceedings "lacked transparency" (at para. 41) and that Callidus was "solely motivated by the [pending] litigation" (para. 44). In sum, he found that Callidus's conduct was contrary to the "requirements of appropriateness, good faith, and due diligence", and ordered that Callidus would not be permitted to vote on the New Plan (para. 48, citing Ted Leroy Trucking Ltd., Re, 2010 SCC 60, [2010] 3 S.C.R. 379 (S.C.C.) [hereinafter Century Services], at para. 70).

26 Because Callidus was not permitted to vote on the New Plan and SMT had unequivocally stated its intention to vote against it, the supervising judge concluded that the plan had no reasonable prospect of success. He therefore declined to submit it to a creditors' vote.

27 With respect to Bluberi's application, the supervising judge considered three issues relevant to these appeals: (1) whether the LFA should be submitted to a creditors' vote; (2) if not, whether the LFA ought to be approved by the court; and (3) if so, whether the $20 million Litigation Financing Charge should be imposed on Bluberi's assets.

28 The supervising judge determined that the LFA did not need to be submitted to a creditors' vote because it was not a plan of arrangement. He considered a plan of arrangement to involve "an arrangement or compromise between a debtor and its creditors" (para. 71, citing Crystallex International Corp., Re, 2012 ONCA 404, 293 O.A.C. 102 (Ont. C.A.), at para. 92 ("Crystallex")). In his view, the LFA lacked this essential feature. He also concluded that the LFA did not need to be accompanied by a plan, as Bluberi had stated its intention to file a plan in the future.

29 After reviewing the terms of the LFA, the supervising judge found it met the criteria for approval of third party litigation funding set out in Musicians' Pension Fund of Canada (Trustee of) v. Kinross Gold Corp., 2013 ONSC 4974, 117 O.R. (3d) 150 (Ont. S.C.J.), at para. 41, and Hayes v. Saint John (City), 2016 NBQB 125 (N.B. Q.B.), at para. 4 (CanLII). In particular, he considered Bentham's percentage of return to be reasonable in light of its level of investment and risk. Further, the supervising judge rejected Callidus and the Creditors' Group's argument that the LFA gave too much discretion to Bentham. He found that the LFA did not allow Bentham to exert undue influence on the litigation of the Retained Claims, noting similarly broad clauses had been approved in the CCAA context (para. 82, citing Schenk v. Valeant Pharmaceuticals International Inc., 2015 ONSC 3215, 74 C.P.C. (7th) 332 (Ont. S.C.J.), at para. 23).

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30 Finally, the supervising judge imposed the Litigation Financing Charge on Bluberi's assets. While significant, the supervising judge considered the amount to be reasonable given: the amount of damages that would be claimed from Callidus; Bentham's financial commitment to the litigation; and the fact that Bentham was not charging any interim fees or interest (i.e., it would only profit in the event of successful litigation or settlement). Put simply, Bentham was taking substantial risks, and it was reasonable that it obtain certain guarantees in exchange.

31 Callidus, again supported by the Creditors' Group, appealed the supervising judge's order, impleading Bentham in the process.

B. Quebec Court of Appeal (2019 QCCA 171 (C.A. Que.)) (Dutil and Schrager JJ.A. and Dumas J. (ad hoc))

32 The Court of Appeal allowed the appeal, finding that "[t]he exercise of the judge's discretion [was] not founded in law nor on a proper treatment of the facts so that irrespective of the standard of review applied, appellate intervention [was] justified" (para. 48 CanLII)). In particular, the court identified two errors of relevance to these appeals.

33 First, the court was of the view that the supervising judge erred in finding that Callidus had an improper purpose in seeking to vote on its New Plan. In its view, Callidus should have been permitted to vote. The court relied heavily on the notion that creditors have a right to vote in their own self-interest. It held that any judicial discretion to preclude voting due to improper purpose should be reserved for the "clearest of cases" (para. 62, referring to Blackburn Developments Ltd., Re, 2011 BCSC 1671, 27 B.C.L.R. (5th) 199 (B.C. S.C.), at para. 45). The court was of the view that Callidus's transparent attempt to obtain a release from Bluberi's claims against it did not amount to an improper purpose. The court also considered Callidus's conduct prior to and during the CCAA proceedings to be incapable of justifying a finding of improper purpose.

34 Second, the court concluded that the supervising judge erred in approving the LFA as interim financing because, in its view, the LFA was not connected to Bluberi's commercial operations. The court concluded that the supervising judge had both "misconstrued in law the notion of interim financing and misapplied that notion to the factual circumstances of the case" (para. 78).

35 In light of this perceived error, the court substituted its view that the LFA was a plan of arrangement and, as a result, should have been submitted to a creditors' vote. It held that "[a]n arrangement or proposal can encompass both a compromise of creditors' claims as well as the process undertaken to satisfy them" (para. 85). The court considered the LFA to be a plan of arrangement because it affected the creditors' share in any eventual litigation proceeds, would cause them to wait for the outcome of any litigation, and could potentially leave them with nothing at all. Moreover, the court held that Bluberi's scheme "as a whole", being the prosecution of the Retained Claims and the LFA, should be submitted as a plan to the creditors for their approval (para. 89).

36 Bluberi and Bentham (collectively, "appellants"), again supported by the Monitor, now appeal to this Court.

IV. Issues

37 These appeals raise two issues:

(1) Did the supervising judge err in barring Callidus from voting on its New Plan on the basis that it was acting for an improper purpose?

(2) Did the supervising judge err in approving the LFA as interim financing, pursuant to s. 11.2 of the CCAA?

V. Analysis

A. Preliminary Considerations

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38 Addressing the above issues requires situating them within the contemporary Canadian insolvency landscape and, more specifically, the CCAA regime. Accordingly, before turning to those issues, we review (1) the evolving nature of CCAA proceedings; (2) the role of the supervising judge in those proceedings; and (3) the proper scope of appellate review of a supervising judge's exercise of discretion.

(1) The Evolving Nature of CCAA Proceedings

39 The CCAA is one of three principal insolvency statutes in Canada. The others are the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA"), which covers insolvencies of both individuals and companies, and the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11 ("WURA"), which covers insolvencies of financial institutions and certain other corporations, such as insurance companies (WURA, s. 6(1)). While both the CCAA and the BIA enable reorganizations of insolvent companies, access to the CCAA is restricted to debtor companies facing total claims in excess of $5 million (CCAA, s. 3(1)).

40 Together, Canada's insolvency statutes pursue an array of overarching remedial objectives that reflect the wide ranging and potentially "catastrophic" impacts insolvency can have (Indalex Ltd., Re, 2013 SCC 6, [2013] 1 S.C.R. 271 (S.C.C.), at para. 1). These objectives include: providing for timely, efficient and impartial resolution of a debtor's insolvency; preserving and maximizing the value of a debtor's assets; ensuring fair and equitable treatment of the claims against a debtor; protecting the public interest; and, in the context of a commercial insolvency, balancing the costs and benefits of restructuring or liquidating the company (J. P. Sarra, "The Oscillating Pendulum: Canada's Sesquicentennial and Finding the Equilibrium for Insolvency Law", in J. P. Sarra and B. Romaine, eds., Annual Review of Insolvency Law 2016 (2017), 9, at pp. 9-10; J. P. Sarra, Rescue! The Companies' Creditors Arrangement Act 2nd ed. (2013), at pp. 4-5 and 14; Standing Senate Committee on Banking, Trade and Commerce, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act (2003), at pp. 9-10; R. J. Wood, Bankruptcy and Insolvency Law (2nd ed. 2015), at pp. 4-5).

41 Among these objectives, the CCAA generally prioritizes "avoiding the social and economic losses resulting from liquidation of an insolvent company" (Century Services, at para. 70). As a result, the typical CCAA case has historically involved an attempt to facilitate the reorganization and survival of the pre-filing debtor company in an operational state — that is, as a going concern. Where such a reorganization was not possible, the alternative course of action was seen as a liquidation through either a receivership or under the BIA regime. This is precisely the outcome that was sought in Century Services (see para. 14).

42 That said, the CCAA is fundamentally insolvency legislation, and thus it also "has the simultaneous objectives of maximizing creditor recovery, preservation of going-concern value where possible, preservation of jobs and communities affected by the firm's financial distress ... and enhancement of the credit system generally" (Sarra, Rescue! The Companies' Creditors Arrangement Act, at p. 14; see also Ernst & Young Inc. v. Essar Global Fund Limited, 2017 ONCA 1014, 139 O.R. (3d) 1 (Ont. C.A.), at para. 103). In pursuit of those objectives, CCAA proceedings have evolved to permit outcomes that do not result in the emergence of the pre-filing debtor company in a restructured state, but rather involve some form of liquidation of the debtor's assets under the auspices of the Act itself (Sarra, "The Oscillating Pendulum: Canada's Sesquicentennial and Finding the Equilibrium for Insolvency Law", at pp. 19-21). Such scenarios are referred to as "liquidating CCAAs", and they are now commonplace in the CCAA landscape (see Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508, 435 D.L.R. (4th) 416 (Ont. C.A.), at para. 70).

43 Liquidating CCAAs take diverse forms and may involve, among other things: the sale of the debtor company as a going concern; an "en bloc" sale of assets that are capable of being operationalized by a buyer; a partial liquidation or downsizing of business operations; or a piecemeal sale of assets (B. Kaplan, "Liquidating CCAAs: Discretion Gone Awry?", in J. P. Sarra, ed., Annual Review of Insolvency Law (2008), 79, at pp. 87-89). The ultimate commercial outcomes facilitated by liquidating CCAAs are similarly diverse. Some may result in the continued operation of the business of the debtor under a different going concern entity (e.g., the liquidations in Indalex and Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re (1998), 5 C.B.R. (4th) 299 (Ont. Gen. Div. [Commercial List]), while others may result in a sale of assets and inventory with no such entity emerging (e.g., the proceedings in Target Canada Co., Re, 2015 ONSC 303, 22 C.B.R. (6th) 323 (Ont. S.C.J.), at

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44 CCAA courts first began approving these forms of liquidation pursuant to the broad discretion conferred by the Act. The emergence of this practice was not without criticism, largely on the basis that it appeared to be inconsistent with the CCAA being a "restructuring statute" (see, e.g., Royal Bank v. Fracmaster Ltd., 1999 ABCA 178, 244 A.R. 93 (Alta. C.A.), at paras. 15-16, aff'g 1999 ABQB 379, 11 C.B.R. (4th) 204 (Alta. Q.B.), at paras. 40-43; A. Nocilla, "The History of the Companies' Creditors Arrangement Act and the Future of Re-Structuring Law in Canada" (2014), 56 Can. Bus. L.J. 73, at pp. 88-92).

45 However, since s. 36 of the CCAA came into force in 2009, courts have been using it to effect liquidating CCAAs. Section 36 empowers courts to authorize the sale or disposition of a debtor company's assets outside the ordinary course of business. 3 Significantly, when the Standing Senate Committee on Banking, Trade and Commerce recommended the adoption of s. 36, it observed that liquidation is not necessarily inconsistent with the remedial objectives of the CCAA, and that it may be a means to "raise capital [to facilitate a restructuring], eliminate further loss for creditors or focus on the solvent operations of the business" (p. 147). Other commentators have observed that liquidation can be a "vehicle to restructure a business" by allowing the business to survive, albeit under a different corporate form or ownership (Sarra, Rescue! The Companies' Creditors Arrangement Act, at p. 169; see also K. P. McElcheran, Commercial Insolvency in Canada (4th ed. 2019), at p. 311). Indeed, in Indalex, the company sold its assets under the CCAA in order to preserve the jobs of its employees, despite being unable to survive as their employer (see para. 51).

46 Ultimately, the relative weight that the different objectives of the CCAA take on in a particular case may vary based on the factual circumstances, the stage of the proceedings, or the proposed solutions that are presented to the court for approval. Here, a parallel may be drawn with the BIA context. In Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150 (S.C.C.), at para. 67, this Court explained that, as a general matter, the BIA serves two purposes: (1) the bankrupt's financial rehabilitation and (2) the equitable distribution of the bankrupt's assets among creditors. However, in circumstances where a debtor corporation will never emerge from bankruptcy, only the latter purpose is relevant (see para. 67). Similarly, under the CCAA, when a reorganization of the pre-filing debtor company is not a possibility, a liquidation that preserves going-concern value and the ongoing business operations of the pre-filing company may become the predominant remedial focus. Moreover, where a reorganization or liquidation is complete and the court is dealing with residual assets, the objective of maximizing creditor recovery from those assets may take centre stage. As we will explain, the architecture of the CCAA leaves the case- specific assessment and balancing of these remedial objectives to the supervising judge.

(2) The Role of a Supervising Judge in CCAA Proceedings

47 One of the principal means through which the CCAA achieves its objectives is by carving out a unique supervisory role for judges (see Sarra, Rescue! The Companies' Creditors Arrangement Act, at pp. 18-19). From beginning to end, each CCAA proceeding is overseen by a single supervising judge. The supervising judge acquires extensive knowledge and insight into the stakeholder dynamics and the business realities of the proceedings from their ongoing dealings with the parties.

48 The CCAA capitalizes on this positional advantage by supplying supervising judges with broad discretion to make a variety of orders that respond to the circumstances of each case and "meet contemporary business and social needs" (Century Services, at para. 58) in "real-time" (para. 58, citing R. B. Jones, "The Evolution of Canadian Restructuring: Challenges for the Rule of Law", in J. P. Sarra, ed., Annual Review of Insolvency Law 2005 (2006), 481, at p. 484). The anchor of this discretionary authority is s. 11, which empowers a judge "to make any order that [the judge] considers appropriate in the circumstances". This section has been described as "the engine" driving the statutory scheme (Stelco Inc., Re (2005), 253 D.L.R. (4th) 109 (Ont. C.A.), at para. 36).

49 The discretionary authority conferred by the CCAA, while broad in nature, is not boundless. This authority must be exercised in furtherance of the remedial objectives of the CCAA, which we have explained above (see Century Services, at para. 59). Additionally, the court must keep in mind three "baseline considerations" (at para. 70), which the applicant bears the

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50 The first two considerations of appropriateness and good faith are widely understood in the CCAA context. Appropriateness "is assessed by inquiring whether the order sought advances the policy objectives underlying the CCAA" (para. 70). Further, the well-established requirement that parties must act in good faith in insolvency proceedings has recently been made express in s. 18.6 of the CCAA, which provides:

Good faith

18.6 (1) Any interested person in any proceedings under this Act shall act in good faith with respect to those proceedings.

Good faith — powers of court

(2) If the court is satisfied that an interested person fails to act in good faith, on application by an interested person, the court may make any order that it considers appropriate in the circumstances.

(See also BIA, s. 4.2; Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29, ss. 133 and 140.)

51 The third consideration of due diligence requires some elaboration. Consistent with the CCAA regime generally, the due diligence consideration discourages parties from sitting on their rights and ensures that creditors do not strategically manoeuver or position themselves to gain an advantage (Lehndorff General Partner Ltd., Re (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]), at p. 31). The procedures set out in the CCAA rely on negotiations and compromise between the debtor and its stakeholders, as overseen by the supervising judge and the monitor. This necessarily requires that, to the extent possible, those involved in the proceedings be on equal footing and have a clear understanding of their respective rights (see McElcheran, at p. 262). A party's failure to participate in CCAA proceedings in a diligent and timely fashion can undermine these procedures and, more generally, the effective functioning of the CCAA regime (see, e.g., North American Tungsten Corp. v. Global Tungsten and Powders Corp., 2015 BCCA 390, 377 B.C.A.C. 6 (B.C. C.A.), at paras. 21-23; BA Energy Inc., Re, 2010 ABQB 507, 70 C.B.R. (5th) 24 (Alta. Q.B.); HSBC Bank Canada v. Bear Mountain Master Partnership, 2010 BCSC 1563, 72 C.B.R. (4th) 276 (B.C. S.C. [In Chambers]), at para. 11; Caterpillar Financial Services Ltd. v. 360networks Corp., 2007 BCCA 14, 279 D.L.R. (4th) 701 (B.C. C.A.), at paras. 51-52, in which the courts seized on a party's failure to act diligently).

52 We pause to note that supervising judges are assisted in their oversight role by a court appointed monitor whose qualifications and duties are set out in the CCAA (see ss. 11.7, 11.8 and 23 to 25). The monitor is an independent and impartial expert, acting as "the eyes and the ears of the court" throughout the proceedings (Essar, at para. 109). The core of the monitor's role includes providing an advisory opinion to the court as to the fairness of any proposed plan of arrangement and on orders sought by parties, including the sale of assets and requests for interim financing (see CCAA, s. 23(1)(d) and (i); Sarra, Rescue! The Companies' Creditors Arrangement Act, at pp-566 and 569).

(3) Appellate Review of Exercises of Discretion by a Supervising Judge

53 A high degree of deference is owed to discretionary decisions made by judges supervising CCAA proceedings. As such, appellate intervention will only be justified if the supervising judge erred in principle or exercised their discretion unreasonably (see Grant Forest Products Inc. v. Toronto-Dominion Bank, 2015 ONCA 570, 387 D.L.R. (4th) 426 (Ont. C.A.), at para. 98; Bridging Finance Inc. v. Béton Brunet 2001 inc., 2017 QCCA 138, 44 C.B.R. (6th) 175 (C.A. Que.), at para. 23). Appellate courts must be careful not to substitute their own discretion in place of the supervising judge's (New Skeena Forest Products Inc., Re, 2005 BCCA 192, 39 B.C.L.R. (4th) 338 (B.C. C.A.), at para. 20).

54 This deferential standard of review accounts for the fact that supervising judges are steeped in the intricacies of the CCAA proceedings they oversee. In this respect, the comments of Tysoe J.A. in Edgewater Casino Inc., Re, 2009 BCCA 40, 305 D.L.R. (4th) 339 (B.C. C.A.) ("Re Edgewater Casino Inc.), at para. 20, are apt:

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... one of the principal functions of the judge supervising the CCAA proceeding is to attempt to balance the interests of the various stakeholders during the reorganization process, and it will often be inappropriate to consider an exercise of discretion by the supervising judge in isolation of other exercises of discretion by the judge in endeavoring to balance the various interests. ... CCAA proceedings are dynamic in nature and the supervising judge has intimate knowledge of the reorganization process. The nature of the proceedings often requires the supervising judge to make quick decisions in complicated circumstances.

55 With the foregoing in mind, we turn to the issues on appeal.

B. Callidus Should Not Be Permitted to Vote on Its New Plan

56 A creditor can generally vote on a plan of arrangement or compromise that affects its rights, subject to any specific provisions of the CCAA that may restrict its voting rights (e.g., s. 22(3)), or a proper exercise of discretion by the supervising judge to constrain or bar the creditor's right to vote. We conclude that one such constraint arises from s. 11 of the CCAA, which provides supervising judges with the discretion to bar a creditor from voting where the creditor is acting for an improper purpose. Supervising judges are best-placed to determine whether this discretion should be exercised in a particular case. In our view, the supervising judge here made no error in exercising his discretion to bar Callidus from voting on the New Plan.

(1) Parameters of Creditors' Right to Vote on Plans of Arrangement

57 Creditor approval of any plan of arrangement or compromise is a key feature of the CCAA, as is the supervising judge's oversight of that process. Where a plan is proposed, an application may be made to the supervising judge to order a creditors' meeting to vote on the proposed plan (CCAA, ss. 4 and 5). The supervising judge has the discretion to determine whether to order the meeting. For the purposes of voting at a creditors' meeting, the debtor company may divide the creditors into classes, subject to court approval (CCAA, s. 22(1)). Creditors may be included in the same class if "their interests or rights are sufficiently similar to give them a commonality of interest" (CCAA, s. 22(2); see also L. W. Houlden, G. B. Morawetz and J. P. Sarra, Bankruptcy and Insolvency Law of Canada (4th ed. (loose-leaf)), vol. 4, at N§149). If the requisite "double majority" in each class of creditors — again, a majority in number of class members, which also represents two-thirds in value of the class members' claims — vote in favour of the plan, the supervising judge may sanction the plan (ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp., 2008 ONCA 587, 296 D.L.R. (4th) 135 (Ont. C.A.), at para. 34; see CCAA, s. 6). The supervising judge will conduct what is commonly referred to as a "fairness hearing" to determine, among other things, whether the plan is fair and reasonable (Wood, at pp. 490-92; see also Sarra, Rescue! The Companies' Creditors Arrangement Act, at p. 529; Houlden, Morawetz and Sarra at N§45). Once sanctioned by the supervising judge, the plan is binding on each class of creditors that participated in the vote (CCAA, s. 6(1)).

58 Creditors with a provable claim against the debtor whose interests are affected by a proposed plan are usually entitled to vote on plans of arrangement (Wood, at p. 470). Indeed, there is no express provision in the CCAA barring such a creditor from voting on a plan of arrangement, including a plan it sponsors.

59 Notwithstanding the foregoing, the appellants submit that a purposive interpretation of s. 22(3) of the CCAA reveals that, as a general matter, a creditor should be precluded from voting on its own plan. Section 22(3) provides:

Related creditors

(3) A creditor who is related to the company may vote against, but not for, a compromise or arrangement relating to the company.

The appellants note that s. 22(3) was meant to harmonize the CCAA scheme with s. 54(3) of the BIA, which provides that "[a] creditor who is related to the debtor may vote against but not for the acceptance of the proposal." The appellants point out that, under s. 50(1) of the BIA, only debtors can sponsor plans; as a result, the reference to "debtor" in s. 54(3) captures all plan sponsors. They submit that if s. 54(3) captures all plan sponsors, s. 22(3) of the CCAA must do the same. On this basis, the

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000062 13 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... appellants ask us to extend the voting restriction in s. 22(3) to apply not only to creditors who are "related to the company", as the provision states, but to any creditor who sponsors a plan. They submit that this interpretation gives effect to the underlying intention of both provisions, which they say is to ensure that a creditor who has a conflict of interest cannot "dilute" or overtake the votes of other creditors.

60 We would not accept this strained interpretation of s. 22(3). Section 22(3) makes no mention of conflicts of interest between creditors and plan sponsors generally. The wording of s. 22(3) only places voting restrictions on creditors who are "related to the [debtor] company". These words are "precise and unequivocal" and, as such, must "play a dominant role in the interpretive process" (Canada Trustco Mortgage Co. v. R., 2005 SCC 54, [2005] 2 S.C.R. 601 (S.C.C.), at para. 10). In our view, the appellants' analogy to the BIA is not sufficient to overcome the plain wording of this provision.

61 While the appellants are correct that s. 22(3) was enacted to harmonize the treatment of related parties in the CCAA and BIA, its history demonstrates that it is not a general conflict of interest provision. Prior to the amendments incorporating s. 22(3) into the CCAA, the CCAA clearly allowed creditors to put forward a plan of arrangement (see Houlden, Morawetz and Sarra, at N§33, Red Cross; 1078385 Ontario Ltd., Re (2004), 206 O.A.C. 17 (Ont. C.A.)). In contrast, under the BIA, only debtors could make proposals. Parliament is presumed to have been aware of this obvious difference between the two statutes (see ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140 (S.C.C.), at para. 59; see also Third Eye Capital Corporation, at para. 57). Despite this difference, Parliament imported, with necessary modification, the wording of the BIA related creditor provision into the CCAA. Going beyond this language entails accepting that Parliament failed to choose the right words to give effect to its intention, which we do not.

62 Indeed, Parliament did not mindlessly reproduce s. 54(3) of the BIA in s. 22(3) of the CCAA. Rather, it made two modifications to the language of s. 54(3) to bring it into conformity with the language of the CCAA. First, it changed "proposal" (a defined term in the BIA) to "compromise or arrangement" (a term used throughout the CCAA). Second, it changed "debtor" to "company", recognizing that companies are the only kind of debtor that exists in the CCAA context.

63 Our view is further supported by Industry Canada's explanation of the rationale for s. 22(3) as being to "reduce the ability of debtor companies to organize a restructuring plan that confers additional benefits to related parties" (Office of the Superintendent of Bankruptcy Canada, Bill C-12: Clause by Clause Analysis, developed by Industry Canada, last updated March 24, 2015 (online), cl. 71, s. 22 (emphasis added); see also Standing Senate Committee on Banking, Trade and Commerce, at p. 151).

64 Finally, we note that the CCAA contains other mechanisms that attenuate the concern that a creditor with conflicting legal interests with respect to a plan it proposes may distort the creditors' vote. Although we reject the appellants' interpretation of s. 22(3), that section still bars creditors who are related to the debtor company from voting in favour of any plan. Additionally, creditors who do not share a sufficient commonality of interest may be forced to vote in separate classes (s. 22(1) and (2)), and, as we will explain, a supervising judge may bar a creditor from voting where the creditor is acting for an improper purpose.

(2) Discretion to Bar a Creditor From Voting in Furtherance of an Improper Purpose

65 There is no dispute that the CCAA is silent on when a creditor who is otherwise entitled to vote on a plan can be barred from voting. However, CCAA supervising judges are often called upon "to sanction measures for which there is no explicit authority in the CCAA" (Century Services, at para. 61; see also para. 62). In Century Services, this Court endorsed a "hierarchical" approach to determining whether jurisdiction exists to sanction a proposed measure: "courts [must] rely first on an interpretation of the provisions of the CCAA text before turning to inherent or equitable jurisdiction to anchor measures taken in a CCAA proceeding" (para. 65). In most circumstances, a purposive and liberal interpretation of the provisions of the CCAA will be sufficient "to ground measures necessary to achieve its objectives" (para. 65).

66 Applying this approach, we conclude that jurisdiction exists under s. 11 of the CCAA to bar a creditor from voting on a plan of arrangement or compromise where the creditor is acting for an improper purpose.

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67 Courts have long recognized that s. 11 of the CCAA signals legislative endorsement of the "broad reading of CCAA authority developed by the jurisprudence" (Century Services, at para. 68). Section 11 states:

General power of court

11 Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act, if an application is made under this Act in respect of a debtor company, the court, on the application of any person interested in the matter, may, subject to the restrictions set out in this Act, on notice to any other person or without notice as it may see fit, make any order that it considers appropriate in the circumstances.

On the plain wording of the provision, the jurisdiction granted by s. 11 is constrained only by restrictions set out in the CCAA itself, and the requirement that the order made be "appropriate in the circumstances".

68 Where a party seeks an order relating to a matter that falls within the supervising judge's purview, and for which there is no CCAA provision conferring more specific jurisdiction, s. 11 necessarily is the provision of first resort in anchoring jurisdiction. As Blair J.A. put it in Stelco, s. 11 "for the most part supplants the need to resort to inherent jurisdiction" in the CCAA context (para. 36).

69 Oversight of the plan negotiation, voting, and approval process falls squarely within the supervising judge's purview. As indicated, there are no specific provisions in the CCAA which govern when a creditor who is otherwise eligible to vote on a plan may nonetheless be barred from voting. Nor is there any provision in the CCAA which suggests that a creditor has an absolute right to vote on a plan that cannot be displaced by a proper exercise of judicial discretion. However, given that the CCAA regime contemplates creditor participation in decision-making as an integral facet of the workout regime, creditors should only be barred from voting where the circumstances demand such an outcome. In other words, it is necessarily a discretionary, circumstance-specific inquiry.

70 Thus, it is apparent that s. 11 serves as the source of the supervising judge's jurisdiction to issue a discretionary order barring a creditor from voting on a plan of arrangement. The exercise of this discretion must further the remedial objectives of the CCAA and be guided by the baseline considerations of appropriateness, good faith, and due diligence. This means that, where a creditor is seeking to exercise its voting rights in a manner that frustrates, undermines, or runs counter to those objectives — that is, acting for an "improper purpose" — the supervising judge has the discretion to bar that creditor from voting.

71 The discretion to bar a creditor from voting in furtherance of an improper purpose under the CCAA parallels the similar discretion that exists under the BIA, which was recognized in Laserworks Computer Services Inc., Re, 1998 NSCA 42, 165 N.S.R. (2d) 296 (N.S. C.A.). In Laserworks Computer Services Inc., the Nova Scotia Court of Appeal concluded that the discretion to bar a creditor from voting in this way stemmed from the court's power, inherent in the scheme of the BIA, to supervise "[e]ach step in the bankruptcy process" (at para. 41), as reflected in ss. 43(7), 108(3), and 187(9) of the Act. The court explained that s. 187(9) specifically grants the power to remedy a "substantial injustice", which arises "when the BIA is used for an improper purpose" (para. 54). The court held that "[a]n improper purpose is any purpose collateral to the purpose for which the bankruptcy and insolvency legislation was enacted by Parliament" (para. 54).

72 While not determinative, the existence of this discretion under the BIA lends support to the existence of similar discretion under the CCAA for two reasons.

73 First, this conclusion would be consistent with this Court's recognition that the CCAA "offers a more flexible mechanism with greater judicial discretion" than the BIA (Century Services, at para. 14 (emphasis added)).

74 Second, this Court has recognized the benefits of harmonizing the two statutes to the extent possible. For example, in Indalex, the Court observed that "in order to avoid a race to liquidation under the BIA, courts will favour an interpretation of the CCAA that affords creditors analogous entitlements" to those received under the BIA (para. 51; see also Century Services, at para. 24; Nortel Networks Corp., Re, 2015 ONCA 681, 391 D.L.R. (4th) 283 (Ont. C.A.), at paras. 34-46). Thus, where the

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000064 15 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... statutes are capable of bearing a harmonious interpretation, that interpretation ought to be preferred "to avoid the ills that can arise from [insolvency] 'statute-shopping'" (Kitchener Frame Ltd., Re, 2012 ONSC 234, 86 C.B.R. (5th) 274, at para. 78; see also para. 73). In our view, the articulation of "improper purpose" set out in Laserworks Computer Services Inc. — that is, any purpose collateral to the purpose of insolvency legislation — is entirely harmonious with the nature and scope of judicial discretion afforded by the CCAA. Indeed, as we have explained, this discretion is to be exercised in accordance with the CCAA's objectives as an insolvency statute.

75 We also observe that the recognition of this discretion under the CCAA advances the basic fairness that "permeates Canadian insolvency law and practice" (Sarra, "The Oscillating Pendulum: Canada's Sesquicentennial and Finding the Equilibrium for Insolvency Law", at p. 27; see also Century Services, at paras. 70 and 77). As Professor Sarra observes, fairness demands that supervising judges be in a position to recognize and meaningfully address circumstances in which parties are working against the goals of the statute:

The Canadian insolvency regime is based on the assumption that creditors and the debtor share a common goal of maximizing recoveries. The substantive aspect of fairness in the insolvency regime is based on the assumption that all involved parties face real economic risks. Unfairness resides where only some face these risks, while others actually benefit from the situation .... If the CCAA is to be interpreted in a purposive way, the courts must be able to recognize when people have conflicting interests and are working actively against the goals of the statute.

("The Oscillating Pendulum: Canada's Sesquicentennial and Finding the Equilibrium for Insolvency Law", at p. 30 (emphasis added))

In this vein, the supervising judge's oversight of the CCAA voting regime must not only ensure strict compliance with the Act, but should further its goals as well. We are of the view that the policy objectives of the CCAA necessitate the recognition of the discretion to bar a creditor from voting where the creditor is acting for an improper purpose.

76 Whether this discretion ought to be exercised in a particular case is a circumstance-specific inquiry that must balance the various objectives of the CCAA. As this case demonstrates, the supervising judge is best-positioned to undertake this inquiry.

(3) The Supervising Judge Did Not Err in Prohibiting Callidus From Voting

77 In our view, the supervising judge's decision to bar Callidus from voting on the New Plan discloses no error justifying appellate intervention. As we have explained, discretionary decisions like this one must be approached from the appropriate posture of deference. It bears mentioning that, when he made this decision, the supervising judge was intimately familiar with Bluberi's CCAA proceedings. He had presided over them for over 2 years, received 15 reports from the Monitor, and issued approximately 25 orders.

78 The supervising judge considered the whole of the circumstances and concluded that Callidus's vote would serve an improper purpose (paras. 45 and 48). We agree with his determination. He was aware that, prior to the vote on the First Plan, Callidus had chosen not to value any of its claim as unsecured and later declined to vote at all — despite the Monitor explicitly inviting it do so 4 . The supervising judge was also aware that Callidus's First Plan had failed to receive the other creditors' approval at the creditors' meeting of December 15, 2017, and that Callidus had chosen not to take the opportunity to amend or increase the value of its plan at that time, which it was entitled to do (see CCAA, ss. 6 and 7; Monitor, I.F., at para. 17). Between the failure of the First Plan and the proposal of the New Plan — which was identical to the First Plan, save for a modest increase of $250,000 — none of the factual circumstances relating to Bluberi's financial or business affairs had materially changed. However, Callidus sought to value the entirety of its security at nil and, on that basis, sought leave to vote on the New Plan as an unsecured creditor. If Callidus were permitted to vote in this way, the New Plan would certainly have met the s. 6(1) threshold for approval. In these circumstances, the inescapable inference was that Callidus was attempting to strategically value its security to acquire control over the outcome of the vote and thereby circumvent the creditor democracy the CCAA protects. Put simply, Callidus was seeking to take a "second kick at the can" and manipulate the vote on the New Plan. The supervising judge made no error in exercising his discretion to prevent Callidus from doing so.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000065 16 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773...

79 Indeed, as the Monitor observes, "Once a plan of arrangement or proposal has been submitted to the creditors of a debtor for voting purposes, to order a second creditors' meeting to vote on a substantially similar plan would not advance the policy objectives of the CCAA, nor would it serve and enhance the public's confidence in the process or otherwise serve the ends of justice" (I.F., at para. 18). This is particularly the case given that the cost of having another meeting to vote on the New Plan would have been upwards of $200,000 (see supervising judge's reasons, at para. 72).

80 We add that Callidus's course of action was plainly contrary to the expectation that parties act with due diligence in an insolvency proceeding — which, in our view, includes acting with due diligence in valuing their claims and security. At all material times, Bluberi's Retained Claims have been the sole asset securing Callidus's claim. Callidus has pointed to nothing in the record that indicates that the value of the Retained Claims has changed. Had Callidus been of the view that the Retained Claims had no value, one would have expected Callidus to have valued its security accordingly prior to the vote on the First Plan, if not earlier. Parenthetically, we note that, irrespective of the timing, an attempt at such a valuation may well have failed. This would have prevented Callidus from voting as an unsecured creditor, even in the absence of Callidus's improper purpose.

81 As we have indicated, discretionary decisions attract a highly deferential standard of review. Deference demands that review of a discretionary decision begin with a proper characterization of the basis for the decision. Respectfully, the Court of Appeal failed in this regard. The Court of Appeal seized on the supervising judge's somewhat critical comments relating to Callidus's goal of being released from the Retained Claims and its conduct throughout the proceedings as being incapable of grounding a finding of improper purpose. However, as we have explained, these considerations did not drive the supervising judge's conclusion. His conclusion was squarely based on Callidus' attempt to manipulate the creditors' vote to ensure that its New Plan would succeed where its First Plan had failed (see supervising judge's reasons, at paras. 45-48). We see nothing in the Court of Appeal's reasons that grapples with this decisive impropriety, which goes far beyond a creditor merely acting in its own self-interest.

82 In sum, we see nothing in the supervising judge's reasons on this point that would justify appellate intervention. Callidus was properly barred from voting on the New Plan.

83 Before moving on, we note that the Court of Appeal addressed two further issues: whether Callidus is "related" to Bluberi within the meaning of s. 22(3) of the CCAA; and whether, if permitted to vote, Callidus should be ordered to vote in a separate class from Bluberi's other creditors (see CCAA, s. 22(1) and (2)). Given our conclusion that the supervising judge did not err in barring Callidus from voting on the New Plan on the basis that Callidus was acting for an improper purpose, it is unnecessary to address either of these issues. However, nothing in our reasons should be read as endorsing the Court of Appeal's analysis of them.

C. Bluberi's LFA Should Be Approved as Interim Financing

84 In our view, the supervising judge made no error in approving the LFA as interim financing pursuant to s. 11.2 of the CCAA. Interim financing is a flexible tool that may take on a range of forms. As we will explain, third party litigation funding may be one such form. Whether third party litigation funding should be approved as interim financing is a case-specific inquiry that should have regard to the text of s. 11.2 and the remedial objectives of the CCAA more generally.

(1) Interim Financing and Section 11.2 of the CCAA

85 Interim financing, despite being expressly provided for in s. 11.2 of the CCAA, is not defined in the Act. Professor Sarra has described it as "refer[ring] primarily to the working capital that the debtor corporation requires in order to keep operating during restructuring proceedings, as well as to the financing to pay the costs of the workout process" (Rescue! The Companies' Creditors Arrangement Act, at p. 197). Interim financing used in this way — sometimes referred to as "debtor-in-possession" financing — protects the going-concern value of the debtor company while it develops a workable solution to its insolvency issues (p. 197; Royal Oak Mines Inc., Re (1999), 6 C.B.R. (4th) 314 (Ont. Gen. Div. [Commercial List]), at paras. 7, 9 and 24; Boutiques San Francisco inc., Re [2003 CarswellQue 13882 (C.S. Que.)], 2003 CanLII 36955, at para. 32). That said, interim

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000066 17 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... financing is not limited to providing debtor companies with immediate operating capital. Consistent with the remedial objectives of the CCAA, interim financing at its core enables the preservation and realization of the value of a debtor's assets.

86 Since 2009, s. 11.2(1) of the CCAA has codified a supervising judge's discretion to approve interim financing, and to grant a corresponding security or charge in favour of the lender in the amount the judge considers appropriate:

Interim financing

11.2 (1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, a court may make an order declaring that all or part of the company's property is subject to a security or charge — in an amount that the court considers appropriate — in favour of a person specified in the order who agrees to lend to the company an amount approved by the court as being required by the company, having regard to its cash-flow statement. The security or charge may not secure an obligation that exists before the order is made.

87 The breadth of a supervising judge's discretion to approve interim financing is apparent from the wording of s. 11.2(1). Aside from the protections regarding notice and pre-filing security, s. 11.2(1) does not mandate any standard form or terms. 5 It simply provides that the financing must be in an amount that is "appropriate" and "required by the company, having regard to its cash-flow statement".

88 The supervising judge may also grant the lender a "super-priority charge" that will rank in priority over the claims of any secured creditors, pursuant to s. 11.2(2):

Priority — secured creditors

(2) The court may order that the security or charge rank in priority over the claim of any secured creditor of the company.

89 Such charges, also known as "priming liens", reduce lenders' risks, thereby incentivizing them to assist insolvent companies (Innovation, Science and Economic Development Canada, Archived — Bill C-55: clause by clause analysis, last updated December 29, 2016 (online), cl. 128, s. 11.2; Wood, at p. 387). As a practical matter, these charges are often the only way to encourage this lending. Normally, a lender protects itself against lending risk by taking a security interest in the borrower's assets. However, debtor companies under CCAA protection will often have pledged all or substantially all of their assets to other creditors. Accordingly, without the benefit of a super-priority charge, an interim financing lender would rank behind those other creditors (McElcheran, at pp. 298-99). Although super-priority charges do subordinate secured creditors' security positions to the interim financing lender's — a result that was controversial at common law — Parliament has indicated its general acceptance of the trade-offs associated with these charges by enacting s. 11.2(2) (see M. B. Rotsztain and A. Dostal, "Debtor-In-Possession Financing", in S. Ben-Ishai and A. Duggan, eds., Canadian Bankruptcy and Insolvency Law: Bill C-55, Statute c. 47 and Beyond (2007), 227, at pp. 228-229 and 240-50). Indeed, this balance was expressly considered by the Standing Senate Committee on Banking, Trade and Commerce that recommended codifying interim financing in the CCAA (pp. 100-4).

90 Ultimately, whether proposed interim financing should be approved is a question that the supervising judge is best-placed to answer. The CCAA sets out a number of factors that help guide the exercise of this discretion. The inclusion of these factors in s. 11.2 was informed by the Standing Senate Committee on Banking, Trade and Commerce's view that they would help meet the "fundamental principles" that have guided the development of Canadian insolvency law, including "fairness, predictability and efficiency" (p. 103; see also Innovation, Science and Economic Development Canada, cl. 128, s. 11.2). In deciding whether to grant interim financing, the supervising judge is to consider the following non-exhaustive list of factors:

Factors to be considered

(4) In deciding whether to make an order, the court is to consider, among other things,

(a) the period during which the company is expected to be subject to proceedings under this Act;

(b) how the company's business and financial affairs are to be managed during the proceedings;

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(c) whether the company's management has the confidence of its major creditors;

(d) whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company;

(e) the nature and value of the company's property;

(f) whether any creditor would be materially prejudiced as a result of the security or charge; and

(g) the monitor's report referred to in paragraph 23(1)(b), if any.

(CCAA, s. 11.2(4))

91 Prior to the coming into force of the above provisions in 2009, courts had been using the general discretion conferred by s. 11 to authorize interim financing and associated super-priority charges (Century Services, at para. 62). Section 11.2 largely codifies the approaches those courts have taken (Wood, at p. 388; McElcheran, at p. 301). As a result, where appropriate, guidance may be drawn from the pre-codification interim financing jurisprudence.

92 As with other measures available under the CCAA, interim financing is a flexible tool that may take different forms or attract different considerations in each case. Below, we explain that third party litigation funding may, in appropriate cases, be one such form.

(2) Supervising Judges May Approve Third Party Litigation Funding as Interim Financing

93 Third party litigation funding generally involves "a third party, otherwise unconnected to the litigation, agree[ing] to pay some or all of a party's litigation costs, in exchange for a portion of that party's recovery in damages or costs" (R. K. Agarwal and D. Fenton, "Beyond Access to Justice: Litigation Funding Agreements Outside the Class Actions Context" (2017), 59 Can. Bus. L. J. 65, at p. 65). Third party litigation funding can take various forms. A common model involves the litigation funder agreeing to pay a plaintiff's disbursements and indemnify the plaintiff in the event of an adverse cost award in exchange for a share of the proceeds of any successful litigation or settlement (see Dugal v. Manulife Financial Corp., 2011 ONSC 1785, 105 O.R. (3d) 364 (Ont. S.C.J.); Musicians' Pension Fund of Canada (Trustee of)).

94 Outside of the CCAA context, the approval of third party litigation funding agreements has been somewhat controversial. Part of that controversy arises from the potential of these agreements to offend the common law doctrines of champerty and maintenance. 6 The tort of maintenance prohibits "officious intermeddling with a lawsuit which in no way belongs to one" (L. N. Klar et al., Remedies in Tort (loose-leaf), vol. 1, by L. Berry, ed., at p. 14-11, citing Langtry v. Dumoulin (1885), 7 O.R. 644 (Ont. Div. Ct.), at p. 661). Champerty is a species of maintenance that involves an agreement to share in the proceeds or otherwise profit from a successful suit (McIntyre Estate v. Ontario (Attorney General) (2002), 218 D.L.R. (4th) 193 (Ont. C.A.), at para. 26).

95 Building on jurisprudence holding that contingency fee arrangements are not champertous where they are not motivated by an improper purpose (e.g., McIntyre Estate), lower courts have increasingly come to recognize that litigation funding agreements are also not per se champertous. This development has been focussed within class action proceedings, where it arose as a response to barriers like adverse cost awards, which were stymieing litigants' access to justice (see Dugal, at para. 33; Marcotte c. Banque de Montréal, 2015 QCCS 1915 (C.S. Que.), at paras. 43-44 (CanLII); Houle v. St. Jude Medical Inc., 2017 ONSC 5129, 9 C.P.C. (8th) 321 (Ont. S.C.J.), at para. 52, aff'd 2018 ONSC 6352, 429 D.L.R. (4th) 739 (Ont. Div. Ct.); see also Stanway v. Wyeth Canada Inc., 2013 BCSC 1585, 56 B.C.L.R. (5th) 192 (B.C. S.C.), at para. 13). The jurisprudence on the approval of third party litigation funding agreements in the class action context — and indeed, the parameters of their legality generally — is still evolving, and no party before this Court has invited us to evaluate it.

96 That said, insofar as third party litigation funding agreements are not per se illegal, there is no principled basis upon which to restrict supervising judges from approving such agreements as interim financing in appropriate cases. We acknowledge that

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000068 19 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, 2020 CSC 10, 2020... 2020 SCC 10, 2020 CSC 10, 2020 CarswellQue 3772, 2020 CarswellQue 3773... this funding differs from more common forms of interim financing that are simply designed to help the debtor "keep the lights on" (see Royal Oak, at paras. 7 and 24). However, in circumstances like the case at bar, where there is a single litigation asset that could be monetized for the benefit of creditors, the objective of maximizing creditor recovery has taken centre stage. In those circumstances, litigation funding furthers the basic purpose of interim financing: allowing the debtor to realize on the value of its assets.

97 We conclude that third party litigation funding agreements may be approved as interim financing in CCAA proceedings when the supervising judge determines that doing so would be fair and appropriate, having regard to all the circumstances and the objectives of the Act. This requires consideration of the specific factors set out in s. 11.2(4) of the CCAA. That said, these factors need not be mechanically applied or individually reviewed by the supervising judge. Indeed, not all of them will be significant in every case, nor are they exhaustive. Further guidance may be drawn from other areas in which third party litigation funding agreements have been approved.

98 The foregoing is consistent with the practice that is already occurring in lower courts. Most notably, in Crystallex, the Ontario Court of Appeal approved a third party litigation funding agreement in circumstances substantially similar to the case at bar. Crystallex involved a mining company that had the right to develop a large gold deposit in Venezuela. Crystallex eventually became insolvent and (similar to Bluberi) was left with only a single significant asset: a US$3.4 billion arbitration claim against Venezuela. After entering CCAA protection, Crystallex sought the approval of a third party litigation funding agreement. The agreement contemplated that the lender would advance substantial funds to finance the arbitration in exchange for, among other things, a percentage of the net proceeds of any award or settlement. The supervising judge approved the agreement as interim financing pursuant to s. 11.2. The Court of Appeal unanimously found no error in the supervising judge's exercise of discretion. It concluded that s. 11.2 "does not restrict the ability of the supervising judge, where appropriate, to approve the grant of a charge securing financing before a plan is approved that may continue after the company emerges from CCAA protection" (para. 68).

99 A key argument raised by the creditors in Crystallex — and one that Callidus and the Creditors' Group have put before us now — was that the litigation funding agreement at issue was a plan of arrangement and not interim financing. This was significant because, if the agreement was in fact a plan, it would have had to be put to a creditors' vote pursuant to ss. 4 and 5 of the CCAA prior to receiving court approval. The court in Crystallex rejected this argument, as do we.

100 There is no definition of plan of arrangement in the CCAA. In fact, the CCAA does not refer to plans at all — it only refers to an "arrangement" or "compromise" (see ss. 4 and 5). The authors of Bankruptcy and Insolvency Law of Canada offer the following general definition of these terms, relying on early English case law:

A "compromise" presupposes some dispute about the rights compromised and a settling of that dispute on terms that are satisfactory to the debtor and the creditor. An agreement to accept less than 100¢ on the dollar would be a compromise where the debtor disputes the debt or lacks the means to pay it. "Arrangement" is a broader word than "compromise" and is not limited to something analogous to a compromise. It would include any scheme for reorganizing the affairs of the debtor: Re Guardian Assur. Co., [1917] 1 Ch. 431, 61 Sol. Jo 232, [1917] H.B.R. 113 (C.A.); Re Refund of Dues under Timber Regulations, [1935] A.C. 185 (P.C.).

(Houlden, Morawetz and Sarra, at N§33)

101 The apparent breadth of these terms notwithstanding, they do have some limits. More recent jurisprudence suggests that they require, at minimum, some compromise of creditors' rights. For example, in Crystallex the litigation funding agreement at issue (known as the Tenor DIP facility) was held not to be a plan of arrangement because it did not "compromise the terms of [the creditors'] indebtedness or take away ... their legal rights" (para. 93). The Court of Appeal adopted the following reasoning from the lower court's decision, with which we substantially agree:

A "plan of arrangement" or a "compromise" is not defined in the CCAA. It is, however, to be an arrangement or compromise between a debtor and its creditors. The Tenor DIP facility is not on its face such an arrangement or compromise between Crystallex and its creditors. Importantly the rights of the noteholders are not taken away from them by the Tenor DIP

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facility. The noteholders are unsecured creditors. Their rights are to sue to judgment and enforce the judgment. If not paid, they have a right to apply for a bankruptcy order under the BIA. Under the CCAA, they have the right to vote on a plan of arrangement or compromise. None of these rights are taken away by the Tenor DIP.

(Crystallex International Corp., Re, 2012 ONSC 2125, 91 C.B.R. (5th) 169 (Ont. S.C.J. [Commercial List]), at para. 50)

102 Setting out an exhaustive definition of plan of arrangement or compromise is unnecessary to resolve these appeals. For our purposes, it is sufficient to conclude that plans of arrangement require at least some compromise of creditors' rights. It follows that a third party litigation funding agreement aimed at extending financing to a debtor company to realize on the value of a litigation asset does not necessarily constitute a plan of arrangement. We would leave it to supervising judges to determine whether, in the particular circumstances of the case before them, a particular third party litigation funding agreement contains terms that effectively convert it into a plan of arrangement. So long as the agreement does not contain such terms, it may be approved as interim financing pursuant to s. 11.2 of the CCAA.

103 We add that there may be circumstances in which a third party litigation funding agreement may contain or incorporate a plan of arrangement (e.g., if it contemplates a plan for distribution of litigation proceeds among creditors). Alternatively, a supervising judge may determine that, despite an agreement itself not being a plan of arrangement, it should be packaged with a plan and submitted to a creditors' vote. That said, we repeat that third party litigation funding agreements are not necessarily, or even generally, plans of arrangement.

104 None of the foregoing is seriously contested before us. The parties essentially agree that third party litigation funding agreements can be approved as interim financing. The dispute between them focusses on whether the supervising judge erred in exercising his discretion to approve the LFA in the absence of a vote of the creditors, either because it was a plan of arrangement or because it should have been accompanied by a plan of arrangement. We turn to these issues now.

(3) The Supervising Judge Did Not Err in Approving the LFA

105 In our view, there is no basis upon which to interfere with the supervising judge's exercise of his discretion to approve the LFA as interim financing. The supervising judge considered the LFA to be fair and reasonable, drawing guidance from the principles relevant to approving similar agreements in the class action context (para. 74, citing Musicians' Pension Fund of Canada (Trustee of), at para. 41; Hayes, at para. 4). In particular, he canvassed the terms upon which Bentham and Bluberi's lawyers would be paid in the event the litigation was successful, the risks they were taking by investing in the litigation, and the extent of Bentham's control over the litigation going forward (paras. 79 and 81). The supervising judge also considered the unique objectives of CCAA proceedings in distinguishing the LFA from ostensibly similar agreements that had not received approval in the class action context (paras. 81-82, distinguishing Houle). His consideration of those objectives is also apparent from his reliance on Crystallex, which, as we have explained, involved the approval of interim financing in circumstances substantially similar to the case at bar (see paras. 67 and 71). We see no error in principle or unreasonableness to this approach.

106 While the supervising judge did not canvass each of the factors set out in s. 11.2(4) of the CCAA individually before reaching his conclusion, this was not itself an error. A review of the supervising judge's reasons as a whole, combined with a recognition of his manifest experience with Bluberi's CCAA proceedings, leads us to conclude that the factors listed in s. 11.2(4) concern matters that could not have escaped his attention and due consideration. It bears repeating that, at the time of his decision, the supervising judge had been seized of these proceedings for well over two years and had the benefit of the Monitor's assistance. With respect to each of the s. 11.2(4) factors, we note that:

• the judge's supervisory role would have made him aware of the potential length of Bluberi's CCAA proceedings and the extent of creditor support for Bluberi's management (s. 11.2(4)(a) and (c)), though we observe that these factors appear to be less significant than the others in the context of this particular case (see para. 96);

• the LFA itself explains "how the company's business and financial affairs are to be managed during the proceedings" (s. 11.2(4)(b));

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• the supervising judge was of the view that the LFA would enhance the prospect of a viable plan, as he accepted (1) that Bluberi intended to submit a plan and (2) Bluberi's submission that approval of the LFA would assist it in finalizing a plan "with a view towards achieving maximum realization" of its assets (at para. 68, citing 9354-9186 Québec inc. and 9354-9178 Québec inc.'s application, at para. 99; s. 11.2(4)(d));

• the supervising judge was apprised of the "nature and value" of Bluberi's property, which was clearly limited to the Retained Claims (s. 11.2(4)(e));

• the supervising judge implicitly concluded that the creditors would not be materially prejudiced by the Litigation Financing Charge, as he stated that "[c]onsidering the results of the vote [on the First Plan], and given the particular circumstances of this matter, the only potential recovery lies with the lawsuit that the Debtors will launch" (at para. 91 (emphasis added); s. 11.2(4)(f)); and

• the supervising judge was also well aware of the Monitor's reports, and drew from the most recent report at various points in his reasons (see, e.g., paras. 64-65 and fn. 1; s. 11.2(4)(g)). It is worth noting that the Monitor supported approving the LFA as interim financing.

107 In our view, it is apparent that the supervising judge was focussed on the fairness at stake to all parties, the specific objectives of the CCAA, and the particular circumstances of this case when he approved the LFA as interim financing. We cannot say that he erred in the exercise of his discretion. Although we are unsure whether the LFA was as favourable to Bluberi's creditors as it might have been — to some extent, it does prioritize Bentham's recovery over theirs — we nonetheless defer to the supervising judge's exercise of discretion.

108 To the extent the Court of Appeal held otherwise, we respectfully do not agree. Generally speaking, our view is that the Court of Appeal again failed to afford the supervising judge the necessary deference. More specifically, we wish to comment on three of the purported errors in the supervising judge's decision that the Court of Appeal identified.

109 First, it follows from our conclusion that LFAs can constitute interim financing that the Court of Appeal was incorrect to hold that approving the LFA as interim financing "transcended the nature of such financing" (para. 78).

110 Second, in our view, the Court of Appeal was wrong to conclude that the LFA was a plan of arrangement, and that Crystallex was distinguishable on its facts. The Court of Appeal held that the LFA and associated super-priority Litigation Financing Charge formed a plan because they subordinated the rights of Bluberi's creditors to those of Bentham.

111 We agree with the supervising judge that the LFA is not a plan of arrangement because it does not propose any compromise of the creditors' rights. To borrow from the Court of Appeal in Crystallex, Bluberi's litigation claim is akin to a "pot of gold" (para. 4). Plans of arrangement determine how to distribute that pot. They do not generally determine what a debtor company should do to fill it. The fact that the creditors may walk away with more or less money at the end of the day does not change the nature or existence of their rights to access the pot once it is filled, nor can it be said to "compromise" those rights. When the "pot of gold" is secure — that is, in the event of any litigation or settlement — the net funds will be distributed to the creditors. Here, if the Retained Claims generate funds in excess of Bluberi's total liabilities, the creditors will be paid in full; if there is a shortfall, a plan of arrangement or compromise will determine how the funds are distributed. Bluberi has committed to proposing such a plan (see supervising judge's reasons, at para. 68, distinguishing Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp., 2008 BCCA 327, 296 D.L.R. (4th) 577 (B.C. C.A.)).

112 This is the very same conclusion that was reached in Crystallex in similar circumstances:

The facts of this case are unusual: there is a single "pot of gold" asset which, if realized, will provide significantly more than required to repay the creditors. The supervising judge was in the best position to balance the interests of all stakeholders. I am of the view that the supervising judge's exercise of discretion in approving the Tenor DIP Loan was reasonable and appropriate, despite having the effect of constraining the negotiating position of the creditors.

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...... While the approval of the Tenor DIP Loan affected the Noteholders' leverage in negotiating a plan, and has made the negotiation of a plan more complex, it did not compromise the terms of their indebtedness or take away any of their legal rights. It is accordingly not an arrangement, and a creditor vote was not required. [paras. 82 and 93]

113 We disagree with the Court of Appeal that Crystallex should be distinguished on the basis that it involved a single option for creditor recovery (i.e., the arbitration) while this case involves two (i.e., litigation of the Retained Claims and Callidus's New Plan). Given the supervising judge's conclusion that Callidus could not vote on the New Plan, that plan was not a viable alternative to the LFA. This left the LFA and litigation of the Retained Claims as the "only potential recovery" for Bluberi's creditors (supervising judge's reasons, at para. 91). Perhaps more significantly, even if there were multiple options for creditor recovery in either Crystallex or this case, the mere presence of those options would not necessarily have changed the character of the third party litigation funding agreements at issue or converted them into plans of arrangement. The question for the supervising judge in each case is whether the agreement before them ought to be approved as interim financing. While other options for creditor recovery may be relevant to that discretionary decision, they are not determinative.

114 We add that the Litigation Financing Charge does not convert the LFA into a plan of arrangement by "subordinat[ing]" creditors' rights (C.A. reasons, at para. 90). We accept that this charge would have the effect of placing secured creditors like Callidus behind in priority to Bentham. However, this result is expressly provided for in s. 11.2 of the CCAA. This "subordination" does not convert statutorily authorized interim financing into a plan of arrangement. Accepting this interpretation would effectively extinguish the supervising judge's authority to approve these charges without a creditors' vote pursuant to s. 11.2(2).

115 Third, we are of the view that the Court of Appeal was wrong to decide that the supervising judge should have submitted the LFA together with a plan to the creditors for their approval (para. 89). As we have indicated, whether to insist that a debtor package their third party litigation funding agreement with a plan is a discretionary decision for the supervising judge to make.

116 Finally, at the appellants' insistence, we point out that the Court of Appeal's suggestion that the LFA is somehow "akin to an equity investment" was unhelpful and potentially confusing (para. 90). That said, this characterization was clearly obiter dictum. To the extent that the Court of Appeal relied on it as support for the conclusion that the LFA was a plan of arrangement, we have already explained why we believe the Court of Appeal was mistaken on this point.

VI. Conclusion

117 For these reasons, at the conclusion of the hearing we allowed these appeals and reinstated the supervising judge's order. Costs were awarded to the appellants in this Court and the Court of Appeal. Appeal allowed.

Pourvoi accueilli.

Footnotes 1 Bluberi does not appear to have filed this claim yet (see 2018 QCCS 1040 (C.S. Que.), at para. 10 (CanLII)).

2 Notably, the Creditors' Group advised Callidus that it would lend its support to the New Plan. It also asked Callidus to reimburse any legal fees incurred in association with that support. At the same time, the Creditors' Group did not undertake to vote in any particular way, and confirmed that each of its members would assess all available alternatives individually.

3 We note that while s. 36 now codifies the jurisdiction of a supervising court to grant a sale and vesting order, and enumerates factors to guide the court's discretion to grant such an order, it is silent on when courts ought to approve a liquidation under the CCAA as opposed to requiring the parties to proceed to liquidation under a receivership or the BIA regime (see Sarra, Rescue! The Companies' Creditors Arrangement Act, at pp. 167-68; A. Nocilla, "Asset Sales Under the Companies' Creditors Arrangement Act and the Failure

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of Section 36" (2012) 52 Can. Bus. L.J. 226, at pp. 243-44 and 247). This issue remains an open question and was not put to this Court in either Indalex or these appeals.

4 It bears noting that the Monitor's statement in this regard did not decide whether Callidus would ultimately have been entitled to vote on the First Plan. Because Callidus did not even attempt to vote on the First Plan, this question was never put to the supervising judge.

5 A further exception has been codified in the 2019 amendments to the CCAA, which create s. 11.2(5) (see Budget Implementation Act, 2019, No. 1, s. 138). This section provides that at the time an initial order is sought, "no order shall be made under subsection [11.2](1) unless the court is also satisfied that the terms of the loan are limited to what is reasonably necessary for the continued operations of the debtor company in the ordinary course of business during that period". This provision does not apply in this case, and the parties have not relied on it. However, it may be that it restricts the ability of supervising judges to approve LFAs as interim financing at the time of granting an Initial Order.

6 The extent of this controversy varies by province. In Ontario, champertous agreements are forbidden by statute (see An Act respecting Champerty, R.S.O. 1897, c. 327). In Quebec, concerns associated with champerty and maintenance do not arise as acutely because champerty and maintenance are not part of the law as such (see Pole Lite ltée c. Banque Nationale du Canada, 2006 QCCA 557, [2006] R.J.Q. 1009 (C.A. Que.); G. Michaud, "New Frontier: The Emergence of Litigation Funding in the Canadian Insolvency Landscape" in J. P. Sarra et al., eds., Annual Review of Insolvency Law 2018 (2019), 221, at p. 231).

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TAB 4

000074 JMB Crushing Systems Inc (Re), 2020 ABQB 763, 2020 CarswellAlta 2347 2020 ABQB 763, 2020 CarswellAlta 2347

2020 ABQB 763 Alberta Court of Queen's Bench

JMB Crushing Systems Inc (Re)

2020 CarswellAlta 2347, 2020 ABQB 763

In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, As Amended

And in the Matter of the Compromise of Arrangement or Arrangement of JMB Crushing Systems Inc and 2161889 Alberta Ltd

And in the Matter of the Compromise of a Plan of Arrangement of JMB Crushing Systems Inc and Mantle Materials Group Ltd.

Jerry Shankowski and 945411 Alberta Ltd. (Applicants) and JMB Crushing Systems Inc. and 2161889 Alberta Ltd. (Respondents)

K.M. Eidsvik J.

Heard: November 27, 2020 Judgment: December 7, 2020 Docket: Calgary 2001-05482

Counsel: Richard B. Hajduk, for Applicants, Mr. Jerry Shankowski and 945411 Alberta Ltd. Tom Cumming, Caireen Hanert, Alison Gray, Stephen Kroeger, for Respondents, JMB Crushing Systems Inc and 2161889 Alberta Ltd. and Mantle Materials Group, Ltd. Pantelis Kyriakakis, Nathan Stewart, for Monitor FTI Consulting Ltd Tom Gusa, for ATB Financial Kyla Mahar, for Fiera Private Debt Fund VI LP et al Tristen Cones, for Canada Revenue Agency Adam Ollenburger, for Kalinko Enterprises Ltd. Terence Arthur, for Quest Disposal and Recycling Inc. Jerritt Pawlyk, for R Bee Aggregate Consulting Ltd. and Matt Silver Trucking Christina Tchir, Kaley Shier, for Shamrock Valley Enterprises Ltd. Peter Alexander, for J.R Paine & Associates Ltd. Darrell Peterson, for Jeff Buck Melissa Burkett, for Alberta Environment and Parks Gavin Price, for owling LLP counsel

Subject: Contracts; Corporate and Commercial; Insolvency

K.M. Eidsvik J.:

1 Mr. Jerry Shankowski is the President and sole director of 945411 Alberta Ltd. ("945"). 945 is a gravel pit owner and subcontractor to JMB Crushing Systems Inc. ("JMB"), brought several applications in this CCAA matter. Two of these applications were heard on November 27, 2020, with the remaining applications adjourned to a later date. The two applications at issue presently are as follows.

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2 Firstly, 945 seeks to set aside the Amended and Restated Mantle Sale Approval and Vesting Order (SAVO) and the Reverse Vesting Order (RVO) that I granted on October 16, 2020 (the "Vesting Orders"). These Orders transferred certain JMB assets to Mantle Materials Group Ltd. ("Mantle") (the "Acquired Assets") and certain were held back and transferred to 2161889 Alberta Ltd. ("216") (the "Excluded" or "Remaining" Assets).

3 In short, 945 takes the position that it was not properly notified of a provision in the Supply Contract between the M.D. of Bonnyville the "MD") and JMB (the "Supply Contract") that 945, and other subcontractors, submit creates a trust in favour of JMB's subcontractors, including 945. Accordingly, the duty of utmost good faith and to make full and frank disclosure was breached in making what in effect was an ex parte application on October 16, 2020. These Orders should be set aside since as a result of the lack of disclosure, 945 did not oppose the SAVO and RVO, to its prejudice.

4 Secondly, 945 seeks an Order setting aside the assignment of the Amended Royalty Aggregates Agreement (the "Royalty Agreement") agreed to between Mantle and 945 on October 15, 2020 for the same reason. Its position is that it would have negotiated differently, and insisted on full payment of the cure costs had it known of the arguable trust provision and their potential entitlement to a claim now not less than $588,457.61.

5 JMB, Mantle, and the Monitor, opposed the applications ("the Respondents"). The secured creditors, ATB and Fiera supported the Respondents. The other subcontractors, RBEE Aggregate Consulting Ltd.("RBee"), J.R. Paine & Associates Ltd., Shamrock Valley Enterprises Ltd., and Matt Silver Trucking did not join in either of these applications and made no submissions although their counsel were all present.

6 Firstly, the Respondents submitted, in short, that the Orders were obtained with proper service and notice. In particular, the Supply Contract was properly provided to 945, and all concerned, before the Orders in question were granted. They maintain that they had no duty to advise of a potential trust provision in the Supply Contract, and in any event, the Orders do not prejudice 945's potential claims, so they should not be set aside.

7 Secondly, they submit that 945 has not met the test to set aside the agreed assignment of the Royalty Agreement.

Background

8 The necessary factual background in order to determine these two applications can be summarized as follows:

1. The Initial Order which placed JMB and 216 into receivership pursuant to the CCAA was granted on May 1, 2020.

2. Jeff Buck, the President and Chief Executive Officer of the applicant JMB, swore an Affidavit dated April 16, 2020 in support of the Initial Order. He disclosed at paragraph 33, that JMB had a number of material contracts including a "Supply Agreement with the Municipal District of Bonnyville No. 87 for the production, hauling and stockpiling of crushed aggregate materials for use in road construction." (the Supply Contract), (my italics).

3. An Amended and Restated CCAA Initial Order was granted on May 11, 2020 after there had been service on all parties, including 945.

4. The MD of Bonnyville owed approximately $3.5 million to JMB. 945 and Matt's Silver Trucking, a subcontractor, had filed liens against land owned by the MD wherein a stockpile of aggregate had been placed by JMB. Further, RBee and Shamrock Valley Enterprises Ltd., had sent notices to the MD advising that JMB was in default of their respective accounts. JMB advised the MD that J.R. Paine & Associates had also not been paid for its gravel testing.

5. The MD receivable payment was necessary to allow JMB to continue operations but the MD would not pay it until the liens were discharged and a process for addressing such claims was established.

6. Accordingly, on May 20, 2020 a Lien Claims Process Order (the "Lien Order") was put into place to allow the MD to remit the funds to the Monitor in trust and deal with the lien claims.

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7. Several lien notices, including 945's, were submitted to the Monitor pursuant to the Lien Order. Counsel for one of the claimants (RBEE) sought and received a copy of the Supply Contract in July. 945's counsel did not ask for the Supply Contract in filling out its lien notice, nor was he provided with it.

8. The lien claim for 945 included invoices for March and April 2020. The total owing for aggregates removed by JMB and dedicated to the project of the MD was $424,674.05, including GST.

9. 945's lien was denied on July 27, 2020 on the basis that the material supplied by 945 was not supplied on or in respect of an improvement and it was not registered against the Lands or any lands owned by the MD. Counsel for 945 and RBEE disputed the Monitor's Lien Determination. The Lien Dispute applications were scheduled to be heard October 22, 2020.

10. The Monitor paid out some liens, continued to hold the portion that has been disputed by JMB and RBEE ($1.85M — the "Holdback Fund") and paid out the difference to JMB.

11. Mantle had been successful in the JMB SISP process. As part of the potential sale of JMB assets to Mantle, counsel for Mantle approached 945's counsel to discuss obtaining 945's support for the potential sale, and to ensure that the 945 Royalty Agreement would be included in the sale. An agreement was reached on October 15, 2020 allowing the Royalty Agreement to be assigned to Mantle. Part of the agreement was that JMB would help to clear the liens that had been filed on the 945 land and an application was filed in that regard.

12. Various Orders were applied for on October 16, 2020 including the impugned SAVO and RVO to be put in place, a Plan Sanction Order and an Assignment Order. All application materials for these applications were served on the service list by October 1, 2020.

13. 945 was first provided with a copy of the Supply Contract on October 9, 2020 by its attachment as exhibit "C" to the unfiled Affidavit of Jason Panter sworn October 9, 2020. This affidavit was provided to support an application to remove liens that had been filed against 945's land also scheduled for October 16, 2020.

14. The significance of paragraph 26 of the Supply Contract was first discovered by 945's counsel on October 17, 2020 when he was preparing for questioning on Mr. Panter's affidavit and the affidavit of Mr. Blake Elyea in preparation for the October 22, 2020 application.

15. Paragraph 26 of the Supply Contract provides;

26. From the amounts paid to JMB by the MD, JMB is deemed to hold that part of them in trust which are required or needed to pay for any salaries, wages, compensation, overtime pay, statutory holiday pay, vacation pay, entitlements, employee and employer Canada pension plan contributions, employee and employer employment insurance contributions, Worker's Compensation premiums and assessments, income taxes, withholdings, GST and all costs directly or indirectly related to the Product and Services. JMB shall pay the foregoing from such trust funds. (bolding mine)

f. "Services" means the hauling and stockpiling of crushed aggregate by JMB as set out in this agreement and anything else which is required to be done to give effect to this agreement.

17. The Monitor explained in its 8 th Monitor's Report dated October 16, 2020 and brief filed the same day, that 945's lien is invalid since "The Monitor is not aware of any construction projects taking place on, adjacent to, or in connection with, the MD Lands. The MD Contract is not based on any individual project, completion milestones, or specific Work." He further explained that the purpose of the MD Contract was for the temporary stockpiling of product for the MD's future and general use. As such, the lien claim does not constitute an "improvement" under the Builder's Lien Act RSA 2000 c. B-7 ("BLA") which could give rise to corresponding lien rights as a product was neither affixed to the MD lands nor intended to be or become part of the MD Lands and there was no specific project for which the product was supplied. Further, to the extent that it is argued that the improvement is against the MD of

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Bonnyville's roads, which are also public highways, such lien claims are invalid as a result of s. 7 of the BLA which states: "No lien exists with respect to a public highway or for any work or improvement caused to be done on it by a Municipal Corporation.".

18. On October 16, 2020 the SAVO, RVO, an Assignment Order, a Plan Sanction Order, the Stay Extension order, and a Lien Discharge on the 945 land Order were granted.

19. On October 17, 2020 counsel for 945 advised that he wished to cross-examine on the Panter affidavit, which examination was scheduled for October 20, 2020

20. On the morning of October 20, 2020, counsel for 945 advised that he would be seeking an adjournment of his client's application as he wished to amend it to seek additional relief including a declaration that paragraph 26 of the Supply Contract created a trust for 945 and other subcontractors, amongst other relief.

21. 945 learned in late October, by a call from JMB's counsel, that there was an error in the April invoice since the wrong price was ascribed to certain aggregate. 945 also learned that the gravel was used for "asphalt" which required prior consent by 945 — which had not been obtained — and a higher price. Mr. Shankowski, the principal of 945, swore that he would not have granted consent.

22. Also, in light of the potential trust claim, 945 advised that it had an outstanding invoice from December 2019 from JMB that should be included in the trust claim. The total claim of 945 is now $588,457.61.

23. Finally, Mr. Shankowski stated that he would not have agreed to the Royalty Agreement assignment to Mantle had he known of his ability to claim through the trust provision and he would have insisted on all the cure costs to be paid. He also would not have entered into the agreement because of trust issues with JMB/now Mantle which were amplified by the asphalt invoice issue. He had already refused to put in a renewal agreement clause because of these trust issues.

16. The Supply Contract defines "Product" and "Services", respectively, as:

1. e. "Product" means the production by JMB of the aggregate described in this agreement which includes the crushing and cleaning of rock/gravel, and all related services whereby rock/gravel is made into usable crushed aggregate for the MD in accordance with the required specifications set out in this agreement;

1. Should the Vesting Orders be set aside?

Parties' positions

9 945 submitted that the trust provision in the Supply Contract should have been brought to 945 and the other subcontractors' attention. To the extent that it was not, the May Lien Process Order and the Vesting Orders were obtained in effect on an ex parte basis. It submitted that the Court should exercise its discretion and set aside the Vesting Orders on this ground alone. Had 945 been aware of the trust provisions, it would not have consented to the Vesting Orders being granted.

10 Alternatively, the Court should set aside the RVO in particular, since its effect was to leave the beneficiaries of the trust with only whatever remedies they may have against 216 after allowing for the payment of the Holdback Funds, accordingly, 945 has been prejudiced by the lack of disclosure.

11 The Respondents submitted that the Orders were not granted on an ex parte basis but in fact fair notice was given for all the Orders in question. Notice that there was a Supply Contract was given in April and a copy of the Contract was supplied on October 9, 2020, 7 days before the application for the Vesting Orders. The Supply Contract was available on request at any time and another subcontractor's counsel had a copy of it since July.

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12 The Respondents continued that they had no duty to point out parts of the Supply Contract including paragraph 26, and it does not create a trust as proposed by 945, or the other subcontractors.

13 Finally, and in any event, the Respondents argue that the RVO does not prejudice 945 since its remedies as against 216 are the same as they would have been against JMB since the "Remaining Assets" now held by 216 include the Holdback Funds and other JMB cash assets. Accordingly, the Vesting Orders should stand.

Analysis

14 The issue of whether paragraph 26 of the Supply Contract creates a trust in favour of the subcontractors, including 945, for their outstanding claims has been adjourned to another day. It is not necessary for me to decide this discrete issue in order to deal with these applications.

15 Can it be said that the Vesting Orders were obtained on an ex parte basis since the purported trust provision was not brought to 945's attention before the Vesting Orders application was heard on October 16, 2020?

16 Firstly, it is clear that notice was given to all affected parties to the Vesting Orders application a week before the hearing, and counsel for 945 attended on October 16, 2020. Accordingly, it is not appropriate to suggest that this was an ex parte application. As discussed in Kim v. Choi, 2020 ABQB 51 (Alta. Q.B.) wherein Wavel Ventures Corp. v. Constantini, 1996 ABCA 415 (Alta. C.A.) was referenced and applied, if an application is made on notice, it not an ex parte application. The real issue here is whether there was sufficient disclosure for the application.

17 In that regard, 945 relies on the Supreme Court of Canada decision Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8 (S.C.C.). In that case, Valard Construction, a subcontractor, was not advised that a bond was in place between the general contractor (Bird Construction) and a contractor who had contracted with Valard. By the time Valard determined that there was a bond in place that would have covered its claim, the limitation period to make a claim, had passed.

18 With respect to the duty to inform of the trust's existence, the Court said at para 19:

In general, wherever "it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed" of the trust's existence, the trustee's fiduciary duty includes an obligation to disclose the existence of the trust. Whether a particular disadvantage is unreasonable must be considered in light of the nature and terms of the trust and the social or business environment in which it operates, and in light of the beneficiary's entitlements thereunder. For example, where the enforcement of the trust requires that the beneficiary receive notice of the trust's existence, and the beneficiary would not otherwise have such knowledge, a duty to disclose will arise. On the other hand, "where the interest of the beneficiary is remote in the sense that vesting is most unlikely, or the opportunity for the power or discretion to be exercised is equally unlikely" it would be rare to find that the beneficiary could be said to suffer unreasonable disadvantage if uninformed of the trust's existence.

19 In Valard, the majority of the Supreme Court found that it was unusual to have a bond in the private oil and gas construction situation in question and that Valard was seriously prejudiced by the failure of the trustee (Bird) to advise of the bond. "Questions of industry understanding, practice, and expectations are, however, matters of fact" the Court continued at para 23 (italics in the original). On the facts of that case, the Court held that the bond should have been brought to the subcontractor's attention. Posting it in the trailer on the construction site would have been sufficient.

20 The Court emphasised that the question is not what ideally could have been done, but what a reasonable trustee, in the particular circumstances of the case, would have done.

21 Here, the fact that there was a Supply Contract in place would not be surprising. It was disclosed in the first Affidavit filed by JMB in April 2020. In the preparation of the lien claim, the Monitor requested in the Lien Notice that "all applicable contracts" and "sub-contracts", amongst other details be provided with the Notice. It was expected that the Supply Contract would have been reviewed at that point and indeed it was provided to the other subcontractor's counsel likely for that very

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000079 5 JMB Crushing Systems Inc (Re), 2020 ABQB 763, 2020 CarswellAlta 2347 2020 ABQB 763, 2020 CarswellAlta 2347 purpose. S. 33 of the BLA allows a subcontractor to request a copy of the general contract even if it is not a party (although I note that in Valard, they did not think that this section was enough to absolve the fiduciary's positive duty that they found existed in that case).

22 Here, the Supply Contract was provided to counsel for 945 days before the hearing for the Vesting Orders and his own application to have the liens on his client's title removed on October 16. Once counsel took the opportunity to review the Contract (in preparation for a cross-examination and the October 22 lien application), he noticed the paragraph in question. The Supply Contract is relatively short (11 pages), and paragraph 26 finds itself in the "Invoicing and Set-Off" section which would be of obvious import when seeking collection of accounts. For whatever reason, this review however happened on the 17 th — after the Vesting Orders were approved.

23 Accordingly, unlike the circumstances in Valard, where the bond was not disclosed at all, here the Supply Contract's existence was disclosed in April and provided in October, a week before the hearing — only paragraph 26 that 945 submits creates a trust was not pointed out. It was not unreasonable for JMB to expect that 945 would have reviewed the contents of this Contract both in preparation for the lien claim preparation in July and the application on October 16. There is no evidence one way or another that a trust clause is unusual in a government supply contract dealing with road construction which would raise the potential duty to include the necessity to point out this clause higher than normal (such as in the facts of Valard).

24 Further, the Supreme Court has put some emphasis on whether the beneficiary might be "unreasonably disadvantaged" by a failure to be specifically informed of the alleged trust provision and this determination goes to the question of whether a duty to specify the potential of a trust clause will be imposed. Here, I find that 945 was not "unreasonably disadvantaged".

25 The RVO terms are important in this regard. Para 4(c) makes it clear that the JMB Creditors (including the secured creditors and unpaid subcontractors) will continue to have all of the rights, remedies and recourses as against 216 (which kept JMBs Remaining Assets) as they had against JMB. According to the Monitor, the RVO was put in place as the only realistic way of preserving the tax attributes of JMB which was critical to the business being acquired by Mantle. The carve out however was made to ensure that the pro rata entitlement of creditors of JMB as against the Remaining JMB Assets were not altered by the RVO. During argument, both counsel for JMB and the Monitor advised that this would mean access to the Holdback Funds and the Estate Funds would be available, and held in trust by 216, for disputed claims as against JMB.

26 Indeed, this is why the lien claims applications against the MD property were scheduled for after the Vesting Order applications — there would be no prejudice to the claimants by the acceptance of the proposed Vesting Orders being granted. It is notable that no other subcontractor claimant has asked to set aside these Orders.

27 In conclusion on this point, I do not accept that in these circumstances, that JMB has met the onus to show that JMB, even as a potential fiduciary as a trustee of the proposed trust under paragraph 26 of the Supply Contract, had a positive duty to point the paragraph out and/or that there was a potential trust claim argument that could be made.

28 The Vesting Order applications were not done on an ex parte basis, or with insufficient full and frank disclosure, but with proper notice. 945 was not "unreasonably disadvantaged" in the commercial circumstances present. The Vesting Orders have not prejudiced 945's potential trust claim in that 945 continues to have rights to claim any trust provision it may have against JMB as against 216 and the funds have been set aside in trust to allow for these claims. I note that 945 has also made a tracing application.

29 Accordingly, I dismiss the application to set aside the Vesting Orders.

2. Should the Amended Royalty Aggregates Agreement be set aside?

30 As part of the sale to Mantle, certain agreements were sought to be assigned. Mantle approached Mr. Shankowski and they negotiated the terms for the assignment of the Aggregates Royalty Agreement that 945 had with JMB. The deal was concluded by email dated October 15, 2020. In that deal, Mantle agreed to pay 945 $50,000 towards the monetary arrears of JMB without prejudice to any claim or entitlement of 945 to continue to claim against JMB, or as against 216 as a result of all liabilities of

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JMB being vested in 216 in the proposed Vesting Orders. Further, and importantly, Mantle agreed to continue to be responsible for all conservation and reclamation responsibilities on the 945 lands.

31 945 argued that it would not have agreed to the assignment of the Royalty Agreement to Mantle without full payment of the cure costs if 945 had been made aware of the existence of the trust established by paragraph 26. Further, the Applicants would have submitted a claim for not less than $588,457.61 had JMB accurately disclosed the existence of the trust as well thereby entitling 945 to the amounts owing to the applicants under the December 2019 statement of account as well as for the deficiencies regarding the disclosures made by JMB on October 30, 2020 with respect to the April 30, 2020 statement of account. Finally, the issues with the April account further raised trust concerns that Mr. Shankowski already had, and he would not want to continue business with Mantle.

32 JMB, on the other hand, argued that contracts can all only be set aside in cases of duress, fraud or common mistake. In terms of the definition of fraud, it referred to the definition in Carlson v. Big Bud Tractor of Canada Ltd., 1981 CarswellSask 111 (Sask. C.A.) at para 74 citing Fridman, The Law of Contract (1976) page 64, wherein it was described as "some unconscionable conduct which renders the bargain questionable or on equitable grounds, even though it might be perfectly valid at common law". Here, JMB argued, 945 had not met the onus to prove any of these criteria to have the contract set aside.

Analysis

33 I have some difficulty understanding why knowing that one had a better chance of collecting the outstanding amounts owed from JMB through a potential trust vehicle would mean that you would want to negotiate for more cure costs to be paid up front. At the time this agreement was negotiated, 945's builder's lien had been denied by the Monitor and although it was under appeal to this Court, it was not a given that this would be successful. Little to no evidence is before me about how the negotiations went here — but $50,000 was agreed to be paid as cure costs in face of an uphill battle on a lien claim. If one thought that they might be successful, or at least have further arguments, in favour of collecting the rest of the outstanding amounts, then why would this mean that you would only have agreed to assign if more was paid up front?

34 Setting aside contracts in a commercial setting where both parties are represented is not done lightly. The only criteria that might have applied here is the proposition that JMB acted in an "unconscionable" fashion which raises the civil "fraud" criteria to set aside a contract. However, I not accept that JMB had a duty to point out para 26 in the Supply Contract in the circumstances of this case, so this failure would not amount to "unconscionable conduct" in my view. Further, accounting and performance issues with the past Royalty Agreement (such as the need to obtain consent) may well go to trust issues, but Mr. Shankowski admitted that he already harboured these doubts and proceeded. This is understandable since the Royalty Agreement was, and is, of mutual benefit for both Mantle and 945 to have it continue. The fact that Mr. Shankowski now believes that he might have negotiated differently had he had further information about the value and collectability of his claim, is not sufficient to meet the strict test to set it aside.

35 In my view, 945 has not met the basic tests to have this Court intervene and set aside the assignment of the Royalty Agreement. Accordingly, the application to have the Royalty Agreement rescinded is dismissed.

End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.

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TAB 5

000082 SUPERIOR COURT (Commercial(Commercial Division)

CANADA PROVINCEPROVINCE OF QUEBEC DISTRICTDISTRICT OF MONTREAL

N°: 500-11-057094-191

DATE:DATE: October 7, 2019

PRESIDING:PRESIDING: THE HONOURABLEHONOURABLE LOUISLOUIS J. GOUIN, J.S.C.

ININ THE MATTER OF THE COMPANIES' CREDITORSCREDITORS ARRANGEMENT ACT, R.S.C.R.S.C. 1985,1985, C.c. C-36, AS AMENDED:

STORNOWAY DIAMONDDIAMOND CORPORATION -&--&- STORNOWAY DIAMONDSDIAMONDS (CANADA)(CANADA) INC.INC. -&- ASHTON MINING OF CANADA INC.INC. -&- FCDCFCDC SALES ANDAND MARKETINGMARKETING INC.INC. PetitionersPetitioners -&- COMPUTERSHARE TRUST COMPANY OFOF CANADA -&- DIAQUEMDIAQUEM INC. -&--&- INVESTISSEMENTINVESTISSEMENT QUÉBECQUEBEC -&--&- FONDSFONDS DEDE SOLIDARITESOLIDARITÉ DES TRAVAILLEURS DU DU QUÉBEC QUEBEC -&-

000083 FONDSFONDS RÉGIONALREGIONAL DEDE SOLIDARITÉSOLIDARITE F.T.Q. F.T.Q. NORD-DU-QUÉBEC, NORD-DU-QUEBEC, SOCIÉTÉ SOCIETE ENEN COMMANDITE -&- NATION CRIE DEDE MISTISSINI -&- GRAND CONSEIL DESDES CRIS (EEYOU ISTCHEE) -&- ADMINISTRATION RÉGIONALEREGIONALE CRIE CRIE -&- CATERPILLAR FINANCIALFINANCIAL SERVICES LIMITED -&- CHUBB LIFE INSURANCEINSURANCE COMPANY OFOF CANADA -&- BANKBANK OFOF NOVANOVA SCOTIA -&--&- XEROX CANADA LTD. -&- ATLAS COPCO CANADA INC.INC. -&- CWB NATIONAL LEASINGLEASING INC.INC. -&- OSISKO GOLD ROYALTIESROYALTIES LTDLTD -&- CDPQ RESOURCES INC. -&- TF R&SR&S CANADA LTD. -&- ALBION EXPLORATIONEXPLORATION FUNDFUND LLC -&-

000084 WASHINGTON STATE INVESTMENT BOARD -&--.&- TSX INC. -&-

ATTORNEY GENERAL OFOF CANADACANADA

-&-_&-

QUEBEC REVENUE AGENCY

-&-

THE DIRECTORDIRECTOR APPOINTEDAPPOINTED PURSUANTPURSUANT TO THETHE CANADACANADA BUSINESS BUSINESS CORPORATIONS ACTACT

-&-

THE REGISTRARREGISTRAR OF THETHE REGISTERREGISTER OFOF PERSONALPERSONAL ANDAND MOVABLE MOVABLE REAL REAL RIGHTSRIGHTS OF QUEBEC, representedrepresented by the QUEBEC MINISTRY OFOF JUSTICEJUSTICE -&- 1164160311641603 CANADA INC.INC. -&- 1164163811641638 CANADA INC.INC. -&- 1164173511641735 CANADA INC.INC. -&- 1127242011272420 CANADA INC.INC. -&- THE MINISTER OF ECONOMY, SCIENCE ANDAND INNOVATIONINNOVATION OFOF QUEBECQUEBEC -&- THE MINISTER OFOF FINANCE ANDAND ECONOMYECONOMY OFOF QUEBECQUÉBEC -&- THE LAND REGISTRARREGISTRAR FORFOR THETHE REGISTRY REGISTRY OFFICE OFFICE FOR FOR THE THE REGISTRATION REGISTRATION

000085 DIVISIONDIVISION OF SEPT-ILESSEPT-1LES -&-&-

THE REGISTRARREGISTRAR OFOF PUBLICPUBLIC REGISTERREGISTER OFOF REALREAL AND AND IMMOVABLE IMMOVABLE MINING MINING RIGHTSRIGHTS KEPT BYBY THETHE MINISTEREMINISTÈRE DEDE L'ENERGIEL'ÉNERGIE ETET DESDES RESSOURCESRESSOURCES NATURELLES (QUÉBEC)(QUEBEC) Mis-en-cause -&- DELOITTEDELOITTE RESTRUCTURING INC.INC. Monitor

APPROVAL ANDAND VESTING VESTING ORDER ORDER

[1][1] ON READINGREADING the Petitioners'Petitioners' Motion SeekingSeeking (i)(i) ExtensionExtension ofof the Stay of Proceedings,Proceedings, (ii)(ii) Amendment andand RestatementRestatement ofof thethe Initial Order; Order; andand (iii) (iii) LeaveLeave to Enter IntoInto thethe ParticipatingParticipating Streamers/DiaquemStreamers/Diaquem TransactionTransaction withwith Issuance ofof an Approval andand VestingVesting OrderOrder andand Ancillary Ancillary ReliefRelief (the(the "Motion"), the affidavit and the exhibitsexhibits in supportsupport thereof,thereof, as wellwell asas thethe ReportReport ofof thethe MonitorMonitor dateddated October 2, 2019 (the(the "Report");

[2][2] SEEING the service of the Motion;Motion;

[3][3] SEEING the submissions ofof Petitioners'Petitioners' attorneys;attorneys;

[4][4] SEEING thatthat it it isis appropriate to issueissue an orderorder approving: thethe purchasepurchase andand salesale and other transactions (the "Purchase and and Sale Sale Transactions") Transactions") contemplated in the agreement entitledentitled ShareShare PurchasePurchase AgreementAgreement dated OctoberOctober 6, 20192019 (the(the "Purchase Agreement") Agreement") by andand betweenbetween thethe Petitioners,Petitioners, asas vendor,vendor, andand 1127242011272420 CanadaCanada Inc.Inc, (the(the "Purchaser"), as purchaser,purchaser, copycopy of whichwhich isis attached as Schedule "A" "A" to thisthis Order,Order, formingforming partpart hereof,hereof, includingincluding thethe pre-pre- closing reorganization transactionstransactions contemplatedcontemplated in ExhibitExhibit AA theretothereto (the(the "Pre®"Pre- Closing Reorganization"Reorganization" and, collectivelycollectively withwith thethe otherother transactions transactions contemplated inin thethe PurchasePurchase Agreement,Agreement, thethe "Transactions");

000086 WHEREFORE, THE COURT:

[51[5] GRANTS the Motion.

[6][6] ORDERS that, unless otherwiseotherwise indicatedindicated oror defineddefined herein,herein, capitalizedcapitalized termsterms used in thisthis OrderOrder shallshall havehave thethe meaningsmeanings givengiven toto themthem inin thethe Purchase Purchase Agreement and/or in thethe InitialInitial OrderOrder and/orand/or InitialInitial Motion,Motion, asas extended, extended, amended amended and restated fromfrom timetime toto time.time.

PURCHASEPURCHASE AGREEMENT:AGREEMENT: [[7] AUTHORIZES and APPROVES the execution by the Petitioners ofof thethe PurchasePurchase Agreement andand the completioncompletion ofof thethe Transactions,Transactions, withwith suchsuch alterations,alterations, changes, amendments, deletions or additions thereto, asas maymay bebe agreedagreed toto with with the consent ofof thethe Monitor.Monitor.

PREPRE-CLOSING-CLOSING REORGANIZATIONREORGANIZATION

[8][8] AUTHORIZES the Petitioners (including(including MisesMises enen causecause 1164160311641603 CanadaCanada Inc., Inc., 1164163811641638 CanadaCanada Inc. Inc. andand 1164173511641735 CanadaCanada Inc. Inc. as as thethe case may be) toto implementimplement and completecomplete thethe Pre-ClosingPre-Closing ReorganizationReorganization contemplatedcontemplated inin ExhibitExhibit A to the Purchase Agreement, inin thethe sequencesequence providedprovided forfor therein.therein.

[9][9] AUTHORIZES the Petitioners (including(including MisesMises enen causecause 1164160311641603 CanadaCanada Inc., Inc., 1164163811641638 CanadaCanada Inc.Inc. andand 11641735 CanadaCanada Inc. Inc. asas the case maymay be),be), inin completing the transactions contemplatedcontemplated inin thethe Pre-ClosingPre-Closing Reorganization:Reorganization:

a) to execute and deliver any documents and assurances governing or giving effect to thethe Pre-ClosingPre-Closing ReorganizationReorganization asas thethe Petitioners,Petitioners, inin theirtheir discretion, maymay deem to bebe reasonablyreasonably necessarynecessary oror advisableadvisable toto conclude the Pre-ClosingPre-Closing Reorganization,Reorganization, including thethe executionexecution ofof suchsuch deeds, contracts or documents,documents, asas maymay bebe contemplatedcontemplated inin thethe Purchase Purchase Agreement andand all suchsuch deeds,deeds, contractscontracts oror documentsdocuments areare herebyhereby ratified, approved and confirmed; andand

b) to taketake suchsuch stepssteps as are,are, inin thethe opinionopinion ofof thethe Petitioners,Petitioners, necessarynecessary oror incidentalincidental to the implementation ofof thethe Pre-ClosingPre-Closing Reorganization.Reorganization.

[10][10] ORDERS ANDAND DECLARESDECLARES that thethe PetitionersPetitioners (including(including MisesMises enen causecause 1164160311641603 Canada Inc., 11641638 Canada Inc. and 1164173511641735 Canada Inc. asas the case maymay be)be) areare herebyhereby permittedpermitted to to execute execute and and file file articles articles of of amendment, amendment, amalgamation, continuancecontinuance or or reorganizationreorganization or or suchsuch otherother documentsdocuments oror instrumentsinstruments as may be requiredrequired toto permitpermit oror enableenable andand effecteffect thethe Pre-Closing Pre-Closing ReorganizationReorganization andand that such articles,articles, documentsdocuments or otherother instrumentsinstruments shallshall bebe

000087 deemed to bebe duly duly __authorized, authorized, validvalid and __effective effective notwithstanding notwithstanding any requirement underunder federalfederal oror provincial law toto obtainobtain directordirector oror shareholdershareholder approval with respect toto suchsuch actionsactions oror toto deliverdeliver anyany statutory statutory declarations declarations that that may otherwiseotherwise be requiredrequired underunder corporatecorporate lawlaw toto effecteffect thethe Pre-Closing Pre-Closing Reorganization.Reorganization.

[11][11] ORDERS AND DECLARESDECLARES that thisthis OrderOrder shallshall constituteconstitute thethe onlyonly authorizationauthorization required by thethe CCAACCAA PartiesParties toto proceedproceed withwith the the Pre-Closing Pre-Closing Reorganization Reorganization and thatthat nono director,director, shareholdershareholder oror regulatoryregulatory approvalapproval shallshall bebe requiredrequired inin connection with any ofof thethe stepssteps contemplated contemplated pursuantpursuant toto the the Pre-Closing Pre-Closing ReorganizationReorganization save for those contemplatedcontemplated inin thethe PurchasePurchase Agreement.Agreement.

[12][12] ORDERS the Director appointed pursuant to Section 260 ofof thethe CBCACBCA toto acceptaccept and receivereceive anyany articlesarticles ofof amendment, amendment, amalgamation, amalgamation, continuancecontinuance oror reorganizationreorganization oror such other documentsdocuments oror instrumentsinstruments asas maymay bebe requiredrequired toto permit or enableenable andand effecteffect thethe Pre-ClosingPre-Closing ReorganizationReorganization contemplatedcontemplated in thethe PurchasePurchase Agreement, filed byby eithereither thethe CCAACCAA Parties,Parties, asas thethe casecase maymay be;be;

SALE APPROVAL

[13][13] AUTHORIZES the Petitioners (including(including MisesMises enen causecause 1164160311641603 CanadaCanada Inc.,Inc., 1164163811641638 CanadaCanada Inc.Inc. and 11641735 Canada Inc.Inc. as the casecase maymay be),be), thethe Vendor, the Monitor,Monitor, asas thethe casecase maymay be,be, andand the the Purchaser Purchaser to to perform perform all all acts, acts, sign all documentsdocuments andand taketake anyany necessary necessary actionaction toto execute execute any any agreement, agreement, contract, deed, provision,provision, transaction or undertakingundertaking stipulatedstipulated inin thethe PurchasePurchase Agreement andand anyany otherother ancillaryancillary documentdocument which which couldcould be be required required or or useful useful to to give full and completecomplete effecteffect thereto.thereto.

[14] ORDERS and DECLARESDECLARES thatthat thisthis Order Order shall shall constitute constitute the the only only authorization authorization required by the PetitionersPetitioners and thethe Vendor,Vendor, asas thethe casecase maymay be,be, toto proceed proceed with the Pre-ClosingPre-Closing Reorganization, the Purchase and SaleSale Transactions,Transactions, thethe other Transactions andand thatthat nono shareholdershareholder oror regulatoryregulatory approval, approval, if if applicable, applicable, shall be required inin connectionconnection therewith.therewith.

[15][15] ORDERS and DECLARES thatthat thethe Vendor,Vendor, inin consummatingconsummating thethe transactionstransactions contemplated by the PurchasePurchase Agreement,Agreement, whichwhich isis aa "related"related party party transaction" transaction" for purposespurposes ofof MultilateralMultilateral InstrumentInstrument 61-10161-101 -- ProtectionProtection of Minority SecuritySecurity HoldersHolders in SpecialSpecial TransactionsTransactions ("MI("MI 61-101") and subject to aa coucourtrt order under applicable bankruptcy or insolvency laws,laws, isis notnot requiredrequired toto complycomply withwith bothboth thethe formal valuationvaluation andand minorityminority approvalapproval requirementsrequirements underunder SectionsSections 5.45.4 andand 5.6,5.6, respectively,respectively, ofof MIMI 61-101.61-101.

[16] ORDERS and DECLARESDECLARES that uponupon thethe issuanceissuance ofof aa Monitor's Monitor's certificate certificate substantially in the formform appendedappended asas Schedule "B" "B" hereto (the(the "Certificate"),

000088 all right, title and interest in and toto thethe PurchasedPurchased Shares,Shares, thethe COALOA aridarid thethe MSAMSA shall vest absolutely and exclusively in and with the Purchaser, free and clear ofof and from any andand allall claims,claims, LiabilitiesLiabilities (direct,(direct, indirect,indirect, absoluteabsolute oror contingent),contingent), obligations, taxes,taxes, priorprior claims,claims, rightright ofof retention,retention, liens,liens, securitysecurity interests,interests, charges, hypothecs, trusts, deemeddeemed truststrusts (statutory(statutory oror otherwise),otherwise), judgments,judgments, writs ofof seizureseizure oror execution,execution, noticesnotices ofof sale, sale, contractual contractual rights rights (including (including purchase options,options, rightsrights ofof firstfirst refusal, rights of firstfirst offeroffer oror anyany otherother pre- pre- emptive contractual rights), encumbrances, whetherwhether oror not theythey havehave beenbeen registered, publishedpublished oror filed andand whetherwhether secured,secured, unsecuredunsecured oror otherwiseotherwise (collectively,(collectively, thethe "Encumbrances"),"Encumbrances" 1 ), includingincluding without limiting the generalitygenerality ofof the foregoing all Encumbrances created by order of this Court andand allall charges,charges, oror security evidenced by registration,registration, publicationpublication oror filingfiling pursuantpursuant toto the the Civil Code of QuébecQuebec inin movable / immovableimmovable property,property, excludingexcluding however,however, thethe permittedpermitted encumbrances listed onon Schedule "C" "C" hereto (the(the "Permitted Encumbrances") Encumbrances") and, forfor greatergreater certainty,certainty, ORDERS that all ofof thethe EncumbrancesEncumbrances affectingaffecting oror relating to the PurchasedPurchased Shares,Shares, otherother thanthan thethe PermittedPermitted Encumbrances,Encumbrances, bebe cancelled andand discharged asas against thethe PurchasedPurchased Shares,Shares, in eacheach casecase effective as of the applicable timetime andand datedate ofof thethe Certificate.Certificate.

[17][1 7] ORDER and DECLARESDECLARES that uponupon thethe issuanceissuance ofof thethe Certificate,Certificate, anyany agreement, contract, plan, indenture,indenture, deed,deed, certificate,certificate, subscriptionsubscription right,right, conversion rights, pre-emption rights oror otherother documentdocument oror instrumentinstrument governinggoverning and/or having been created,created, grantedgranted in connectionconnection withwith thethe PurchasedPurchased SharesShares and/or the share capital of SDCI,SDCI, Ashton and FCDC shall bebe deemeddeemed terminatedterminated and cancelled.

[18][18] ORDERS the Land Registrar of the Land RegistryRegistry OfficeOffice forfor thethe RegistryRegistry DivisionDivision of Sept-IlesSept-Iles andand thethe RegistrarRegistrar ofof thethe PublicPublic RegisterRegister ofof Real Real and and Immovable Immovable Mining Rights (known as GESTIMGESTIM Plus),Plus), uponupon presentationpresentation ofof thethe CertificateCertificate and and a certifiedcertified copycopy ofof thisthis Order Order accompanied accompanied byby thethe required required application application forfor registrationregistration and upon payment of thethe prescribedprescribed fees,fees, toto publishpublish thisthis Order Order and and cancel the EncumbrancesEncumbrances listedlisted inin Schedule "D" "D" on thethe immovableimmovable propertiesproperties identifiedidentified therein.therein.

[19][19] ORDERS the QuebecQuebec PersonalPersonal andand MovableMovable RealReal RightsRights Registrar,Registrar, uponupon presentation of of thethe requiredrequired form form with with aa true copy of thisthis OrderOrder andand thethe Certificate,Certificate, to strike thethe registrationregistration listedlisted inin Schedule "D". "0".

[20][20] ORDERS and DECLARESDECLARES that upon thethe issuanceissuance of thethe CeCertificate,rtificate, Purchaser and AmalCo (including(including anyany predecessorpredecessor corporations)corporations) shallshall be be deemed deemed released released from anyany andand allall claims,claims, liabilitiesliabilities (direct,(direct, indirect,indirect, absoluteabsolute oror contingent)contingent) oror

000089 obligations with respect to any taxestaxes (including(including penaltiespenalties andand interestinterest thereon) thereon) of, of, or thatthat relaterelate to,to, thethe Vendor,Vendor, includingincluding withoutwithout limitinglimiting thethe generalitygenerality ofof thethe foregoing allall taxestaxes thatthat couldcould bebe assessed assessed againstagainst PurchaserPurchaser andand AmalcoAmalco (including(including anyany predecessor corporations) pursuant to sectionsection 160160 ofof thethe IncomeIncome Tax ActAct (Canada),(Canada), or any provincial equivalent, inin connectionconnection with with the the Vendor. Vendor.

[21][21] ORDERS that upon issuance of thethe Certificate,Certificate, allall PersonsPersons shallshall bebe deemeddeemed toto have waived any and all defaultsdefaults ofof thethe CCAACCAA PartiesParties thenthen existing existing or or previously previously committed byby the CCAA Parties or causedcaused byby thethe CCAACCAA Parties,Parties, directlydirectly oror indirectly,indirectly, or non-compliancenon-compliance with anyany covenant,covenant, positivepositive oror negative negative pledge, pledge, warranty, representation, term,term, provision, condition or obligation,obligation, expressexpress oror implied,implied, inin any contract,contract, creditcredit document,document, agreement forfor sale, leaselease oror otherother agreement, written or oral, andand anyany andand allall amendmentsamendments oror supplementssupplements thereto, thereto, existing between such Person andand thethe CCAACCAA PartiesParties arisingarising from from the the filing filing by by the the CCAA Parties under the CCAACCAA oror thethe completioncompletion ofof thethe Transactions, Transactions, andand anyany and allall noticesnotices ofof defaultdefault andand demands demands for for payment payment under under any any instrument, instrument, includingincluding any guarantee arising from suchsuch default,default, shallshall bebe deemeddeemed toto havehave beenbeen rescinded.rescinded.

[22][22] ORDERS that thethe implementationimplementation of thethe TransactionsTransactions shall bebe deemeddeemed notnot toto constitute aa change in ownershipownership or changechange inin controlcontrol underunder anyany financialfinancial instrument,instrument, loan or financingfinancing agreement,agreement, executoryexecutory contractcontract oror unexpired unexpired leaselease or contract, lease or agreementagreement inin existenceexistence onon thethe EffectiveEffective DateDate andand toto which which the CCAA Parties areare aa party.party.

[23][23] ORDERS andand DIRECTSDIRECTS the Monitor toto file withwith the CourtCourt a copycopy ofof thethe Certificate, no later than oneone businessbusiness dayday afterafter thethe issuanceissuance thereof. thereof.

[24] DECLARES DECLARES that uponupon thethe filingfiling ofof the the Certificate, Certificate, thethe Purchase Purchase andand SaleSale Transactions shall be deemed to constituteconstitute andand shallshall havehave thethe samesame effecteffect asas aa sale under judicial authority as perper thethe provisionsprovisions ofof thethe Code of Civil Procedure and a forced salesale as perper thethe provisionsprovisions ofof thethe Civil Code of Quebec.

CCAA PETITIONERS

[25] ORDERS that upon filing of thethe Monitor'sMonitor's Certificate:Certificate:

a) 11641638 CanadaCanada Inc.Inc. and 1164173511641735 Canada Inc. areare companiescompanies toto which the CCAA applies;

b) 11641638 CanadaCanada Inc.Inc. and 1164173511641735 Canada Inc. shallshall bebe addedadded asas PetitionersPetitioners in these CCAA proceedings and any referencereference inin anyany OrderOrder ofof this CourtCourt inin respectrespect ofof thesethese CCAA CCAA proceedings proceedings toto aa "Petitioner", "Petitioner", thethe "Petitioners" oror "CCAA Parties" shall refer toto 1164163811641638 CanadaCanada Inc.Inc. andand

000090 1164173511641735 Canada Inc.,Inc., mutadis mutandis, and, for greater certainty, each of the Charges (as suchsuch termterm isis defineddefined inin thethe InitialInitial Order)Order) shallshall constitute constitute a charge on the property of 1164163811641638 Canada Inc. and 11641735 Canada Inc.;Inc.; and

c) SDCI, Ashton, FCDC and 1164160311641603 CanadaCanada Inc.,Inc., asas amalgamatedamalgamated shallshall each be deemeddeemed to ceasecease toto bebe PetitionersPetitioners inin thesethese CCAACCAA proceedings,proceedings, and each such entity shall be deemed to bebe releasedreleased from the purviewpurview ofof any Order of thisthis CouCourtrt grantedgranted inin respectrespect ofof thesethese CCAACCAA Proceedings,Proceedings, save and except for the present OrderOrder thethe termsterms ofof whichwhich (as(as theythey relatedrelated to any such entity) shallshall continuecontinue toto applyapply inin allall respects.respects.

[261[261 ORDERS that upon thethe issuanceissuance ofof thethe CertificateCertificate andand inin accordanceaccordance withwith thethe terms of thethe PurchasePurchase Agreement:Agreement:

a) all ExcludedExcluded Assets shallshall vestvest absolutelyabsolutely andand exclusivelyexclusively inin 1164163811641638 Canada Inc.Inc. and allall EncumbrancesEncumbrances shallshall continuecontinue toto attach to thethe ExcludedExcluded AssetsAssets withwith thethe samesame naturenature and prioritypriority asas theythey hadhad immediatelyimmediately prior toto theirtheir transfer;transfer;

b) all debts,debts, liabilities,liabilities, obligations,obligations, indebtedness,indebtedness, contracts,contracts, leases,leases, agreements, and undertakings of anyany kindkind oror naturenature whatsoeverwhatsoever (whether(whether direct or indirect,indirect, knownknown or unknown,unknown, absoluteabsolute oror contingent,contingent, accruedaccrued oror unaccrued, liquidated or unliquidated, maturedmatured or unmaturedunmatured oror duedue oror notnot yet due, in lawlaw oror equityequity andand whetherwhether basedbased inin statutestatute oror otherwise)otherwise) ofof Amalco, whether direct or indirect,indirect, knownknown oror unknown,unknown, absoluteabsolute oror contingent, accrued or unaccrued,unaccrued, liquidatedliquidated or unliquidated,unliquidated, maturedmatured oror unmatured oror due or not yetyet due,due, inin lawlaw oror equity equity and and whether whether basedbased inin statute or otherwiseotherwise (collectively,(collectively, "Obligations") other than the AssumedAssumed Liabilities (all(all such ObligationsObligations that areare notnot expresslyexpressly identifiedidentified inin thethe PurchasePurchase Agreement as beingbeing AssumedAssumed LiabilitiesLiabilities beingbeing referredreferred to to as as the the "Excluded Liabilities")Liabilities") shall be transferredtransferred to, assumedassumed by andand vestvest absolutely and exclusively in, 11641735 CanadaCanada Inc.Inc. suchsuch that,that, atat thethe timetime provided for inin thethe Pre-ClosingPre-Closing ReorganizationReorganization andand beforebefore thethe Closing Closing Date,Date, the Excluded LiabilitiesLiabilities shallshall bebe novatednovated andand becomebecome obligationsobligations ofof 1164173511641735 Canada Inc. and not obligationsobligations ofof AmalCo,AmalCo, andand AmalCoAmalCo shallshall be forever released andand dischargeddischarged fromfrom suchsuch ExcludedExcluded Liabilities,Liabilities, andand all all EncumbrancesEncumbrances securing Excluded LiabilitiesLiabilities shallshall bebe foreverforever releasedreleased andand discharged, it beingbeing understoodunderstood thatthat nothingnothing inin thethe presentpresent OrderOrder shallshall be be deemed to cancelcancel anyany ofof thethe PermittedPermitted Encumbrances,Encumbrances, asas applicableapplicable toto AmalCo (including(including anyany predecessorpredecessor corporations);corporations);

000091 c) the commencementcommencement oror prosecution,prosecution, whetherwhether directly,directly, indirectly,indirectly, derivatively or otherwiseotherwise ofof anyany demands,demands, claims,claims, actions,actions, counterclaims, counterclaims, suits, judgements, oror otherother remedy or recoveryrecovery with respectrespect to anyany indebtedness,indebtedness, liability,liability, obligationobligation oror cause of actionaction againstagainst AmalcoAmalco inin respectrespect of the Excluded LiabilitiesLiabilities shallshall bebe permanently permanently enjoined; enjoined;

d) the naturenature ofof thethe Obligations Obligations retainedretained byby AmalcoAmalco including,including, withoutwithout limitation,limitation, their amount and theirtheir securedsecured oror unsecuredunsecured status,status, shall shall not not be be affected or altered as a resultresult ofof thethe PurchasePurchase AgreementAgreement oror thethe steps steps and and actions taken in accordance with the termsterms thereof;thereof;

e) the naturenature andand prioritypriority ofof the the Excluded Excluded Liabilities, Liabilities, including, including, withoutwithout limitation,limitation, their amount and theirtheir securedsecured oror unsecuredunsecured status,status, shall shall not not be be affected oror altered as a resultresult ofof theirtheir transfertransfer toto andand assumption assumption byby 1164163811641638 Canada Inc. and/or 11641735 CanadaCanada Inc.;Inc.; andand

f) any person that, prior to thethe ClosingClosing Date,Date, hadhad aa validvalid rightright oror claim claim against AmalCo in respectrespect ofof thethe ExcludedExcluded LiabilitiesLiabilities (each(each aa "Claim") shall no longerlonger havehave suchsuch ClaimClaim againstagainst AmalCo,AmalCo, but willwill havehave anan equivalent Claim against 11641638 Canada Inc. and/or 11641735 Canada Inc.Inc. in respect ofof thethe ExcludedExcluded LiabilitiesLiabilities fromfrom andand afterafter thethe ClosingClosing DateDate inin itsits placeplace andand stead,stead, and,and, nothingnothing inin thisthis Order Order limits,limits, lessenslessens oror extinguishes the Excluded Liabilities or the Claim of any person as against 1164163811641638 Canada Inc. and/or 11641735 CanadaCanada Inc.Inc.

RELEASESRELEASES

[27][27] ORDERS that effectiveeffective upon thethe filingfiling ofof thethe Certificate, Certificate, (i)(i) thethe presentpresent andand former directors,directors, officers, employees, legallegal counsel and advisorsadvisors ofof thethe PetitionersPetitioners (including for purposepurpose ofof clarityclarity 1164163811641638 CanadaCanada Inc.,Inc., 1164173511641735 Canada Inc. andand AmalCo),AmalCo), (ii)(ii) the MonitorMonitor andand itsits legallegal counsel, counsel, andand (iii) (iii) the the Streamers under thethe StreamStream Agreement,Agreement, DiaquemDiaquem Inc.Inc. andand Investissement Investissement Quebec,Québec, including in eacheach casecase theirtheir respective respective directors, directors, officers, officers, employees, employees, legallegal counsel and advisorsadvisors (the(the personspersons listedlisted inin (i),(i), (ii)(ii) andand (iii) (iii) being being collectively collectively the "Released Parties")Parties") shall be deemed to be foreverforever irrevocablyirrevocably releasedreleased andand discharged fromfrom any andand allall presentpresent andand futurefuture claims claims (including, (including, withoutwithout limitations,limitations, claims forfor contributioncontribution oror indemnity), indemnity), liabilities, liabilities, indebtedness, indebtedness, demands, actions, causescauses ofof action,action, counterclaims,counterclaims, suits,suits, damages,damages, judgments,judgments, executions, recoupments, debts, sums ofof money,money, expenses,expenses, accounts,accounts, liens,liens, taxes, recoveries,recoveries, and obligationsobligations of anyany naturenature oror kind kind whatsoever whatsoever (whether(whether direct oror indirect,indirect, knownknown oror unknown,unknown, absoluteabsolute oror contingent,contingent, accruedaccrued oror unaccrued, liquidated or unliquidated, matured or unmatured or duedue oror notnot yetyet due, in lawlaw oror equityequity andand whetherwhether basedbased inin statute statute oror otherwise) otherwise) basedbased inin whole whole

000092 or inin partpart onon any actact or omission,omission, transaction,transaction, dealingdealing or otherother occurrenceoccurrence existing oror taking place priorprior toto thethe issuanceissuance ofof the the Certificate Certificate oror completed completed pursuant to the terms ofof thisthis OrderOrder and/orand/or inin connectionconnection withwith thethe Transactions, Transactions, in in respectrespect of the Petitioners oror theirtheir assets,assets, businessbusiness oror affairsaffairs wherever wherever or or however however conducted or governed, thethe administrationadministration and/orand/or managementmanagement of of the the Petitioners, Petitioners, the StreamStream Agreement,Agreement, thethe DiaquemDiaquem LoanLoan Agreement,Agreement, thethe DiaquemDiaquem RoyaltyRoyalty Agreement and these proceedingsproceedings (collectively, the "Released Claims"),Claims"), whichwhich ReleasedReleased ClaimsClaims are herebyhereby fully,fully, finally,finally, irrevocablyirrevocably andand foreverforever waived,waived, discharged, released, cancelled andand barred as againstagainst thethe ReleasedReleased Parties,Parties, provided that nothing in this paragraphparagraph shallshall waive, discharge, release, cancel or bar any claimclaim againstagainst thethe DirectorsDirectors and OfficersOfficers of thethe PetitionersPetitioners that isis notnot permitted to be released pursuantpursuant toto sectionsection 5.1(2)5.1(2) ofof thethe CCAA.CCAA.

[28][28] ORDERSORDERS that, that, notwithstanding: notwithstanding:

a) the pendency ofof thesethese proceedings;proceedings;

b) any applications for aa bankruptcybankruptcy orderorder nownow oror hereafterhereafter issuedissued pursuantpursuant to thethe Bankruptcy and Insolvency Act (Canada) (the(the "BIA")"BIA") in respectrespect ofof the Petitioners, 1164163811641638 CanadaCanada Inc.,Inc., 1164173511641735 CanadaCanada Inc.Inc. oror AmalcoAmalco and any bankruptcy orderorder issuedissued pursuantpursuant toto anyany suchsuch applications;applications; and and

c) any assignmentassignment in bankruptcybankruptcy made inin respectrespect ofof the the Petitioners, Petitioners, 1164163811641638 Canada Inc., 1164173511641735 CanadaCanada Inc.Inc. oror Amalco,Amalco,

the implementationimplementation ofof the the Pre-Closing Pre-Closing Reorganization Reorganization (including(including thethe transfer transfer of of the Excluded AssetsAssets toto 1164163811641638 CanadaCanada Inc.Inc. andand thethe transfertransfer ofof the the Excluded Excluded Liabilities toto 11641638 Canada Inc. and/or to 1164173511641735 CanadaCanada Inc.) andand thethe implementationimplementation ofof the PurchasePurchase andand SaleSale TransactionsTransactions underunder andand pursuantpursuant toto the Purchase Agreement (i) shallshall bebe bindingbinding onon anyany trusteetrustee inin bankruptcybankruptcy thatthat may bebe appointedappointed inin respectrespect ofof the the Petitioners, Petitioners, 1164163811641638 CanadaCanada Inc.,Inc., 1164173511641735 Canada Inc. or AmalcoAmalco andand shallshall notnot bebe voidvoid oror voidable voidable by by creditors creditors of thethe Petitioners,Petitioners, 1164163811641638 Canada Inc.Inc. or 1164173511641735 CanadaCanada Inc.,Inc., asas applicable, (ii) shall notnot constituteconstitute nornor bebe deemeddeemed toto bebe aa fraudulent fraudulent preference, preference, assignment, fraudulent conveyance,conveyance, transfertransfer atat undervalue,undervalue, oror otherother reviewable reviewable transaction under thethe BIABIA oror anyany other other applicable applicable federal federal or or provincial provincial legislation, legislation, and (iii) shall not constitute nornor bebe deemeddeemed toto bebe oppressiveoppressive oror unfairlyunfairly prejudicialprejudicial conduct by thethe PetitionersPetitioners oror thethe ReleasedReleased PartiesParties pursuantpursuant toto anyany applicableapplicable federal or provincial legislation.legislation.

THE MONITOR

[29][29] PRAYSPRAYS ACT of the Monitor's SecondSecond Report.Report.

000093 [30] ORDERS that.that the.the Monitor,Monitor, inin additionaddition toto itsits prescribedprescribed rightsrights andand obligationsobligations under the CCAA, is authorized, entitled and empoweredempowered to assignassign oror causecause toto bebe assigned, at anyany timetime afterafter thethe Closing Closing Date, Date, Stornoway Stornoway Diamond Diamond Corporation, Corporation, 1164163811641638 CanadaCanada Inc.Inc. and 1164173511641735 Canada Inc.Inc. into bankruptcybankruptcy and thethe Monitor shall be entitled but notnot obligatedobligated toto actact asas trusteetrustee inin bankruptcybankruptcy thereof.thereof.

[31] DECLARESDECLARES that, subject toto otherother ordersorders ofof thisthis Court,Court, nothingnothing hereinherein containedcontained shall require the Monitor to occupyoccupy oror toto taketake control,control, oror toto otherwiseotherwise managemanage allall or any part ofof thethe assetsassets ofof thethe Petitioners.Petitioners. TheThe MonitorMonitor shallshall not, asas aa resultresult ofof this Order, be deemeddeemed toto bebe inin possessionpossession ofof anyany assetsassets ofof the the Petitioners Petitioners within within the meaning ofof environmentalenvironmental legislation,legislation, thethe wholewhole pursuantpursuant toto thethe termsterms ofof the the CCAA.

[32] DECLARESDECLARES that thethe MonitorMonitor shall incur no liabilityliability as aa resultresult ofof actingacting inin accordance with this Order,Order, otherother thanthan anyany liabilityliability arisingarising outout of of or or in in connection connection with the gross negligence oror wilfulwilful misconductmisconduct ofof thethe Monitor.Monitor.

[33] DECLARESDECLARES that no actionaction lieslies againstagainst thethe MonitorMonitor byby reasonreason ofof thisthis OrderOrder oror the the performance of any actact authorizedauthorized byby thisthis Order,Order, exceptexcept byby leaveleave ofof the the Court. Court. The entities relatedrelated toto thethe MonitorMonitor oror belongingbelonging toto thethe samesame groupgroup asas the the Monitor Monitor shall benefit from the protectionprotection arisingarising underunder thethe presentpresent paragraph.paragraph.

GENERAL

[34] ORDERS that thethe PurchaserPurchaser shall be authorizedauthorized to take allall stepssteps asas maymay bebe necessary to effect the dischargedischarge of the EncumbrancesEncumbrances as against the assets ofof AmalCo.

[35] DECLARESDECLARES that thisthis OrderOrder shallshall havehave fullfull forceforce andand effecteffect inin allall provinces provinces andand territories inin Canada.Canada.

[36] DECLARESDECLARES that thethe MonitorMonitor shallshall bebe authorizedauthorized to applyapply asas itit maymay considerconsider necessary or desirable,desirable, withwith oror withoutwithout notice,notice, to to any any other other court court or or administrative administrative body, whether in Canada,Canada, thethe UnitedUnited StatesStates ofof America America oror elsewhere, elsewhere, for for orders orders which aid and complementcomplement thethe OrderOrder and,and, withoutwithout limitationlimitation toto thethe foregoing,foregoing, anan order under Chapter 1515 ofof thethe U.S.U.S. BankruptcyBankruptcy Code,Code, forfor whichwhich thethe MonitorMonitor shallshall be the foreign representativerepresentative ofof thethe Debtor.Debtor. AllAll courtscourts andand administrativeadministrative bodiesbodies of all suchsuch jurisdictionsjurisdictions areare herebyhereby respectfullyrespectfully requestedrequested toto makemake suchsuch ordersorders and toto provideprovide suchsuch assistanceassistance toto MonitorMonitor asas maymay bebe deemeddeemed necessarynecessary oror appropriate for thatthat purpose.purpose.

[37] REQUESTSREQUESTS the aid andand recognitionrecognition ofof anyany courtcourt oror administrativeadministrative bodybody inin anyany ProvinceProvince of Canada andand anyany CanadianCanadian federalfederal courtcourt oror administrativeadministrative bodybody andand any federal or statestate courtcourt oror administrativeadministrative bodybody inin thethe UnitedUnited StatesStates ofof AmericaAmerica

000094 and any courtcourt oror administrative body elsewhere, to actact inin aid of and to bebe complementary to this Court inin carrying out the terms of the Order.

[38][38] ORDERS the provisionalprovisional executionexecution ofof the present Order notwithstandingnotwithstanding anyany appeal and without the requirementrequirement to provide any securitysecurity or provision for costs whatsoever.

THE WHOLE WITHOUTWITHOUT COSTS. COSTS. r- J

The HonourableHonourable L0Lo is J.J. Gouin, J.S.C.

DateDate of hearing: October 7, 20192019

Mtres. Luc Morin & Arad Mojtahedi Norton Rose Rose FulbrightFulbright Canada LLPLLP Attorneys for the Petitioners Petitioners

Mtres. Guy P. Martel & Danny Duy Vu Stikeman ElliottElliott LLPLLP Attorneys for thethe Mises-en-causeMises-en-cause Osisko Gold Royalties Ltd, CDPQCDPQ RessourcesRessources Inc.,Inc., TF R&SR&S Canada Ltd. (formerly(formerly 1078234310782343 Canada Ltd.), Albion ExplorationExploration FundFund LLC and Washington State Investment BoardBoard

Mtre Jocelyn Perreault McCarthy TétraultTetrault LLPLLP Attorneys for the Mises-en-cause InvestissementInvestissement QuébecQuebec and DiaquemDiaquem

Mtres. Sandra Abitan & Julien Morissette Osier Hoskin HarcourtHarcourt LLPLLP Attorneys for the Monitor CORECOPIE CERTIFIÉECERTIFIES CONFORMECONFORMS AU DOCUMENTDOCUMENT DÉTENUDETENU PARPAR LA COUR

I NC.c c. PERSONNE DESIGWE DÉSIGNE PAR LE ciwEFFIERREFFIER ENEN VERTU DE DE 67 67 C.P.C. C.M.

000095

TAB 6

000096 Court File No. CV-19-00632079-00CL

ONTARIO

SUPERIOR COURT OF .JUSTICE

COMMERCIAL LIST

THE HONOURABLE MR. TUESDAY, THE 21"

JUSTICE HAINEY DAY OF APRIL, 2020 0 Ot CO URT ./& <4, IN THE. MATTER OF THE COMPANIES" CREDITORS t) rn ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF WAYLAND GROUP CORP., &A,L, MARICANN INC. AND NANOLEAF TECHNOLOGIES INC. cRIEURF- (collectively, the "Applicants" and each an "Applicant")

APPROVAL AND VESTING ORDER

THIS MOTION, made by the Applicants, pursuant to the Companies' Creditors Arrangement. Act, R.S.C. 1985, c. C-36, as amended (the "MAX), for an order, inter alia, (i) approving the Share Purchase Agreement (the "Sale Agreement") among Wayland Group Corp. ("Wayland"), Maricann Inc. ("Maricann"), and Canadelaar B.V. (the "Purchaser') dated April 15, 2020 and. attached as Exhibit "A" to the affidavit of Matthew McLeod sworn April 15, 2020 (the "Seventh McLeod Affidavit") and the transactions contemplated thereby (the "Transactions"), (ii) adding 2751609 Ontario inc. ("Residual Co") as an Applicant to these CCAA proceedings, (iii) vesting all of Maricann's right, title and interest in and to the Excluded Assets (as defined in the Sale Agreement) in Residual Co, (iv) transferring and vesting all of the Excluded Contracts and Excluded Liabilities in Residual Co, (v) vesting all of Wayland's right, title and interest in and to the Transferred Assets (as defined in the Sale Agreement) in Maricann, (vi) vesting all of the right, title and interest in and to the Maricann Shares (as defined in the Sale

000097 Agreement) in the Purchaser. (vii) granting the Payables Charge (as defined below), and (viii) granting certain related relief, was heard this day in writing at Toronto, Ontario.

ON READING the Notice of Motion of the Applicants, the Seventh McLeod Affidavit, the sixth report of PricewaterhouseCoopers Inc., in its capacity as monitor of the Applicants (the "Monitor"), dated April 16, 2020, and on hearing the submissions of counsel for the Applicants, the Monitor, the Purchaser, the DIP Lender and such other counsel as were present, no one else appearing although duly served as appears from the affidavit of service of Karin Sachar sworn April 16, 2020:

SERVICE

1. THIS COURT ORDERS that the time for service of the Notice of Motion and the Motion Record is hereby abridged and validated so that this Motion is properly returnable today and hereby dispenses with further service thereof.

DEFINED TERMS

2. THIS COURT ORDERS that capitalized tenors used in this Order and not otherwise defined herein have the meaning ascribed to them in the Seventh McLeod Affidavit and/or the Sale Agreement and/or the Second Amended and Restated Initial Order of this Court in the within proceedings dated December 2, 2019 tas amended and restated on December 16, 2019 and otherwise modified, the "Initial Order"), as applicable.

APPROVAL AND VESTING

3. THIS COURT ORDERS AND DECLARES that the Sale Agreement and the Transactions are hereby approved and the execution of the Sale Agreement by Wayland and Maricann is hereby authorized and approved, with such minor amendments as the parties thereto may deem necessary, with the approval of the Monitor and the DIP Lender. The Applicants are hereby authorized and directed to perform their obligations under the Sale Agreement and to take such additional steps and execute such additional documents as may be necessary or desirable for the completion of the Transactions and for the conveyance of the Maricann Shares to the Purchaser.

000098 -3-

4, THIS COURT ORDERS AND DECLARES that this Order shall constitute the only authorization required by the Applicants to proceed with the Transactions (including, for certainty, the Pre-Closing Reorganization) and that no shareholder or other approval shall be required in connection therewith.

5. THIS COURT ORDERS AND DECLARES that, upon the delivery of the Monitor's certificate (the "Monitor's Certificate") to the Purchaser (the "Effective Time"), substantially in the form attached as Schedule "A" hereto , the following shall occur and shall be deemed to have occurred at the Effective Time in the following sequence:

(a) first, all of Maricann's right, title and interest in and to the Excluded Assets shall vest absolutely and exclusively in Residual Co, and all Claims and Encumbrances (each as defined below) shall continue to attach to the Excluded Assets with the same nature and priority as they had immediately prior to their transfer;

(b) second, (i) all of Wayland's right, title and interest in and to the Transferred Assets shall vest absolutely and exclusively in Maricann free and clear of and from any and all Claims and Enciunbrances (each as defined below); and (ii) all Assumed Liabilities which are to be assigned by Wayland to, and assumed by Maricann pursuant to the Sale Agreement shall be and are hereby assigned to, assumed by and shall vest absolutely and exclusively in Maricann; and for greater certainty, this Court orders that all of the Encumbrances affecting or relating to the Transferred Assets are hereby expunged and discharged as against the Transferred Assets;

(c) third, all Excluded Contracts and Excluded Liabilities (which, for certainty includes all debts, liabilities, obligations, indebtedness, contracts, leases, agreements, arid undertakings of any kind or nature whatsoever (whether direct or indirect, known or unbown, absolute or contingent, accrued or unaccmed, liquidated or =liquidated, matured or =matured or due or not yet due, in law or equity and whether based in statute or otherwise) of Maricann other than the Assumed Liabilities) shall be transferred to, assumed by and vest absolutely and exclusively in, Residual Co such that the Excluded Contracts and Excluded Liabilities shall become obligations of Residual Co and shall no longer be

000099 - 4

obligations of Maricann, and Maricann and all of its assets, licenses, undertakings and properties of every nature and kind whatsoever and wherever situate (including, for certainty, the Transferred Assets and the Retained Assets, the "Maricann Property") shall be and are hereby forever released and discharged from such Excluded Contracts and Excluded Liabilities and all related Claims (as defined below), and all Encumbrances (as defined below) affecting or relating to the Maricann Property are hereby expunged and discharged as against the Maricann Property;

(d) fourth, all options, conversion privileges, equity-based awards, warrants, securities, debentures, loans, notes or other rights, agreements or commitments of any character whatsoever that are held by any Person (as defined below) and are convertible or exchangeable for any securities of Maricann or which require the issuance, sale or transfer by Maricann, of any shares or other securities of Maricann, or otherwise evidencing a right to acquire the Maricann Shares and/or the share capital of Maricann, or otherwise relating thereto, shall be deemed terminated and cancelled; and

(e) fifth, all of the right, title and interest in and to the Maricann Shares shall vest absolutely in the Purchaser, free and clear of and from any and all security interests (whether contractual, statutory, or otherwise), hypothecs, mortgages, trusts or deemed trusts (whether contractual, statutory, or otherwise), liens, executions, levies, charges, or other financial or monetary claims, whether or not they have attached or been perfected, registered or filed and whether secured, unsecured or otherwise (collectively, the "Clahns") including, without limiting the generality of the foregoing: (i) any encumbrances or charges created by the Initial Order, the KERP & SNP Approval Order of this Court dated January 13, 2020. or any other Order of the Court; (ii) all charges, security interests or claims evidenced by registrations pursuant to the Personal Property Security Act (Ontario) or any other personal property registry system; and (iii) those Claims listed on Schedule "B" hereto (all of which are collectively referred to as the "Encumbrances", which term shall not include the permitted encumbrances, easements and restrictive covenants listed on Schedule "C" hereto) and, for

000100 - 5 -

greater certainty, this Court orders that all of the Encumbrances affecting or relating to the Maricann Shares are hereby expunged and discharged as against the Maricann Shares; and

(f) sixth, Maricann shall and shall be deemed to cease to be an Applicant in these CCAA proceedings, and Maricann shall he deemed to be released from the purview of the Initial Order and all other Orders of this Court granted in respect of these CCAA proceedings, save and except for this Order the provisions of which (as they relate to Maricann) shall continue to apply in all respects.

6. THIS COURT ORDERS that upon the registration in the Land Registry Office 437 for the Land Titles Division of Norfolk (Simcoe) of an Application for Vesting Order in the form prescribed by the Land Titles Act (Ontario) andlor the Land Registration Reform Act (Ontario), the Land Registrar is hereby directed to vacate and expunge from title to the subject real property identified in Schedule "D" hereto (the "Real Property") all of the Claims listed in Schedule "B" hereto.

7. THIS COURT ORDERS AND DIRECTS the Monitor to file with the Court a copy of the Monitor's Certificate, forthwith after delivery thereof in connection with the Transactions.

8. THIS COURT ORDERS that the Monitor may rely on written notice from Wayland and the Purchaser regarding the fulfillment of conditions to closing wider the Sale Agreement and shall have no liability with respect to delivery of the Monitor's Certificate.

9. THIS COURT ORDERS that for the purposes of detennining the nature and priority of Claims, the net proceeds from the sale of the Maricann Shares (including, for greater certainty, the net proceeds realized from the Cash Payment and any Conditional Payments) (the "Proceeds") shall stand in the place and stead of the Maricarui Shares, and that from and after the delivery of the Monitor's Certificate and the payment of the Priority Payments pursuant to paragraph 27 hereof, all Claims and Encumbrances shall attach to the remaining Proceeds, if any, following the payment of the Priority Payments with the same priority as they had with respect to the Maricann Shares immediately prior to the sale, as if the Maricann Shares had not been sold and remained in the possession or control of the Person having that possession or control immediately prior to the sale.

000101 10. THIS COURT ORDERS that, pursuant to clause 7(3)(c) of the Canada Personal Information Protection and Electronic Documents Act,the Applicants or the Monitor, as the case may be, is authorized, permitted and directed to, at the Effective Time, disclose to the Purchaser all human resources and payroll information in Maricann's records pertaining to past and current employees of Maricann. The Purchaser shall maintain and protect the privacy of such information in accordance with applicable law and shall be entitled to use the personal information provided to it in a manner which is in all material respects identical to the prior use of such information by Maricann.

11. THIS COURT ORDERS AND DECLARES that, at the Effective Time and without limiting the provisions of paragraph 5 hereof, the Purchaser and Maricann shall be deemed released from any and all claims, liabilities (direct, indirect, absolute or contingent) or obligations with respect to any Taxes (including penalties and interest thereon) of, or that relate to, the Applicants (provided, as it relates to Maricann, such release shall not apply to Taxes in respect of the business and operations conducted by Maricann after the Effective Time), including without limiting the generality of the foregoing all taxes that could be assessed against the Purchaser or Maricann (including its affiliates and any predecessor corporations) pursuant to section 160 of the Income Tax Act (Canada), or any provincial equivalent, in connection with the Applicants.

12. THIS COURT ORDERS that except to the extent expressly contemplated by the Sale Agreement, all Contracts to which Maricann is a party upon delivery of the Monitor's Certificate (including, for certainty, those Contracts constituting Transferred Assets) will be and remain in full force and effect upon and following delivery of the Monitor's Certificate and no individual, firm, corporation, governmental body or agency, or any other entity (all of the foregoing, collectively being "Persons" and each being a "Person") who is a party to any such arrangement may accelerate, terminate, rescind, refuse to perform or otherwise repudiate its obligations thereunder, or enforce or exercise any right (including any right of set-off, dilution or other remedy) or make any demand under or in respect of any such arrangement and no automatic termination will have any validity or effect, by reason of

(a) any event that occurred on or prior to the delivery of the Monitor's Certificate and is not continuing that would have entitled such Person to enforce those rights or

000102 7

remedies (including defaults or events of default arising as a result of the insolvency of any Applicant);

(b) the insolvency of any Applicant or the fact that the Applicants sought or obtained relief wider the CCAA;

(c) any compromises, releases, discharges, cancellations, transactions, arrangements, reorganizations or other steps taken or effected pursuant to the Sale Agreement, the Transactions or the provisions of this Order, or any other Order of the Court in these proceedings; or

(d) any transfer or assignment, or any change of control of Maricann arising from the implementation of the Sale Agreement, the Transactions or the provisions of this Order.

13. THIS COURT ORDERS, for greater certainty, that (a) nothing in paragraph 12 hereof shall waive, compromise or discharge any obligations of Maricann in respect of any Assumed Liabilities, and (b) the designation. of any Claim as an Assumed Liability is without prejudice to Maricares right to dispute the existence, validity or quantum of any such Assumed Liability, and (c) nothing in this Order or the Sale Agreement shall affect or waive Maricann's rights and defences, both legal and equitable, with respect to any Assumed Liability, including, but not limited to, all rights with respect to entitlements to set-offs or recoupments against such Assumed Liability.

14. THIS COURT ORDERS that from and after the Effective Time, all Persons shall be deemed to have waived any and all defaults of any Applicant then existing or previously committed by any Applicant, or caused by any Applicant, directly or indirectly, or non- compliance with any covenant, warranty, representation, undertaking, positive or negative pledge, term, provision, condition or obligation, expressed or implied, in any Contract, existing between such Person and Maricann (including, for certainty, those Contracts constituting Transferred Assets) arising directly or indirectly from the filing by the Applicants under the CCAA and the implementation of the Transactions, including without limitation any of the matters or events listed in paragraph 12 hereof and any and all notices of default and demands for payment or any step or proceeding taken or commenced in connection therewith under a

000103 8

Contract shall be deemed to have been rescinded and. of no further force or effect, provided that nothing herein shall be deemed to excuse Maricann or Wayland from performing their obligations under the Sale Agreement or be a waiver of defaults by Maricann or Wayland under the Sale Agreement and the related documents.

15. THIS COURT ORDERS that from and after the Effective Time, any and all Persons shall be and are hereby forever barred, estopped, stayed and enjoined from commencing, taking, applying for or issuing or continuing any and all steps or proceedings, whether directly, derivatively or otherwise, and including without limitation, administrative hearings and orders, declarations and assessment, commenced, taken or proceeded with or that may be commenced, taken or proceeded with against Maricann or the Ivlaricann Property relating in any way to or in respect of any Excluded Assets or Excluded Liabilities and any other claims, Obligations and other matters which are waived, released, expunged or discharged pursuant to this Order.

16. THIS COURT ORDERS that, from and after the Effective Time:

(a) the nature of the Assumed Liabilities retained by Maricann, including, without limitation, their amount and their secured or unsecured status, shall not be affected. or altered as a result of the Transactions or this Order;

(b) the nature of the Excluded Liabilities, including, without limitation, their amount and their secured or unsecured status, shall not be affected or altered as a result of their transfer to Residual Co;

(c) any Person that prior to the Effective Time had a valid right or claim against Maricann under or in respect of any Excluded Contract or Excluded Liability (each an "Excluded Liability Claim") shall no longer have such right or claim against Marie= but will have an equivalent Excluded Liability Claim against Residual Co in respect of the Excluded Contract and Excluded Liability from and after the Effective Time in its place and stead, and nothing in this Order limits, lessens or extinguishes the Excluded Liability Claim of any Person as against Residual Co; and

000104 9

(d) the Excluded Liability Claim of any Person against Residual Co following the Effective Time shall have the same rights, priority and entitlement as such Excluded Liability Claim had against Maricann prior to the Effective Time.

17. THIS COURT ORDERS AND DECLARES that, as of the Effective Tune:

(a) Residual Co shall be a company to which the CCAA applies; and

(b) Residual Co shall be added as an Applicant in these CCAA proceedings and all references in any Order of this Court in respect of these CCAA proceedings to (i) an "Applicant" or the "Applicants" shall refer to and include Residual Co, mutoils mulandis, and (ii) "Property" shall include the current and future assets, licenses, undertakings and properties of every nature and kind whatsoever, and wherever situate including all proceeds thereof, of Residual Co. (the "Residual Co. Properly"), and, for greater certainty, each of the Charges (as defined in the Initial Order and including for greater certainty the Payables Charge (as defined below)), shall constitute a charge on the Residual Co. Property.

CLOSING FUNDING AND CHARGE

18. THIS COURT ORDERS that the Closing Funding is hereby approved, and Wayland is hereby authorized and empowered to obtain and borrow the Closing Funding from the Purchaser (or one of its Affiliates) (the "Closing Funding Lender") in accordance with the terms of the Sale Agreement, provided that such Closing Funding shall not exceed the aggregate principal amount of $1,000,000 and that the Closing Funding shall be on the terms and subject to the conditions set forth in the Sale Agreement and, without limitation, shall be used solely for the purposes set out in the Sale Agreement.

19. THIS COURT ORDERS that the Closing Funding Lender shall be entitled to the benefit of and is hereby granted a charge (the "Payables Charge") on the Property of the Applicants (including the entitlement of any Applicant to receive the Conditional Payments), which Payables Charge shall not secure an obligation that exists before this Order is made. The Closing Funding Charge shall have the priority set out in paragraph 22 hereof.

20. THIS COURT ORDERS that, notwithstanding any other provision of this Order:

000105 - 10 -

(a) the Purchaser may take such steps from time to time is it may deem necessary or appropriate to file, register, record or perfect the Paya 1es Charge; and

(b) upon the failure of the Applicants to comply with the obligations under the Sale Agreement as they relate to the Closing Funding finch ding the use and repayment thereof), the Purchaser, upon seven (7) days' notic to the Applicants and the Monitor, may exercise any and all of its rights and remedies against the Applicants or the Property under or pursuant to tl e Sale Agreement and the Payables Charge, including to apply for the appoint tient of a receiver, receiver and manager or interim receiver, or for a bankruptcy ( rder against the Applicants.

21. THIS COURT ORDERS AND DECLARES that the P ,rchaser shall be treated as unaffected in any plan of arrangement or compromise filed by any Applicant under the CCAA, or any proposal filed by any Applicant under the Bankruptcy and (isolvency Act (Canada) (the "RYA"), with respect to any advances of Closing Funding made und r the Sale Agreement.

22. THIS COURT ORDERS that the Payables Charge skill rank in priority to all Encumbrances (as defined in the Initial Order) other than the dministration Charge, the Directors' Priority Charge, the KERP Charge, and the DIP Lender' Charge, and the priority as among the Charges shall be as follows:

First --- Administration Charge (to the maximum amoi of $1,000,000);

Second— Directors' Priority Charge (to the maximun amount of $200,000);

'Ihird — KERP Charge (to the maximum amount of $ 00,000);

Fourth — DIP Lender's Charge;

Fifth — Payables Charge (to the maximum amount of 1,000,000); and

Sixth — Directors' Subordinate Charge (to the maxim rn amount of $250,000).

23. THIS COURT ORDERS that the filing, registration or perfection of the Payables Charge shall not be required, and that the Payables Charge shall be valid and enforceable for all purposes, including as against any right, title or interest filed, regi tered, recorded or perfected

000106 subsequent to the Payables Charge coming into existence, notwith. tanding any such failure to file, register, record or perfect.

24. THIS COURT ORDERS that except as otherwise express] provided for herein, or as may be approved by this Court, the Applicants shall not grant any I tictunbrances (as defined in the Initial Order) over any of their Property that rank in priority to, or pari passes with, the Payables Charge unless the Applicants also obtain the prior writ -en consent of the Closing Funding Lender and the beneficiaries of the Directors' Subordinate harge.

25. THIS COURT ORDERS that the Sale Agreement (as it pert ins to the Closing Funding) and the Payables Charge shall not be rendered invalid or imenf rceable and the rights and remedies of the Purchaser thereunder shall not otherwise be limitec or impaired in any way by (a) the pendency of these proceedings and the declarations of inso vency made herein; (b) any application(s) for bankmptcy order(s) issued pursuant to BIA, or ly bankruptcy order made pursuant to such applications; (c) the filing of any assignments for the general benefit of creditors made pursuant to the BIA; (d) the provisions of any federallior provincial statutes; or (e) any negative covenants, prohibitions or other similar provisions kith respect to borrowings, incurring debt or the creation of Encumbrances (as defined in the in tial Order), contained in any Agreement which binds any of the Applicants, and notwithstanding my provision to the contrary in any Agreement:

(a) neither the creation of the Payables Charge nor the e cution, delivery, perfection, registration or performance of the Sale Agreement hall create or be deemed to constitute a breach by any Applicant of any Agreenne it to which it is a party; and

(b) the Purchaser and the Closing Funding Lender sh ill have no liability to any Person whatsoever as a result of any breach of a y Agreement caused by or resulting from Wayland and Maricann entering into the Sale Agreement or the creation of the Payables Charge.

26. THIS COURT ORDERS that the Payables Charge ove leases of real property in Canada shall only be a Charge in the Applicants' interest in such real property leases.

000107 - 12 -

PRIORITY PAYMENTS

27. THIS COURT ORDERS AND DIRECTS that the Procec Is shall be distributed by the Monitor as soon as is practicable following the Effective Time thr iugh the following payments in the following order (collectively, the "Priority Payments"):

(a) First, an amount equal to $100,000 to the Monitor to establish the Post-Closing Reserve (as defined below);

(b) Second, to the beneficiaries of the Administration C large, on a pro rata basis, in satisfaction of the Applicants' obligations secured thereby up to the maximum amount secured by such charge and set out in Paragraph 22 hereof;

(c) Third, to the beneficiaries of the Directors' Priority C harge, on a pro rata basis, in satisfaction of the Applicants' obligations secure( thereby (if any) up to the maximum amount secured by such charge and set on in Paragraph 22 hereof;

(d) Fourth, to the beneficiaries of the KERP Charg , on a pro rata basis, in satisfaction of the Applicants' obligations secure thereby (if any) up to the maximum amount secured by such charge and set ou! in Paragraph 22 hereof;

(e) Fifth, to the DIP Lender in satisfaction of the DIP bligations (as defined in the Initial Order) secured by the DIP Lender's Charge;

(1) Sixth, to the Closing Funding Lender in satisfaction f the Applicants' obligations secured by the Payables Charge; and

(g) Seventh, to the beneficiaries of the Directors' Suboidinate Charge, on a pro rata basis, in satisfaction of the Applicants' obligations s cured thereby (if any) up to the maximum amount secured by such charge.

28. THIS COURT ORDERS that any remainder of the Proce cis following the payment in full of the Priority Payments shall be held by the Monitor pendin 7 further order of the Court, subject to paragraphs 29 and 30 of this Order.

000108 - 13-

POST-CLOSING RESERVE

29. THIS COURT ORDERS that the Monitor is hereby authorired and directed to establish a cash reserve (the "Post-Closing Reserve") from the Proceeds which shall be held in a segregated account and shall be used to pay costs and fees incu rred by the Monitor or the Applicants following the Effective Time in connection with completing these CCAA proceedings, including for greater certainty, (i) the fees and disbu sements of the Applicants' counsel, the Monitor, counsel to the Monitor, and other professional s engaged by the Applicants or the Monitor incurred following the Eflective Time, includi rug in the exercise of the Applicants' and Monitor's powers and duties pursuant to the C AA, the Initial Order, this Order, and any other Order granted in these proceedings, and (ii) any fees, expenses, or disbursements incurred in relation to any proceeding under the 111A in respect of any of the Applicants (collectively, the "Post-Closing Costs").

30. THIS COURT ORDERS that the Monitor is hereby author .red to pay any Post-Closing Costs in its own name or in the name of and on behalf of the Appli :ants, as it deems necessary, appropriate, or desirable, in its discretion.

RELEASES

31. THIS COURT ORDERS that effective upon the filing of lie Monitor's Certificate, (i) the current directors, officers, employees, legal counsel and Iidvisors of the Applicants (including, for certainty, Maricann), and (ii) the Monitor and its legal counsel (collectively, the "Released Parties") shall be deemed to be forever irrevocably relea Sad and discharged from any and all present and future claims (including, without limitations claims for contribution or indemnity), liabilities, indebtedness, demands, actions, causes of action, counterclaims, suits, damages, judgments, executions, recoupments, debts, sums of mono1,, expenses, accounts, liens, taxes, recoveries, and obligations of any nature or kind whatsoeve (whether direct or indirect, known or unknown, absolute or contingent, accrued or =accrue( , liquidated or =liquidated, matured or =matured or due or not yet due, in law or equity an whether based in statute or otherwise) based in whole or in part on any act or omission, ransaction, dealing or other occurrence existing or taking place prior to the filing of the Monito" s Certificate (a) undertaken or completed pursuant to the terms of this Order, or (b) arising in onnection with or relating to the SPA or the completion of the Transaction (collectively, the "Released Claims"), which

000109 - 14 -

Released Claims are hereby fully, finally, irrevocably and forever vs dived, discharged, released, cancelled and barred as against the Released Parties, provided that it( thing in this paragraph shall waive, discharge, release, cancel or bar any claim that is not pennitt d to be released pursuant to section 5.1(2) of the CCAA or that arose in or relates to the period prior to the granting of the Initial Order. For greater certainty, nothing in this paragraph 31: (i) a ects any claims against the directors and officers of any of the Applicants for breach of trust art'sing from acts or omissions occurring before the date of the Initial Order; or (ii) releases, fetters r prejudices: (a) the 'right of any person or entity to commence a claim against Wayland Grout Corp. or any directors and officers of Wayland Group Corp. with respect to the class action o the issues giving rise to the class action against Wayland Group Corp., including without lin nation for contribution and indemnity, or contractual indemnity (in each case subject to the stay 'of proceedings); and (b) the availability of any applicable insurance to satisfy such class action laims (including any future cross and third party claims).

32. THIS COURT ORDERS that, notwithstanding:

(a) the pendency of these proceedings;

(b) any applications for a bankruptcy order now or her after issued pursuant to the BIA in respect of the Applicants and any bankruptcy order issued pursuant to any such applications; and

(c) any assignment in bankruptcy made in respect of the pplicants; the Sale Agreement, the implementation of the Transactions (incl iding without limitation the transfer and vesting of the Excluded Assets, Excluded Contract an• Excluded Liabilities in and to Residual Co, the transfer and vesting of the Transferred Assets in and to Maricann, and the transfer and vesting of the Maricann Shares in and to the Purchaser , the payment of the Priority'

Payments, the granting of the Payables Charge, and any payment by or to the Purchaser, the Closing Funding Lender, the Applicants or the Monitor authorized i'erein shall he binding on any in bankruptcy that may be appointed in respect of the Appli ants and/or Residual Co and shall not be void or voidable by creditors of the Applicants or R Sidual Co, as applicable, nor shall they constitute nor be deemed to be a fraudulent prefers nce, assignment, fraudulent conveyance, transfer at undervalue, or other reviewable transaction under the CCAA, the BIA or

000110 - 15 - any other applicable federal or provincial legislation, nor shall ley constitute oppressive or unfairly prejudicial conduct pursuant to any applicable federal or pr vincial legislation.

GENERAL

33. THIS COURT ORDERS that, following the Effective 'ime, the Purchaser shall he authorized to take all steps as may be necessary to effect the lischarge of the Claims and Encumbrances as against the Maricann Shares and the Maricann Pr perty.

34. THIS COURT ORDERS that, following the Effecti 4 Time, the title of these proceedings is hereby changed to:

IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMEN ED

AND IN THE MATTER OF A PLAN OF COMPROMISE R ARRANGEMENT OF WAYLAND GROUP CORP., 2751 09 ONTARIO INC. AND NANOLEAF TECHNOLOGIES IN

35. THIS COURT DECLARES that this Order shall have full force and effect in all provinces and territories in Canada.

36. THIS COURT DECLARES that the Applicants shall be authorized to apply as they may consider necessary or desirable, with or without notice, to any other court or administrative body, whether in Canada, the United States of America or elsewh re, for orders which aid and complement this Order and, without limitation to the foregoing, an order under Chapter 15 of the U.S. Bankruptcy Code, for which the Monitor shall be the f reign representative of the Applicants. All courts and administrative bodies of all such jurisdi dons are hereby respectfully requested to make such orders and to provide such assistance to tit Monitor as may be deemed necessary or appropriate for that purpose.

37. THIS COURT IIEREBY REQUESTS the aid and reco,, iition of any court, tribunal, regulatory or administrative body having jurisdiction in Canada or in the United States to give effect to this Order and to assist: the Applicants, the Monitor ar (i their respective agents in carrying out the terms of this Order. All courts, tribunals, regulate y and administrative bodies are hereby respectfully requested to make such orders and to pr wide such assistance to the

000111 - 16 -

Applicants and the Monitor, as an officer of this Court, as may be necessary or desirable to give effect to this Order or to assist the Applicants, the Monitor and their respective agents in carrying out the terms of this Order.

38. THIS COURT ORDERS that this Order and all of its provisions are effective as of 12:01 a.m. Prevailing Eastern Time on the date hereof.

ENTERED AT / INSCRIT A TORONTO ON/BOOK NO: LE / DANS LE REGISTRE MD: APR 2 1 2020

PER/ PAW

000112 TAB 7

000113 Quest University Canada (Re), 2020 BCSC 1883, 2020 CarswellBC 3091 2020 BCSC 1883, 2020 CarswellBC 3091

2020 BCSC 1883 British Columbia Supreme Court

Quest University Canada (Re)

2020 CarswellBC 3091, 2020 BCSC 1883

In the Matter of the COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended

In the Matter of the SEA TO SKY UNIVERSITY ACT, S.B.C. 2002, c. 54

In the Matter of A PLAN OF COMPROMISE AND ARRANGEMENT OF QUEST UNIVERSITY CANADA (Petitioner)

Fitzpatrick J.

Heard: November 12-13, 16, 2020 Judgment: November 16, 2020 Written reasons: December 2, 2020 Docket: Vancouver S200586

Proceedings: leave to appeal refused Southern Star Developments Ltd. v. Quest University Canada (2020), 2020 CarswellBC 3252, 2020 BCCA 364, Harris J.A., In Chambers (B.C. C.A.)

Counsel: J.R. Sandrelli, V. Cross, for Petitioner V.L. Tickle, for Monitor PricewaterhouseCoopers Inc. P. Rubin, G. Umbach, for Primacorp Ventures Inc. K. Jackson, G. Nesbitt, for RCM Capital Management Ltd. and SESA-BC Holdings Ltd. P. Reardon, K. Strong, for Southern Star Developments Ltd. C.D. Brousson, for Vanchorverve Foundation D.V. Bateman, for Dana Hospitality LP D. Lawrenson, for Halladay Education Group K. Mak, for Capilano University J. D. West, for Landrex Ventures Inc. J. Sanders, S. Rogers, for Quest University Faculty Union K. Davies, for Bank of Montreal A. Welch, for Her Majesty The Queen In Right of Province of British Columbia and the Ministry of Advanced Education Skills and Training K.E. Siddall, for 1114586 B.C. Ltd. L. Hiebert, for Association for the Advancement of Scholarship

Subject: Insolvency; Public Headnote Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Arrangements — Approval by court — Miscellaneous Parties were involved in proceedings under Companies' Creditors Arrangement Act — Arrangement plan was approved, while approval of transaction and vesting order was adjourned — Creditor SS Ltd. formalized opposition to vesting order and brought application for order prohibiting debtor disclaiming certain subleases of university residences, which was required for transaction to proceed — Application dismissed; transaction approved — Certain lot on property of debtor was not subject to extant lease, and certain related charges were not intended to be registered until construction began — Jurisdiction existed under s. 11 of Act to approve transaction and to grant order sought by debtor to ensure that SS Ltd. did not assert any rights under lot

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000114 1 Quest University Canada (Re), 2020 BCSC 1883, 2020 CarswellBC 3091 2020 BCSC 1883, 2020 CarswellBC 3091 lease, and authority existed under s. 36(6) of Act that allowed Court to exercise its jurisdiction to vest off other restrictions — Balance of equities regarding creditor C university's charges including mortgage security on certain lots favoured vesting off C university's right of first refusal to allow transaction to proceed — Creditor L Inc. was not entitled to further time to present offer for debtor's assets in competition with transaction — L Inc. had been fully engaged in discussions for some length of time and was given opportunity to participate in sale and partner search process — L had executed purchase and sale agreement when debtor had already signed purchase and sale agreement as part of transaction, but L had not secured rights of exclusivity — Transaction involved significant other benefits to debtor than L Inc.'s offer in terms of debtor's future operations, and was better for shareholders — Any hardship to SS Inc. from disclaiming leases was not shown to be significant, as there was no clear indication how mitigation matters might resolve — Revisions to transaction by parties deleted conditions precedent requiring creditor and court approval of plan, so that only condition precedent that remained before closing was granting of transaction's reverse vesting order — Effect of transaction was to achieve what debtor originally sought by way of restructuring, namely, sale of certain assets to buyer and continuation as going concern as academic institution, in partnership with buyer — Transaction at issue was only transaction that had emerged to resolve financial affairs of debtor and no other options were available — SS Ltd. and other creditors were working actively against goals of Act by their opposition to transaction.

APPLICATION by creditor for order preventing disclamation of leases in proceedings under Companies' Creditors Arrangement Act.

Fitzpatrick J.:

INTRODUCTION

1 On November 3, 2020, the petitioner, Quest University Canada ("Quest"), applied for various orders in these Companies' Creditors Arrangement Act, R.S.C. 1985 c. C-36 ("CCAA") proceedings. Orders sought by Quest included approval of a sale transaction with Primacorp Ventures Inc. ("Primacorp") and orders necessary to facilitate that transaction, namely allowing Quest to implement a claims process and calling a meeting to consider its plan of arrangement.

2 On November 3, 2020, I granted the Claims Process Order and a Meeting Order to allow the creditors to consider Quest's plan of arrangement dated November 1, 2020 (the "Plan"). I also approved Quest's agreement to pay Primacorp a Break Up Fee and granted a charge to secure that amount: Quest University Canada (Re), 2020 BCSC 1845 (B.C. S.C.).

3 I adjourned Quest's application for a Transaction Approval and Vesting Order (TAVO) to approve the Primacorp transaction to these hearing dates to allow opposing parties to consider the matter further and prepare necessary materials.

4 Southern Star Developments Ltd. ("Southern Star") has since formalized its opposition to the granting of the TAVO. Indeed, its opposition has since increased in force because Quest and Primacorp have now changed the relief sought to approve the Primacopr transaction within the context of a "reverse vesting order" ("RVO"), as explained below. Southern Star also now applies for an order prohibiting Quest from disclaiming certain subleases, as is required in order for the Primacorp transaction to proceed.

5 In the meantime, other parties have joined in opposing the approval of the Primacorp transaction for a variety of reasons, including those advanced by Southern Star in relation to the RVO.

6 At the conclusion of this hearing, I granted the RVO and dismissed Southern Star's application, with written reasons to follow. These are my reasons for those orders.

BACKGROUND FACTS

7 This CCAA proceeding has been underway for almost ten months, after the granting of the Initial Order on January 16, 2020.

8 Since that time, the Court has extended the stay of proceedings a number of times, to allow Quest to undertake efforts to find a restructuring solution to its financial difficulties that would allow it to continue its educational endeavours. Many stakeholders

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000115 2 Quest University Canada (Re), 2020 BCSC 1883, 2020 CarswellBC 3091 2020 BCSC 1883, 2020 CarswellBC 3091 have been actively involved in these proceedings, including secured creditors who, collectively, will be owed approximately $30.7 million by the end of December 2020.

9 I have also approved interim financing to allow Quest to continue its operations while in this proceeding, with that debt now approaching $11 million.

10 Quest's assets include lands in Squamish, BC, being Lot 1, on which the campus is located (the "Campus Lands"), as well as the surrounding 38 acres (the "Development Lands".) Lot 1 is encumbered by various charges, liens, interests, mortgages and assignments of rent, including a mortgage held by Capilano University ("CapU"). In addition, CapU holds various rights of first refusal, including a right of first refusal to purchase, a right of first refusal to lease and rights of first refusal to acquire the charges of Quest's major secured creditor, Vanchorverve Foundation ("VF") (collectively, the "ROFR").

11 Quest is also the registered owner of five real property lots (Lots A-E), four of which are the sites of its university residences (on Lots A-D) (collectively, the "Residences").

12 One of the significant flashpoints in this proceeding has been, and continues to be, in relation to the Residences that Quest leases from Southern Star. After the Residences became vacant in March 2020 following the onset of the COVID-19 pandemic, Quest attempted to defer payment of the substantial lease payments owed to Southern Star. On June 19, 2020, I denied that relief: Quest University Canada (Re), 2020 BCSC 921 (B.C. S.C.) (the "Rent Deferral Reasons").

13 Quest's principal focus in these proceedings has been toward identifying a partner/investor to purchase its land assets and/or identifying an academic partner/investor that would permit Quest to continue as a post-secondary institution.

14 Since January 2020, Quest's Board of Governors and its Restructuring Committee have been working with a private educational consultant, Halladay Education Group Inc. to find a prospective academic partner. In addition, since March 2020, Quest has been working with Colliers Macaulay Nicolls Inc. to find prospective purchasers for Quest's real property assets.

15 There is no dispute that the sale and partner search process (SISP) has been extensive, as confirmed by the Monitor. Quest submits, and I accept that its management, the Restructuring Committee, and the Board analyzed all proposals based on a number of factors, including:

a) Creditor recovery from the purchase price or other consideration under the proposal;

b) That the proposal would result in a completed transaction;

c) That the proposal offered allowed for Quest's long-term continuation as a post-secondary academic institution; and

d) That the proposal would lead to the continuation of a school on Quest's lands that aligned with Quest's current vision and academic quality.

16 The SISP resulted in a number of academic and real estate organizations approaching Quest to express interest in pursuing a transaction. Quest engaged with a number of potential purchasers or partners from Canada, the United States and other countries. Some parties executed Non-Disclosure Agreements (NDAs) and Quest received numerous Letters of Intent (LOIs) and other proposals.

17 On May 28, 2020, this Court granted an extension of the stay of proceedings. At that time, Quest stated that there was a realistic potential of a transaction with the party identified as the "Academic Partner". Unfortunately, that transaction did not proceed.

18 On August 7, 2020, this Court granted a further extension of the stay of proceedings to December 24, 2020 to allow Quest to continue seeking proposals towards a transaction by that deadline and to allow Quest to offer the fall term to its students. Quest was still in discussions with various interested parties at that time. By then, Quest had received LOIs, including one from Primacorp (identified as "Academic Partner #2) as of July 29, 2020.

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000116 3 Quest University Canada (Re), 2020 BCSC 1883, 2020 CarswellBC 3091 2020 BCSC 1883, 2020 CarswellBC 3091

19 Since August 7, 2020, Quest and Primacorp have worked extensively to negotiate the definitive documents toward completing a transaction. On September 16, 2020, Quest and Primacorp executed a Purchase and Sale Agreement (the "Primacorp PSA").

20 The Primacorp transaction, as originally presented, provided for:

a) Sufficient funds to pay Quest's secured creditors' claims, including claims secured by the CCAA charges;

b) Funding for a plan of arrangement to be voted on by Quest's unsecured creditors;

c) Funds for these insolvency proceedings; and

d) A working capital facility, and marketing and recruiting support to permit Quest to become self-sustaining as a post- secondary institution.

21 The main and subsidiary agreements executed between Quest and Primacorp in September/October 2020 are complex. They were complete by October 28, 2020 and included, as defined in the Monitor's Fourth Report, the Primacorp PSA, the Campus Lease, an Operating Loan Agreement and an Operating Agreement. Significant terms included:

a) Primacorp will purchase substantially all of Quest's lands and related assets, including the Campus Lands, the Development Lands, the residence Lands (Lots A-E; four of which involve Southern Star's subleases), chattels and vehicles;

b) Primacorp will lease specific Campus Lands back to Quest under a long-term lease arrangement;

c) Primacorp will provide marketing and recruiting expertise to support Quest as a university;

d) The Purchase Price will satisfy all of Quest's secured lenders and any commissions on sales;

e) Primacorp will fund sufficient monies to pay the lesser of the Unsecured Creditor Claims and $1.35 million under Quest's Plan; and

f) Primacorp will provide Quest with a $20 million secured working capital facility to support its operations.

22 The Primacorp transaction was subject to a number of significant conditions:

a) Quest's disclaimer of the four Southern Star subleases of the Residences or an agreement with Southern Star. On October 23, 2020, Quest disclaimed those subleases;

b) Court approval of the Primacorp transaction including approval of a Break Up Fee and Break Up Fee Charge to secure Primacorp's costs. On November 3, 2020, I approved the Break Up Fee and granted a charge to secure this amount;

c) Creditor approval of Quest's Plan under the CCAA. On November 3, 2020, I granted the Meeting Order to allow Quest to present the Plan, after having completed a claims process under the Claims Process Order, also granted on that date; and

d) Court approval of the Plan under the CCAA.

23 On November 3, 2020, when Quest sought the TAVO (which was adjourned), Quest asserted that the Primacorp transaction was beneficial in many respects. Quest argued that it maximized the value of Quest's assets, offered the greatest benefit to stakeholders, had a high likelihood of completing, provided a recovery for secured and unsecured creditors, and had the highest likelihood that Quest will continue to operate within its current academic model.

24 The Monitor concurred. In its Fourth Report dated November 2, 2020, the Monitor referred to the fact that there were only two viable proposals, with Primacorp's offer being the superior one. The Monitor's Supplemental and Confidential Report dated November 2, 2020 (the "Confidential Report") is also before the Court, although filed under seal. That Confidential

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Report referred to four other proposals received by Quest that were "not currently at a stage such that they are capable of being accepted by Quest".

25 Quest and Primacorp both see the closing of the Primacorp transaction as very time sensitive. Pursuant to agreements with the Interim Lender, Quest was required to enter into a transaction by October 30, 2020 with an anticipated closing of November 30, 2020. The Interim Lender has since agreed to amend that requirement to extend the necessary closing date to December 24, 2020 in accordance with the Primacorp transaction.

26 In addition to satisfying increasing pressure to repay its secured creditors, Quest seeks to exit these CCAA proceedings as soon as possible to allow it to recruit and plan for the upcoming 2021/22 academic year. Finally, there are other more financially driven and critical concerns. The Interim Lender has indicated that it will not fund its loan past December 2020. Without funding of some sort, Quest has no liquidity or financial ability after that time to continue operations.

ISSUES

27 The paramount issue for consideration is, of course, whether the Court should approve the Primacorp transaction under s. 36 of the CCAA. A number of subsidiary issues also emerged at this hearing, as a result of submissions from various stakeholders:

a) Lot E: Southern Star objects to the TAVO (now RVO), as vesting off any interest it may have under an unregistered lease of Lot E;

b) ROFR: CapU objects to the sale to Primacorp, asserting that Quest is ignoring its rights under the ROFR that allows CapU to purchase/lease Quest's lands;

c) Other Offer: Landrex Ventures Inc. ("Landrex"), together with CapU, assert that they should be given further time to finalize their offer for Quest's assets;

d) Disclaimers: Southern Star, supported by its secured creditor, Bank of Montreal (BMO), applies for an order that the subleases of the Residences not be disclaimed by Quest; and

e) RVO: Southern Star and another unsecured creditor, Dana Hospitality LP ("Dana"), object to the TAVO (now RVO), as being inappropriate and unfair in the circumstances and contrary to the spirit of the CCAA.

28 I will address the subsidiary issues in the first instance, before turning to an overall assessment of the Primacorp transaction and whether the Court should approve that transaction.

Lot E

29 As I described in the Rent Deferral Reasons (at para. 62), Quest, Southern Star and other parties are involved in a complex suite of agreements concerning the Residences that were built some time ago.

30 Quest is the limited partner in a limited partnership agreement with Southern Star, who is the General Partner (GP). They formed the Southern Star Developments Limited Partnership (the "LP") to build the Residences. Quest, as the owner of Lots A-D, leases those lands under Ground Leases to Southern Star (as the GP of the LP). The ground leases are at a nominal rate. In turn, Southern Star (the GP), as landlord, and Quest, as tenant, entered into Subleases for the Residences, once they were built.

31 The initial arrangements between Quest and Southern Star anticipated that a fifth student residence would be built on Lot E, the lot adjacent to Lot D.

32 In September 2017, as part of those arrangements, Quest and Southern Star executed certain Land Title documents (Form C Charges) attaching a Ground Lease and a Sublease with respect to Lot E. When the parties executed the Form C Charges, the Ground Lease was incomplete in many respects; it did not include any legal description because Lot E was created after the execution of the Form C Charges; and, it did not specify the applicable dates of the 99-year term. Finally, the Schedules

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33 The parties delivered to Form C Charges to a law firm to be held in escrow pending the commencement of construction of the Lot E residence. Only recently, in response to this application, did a lawyer of the law firm complete the legal description for Lot E. Quest authorized this addition some time ago and I do not consider that matter as determinative of Southern Star's rights, if any, under the Lot E Ground Lease.

34 At present, Quest's title to Lot E remains clear of any registration relating to Southern Star's Ground Lease so there is no need for Quest to obtain a vesting order to remove it from the title. However, Quest and Primacorp seek an order that any claims that arise from the yet incomplete and unregistered Ground Lease on Lot E shall not attach to Quest's assets that are to be vested in Primacorp. They also seek an order permanently enjoining Southern Star from registering the Lot E Ground Lease against title to Lot E.

35 Southern Star objects to the RVO as vesting off any interest it may have in the unregistered Lot E Ground Lease, arguing:

a) This Court has no jurisdiction to do so under the CCAA. Southern Star argues that this is simply a disguised disclaimer of the Ground Lease that the CCAA expressly prohibits. Disclaimers are allowed pursuant to s. 32 of the CCAA, however, limits are imposed by s. 32(9)(d) which provides that disclaimers can not be made:

. . . in respect of real property or of an immovable if the company is the lessor.

b) If such jurisdiction exists under the CCAA, the relief sought is not fair and equitable in the circumstances.

36 I will begin by discussing the nature of any interest held by Southern Star in relation to the Lot E Ground Lease.

37 In my view, no "lease" per se is yet in existence and valid and enforceable between Quest and Southern Star. Although the parties executed the Form C Charges relating to the Lot E Ground Lease, Southern Star's principal, Michael Hutchison, acknowledges that they were not to be registered until construction had commenced. I conclude that the parties did not intend that the Ground Lease would be valid and effective between them until that time, in conjunction with the registration of the Sublease and the execution and registration of Southern Star's mortgage that would allow construction to begin.

38 Southern Star does not argue that it has acquired any legal or beneficial interest in Lot E. At its highest, I conclude that Southern Star's rights to Lot E are purely contractual; Quest agreed that it would grant the Lot E Ground Lease in the future and it would become effective upon certain conditions being satisfied — in essence, an agreement to agree. Those conditions included that Quest would decide to build a residence building on Lot E and that Southern Star would arrange financing to construct the building. In these circumstances, I readily conclude that this condition has not been satisfied and will never be satisfied by Quest given Quest's insolvency.

39 Further, even assuming that this is a "disguised" disclaimer, I conclude that Quest is not a "lessor" as that term is used in s. 32(9)(d) of the CCAA. Quest agreed that, if certain conditions were satisfied, it would become a "lessor" under the Ground Lease; however, that has not come to pass.

40 I conclude that I have the jurisdiction under s. 11 of the CCAA to grant the order sought by Quest to ensure that Southern Star does not assert any rights under the Lot E Ground Lease at a future date. In addition, I rely on s. 36(6) of the CCAA that allows the Court to exercise its jurisdiction to vest off "other restrictions".

41 The exercise of the Court's jurisdiction under s. 11 and 36 of the CCAA requires that the relief sought be "appropriate". This is in the sense that it accords with the statutory objectives of the CCAA, not only in terms of what the order will achieve, but the means by which it employs to that end: Ted Leroy Trucking Ltd., Re, 2010 SCC 60 (S.C.C.) [hereinafter Century Services] at para. 70.

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42 In this respect, the parties have advanced arguments as to equitable considerations in terms of whether such relief is appropriate in the circumstances, while taking into account the respective positions of the parties. While in the receivership context, Quest has referred to various authorities that discuss the balancing of interests in similar situations where leases (in these cases effective and enforceable) were vested off title: Meridian Credit Union Ltd. v. 984 Bay Street Inc., [2006] O.J. No. 3169 (Ont. S.C.J.) at paras. 19-23, citing New Skeena Forest Products Inc. v. Kitwanga Lumber Co., 2005 BCCA 154 (B.C. C.A.); Romspen Investment Corp. v. Woods Property Development Inc., 2011 ONSC 3648 (Ont. S.C.J.) at para. 66; rev'd other grounds Romspen Investment Corp. v. Woods Property Development Inc., 2011 ONCA 817 (Ont. C.A.) at para. 25.

43 Southern Star argues that the equities favour it, not Quest, in these circumstances.

44 Southern Star contends that neither Quest nor Primacorp have made any attempt to negotiate with it concerning its interest in Lot E. I would not accede to this argument. While the negotiations between Quest, Primacorp and Southern Star were not fruitful, it remains the case that Quest has made good faith efforts to address Southern Star's interests, although its ability in that respect were hampered by Primacorp's willingness to accommodate those interests.

45 Southern Star also argues that it will be prejudiced if its contractual right is vested off in that Quest and Primacorp are not offering compensation for the loss of that interest. Southern Star focusses on what it says is the "status quo", arguing that it has the "right" to build a residence on Lot E. However, any such "right" is illusory at best, since Quest has no present ability to occupy the Residences, let alone the financial capability to participate in the construction of a fifth one on Lot E. Nor is there any realistic prospect that Quest will be in a position to do so in the future.

46 Southern Star's argument in relation to Lot E is an attempt to gain leverage more than anything else. If Southern Star's argument succeeds and the relief sought is refused, Southern Star would be in the same position — facing a sale of Lot E and a likely order vesting off any rights or interests it may have. It is a condition of the Primacorp transaction that Lot E be transferred to it without any further involvement with Southern Star. Without an order rejecting Southern Star's claim in respect of the escrowed Ground Lease on Lot E, the likely result would be the end of these proceedings and the commencement of realization proceedings by the Interim Lender and other secured creditors.

47 The Ground Lease is not effective and enforceable; the Ground Lease is not registered on title to Lot E. Given the circumstances, Quest has no ability to build a residence on Lot E and there is no reasonable prospect of that happening, given its insolvency and the need to dispose of its assets, including Lot E.

48 While I acknowledge the negative impact on Southern Star arising from this relief, that impact must be balanced in the context of Quest's restructuring efforts in this proceeding. Those efforts are intended to address not only Southern Star's interests, but also the myriad interests held by other stakeholders. The sale of Lot E to Primacorp will allow Quest to realize on its interest in Lot E to the benefit of the stakeholders as a whole.

49 I conclude that the relief sought by Quest in the RVO in relation to Lot E is appropriate and it is granted.

CapU ROFR

50 Lot 1 and Lots A-E are subject to various charges in favour of CapU.

51 In March 2019, Quest granted mortgage security in favour of CapU in connection with a loan made to Quest. As part of these agreements, in April 2019, Quest also granted the ROFR in favour of CapU. CapU registered the ROFR against these lands. Under the Primacorp transaction, Quest is required to obtain title to Lot 1 and Lots A-E without reference to the ROFR.

52 Pursuant to s. 9 of the Property Law Act, R.S.B.C. 1996, c. 377, a right of first refusal to land is an equitable interest in land.

53 CapU has referred to two non-CCAA cases that discuss ROFRs generally.

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54 In Adesa Auctions of Canada Corp. v. Southern Railway of British Columbia Ltd., 2001 BCSC 1421 (B.C. S.C.) at paras. 26-30, the Court found that the contractual terms were to be strictly enforced and that the rights under the ROFR could not be defeated or circumvented by an offer that included other lands not covered by the ROFR. To similar effect, Alim Holdings Ltd. v. Tom Howe Holdings Ltd., 2016 BCCA 84 (B.C. C.A.) at para. 41 states, following Adesa, that a ROFR will be triggered by a package sale that includes the subject property, subject to contrary language in the ROFR.

55 It is common ground, however, that different considerations may also apply in the CCAA context. Having said that, there is little case authority on the ability of a court in CCAA proceedings to vest off a ROFR, whether triggered or not.

56 In "Rights of First Refusal and Options to Purchase in Insolvency Proceedings" (2019) 8 J.I.I.C. 103 (the "ROFR Article"), the authors Virginie Gauthier, David Sieradzki and Hugo Margoc extensively review the issue, including in relation to Options to Purchase (OTPs). At 106, the authors state:

. . . Section 11 of the CCAA grants courts the right to "make any order that it considers appropriate in the circumstances" except as limited by the CCAA. As such, the CCAA court is well equipped to approve the sale of an OTP- or ROFR- encumbered asset to a party other than the rights-holder and without having first complied with the restrictive covenants if the transaction is in the best interests of the creditors at large, provided that the interest of the OTP or ROFR-holders is taken into account. The court will consider, inter alia, the monitor's views on these issues before making any such approvals.

57 At 118-119, the authors conclude that:

While jurisprudence on this matter is not conclusive, it appears that a CCAA court would likely only vest out a valid and unexpired OTP that runs with the land in exceptional circumstances such as in the context of a going-concern restructuring where obtaining the highest possible price for the encumbered asset is paramount to support the restructuring efforts of the debtor company, and where the OTP rights-holders are also creditors in the proceeding and could seek compensation for any loss incurred due to the removal of the OTP right.

. . .

In summary, common law CCAA courts may vest out valid or unexpired ROFRs and OPTs in a case where the equities favour such an order or on consent.

58 Quest has referred to Bear Hills Pork Producers Ltd., Re, 2004 SKQB 213 (Sask. Q.B.), additional reasons 2004 SKQB 216 (Sask. Q.B.). In that CCAA proceeding, the debtors sought approval of a sale of bundled assets relating to a hog farm, in the face of a ROFR that applied to the land only. Justice Kyle referred to the overall security affecting the assets; the court also commented that a withdrawal of the lands from the sale would not allow the proposed sale to complete, leading possibly to a liquidation (at paras. 4-5).

59 However, in Bear Hills, Kyle J. relied on authorities that have since been questioned in Alim Holdings (see paras. 38-41). Justice Kyle's conclusion at para. 10 that the ROFR was not triggered runs contrary to the court's conclusion in Alim Holdings at para. 41.

60 I have no doubt that courts across Canada have vested off ROFRs in the context of assets sales approved in CCAA proceedings. For example, Quest refers to Arctic Glacier Income Fund, Re, [2012] M.J. No. 451 (Man. Q.B.) where a ROFR was vested off title, although the circumstances under which that CCAA relief was granted is not clear.

61 Similarly, in Great Slave Helicopters Ltd. v. Gwichin Development Corp. (November 23, 2018), Doc. CV-18-604434-00CL (Ont. S.C.J.), Justice Hainey's endorsement directed that a purchaser of aggregated assets in a CCAA proceeding provide certain information to the holder of the ROFR with respect to the purchase price allocation. The ROFR Article, which discusses the circumstances before the court in Great Slave Helicopters at 108-109, indicates that the issue of the exercise of the ROFR was ultimately resolved consensually.

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62 Fortunately, in this case, there is no dispute concerning the Court's jurisdiction to address CapU's rights arising under the ROFR. Both Quest and CapU agree that the Court has jurisdiction under the CCAA to vest off the ROFR, subject to a consideration of the equities as between the parties.

63 For the following reasons, I conclude that a balancing of the equities favours vesting off CapU's ROFR to allow the Primacorp transaction to proceed:

a) Since January 2020, Quest has been pursuing a going concern restructuring that will permit it to remain as a university and employer in the Squamish area. CapU has been involved in this proceeding from the outset and was well aware of the opportunity to participate in that pursuit;

b) There is a significant issue as to whether the ROFR has even been triggered by delivery of the Primacorp PSA. The definition provided in the ROFR of "Bona Fide Offer to Purchase" means, in part, an offer that is:

(iii) only for the entirety of the Property [the lands] and all chattels thereto and no other property, rights or assets

[Emphasis added.]

The definition of "Purchased Assets" in the Primacorp PSA is broad and refers not only to lands and chattels, but a variety of other assets (for example, contracts, plans, permits, vehicles and intellectual property). This express language is what the court in Alim Holdings, at para. 41, described could indicate an intention that any such aggregated offer would not trigger the ROFR;

c) The term of the ROFR expires in March 2024. The ROFR appears to contemplate that, even if CapU does not exercise the ROFR, the purchaser of the lands must still agree to grant CapU a ROFR on the same terms. Similarly, "change of control" provisions are potentially effective that would allow CapU to later acquire control of Quest in place of anyone else. This would frustrate Primacorp's expectation under the Primacorp PSA that it would have the right to nominate the board of governors for Quest after closing;

Primacorp does not agree to assume these restrictions. In addition, every other offer for Quest's assets required that the ROFR be vested off title to the lands. It is difficult to see that any purchaser would agree to take title to purchased assets with such significant restrictions. If the ROFR is effective, this would give rise to a severe "chilling effect" on the market, with potentially disastrous results for Quest's restructuring efforts;

d) The 60-day period within which CapU is entitled to consider any "Bona Fide Offer to Purchase" is simply unworkable in these circumstances. This is not a matter of expediency, without regard to any rights held by CapU. Quest will have no funds to continue its operations past December 2020 and, if realizations by the secured creditors ensue, CapU's ROFR rights will be illusory at best;

e) CapU complains that it received the redacted Primacorp PSA only recently, on October 29, 2020. CapU then requested an unredacted copy, which Quest agreed to do upon CapU executing an NDA. CapU refused to sign the NDA, stating that it would hamper its ability to participate in its own offer. Again, CapU has had months to formulate its own offer;

f) Quest asserts that CapU has no intention to or ability to make its own offer for all of Quest's assets in competition to the Primacorp transaction. CapU has not put forward any evidence at this hearing to confirm such intention or ability. Similarly, there is no evidence that CapU truly wishes to or is able to exercise any rights under the ROFR to purchase Quest's lands and chattels;

g) I consider that the evidence conclusively supports that CapU advances its arguments under the ROFR simply as a tactic to oppose the Primacorp transaction and delay the matter so that it and Landrex can seek to advance their own joint competing offer;

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h) As I will discuss below, the terms of the joint Landrex/CapU proposal is only semi-formed at this point and Quest has indicated that some major terms are not acceptable. As such, it is highly questionable that this joint offer is, as CapU asserts, a "better, higher offer";

i) I conclude that Quest has given proper regard to and has not ignored CapU's rights under the ROFR in the context of these proceedings. CapU has had sufficient information even from the redacted Primacorp PSA to discern the substance of the Primacorp transaction in terms of advancing any competing offer or exercising the ROFR;

j) Given the above circumstances, including CapU's involvement in Quest's lengthy efforts to restructure, I cannot conclude that CapU will suffer significant prejudice if the ROFR is vested off. Quest has indicated that CapU will have the opportunity to file a proof of claim in respect of any loss alleged to arise because of the vesting off of the ROFR. Of course, the value of any such claim would be questionable unless CapU can establish that its rights were triggered by the Primacorp transaction and that it had the ability to complete under the ROFR; and

k) The Monitor supports the Primacorp sale, as maximizing the value of Quest's assets for the stakeholders and allowing a successful restructuring of Quest's business.

64 If CapU has rights under the ROFR, allowing CapU to assert those rights would delay the Primacorp sale and potentially negate it, all with potentially devastating effect on the broader stakeholder group. The Primacorp sale is the only sale that is before the Court that would result in a restructuring of Quest for the benefit of the stakeholders. Clearly, within that context, the rights of all affected stakeholders must be balanced in respect of any rights held by CapU.

65 In Bear Hills, similar considerations were before the court. The Saskatchewan Court of Queen's Bench approved a bundled sale of assets, without first requiring compliance with a ROFR. In part, the prospective purchaser would only consider purchasing the complete bundle of properties for an aggregate purchase price and did not allocate value on a property-by-property basis.

66 As I have sought to do here, the court in Bear Hills (at para. 9) was attuned to the overarching and remedial statutory purpose and objective of the CCAA to avoid the "social and economic losses resulting from liquidation of an insolvent company": Century Services at para. 70 and 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10 (S.C.C.) at paras. 40-41. This objective is not to be achieved simply in the most expedient manner and without due regard to interests of stakeholders that are affected in that process. As the Court further stated in Century Services at para. 70, any restructuring is best achieved when "all stakeholders are treated as advantageously and fairly as the circumstances permit".

67 I am satisfied that it is appropriate, in the context of the Primacorp transaction, to vest off the ROFR held by CapU. In that regard, I have also considered the factors set out in s. 36(3) of the CCAA in terms of assessing any rights of CapU under the ROFR in that context.

Landrex / CapU Offer

68 Landrex, supported by CapU, opposes approval of the Primacorp transaction. Landrex argues that they should be given further time to present an offer for Quest's assets in competition with the Primacorp transaction.

69 As with CapU, Landrex has been fully engaged in discussions with Quest for some time now, having been alerted to the possibility of a transaction as long ago as fall 2019. Landrex's interest in Quest has always been in conjunction with securing an academic partner, namely, CapU.

70 In June 2020, Landrex and Quest entered into an agreement for a sale; however, the conditions lapsed.

71 On October 8, 2020, Landrex and Quest executed a further purchase and sale agreement (the "Landrex PSA") providing for a purchase price of $51 million for most of Quest's assets (Lot 1 only and excluding Lots A-E: obviating any need for disclaimers of the Southern Star Subleases or vesting off any of Southern Star's rights under the Lot E Ground Lease). The closing date under the Landrex PSA is December 23, 2020.

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72 By the start of this hearing, significant conditions precedent in respect of the Landrex PSA were still outstanding. Those included the financing condition in favour of Landrex and the mutual condition by which "another party" (CapU) was to have secured a sublease with Quest after Landrex had granted CapU a lease in the first instance.

73 Landrex suggests that Quest is contractually bound to honour the Landrex PSA by allowing it further time to remove the conditions precedent, citing the good faith organizing principle discussed in Bhasin v. Hrynew, 2014 SCC 71 (S.C.C.). Further, Landrex argues that Quest has a duty to take all reasonable steps to satisfy the conditions precedent: Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072 (S.C.C.).

74 Further discussions and negotiations continued between Landrex and Quest beyond October 8, 2020; however, matters under the Landrex PSA were not advanced.

75 By late October 2020, Quest was under significant pressure, if not a legal requirement from the Interim Lender, to conclude a transaction. At that time, only two potentially viable proposals were on the table, one being from Primacorp. As above, where the Monitor noted in its Confidential Report that other proposals were "not currently at a stage such that they are capable of being accepted by Quest", those "other proposals" included the Landrex PSA.

76 By the time the Landrex PSA was executed on October 8, 2020, Landrex was not aware that Quest had already signed the Primacorp PSA. However, I agree with Quest's counsel that Landrex had not secured any rights of exclusivity in terms of advancing its offer. The Landrex PSA provided:

20.2 Notwithstanding anything else contained herein, Landrex acknowledges and agrees that, following from date of the acceptance of this Offer by the Vendor until the date that the Vendor waives or declares satisfied the Vendor's Condition, the Vendor will be authorized to negotiate with or offer the Property for sale to any third party (including the entering into of any agreement by the Vendor with any third party) . . .

77 Under the Landrex PSA, Quest's Vendor's Condition was approval from its Board of Governors. Quest never obtained that approval because Quest's Board of Governors did not agree to certain deal terms under the Landrex PSA.

78 By October 29, 2020, Landrex would have been fully aware that its offer was not going to be advanced by Quest any further since, by then, Quest had chosen Primacorp.

79 On November 2, 2020, Landrex made a further offer for $53.5 million. The only other significant change to their offer was to describe the requirement for a lease/sublease arrangement between Landrex, "another party" (intended to be CapU) and Quest as Landrex's condition precedent, not a mutual condition precedent. Quest did not accept this offer.

80 In any event, by that time, Landrex's financing condition was far from being satisfied. On November 9, 2020, TD Asset Management ("TD"), Landrex's lender, provided a letter simply stating that it was continuing to work with Landrex and CapU to provide that financing.

81 I acknowledge that, since the initial hearing date of November 3, 2020, Landrex has moved to finalize its offer but it has only done so to some extent.

82 On November 13, 2020, Landrex secured a letter from TD that referred to a term sheet being in place after a final financing structure was negotiated (no documents were disclosed). However, TD's commitment is clearly conditional upon CapU's board approving the lease between Landrex and CapU at a meeting that is not scheduled to take place until November 24, 2020. There is no evidence as to what those lease terms are and whether there is a reasonable likelihood that CapU's board will approve it. Further, this whole arrangement continues to hinge on a negotiated sublease between CapU and Quest, which is not in place.

83 On November 16, 2020, Landrex's counsel advised of yet further developments: (i) removal of its financing condition; (ii) an LOI with Southern Star by which it would take over the Residences but not require disclaimer of the Subleases; and, (iii) agreement with CapU to remove the ROFR.

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84 Despite these developments, Quest advised that it was still not agreeable to the terms of the Landrex transaction. In addition, the Monitor continues to support approval of the Primacorp transaction, noting the uncertainty and potential delay of CapU obtaining ministerial approval to allow its participation in the Landrex transaction.

85 The s. 36(3) factors continue to provide a useful structure for consideration of the Landrex transaction, and these late breaking developments.

86 I am satisfied that Landrex was given a reasonable opportunity to participate in the SISP and that it has been aware of this opportunity for many months, even before it officially began. The fact that the cash consideration under the Landrex transaction exceeds that of Primacorp is deserving of consideration. However, other considerations arise, including that the Primacorp transaction involves significant other benefits to Quest in terms of its future operations, including the working capital facility of $20 million.

87 Both Quest and the Monitor continue to be of the view that the Primacorp transaction is more beneficial to the creditors. I agree with this, particularly considering the continuing uncertainty and risk associated with the Landrex/CapU transaction that is yet to be resolved, leaving aside that Quest has unequivocally stated that it has no intention to pursue it. Even if the further negotiations required under the Landrex sale were advanced in an expeditious manner, it seems unlikely to be finalized by the end of the year. To the contrary, the Primacorp transaction has been finalized after weeks of complex negotiations and Quest and Primacorp are ready to close without further delay. I agree that time is of the essence at this stage of the proceedings, for the reasons already noted above.

88 In the overall circumstances here, I see no reason to delay, if not risk, the "bird in hand" transaction that arose through a reasonable sales process, in the hope that a more uncertain transaction may be finalized, such as with Landrex.

Southern Star Disclaimers

89 On October 23, 2020, and with the approval of the Monitor, Quest issued notices of disclaimer (the "Disclaimers") to Southern Star relating to the Subleases on Lots A-D by which Southern Star leases those lands and the Residences to Quest.

90 A condition precedent of the Primacorp transaction is that either Quest will disclaim the Subleases or Primacorp will have entered into an agreement with Southern Star to its satisfaction. The evidence discloses that negotiations did take place between the parties but they did not reach a mutually acceptable agreement.

91 Quest's rent payments to Southern Star under the Subleases for the Residences on Lots A-D total approximately $236,218 per month.

92 Very recently, on November 15, 2020, before the conclusion of this hearing, Quest voluntarily withdrew the Disclaimers with respect to Lots A-B. Accordingly, failing an agreement between Primacorp and Southern Star, it remains a condition of the Primacorp transaction that Quest's Disclaimers of the Subleases in relation to Lots C-D be upheld.

93 The Ground Leases are registered against Lots A-D. BMO's security is registered against Southern Star's interest under the Ground Leases; in addition, Fivestone Capital Corp. ("Fivestone"), a company controlled by Mr. Hutchison, has registered security against the Grounds Leases. Quest does not seek any relief in respect of the Ground Leases; unlike Lot E, those documents are fully effective and enforceable and have been the basis upon which the parties have developed those properties.

94 What remains to be addressed is Southern Star's application pursuant to s. 32(2) of the CCAA, supported by BMO, for an order disallowing any disclaimer by Quest of the Subleases of the Residences on Lots C-D. Section 32(4) of the CCAA lists various non-exhaustive factors that the court is to consider in relation to disputes over disclaimers:

In deciding whether to make the order, the court is to consider, among other things,

(a) whether the monitor approved the proposed disclaimer or resiliation;

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(b) whether the disclaimer or resiliation would enhance the prospects of a viable compromise or arrangement being made in respect of the company; and

(c) whether the disclaimer or resiliation would likely cause significant financial hardship to a party to the agreement.

95 In League Assets Corp., Re, 2016 BCSC 2262 (B.C. S.C.), I discussed the significance of disclaimers in CCAA proceedings, both from the point of view of the counterparty and that of the entire stakeholder group:

[49] These CCAA provisions are not inconsequential in the face of this type of proceedings. At this point, the matter is no longer between the debtor company and a counterparty. There are other stakeholders involved and the statutory provisions, and the provisions of court orders such as the Initial Order, are meant to protect the stakeholder group as a whole, while also allowing a certain amount of flexibility for the debtor company. A disclaimer of a contract has consequences not only to the debtor company, but the estate generally. Such an action can substantially increase the debt being faced by the estate or divest the debtor of a substantial benefit that might be realized for the benefit of the creditors. It is in that context that the CCAA requires that certain procedures be followed by the debtor company, with the necessary oversight by the Court's officer, the Monitor, as to whether any disclaimer will be approved or not.

96 The factor under s. 32(4)(b) of the CCAA as to enhancing the prospects of a viable restructuring applies equally in respect of disclaimers in the context of a sales process by which the business is to continue as a going concern: Timminco Ltd., Re, 2012 ONSC 4471 (Ont. S.C.J. [Commercial List]) at paras. 51-52 and Aveos Fleet Performance Inc./Aveos Fleet performance aéronautique inc., Re, 2012 QCCS 6796 (C.S. Que.) at paras. 48-50. In addition, the disclaimer need not be proven as "essential", only "advantageous and beneficial": Timminco at para. 54.

97 Quest asserts that the Disclaimers are necessary to pursue and complete the Primacorp transaction, which it considers the best possible outcome for Quest and its stakeholders, including students, faculty, staff, secured and unsecured creditors, suppliers and vendors. In its letter dated October 28, 2020 to Southern Star, Quest also refers to its liquidity crisis and that amounts owing to its secured creditors became due some time ago.

98 In its Fourth Report dated November 2, 2020, the Monitor confirmed its approval of the Disclaimers, based on:

2.8.1 The residences are not currently being used by Quest (other than two units being used by staff members and some limited use by a film crew recently) given on-line learning format being employed as a result of COVID 19;

2.8.2 It is a term of the Primacorp Agreement that the subleases be disclaimed; and,

2.8.3 The Monitor noted that the two most promising alternative parties in discussions with Quest also required the Southern Star subleases to be disclaimed.

99 Southern Star advances a number of arguments in relation to the Disclaimers.

100 Firstly, it argues that the Disclaimers will not result in a viable compromise or arrangement. Southern Star argues that there is no indication that Quest and Primacorp do not wish to continue to have the Residences as part of the student experience for those attending Quest.

101 I agree that, in the Rent Deferral Reasons, many of my comments (at paras. 23-26, 90) were confirmatory of the importance of the Residences to Quest in respect of its future operations. However, that was then and this is now. The pandemic continues in full force and Quest is necessarily required to make decisions in the face of current circumstances. I agree that it is likely that Quest will seek to continue the student residence experience once the pandemic has receded, however, when that might happen is anyone's guess.

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102 In the meantime, Quest, under the Primacorp transaction, must make decisions as to its financial capabilities going forward. Maintaining two empty Residences with accompanying rent payments is, on its face, not a reasonable business decision in the circumstances. It was Primacorp, an arms length purchaser, who has imposed this condition.

103 Further, the Monitor agrees with Quest that the Disclaimers are necessary to enhance the prospects of Quest making a viable compromise or arrangement in these proceedings. There is no reason to question the Monitor's view as it is apparent that the Monitor has considered all relevant matters.

104 I agree that the Disclaimers will enhance the prospects of Quest making a viable compromise or arrangement. The Monitor overwhelmingly agrees after a consideration of all the circumstances including those particularly faced by Southern Star as a result.

105 Secondly, Southern Star argues that Quest delivered the Disclaimers simply to secure a bargaining advantage for Quest and Primacorp toward a re-visitation of the rent deferral issue or to attempt to reduce the rent. I agree that there is some indication that Quest and Primacorp had that in mind; however, that is often the reality that arises after a debtor concludes that it is no longer viable to abide by those contractual commitments and that a disclaimer is appropriate. If it were possible to come to an amicable resolution with Southern Star in the context of the Primacorp transaction, I expect Quest would have done so.

106 Southern Star refers to the statements in Allarco Entertainment Inc., Re, 2009 ABQB 503 (Alta. Q.B.) at para. 59, where Justice Veit considered whether certain contracts should be terminated. She was attuned to whether the termination was fair, appropriate and reasonable and whether it arose after good faith negotiations. In this case, there is no evidence to suggest that the parties did not approach the negotiations in good faith. Clearly, it is not my role on this application to assess the reasonableness of the respective positions of Quest, Primacorp and Southern Star in those negotiations. It does appear, however, that Quest and Primacorp have moved toward a middle ground by the withdrawal of the Disclaimers in relation to Lots A-B.

107 Thirdly, Southern Star places great emphasis on what it says will be the significant hardship it will suffer if the Disclaimers are upheld. Southern Star says that it has spent approximately $41.7 million to construct the Residences.

108 The monthly mortgage payments to BMO and Fivestone are approximately $220,000. The outstanding balance of the BMO loan facility is $34.4 million. Mr. Hutchison indicates that, without payment of rent by Quest, Southern Star will not be able to make its mortgage payments to BMO. In that event, BMO will be in a position to foreclose on the Ground Leases. Mr. Hutchison has guaranteed the BMO debt, as has another of Mr. Hutchison's companies.

109 As noted by Quest, any financial consequences to Southern Star will largely depend on what mitigating measures are undertaken. Those could include a re-letting of the Residences or a sale of its interests under the Ground Leases. At present, with no clear indication as to how those matters might evolve, I am unable to conclude with certainty that any hardship suffered by Southern Star would be "significant".

110 Regardless of any hardship faced by Southern Star, the reality is that Quest has only one viable means by which to advance the restructuring at this time — the Primacorp transaction. Within the confines of that transaction, Primacorp sees no merit in maintaining the Subleases on these two Residences. Apparently, no other interested party expressed an interest in maintaining the Subleases besides Landrex. In light of Landrex's submissions at the conclusion of this hearing on November 16, 2020, I have considered that the Landrex/CapU transaction may have presented a more palatable resolution of the Subleases given the recent LOI between Landrex and Southern Star. However, I conclude that delaying the Primacorp sale, on the prospect that the Landrex/CapU transaction will come about, is not a viable option for the reasons discussed above.

111 I agree that this decision will visit hardship, even arguably significant hardship, upon Southern Star. However, it is difficult to see that preventing delivery of the Disclaimers would avoid that result in any event. If the Primacorp transaction does not proceed, there is no transaction and Quest has no financial means to continue past December 2020. The Interim Lender has indicated that it will not advance funds to Quest beyond that date, and specifically, that it has no interest in funding continued rent payments to Southern Star.

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112 In that event, Southern Star will be in the same position post December 2020, with Quest unable to pay the rent for the Residences at that time: see Target Canada Co., Re, 2015 ONSC 1028 (Ont. S.C.J.) at paras. 27-28.

113 As the court noted in Target Canada at paras. 24-25, the court must give due consideration to the stakeholder group as a whole in assessing whether the Disclaimers are fair and reasonable: Doman Industries Ltd., Re, 2004 BCSC 733 (B.C. S.C.) at para. 33. The price of setting aside the Disclaimers is that the Primacorp transaction will not proceed and a receivership at the behest of the Interim Lender will likely follow. In my view, this is not in the best interests of that larger stakeholder group which, in my view, has primacy here even in the face of the hardship and prejudice caused to Southern Star.

114 I dismiss Southern Star's application for order that the Subleases of the Residences on Lots C-D not be disclaimed by Quest.

RVO

115 At the November 3, 2020 hearing, when Quest originally sought the TAVO, Quest was seeking to uphold the Disclaimers of the Subleases. At that time, Southern Star's evidence and submissions were to the effect that, if the Court upheld the Disclaimers, it would have a substantial unsecured claim against the estate. As indicated above, the amount of any claim that Southern Star might advance in the estate is far from clear, given possible mitigation, although there is potential for a significant claim.

116 This position did not come as a surprise to Quest; however, it appears that Quest did not appreciate the potential magnitude of Southern Star's claim. More importantly, Quest has not fully appreciated that a very unhappy claimant — Southern Star under the Disclaimers — was not likely to vote in favour of the Plan and that the value of its claim could swamp the class votes to prevent any approval by the creditors. Again, creditor approval of the Plan is a requirement of the Primacorp Transaction.

117 In early November 2020, known unsecured creditor's claims were estimated at approximately $2.3 million. "Restructuring Claims" (which will include any claim of Southern Star under the Disclaimers) were yet unknown.

118 Initially, Primacorp agreed to fund Quest's Plan in the amount of the lesser of 50% of the claims or $1.35 million. The Monitor now states that there is a "high probability" that Southern Star's claim will be large enough such that Southern Star will control the value of the votes at the creditors meeting. Other major unsecured creditor claims have also since emerged, being that of Dana (estimated $1 million) and the Association for the Advancement of Scholarship (estimated $5 million).

119 As the Monitor notes, any of these claims could effectively veto the Plan.

120 Quest and Primacorp were then facing a dilemma. They determined that, while they might succeed on the Disclaimer issue, they could not likely obtain approval of the Plan, a further requirement of the Primacorp PSA, if Southern Star carried through with its suggested negative vote. While Quest could raise arguments in relation to the value of any claim advanced by Southern Star, uncertain and lengthy litigation would likely result; even if Quest was successful, it would be too late to factor into this restructuring.

121 Quest, with Primacorp's approval, solved this dilemma by revising the TAVO to an RVO. In addition, the Primacorp PSA was amended to delete the conditions precedent requiring creditor and court approval of the Plan. Accordingly, the only condition precedent that remains before closing of the Primacorp transaction is the granting of the RVO.

122 The Monitor supports this change as necessary in the circumstances in order to allow Quest to complete the Primacorp transaction. The Monitor supports the granting of the RVO.

123 In its Fifth Report dated November 10, 2020, the Monitor describes the characteristics of the new structure and steps under the RVO, which involves Quest's subsidiary, Guardian Properties Ltd. ("Guardian"):

RVO Structure & Impact

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2.6 The RVO provides for the following to occur in sequential order on the closing of the Primacorp Transaction:

2.6.1 A wholly owned subsidiary of Quest, Quest Guardian Properties Ltd. ("Guardian") shall be added as a Petitioner in these CCAA proceedings. Guardian was incorporated on January 25, 2018 and has never carried on any business and has never held any assets or liabilities;

2.6.2 All of Quest's right, title and interest in and to the Excluded Assets (as defined in the Primacorp PSA and the RVO) shall be transferred to and vested in Guardian;

2.6.3 All Contracts (other than Approved Contracts), Claims and Liabilities of Quest shall be transferred to Guardian and Quest shall be released from and in respect of all obligations in respect of such Contracts, Claims and Liabilities;

2.6.4 Primacorp will pay the Purchase Price to the Monitor to the extent of the Secured Charges and all the Secured Claims and the Secured Charges shall be extinguished and cancelled. The Purchase Price will stand in the place of the Purchased Assets;

2.6.5 All of Quests right, title and interest in the Purchased Assets shall vest in Primacorp free and clear of any security interests, Claims and Liabilities; and,

2.6.6 Quest will cease to be a Petitioner in these CCAA proceedings leaving Guardian as the sole Petitioner.

2.7 The RVO contains release provisions similar to those contained in the Plan. Quest, its employees, legal advisors and other representatives, Quest's Governors and Officers, and the Monitor and its legal counsel shall be released from any and all demands and claims relating to, arising out of, or in connection with these CCAA Proceedings. The releases do not apply in the case of wilful misconduct or fraud.

2.8 As a result of the amendments to the Primacorp Transaction and the RVO, if the RVO is granted:

2.8.1 There will be no uncertainty as to whether the Primacorp Transaction can close and the condition precedent for the approval of the Plan is no longer applicable. As a result, there will be certainty for the go-forward operations of Quest, thereby creating security for the Quest students, faculty and staff leading into the critical enrolment period for the winter term;

2.8.2 Guardian will become responsible for the obligations under the Southern Star subleases should they not be disclaimed. As Guardian will not have the financial resources to meet those obligations, it is expected that Guardian would default on the Southern Star subleases in January 2021; and

2.8.3 The Plan, which will now compromise the debts of Guardian, will be funded through the Primacorp Transaction and therefore this aspect of the Primacorp Transaction and the Plan has not changed.

124 As I will discuss below, the effect and substance of the RVO is to achieve what Quest has originally sought by way of a restructuring in these proceedings; namely, a sale of certain assets to Primacorp and, importantly, Quest continuing as a going concern as an academic institution, in partnership with Primacorp. The only aspect now missing is that, under the RVO, Quest will avoid having to obtain creditor or Court approval of the Plan.

125 The intention is that the amounts that Primacorp was to fund under the Plan will now be transferred to Guardian to be distributed under Guardian's plan in relation to the Quest's liabilities that are to be transferred to Guardian. Effectively, Guardian will be funded just as it was originally intended that Quest's Plan was to have been funded to resolve those claims.

126 Southern Star and Dana, as unsecured creditors of Quest, object to the granting of an RVO, contending that it effectively and unfairly negates their right to vote on Quest's Plan under s. 6 of the CCAA. They object to the transfer of their claims to

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Guardian. They say that, although they will have the ability to vote on Guardian's plan, it will effectively mean that they cannot vote to block Quest's restructuring to enable it to continue as a going concern within the context of the Primacorp transaction.

RVO Jurisdiction and Authorities

127 There is no dispute between the parties that this Court has authority to grant the RVO under its general statutory jurisdiction found in s. 11 of the CCAA.

128 Quest has referred me to a number of decisions across Canada where courts have exercised that jurisdiction to grant an RVO in the context of sale approvals considered under s. 36 of the CCAA. I will review those decisions in some detail below to highlight the relevant circumstances.

129 In T. Eaton Co., Re, 2000 CarswellOnt 4502, 26 C.C.P.B. 295 (Ont. S.C.J. [Commercial List]), the Ontario court granted such an order under its CCAA proceedings. There are no written reasons discussing the circumstances in that case. The only brief reference to that structure is found in Claims Officer Houlden's decision in Eaton's that addressed an unrelated issue. The agreed statement of facts before the Claims Officer provided:

5. The CCAA Plan contemplated that all of the assets of Eaton's which were not being retained by Eaton's under the Sears Agreement would be transferred to a new corporation, Distributionco Inc. ("Distributionco"). These assets would then be liquidated by Richter & Partners Inc. ("Richter") in its capacity as court-appointed liquidator of the estate and effects of Distributionco. Richter would then distribute the assets of Distributionco to unsecured creditors and others in accordance with priorities set out in the CCAA Plan.

6. Under the CCAA Plan, unsecured creditor claims against Eaton's are converted into a right to participate in distributions in the liquidation of Distributionco based on the amount of the creditor's claim against Eaton's. Accordingly, a critical initial step in the liquidation of Distributionco is the determination of the validity and amount of claims asserted against Eaton's. For this purpose the CCAA Plan establishes a Claims Procedure for the resolution of such claims, of which the parties to this matter are aware.

130 It is unclear as to the basis upon which the court approved this structure in Eaton's although, as Southern Star notes, it was a transaction approved within the context of a CCAA Plan.

131 More recently, this structure was approved in Plasco Energy, Re (July 17, 2015), Doc. Toronto CV-15-10869-00C (Ont. S.C.J. [Commercial List]). In those CCAA proceedings, an agreement was approved that "effectively" transferred current tax losses and intellectual property to a purchaser. Justice Wilton-Siegel's endorsement stated:

The Global Settlement contemplates implementation of a corporate reorganization by which the shares of Plasco will be transferred to an acquisition corporation owned by NSPG and CWP and the remaining assets of the applicants will be held by a new corporation, referred to as "New Plasco", which will assume all of the liabilities and obligations of Plasco. I am satisfied that the Court has authority under section 11 of the CCAA to authorize such transactions notwithstanding that the applicants are not proceeding under s. 6(2) of the CCAA insofar as it is not contemplated that the applicants will propose a plan of arrangement or compromise. For this purpose, I consider that the Global Settlement is analogous to such a plan in the context of these particular proceedings. . . .

132 Justice Gouin granted an RVO in the CCAA proceedings of Stornoway Diamond Corp., Re (October 7, 2019), Doc. Montreal 500-11-057094-191 (C.S. Que.). There are no written reasons from the court; however, the motion materials disclose that, under the transaction, the purchasers acquired substantially all the debtor's assets by purchasing 100% of the shares of one debtor company (SDCI, which held the acquired assets). In consideration, the purchaser released certain liabilities owed by the debtors and agreed to assume others.

133 In Stornoway Diamond, to ensure the purchaser acquired the assets free and clear of all encumbrances, the debtors incorporated a new subsidiary (Newco), added Newco as an applicant in the CCAA proceedings, and transferred all liabilities,

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000130 17 Quest University Canada (Re), 2020 BCSC 1883, 2020 CarswellBC 3091 2020 BCSC 1883, 2020 CarswellBC 3091 obligations, and unacquired assets of SDCI to Newco. The debtor's motion referred to this transaction as the only viable alternative to preserve the going concern value of the debtor. The debtor noted that the equity and "non-operational related unsecured claims" had no value. As in the RVO sought here, the court's order included familiar aspects found in sanction orders, including releases.

134 An RVO was also approved in the CCAA proceedings of Wayland Group Corp., Re (April 21, 2020), Doc. Toronto CV-19-00632079-00CL (Ont. Gen. Div. [Commercial List]). Approval was sought in the context of preserving valuable cannabis licenses. Justice Hainey's brief endorsement indicates that the relief was unopposed. The court approved a sale of substantially all of the debtor's assets to the successful bidder under a share purchase agreement after a sales and investment solicitation process.

135 Other information before me regarding the Wayland Group transaction is found in the applicant's factum. The factum refers to both Plasco Energy and Stornoway Diamond, while also referring to ss. 11 and 36(3) of the CCAA as the jurisdictional basis for the relief. The applicants argued that transferring certain assets and liabilities of the debtors into a "newco" would ensure that the purchaser acquired the underlying assets of the target company free and clear of all claims and encumbrances and allow the business to continue as a going-concern. They asserted that this was the "only way" to complete the sale to realize the value in the assets; it was also argued that this transaction was in the best interests of stakeholders and did not prejudice major creditors. In Wayland Group, the transaction value was only sufficient to repay the interim lender and perhaps some amount for the first secured creditor.

136 The Ontario court again approved a similar RVO transaction in the CCAA proceedings of Comark Holdings Inc., Re (July 13, 2020), Doc. Toronto CV-20-00642013-00CL (Ont. Gen. Div. [Commercial List]). Justice Hainey granted the RVO while again indicating in a brief endorsement that the relief was unopposed. The share sale preserved the tax attributes of the debtor, which the purchaser viewed as critical for the success of the future business. The purchaser was a related party who was making a credit bid for the assets.

137 In Comark Holdings, the purchaser acquired all the issued and outstanding shares of the primary CCAA debtor and agreed to pay out all the secured debt and priority claims. The excluded assets, agreements, liabilities and encumbrances were transferred to another entity that became a debtor in the CCAA proceedings, with the result that the CCAA debtor held its assets free and clear of all claims and encumbrances and was then removed from the CCAA proceedings. The purchaser and the primary CCAA debtor then amalgamated. The new CCAA debtor (Newco) was authorized to make an assignment into bankruptcy. The monitor, along with the principal secured creditors, including the interim lender, supported the transactions. As in Plasco Energy, Stornoway Diamond and Wayland Group, the debtors in Comark Holdings argued that this was the "only option" to preserve the business, that the value in that business would be lost in a liquidation and that the transaction was in the best interests of the stakeholders generally.

138 Justice Conway granted an RVO in the CCAA proceedings of Beleave Inc., Re (Sep 18, 2020), Doc. Toronto CV-20-00642097-00CL (Ont. Gen. Div. [Commercial List]). As in Wayland Group, the preservation of valuable cannabis licenses were at stake. The motion was supported by the monitor and unopposed. Justice Conway stated in her brief endorsement:

The Applicants seek approval of the transaction whereby . . . (the Purchaser) will acquire the operating business of the Applicants. The structure of the transaction is partly by share sale and partly by asset sale. The reason for the structure is to accommodate the licensing requirements of Health Canada. The order is structured as a reverse vesting order, in which excluded liabilities and assets will be transferred to "Residualco", which will then become one of the Applicants in the CCAA proceedings. Reverse vesting orders have been approved by the courts in other cases: see Re Stornoway Diamond Corporation . . . and Re Wayland Group Corp . . .

The transaction is the culmination of a stalking horse sales process approved by the court. The motion is unopposed. The Monitor recommends and supports the transaction in its Fourth Report. In particular, the Monitor states that the proposed transaction is economically superior to the estimated liquidation value of the Beleave Group's assets and operations, will allow the Purchaser to maintain operations and use of the Cannabis licenses and will provide for continued employment

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for a majority of the existing employees. In my view, the transaction satisfies s. 36(3) of the CCAA and the Soundair test and should be approved.

139 In Beleave Inc., the RVO included releases of claims similar to that granted in other RVO decisions. These provisions were also consistent generally with sanction orders and are similar to the relief sought by Quest here.

140 Even more recently, the Alberta court approved an RVO structure in the CCAA proceedings of JMB Crushing Systems Inc., Re (October 16, 2020), Doc. Calgary 2001-05482 (Alta. Q.B.). Justice Eidsvik approved the RVO structure as part of a sale approval. No written reasons of the court are available, however, the monitor's bench brief discloses the relevant facts.

141 As in the above cases, the transaction addressed in JMB Crushing arose from a sale and investment solicitation process that yielded only one offer, with the RVO described as a critical component. The underlying intention was to preserve the value of the paid up capital and regulatory permits in the CCAA debtor.

142 In JMB Crushing, the monitor relied on the orders granted in Plasco Energy, Stornoway Diamond, Wayland Group and Beleave Inc., arguing that the RVO structure was justified in those circumstances:

24. In recent CCAA proceedings, where it was not practical to compromise amounts owed to creditors through a traditional plan of compromise and arrangement, but it was critical to the viability of a transaction to "cleanse" the debtor company, such that a prospective purchaser may: (i) utilize non-transferrable regulatory licenses (by way of amalgamation or the purchase of the shares of the debtor company); or, (ii) make use of tax attributes of the debtor company, such as [paid up capital], Courts have recently approved and utilized reverse vesting orders to achieve such objectives.

25. The purpose of a reverse vesting order is to transfer and vest all of the assets and liabilities of a debtor company, which are not subject to a sale, to another company within the same CCAA proceedings. The cleansed debtor company is then able to: (i) be utilized by a purchaser as a go-forward vehicle, without any concern regarding creditors and obligations that may otherwise be "laying in the weeds"; and, (ii) allow the purchaser to make use of the debtor company's tax attributes and non-transferrable regulatory licenses. This approach is necessary in situations where the parties would otherwise be unable to preserve the value of significant assets that are subject to restraints on alienation and to provide a corresponding realizable benefit for creditors and stakeholders.

143 In JMB Crushing, the monitor further justified the RVO structure in asserting that the debtor's secured creditors would suffer a shortfall even with such measures. The monitor stated that the unsecured creditors had no economic interest in the transaction and there was no reasonable prospect of any recovery to them. The debtor did not intend to undertake a claims process or present a plan to its unsecured creditors.

144 By pure coincidence, another and perhaps more compelling authority came to the attention of the parties during this hearing.

145 On November 11, 2020, the Québec Court of Appeal dismissed an application for leave to appeal the granting of an RVO by Gouin J. of the Québec Superior Court on October 15, 2020: Arrangement relatif à Nemaska Lithium inc., 2020 QCCS 3218 (Que. Bktcy.); leave to appeal denied Arrangement relatif à Nemaska Lithium inc., 2020 QCCA 1488 (C.A. Que.). The Court of Appeal's decision is in English; Gouin J.'s decision is in French and no English translation was available. As such, all references to Nemaska Lithium will be to the QCCA.

146 All counsel agree that Gouin J.'s decision in Nemaska Lithium is the first time a Canadian court has granted an RVO in contested CCAA proceedings.

147 In Nemaska Lithium (at para. 5), the court stated that the RVO allowed the purchaser to carry on the operations of the Nemaska Lithium entitles (mining in James Bay) by maintaining existing permits, licenses and authorizations. This goal was accomplished via a credit bid for the shares in Nemaska Lithium in return for assumption of the secured debt. At para. 22, the

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.000132 19 Quest University Canada (Re), 2020 BCSC 1883, 2020 CarswellBC 3091 2020 BCSC 1883, 2020 CarswellBC 3091 court refers to the intention of the "residual companies" to later present a plan of arrangement to the "remaining creditors", but the details are not disclosed.

148 In denying leave to appeal in Nemaska Lithium, the court stated that an appeal would hinder the progress of the proceedings. More relevant to this application were the court's comments on the legitimacy of the position of the only objecting creditor, Cantore, and the court's rejection that it was appropriate to allow Cantore to exercise a veto in the restructuring:

[38] As it turns out, the value of the Cantore provable claims (setting aside the later debate regarding his potential real rights) stands at $8,160 million out of a total value of provable claims of $200 million. Thus, Cantore's provable claims represent at this point in time 4% of the total value of unsecured creditors'' claims as determined by the Monitor. Yet, Cantore is the only creditor having voiced an objection to the RVO approval. This begs the question: whose interest is being served by the proposed appeal? What would be the true impact of the Cantore vote on the RVO transaction if it were made subject to prior approval on the part of the creditors as he suggests?

[39] In these circumstances, I am simply not convinced that the arguments that are advanced by Cantore are anything but a "bargaining tool", while he pursues multidirectional attacks on the RVO with the same arguments that were dismissed in the first instance.

149 Similar to Cantore's position in the Nemaska Lithium restructuring, Southern Star and Dana's objections to the RVO are grounded in the assertion it will negate their effective veto on the Plan (and hence the Primacorp transaction) by which they seek to leverage further concessions. For obvious reasons, those concessions can only come about at a cost to other stakeholders, whose interests remain to be addressed.

Discussion

150 Quest, with the support of the Monitor, submits that the Primacorp transaction satisfies s. 36 of the CCAA and that the Court should grant the RVO pursuant to ss. 11 and 36 of the CCAA.

151 As with the structures approved in the above CCAA proceedings, the RVO has certain aspects that Southern Star says are objectionable. Those include primarily: (i) the addition of Guardian as a petitioner in the CCAA proceeding; (ii) the vesting of the Excluded Liabilities and Excluded Contracts in Guardian; (iii) Quest's exit from this CCAA proceeding; and (iv) the release of Quest in respect of the Excluded Liabilities and Excluded Contracts.

152 Essentially, unsecured claims against Quest and minor assets are transferred to Guardian and Quest continues as a going concern after having transferred the bulk of its assets to Primacorp free and clear of any encumbrances (save for certain Retained Liabilities). Quest no longer requires approval of the Plan by the creditors and the Court to complete the Primacorp transaction.

153 At para. 19, the QCCA in Nemaska Lithium referred to Gouin J.'s comment that s. 36 of the CCAA allows the court a broad discretion to consider and, if appropriate, grant relief that represents an innovative solution to any challenges in a proceeding. Justice Gouin considered that approving an RVO structure was such an innovative solution. Indeed, this is the history of CCAA jurisprudence under the court's broad statutory discretion and court approval of innovative solutions continues to this time.

154 That said, the ability of a CCAA court to be innovative and creative is not boundless; as always, the court must exercise its discretion with a view to the statutory objectives and purposes of the CCAA: Century Services.

155 I find further support for Quest's position in the recent comments of the Court in Callidus. The Court was there addressing a different issue — whether a CCAA judge has jurisdiction under s. 11 to bar a creditor from voting where the creditor is "acting for an improper purpose" — but the Court's comments on the exercise of jurisdiction under the CCAA ring true in relation to the RVO structure:

[49] The discretionary authority conferred by the CCAA, while broad in nature, is not boundless. This authority must be exercised in furtherance of the remedial objectives of the CCAA, which we have explained above (see Century Services, at para. 59). Additionally, the court must keep in mind three "baseline considerations" (at para. 70), which the applicant

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bears the burden of demonstrating: (1) that the order sought is appropriate in the circumstances, and (2) that the applicant has been acting in good faith and (3) with due diligence (para. 69).

[50] The first two considerations of appropriateness and good faith are widely understood in the CCAA context. Appropriateness "is assessed by inquiring whether the order sought advances the policy objectives underlying the CCAA" (para. 70). Further, the well-established requirement that parties must act in good faith in insolvency proceedings has recently been made express in s. 18.6 of the CCAA, which provides:

Good faith

18.6(1) Any interested person in any proceedings under this Act shall act in good faith with respect to those proceedings.

Good faith — powers of court

(2) If the court is satisfied that an interested person fails to act in good faith, on application by an interested person, the court may make any order that it considers appropriate in the circumstances.

(See also BIA, s. 4.2; Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29, ss. 133 and 140.)

. . .

[65] There is no dispute that the CCAA is silent on when a creditor who is otherwise entitled to vote on a plan can be barred from voting. However, CCAA supervising judges are often called upon "to sanction measures for which there is no explicit authority in the CCAA" (Century Services, at para. 61; see also para. 62). In Century Services, this Court endorsed a "hierarchical" approach to determining whether jurisdiction exists to sanction a proposed measure: "courts [must] rely first on an interpretation of the provisions of the CCAA text before turning to inherent or equitable jurisdiction to anchor measures taken in a CCAA proceeding" (para. 65). In most circumstances, a purposive and liberal interpretation of the provisions of the CCAA will be sufficient "to ground measures necessary to achieve its objectives" (para. 65).

. . .

[67] Courts have long recognized that s. 11 of the CCAA signals legislative endorsement of the "broad reading of CCAA authority developed by the jurisprudence" (Century Services, at para. 68) . . .

On the plain wording of the provision, the jurisdiction granted by s. 11 is constrained only by restrictions set out in the CCAA itself, and the requirement that the order made be "appropriate in the circumstances".

[68] Where a party seeks an order relating to a matter that falls within the supervising judge's purview, and for which there is no CCAA provision conferring more specific jurisdiction, s. 11 necessarily is the provision of first resort in anchoring jurisdiction. As Blair J.A. put it in Stelco, s. 11 "for the most part supplants the need to resort to inherent jurisdiction" in the CCAA context (para. 36).

. . .

[70] . . . The exercise of this discretion must further the remedial objectives of the CCAA and be guided by the baseline considerations of appropriateness, good faith, and due diligence. This means that, where a creditor is seeking to exercise its voting rights in a manner that frustrates, undermines, or runs counter to those objectives — that is, acting for an "improper purpose" — the supervising judge has the discretion to bar that creditor from voting.

. . .

[75] We also observe that the recognition of this discretion under the CCAA advances the basic fairness that "permeates Canadian insolvency law and practice" (Sarra, "The Oscillating Pendulum: Canada's Sesquicentennial and Finding the

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Equilibrium for Insolvency Law", at p. 27; see also Century Services, at paras. 70 and 77). As Professor Sarra observes, fairness demands that supervising judges be in a position to recognize and meaningfully address circumstances in which parties are working against the goals of the statute:

The Canadian insolvency regime is based on the assumption that creditors and the debtor share a common goal of maximizing recoveries. The substantive aspect of fairness in the insolvency regime is based on the assumption that all involved parties face real economic risks. Unfairness resides where only some face these risks, while others actually benefit from the situation . . . If the CCAA is to be interpreted in a purposive way, the courts must be able to recognize when people have conflicting interests and are working actively against the goals of the statute.

("The Oscillating Pendulum: Canada's Sesquicentennial and Finding the Equilibrium for Insolvency Law", at p. 30 (emphasis added))

In this vein, the supervising judge's oversight of the CCAA voting regime must not only ensure strict compliance with the Act, but should further its goals as well. We are of the view that the policy objectives of the CCAA necessitate the recognition of the discretion to bar a creditor from voting where the creditor is acting for an improper purpose.

[76] Whether this discretion ought to be exercised in a particular case is a circumstance-specific inquiry that must balance the various objectives of the CCAA. As this case demonstrates, the supervising judge is best-positioned to undertake this inquiry.

[Underline emphasis added; italic emphasis in original.]

156 Quest is not seeking to bar Southern Star or Dana from voting on the Plan. It is seeking approval of a structure that would result in Guardian submitting its own plan to the unsecured creditors, which would include Southern Star and Dana, at which time they are generally free to vote their "self-interest" subject to any relevant constraint (for example, if the court finds that they are voting for an improper purpose): Callidus at para. 24 and 56.

157 There is no provision in the CCAA that prohibits an RVO structure. As is usually the case in CCAA matters, the court must ensure that any relief is "appropriate" in the circumstances and that all stakeholders are treated as fairly and reasonably "as the circumstances permit": Century Services at para. 70.

158 As with the sales considered in most of the above RVO cases, including Nemaska Lithium, this is the only transaction that has emerged to resolve the financial affairs of Quest. No other options are before the stakeholders and the Court that would suggest another path forward. As was noted by Gouin J. in Nemaska Lithium (at para. 12), it is not up to the Court to dictate the terms and conditions that are included in an offer. Primacorp has presumably made the best offer that it is prepared to make in the circumstances — that is the offer the Court must consider.

159 I agree with the Monitor that, without the RVO structure, the Primacorp transaction is in jeopardy. The only other likely path forward for Quest is receivership, liquidation and bankruptcy, a future that looms in early 2021 if the transaction is not approved.

160 Many of the RVO cases cited above involve a sale of an ongoing business with a purchaser. The RVO structure was crafted to allow those businesses to continue through the debtor company, since it was that corporate vehicle who owned the valuable "assets" that could be not transferred.

161 Akin to the tax losses, permits and licences that could not be transferred in those RVO cases, is Quest's ability to confer degrees under its statutory authority under s. 4(2) of the Sea to Sky Act, S.B.C. 2002, c. 54 (the "Sea to Sky Act"). Quest cannot sell its ability to grant degrees under s. 4(2) of the Sea to Sky Act. Nor can any purchaser acquire the right to grant degrees indirectly through a purchase of the shares in Quest. Pursuant to s. 2 of the Sea to Sky Act, Quest is a corporation "composed of the members of the board" and no shareholders exist. Pursuant to s. 1 of the Sea to Sky Act, the "board" means the board of governors of the university.

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162 It is a critical requirement under the Primacorp transaction that Quest remain a viable entity to continue its operations and, in particular, continue to grant degrees. That is a significant component of the Primacorp transaction and the value that Primacorp is prepared to pay under the transaction reflects that component. In other words, the stakeholders are receiving a benefit from this transaction by which Primacorp ensures that Quest continues after exiting these CCAA proceedings.

163 At para. 38, the court in Nemaska Lithium asked:

. . . whose interest is being served by the proposed appeal? What would be the true impact of the Cantore vote on the RVO transaction if it were made subject to prior approval on the part of the creditors as he suggests?

164 I acknowledge the negative consequences that arise particularly for Southern Star if the Primacorp transaction is approved, although there is significant uncertainty about the extent of any loss that may be suffered. Dana's unsecured claim has little, if any value, outside of the benefits of the Primacorp transaction.

165 In that light, I would ask Southern Star and Dana a similar question to that of the QCCA — to what end is your veto if Quest's Plan is put presented for creditor approval?

166 Both creditors potentially hold the sword of Damocles over the head of the significant broad stakeholder group who stand to benefit from the Primacorp transaction. Recently, Southern Star has secured further benefits by the withdrawal of two of the Disclaimers. Both objecting creditors have nothing to lose at this point in this dangerous game of chicken with Primacorp, with only the oversight of this Court to oversee this strategy. By any stretch, no one is blinking at this point, while significant other interests hang in the balance.

167 The Monitor's comments in its Fifth Report as to the jeopardy to those other interests are apt:

2.15 The Monitor has considered the competing interests of Southern Star and the interests of Quest's other stakeholders. In the Monitor's view, the Primacorp Transaction should not be jeopardized by the lack of agreement between Southern Star and Primacorp. Southern Star can mitigate its financial hardship by entering into an agreement with Primacorp for use of some or all of the residences. By contrast, Quest's other stakeholders have no ability to mitigate their potential losses in the event that the Primacorp Transaction does not close. They are reliant on the completion of the Primacorp Transaction or face significant losses themselves should it not complete.

168 In my view, in the vein of the Court's discussion in Callidus, these are unique and exceptional circumstances where the Court may grant the relief by allowing Quest to employ the RVO structure within the context of this sale transaction.

169 Southern Star and Dana seek to effectively block the only reasonable outcome here by insisting that they must approve of Quest's Plan in conjunction with the sale. However, creditor approval of a sale is not required under s. 36 of the CCAA.

170 The granting of the RVO in these circumstances is in accordance with the remedial purposes of the CCAA. To use the words of Dr. Sarra, quoted above in Callidus, I conclude that Southern Star and Dana are working actively against the goals of the CCAA by their opposition to the RVO.

171 I do not consider that an RVO structure would be generally employed or approved in a CCAA restructuring to simply rid a debtor of a recalcitrant creditor who may seek to exert leverage through its vote on a plan while furthering its own interests. Clearly, every situation must be considered based on its own facts; different circumstances may dictate different results. A debtor should not seek an RVO structure simply to expedite their desired result without regard to the remedial objectives of the CCAA.

172 Here, in these complex and unique circumstances, I conclude that it is appropriate to exercise my discretion to allow the RVO structure. Quest seeks this relief in good faith and while acting with due diligence to promote the best outcome for all stakeholders. I have considered the balance between the competing interests at play. This transaction is unquestionably the fairest and most reasonable means by which the greatest benefit can be achieved for the overall stakeholder group, a group that includes Southern Star and Dana.

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173 The structure also allows Quest to continue its operations in partnership with Primacorp, a result that will avoid the devastating social and economic consequences that will be visited upon the stakeholders if this transaction is not approved. Ironically, the continuation of Quest's operations will also benefit Southern Star in the future through the continued payment of rent for two of the Residences. Other potential benefits may also arise if Southern Star and Quest are later able to come to terms once the pandemic has receded and students return to campus.

THE PRIMACORP TRANSACTION

174 Quest applies for the granting of the RVO in favour of Primacorp pursuant to s. 36(1) of the CCAA.

175 Section 36(1) of the CCAA allows the court to authorize the sale of a debtor company's assets out of the ordinary course of business. Section 36(3) of the CCAA lists the relevant non-exhaustive factors to be considered:

(a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances;

(b) whether the monitor approved the process leading to the proposed sale or disposition;

(c) whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;

(d) the extent to which the creditors were consulted;

(e) the effects of the proposed sale or disposition on the creditors and other interested parties; and

(f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.

176 The well-known considerations identified in Royal Bank v. Soundair Corp. (1991), 4 O.R. (3d) 1 (Ont. C.A.) at 6 are consistent with and overlap many of the s. 36(3) factors: see Veris Gold Corp., Re, 2015 BCSC 1204 (B.C. S.C.) at para. 25, referring to various authorities such as Canwest Publishing Inc./Publications Canwest Inc., Re, 2010 ONSC 2870 (Ont. S.C.J. [Commercial List]) at para. 13. Those considerations include: (i) whether the party conducting the sale made sufficient efforts to obtain the best price and did not act improvidently; (ii) the interests of all parties; (iii) the efficacy and integrity of the process by which offers were obtained; and, (iv) whether there has been any unfairness in the sales process.

177 More generally, in analyzing whether a transaction should be approved, taking into consideration the s. 36(3) and Soundair factors, a court is to consider the transaction as a whole and decide whether or not the sale is appropriate, fair and reasonable: Veris Gold at para. 23.

178 I conclude that the s. 36(3) and Soundair factors all favour approving the Primacorp transaction and granting the RVO. Specifically:

a) The process leading to the Primacorp transaction has been lengthy and exhaustive. The Monitor has overseen that entire process;

b) Quest 's Restructuring committee and its Board of Governors have sought and obtained professional advice throughout the CCAA process toward finding a suitable academic partner and/or a purchaser/developer for Quest's lands;

c) No stakeholder objects to the proposition that the sales process was conducted in an appropriate, fair and reasonable manner;

d) The Primacorp transaction will see the repayment of Quest's secured creditors, now totalling approximately $42.2 million in what has been an increasingly pressurized environment to do so after long standing defaults;

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e) Since August 7, 2020, the Interim Lender and VF, Quest's major secured creditors, have been kept apprised of developments. They both support the Primacorp transaction. In addition, other secured creditors have been involved throughout these proceedings and support the transaction;

f) There has been significant community and stakeholder involvement throughout the sales process;

g) The Primacorp transaction will ensure that Quest continues as a going concern, by continuing operations as a post- secondary institution in Squamish. This will result in continuing benefits to the broad stakeholder group. This includes faculty, staff, students, secured and unsecured creditors, suppliers, landlords and the community generally;

h) The broader stakeholder interests must be balanced against those who will be negatively affected by the transaction, such as Southern Star under the Disclaimers, although no viable offer has emerged that does not include the Disclaimers;

i) Quest's Board of Governors have exercised their business judgment and determined that the Primacorp transaction is the best option to fulfil the goals of Quest's restructuring;

j) The Primacorp transaction will fund a Plan for unsecured creditors;

k) The Primacorp transaction provides Quest with significant benefits in terms of its future operations. These include the $20 million working capital facility and Primacorp support for Quest's marketing, recruiting and operations to allow it to continue as a post-secondary institution into the future;

l) No other or better offer or proposal has emerged that can be considered superior to the Primacorp transaction;

m) The Monitor is satisfied that the consideration to be received from Primacorp is reasonable and fair, taking into account the market value of the assets and the other unique factors of these proceedings;

n) The Monitor is of the view that this transaction will yield a greater benefit to the stakeholders than might be achieved in a liquidation or bankruptcy;

o) Any delay of approval is likely to lead to ruinous consequences after December 2020, when Quest will be out of funds and the Interim Lender will be in a position to commence a receivership and liquidation of Quest's assets; and

p) Simply, Quest has run out of time to find a restructuring solution and the Primacorp transaction presently stands as the only viable option to avoid the devastating social and economic consequences to its stakeholders if a liquidation results.

CONCLUSIONS

179 I grant the RVO as sought by Quest, and as supported by the Monitor.

180 The Primacorp transaction is the best option available that maximizes recovery for Quest's creditors and preserves Quest's university operations. Allowing Quest to continue as a university will benefit all stakeholders, including Quest's current and former employees, current and future students of Quest and the community generally. The RVO structure is an appropriate means to accomplish this result in these unique and exceptional circumstances. Application dismissed.

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000139 Arrangement relatif à Nemaska Lithium inc., 2020 QCCA 1488, 2020 CarswellQue 11925 2020 QCCA 1488, 2020 CarswellQue 11925, 325 A.C.W.S. (3d) 321, EYB 2020-366332

2020 QCCA 1488 Cour d'appel du Québec

Arrangement relatif à Nemaska Lithium inc.

2020 CarswellQue 11925, 2020 QCCA 1488, 325 A.C.W.S. (3d) 321, EYB 2020-366332

(IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT OF:) (500-09-029177-201) VICTOR CANTORE, Applicant-Objecting Party, c. NEMASKA LITHIUM INC., NEMASKA LITHIUM WHABOUCHI MINE INC., NEMASKA LITHIUM SHAWINIGAN, TRANSFORMATION INC., NEMASKA LITHIUM P1P INC.and NEMASKA LITHIUM INNOVATION INC., Respondents-debtors, et PRICEWATERHOUSECOOPERS INC., Impleaded party-Monitor, et INVESTISSEMENT QUÉBEC, THE PALLINGHURST GROUP, OMF FUND II (K) LTD., OMF FUND II (N) LTD., FMC LITHIUM USA CORP. and BRIAN SHENKER, Impleaded parties-Impleaded parties

(500-09-029190-204) BRIAN SHENKER, Applicant-Impleaded party, c. NEMASKA LITHIUM INC., NEMASKA LITHIUM WHABOUCHI MINE INC., NEMASKA LITHIUM SHAWINIGAN, TRANSFORMATION INC., NEMASKA LITHIUM P1P INC. and NEMASKA LITHIUM INNOVATION INC., Respondents-debtors, et PRICEWATERHOUSECOOPERS INC., Impleaded party-Monitor, et INVESTISSEMENT QUÉBEC, THE PALLINGHURST GROUP, OMF FUND II (K) LTD., OMF FUND II (N) LTD. and FMC LITHIUM USA CORP., Impleaded parties-Impleaded parties, et VICTOR CANTORE, Impleaded party-opposing creditor

Marcotte J.C.A.

Audience: 2 novembre 2020 Jugement: 11 novembre 2020 Dossier: C.A. Qué. Montréal 500-09-029177-201, 500-09-029190-204

Avocat: Mtre Dimitrios Maniatis, Mtre Tom Provost, For Applicant and impleaded party Victor Cantore Mtre Neil Peden, Mtre Bogdan Catanu, For Applicant Brian Shenker Mtre Alain Tardif, Mtre Gabriel Faure, Mtre François Alexandre Toupin, Mtre Patrick Boucher, For Respondents Mtre C. Jean Fontaine, Mtre Nathalie Nouvet, For impleaded party Pricewaterhousecoopers inc. Mtre Luc Morin, For impleaded party Investissement Québec Mtre Denis Ferland, For impleaded party The Pallinghurst Group Mtre Christopher Richter, Mtre Marie-Ève Gingras, For impleaded party OMF Fund II (K) Ltd. and OMF Fund II (N) Ltd. Mtre Kevin Mailloux, Mtre François Gagnon, For impleaded party FMC Lithium USA Corp.

Sujet: Corporate and Commercial; Insolvency

Marcotte J.C.A. :

1 I am tasked with the determination of two applications for leave to appeal of a judgment rendered on October 15, 2020 by the Superior Court of Québec, district of Montreal (the honourable Louis J. Gouin) which approved a transaction and issued a reverse vesting order pursuant to sections 11 and 36 of the Companies' Creditors Arrangement Act (CCAA). 1

2 The CCAA proceedings were commenced in December 2019 with respect to the debtor companies (the "Nemaska entities") which are involved in the development of a lithium mining project in Quebec

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3 In January 2020, the CCAA judge approved an uncontested sale or investment solicitation process (« SISP ») which led to the acceptance of an offer submitted by impleaded parties Investissement Québec, the Pallinghurst Group and OMG Fund II (K) Ltd. and OMG Fund II (N) Ltd (« Orion »), in the form of a bid that was made subject to the condition that a reverse vesting order (RVO) be issued.

4 The proposed RVO provides for the acquisition by the impleaded parties of the shares of Nemaska entities free and clear of the claims of creditors which are transferred along with unwanted assets 2 to a newly incorporated non-operating company, as part of a pre-closing reorganization.

5 The RVO allows the purchaser to continue to carry on the operations of the Nemaska entities in a highly regulated environment by maintaining their existing permits, licences, authorizations, essential contracts and fiscal attributes. It is essentially a credit bid whereby the shares of the Nemaska entities are acquired in return for the assumption of the secured debt 3 .

6 Applicant Victor Cantore (Cantore) is a shareholder of Nemaska and a creditor of royalties (a 3% net smelter return royalty on all metals), following the sale of his original mining titles to the Nemaska entities in 2009.

7 Cantore filed an application to have the Court recognize his "bene esse real rights" on the mining titles which the parties agreed to debate at a later date and have temporarily carved out of the proposed RVO.

8 Cantore nonetheless formally objected to the approval of the RVO, raising multiple grounds of contestation, including the CCAA judge's lack of authority to grant a vesting order for anything other than a sale or disposition of assets, the impossibility under the CCAA for debtor companies to emerge from CCAA protection outside a compromise or arrangement, the violation of securities laws and the improper release stipulated in favour of directors and officers without prior approval from creditors.

9 Applicant Brian Shenker ("Shenker") is a shareholder of Nemaska Lithium Inc. Along with other shareholders, he filed an Application to declare certain claims as exempt and to permit the filing of certain claims in late September 2020, namely against Nemaska entities' directors and officers for negligent misrepresentations.

10 While the application had not been heard by the CCAA judge at the time of the approval hearing, Shenker was allowed to make oral submissions regarding the granting of releases in favour of the directors and officers in the context of the proposed RVO.

11 Notwithstanding the Cantore objections and the Shenker representations, the CCAA judge approved the RVO following a 9 day hearing.

12 In his reasons, the CCAA judge reviewed the context of the transaction in detail and insisted on the purpose and efficiency of the RVO to maintain the going concern operations of the debtor companies, while also emphasizing that it is not up to the courts to dictate the terms and conditions to be included in the offer which stems from the uncontested SISP order.

13 He also reiterated that the approval of the RVO pursuant to s. 36 CCAA is subject to determining:

• Whether sufficient efforts to get the best price have been made and whether the parties acted providently;

• The efficacy and integrity of the process followed;

• The interests of the parties; and

• Whether any unfairness resulted from the process. 4

14 He considered that these criteria had been met and found the issuance of the RVO to be a valid use of his discretion, insisting that it would serve to maximize creditor recoveries while maintaining the debtor companies as a going concern and allowing an efficient transfer of the necessary permits, licences and authorizations to the purchaser.

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15 In coming to this conclusion, the CCAA judge relied extensively on the principles recently set out by the Supreme Court in the matter of 9354-9186 Quebec inc. c. Callidus Capital Corp. 5 namely:

1. The evolution of CCAA proceedings and the important role of the CCAA supervising judge;

2. The remedial objectives of Canadian insolvency laws to provide timely, efficient and impartial resolution of a debtor's insolvency, preserve and maximize the value of a debtor's assets, ensure fair and equitable treatment of the claims against a debtor, protect the public interest, and balance the costs and benefits of restructuring or liquidating the debtor company;

3. The priority afforded by the CCAA to « "avoid [ing] the social and economic losses resulting from the liquidation of an insolvent company" by facilitating the reorganization and survival of the pre-filing debtor company, as a going concern;

4. The CCAA judge's wide discretion pursuant to s. 11 of the CCAA with a view to furthering the remedial objectives of the CCAA while keeping in mind three "baseline considerations," which the applicant has the burden of demonstrating: (1) that the order sought is appropriate in the circumstances, and (2) that the applicant has been acting in good faith and (3) with due diligence.

16 After reviewing the Monitor's report and uncontradicted testimony, the CCAA judge dismissed the Cantore objections and concluded that the Nemaska entities had acted in good faith and with the required diligence, and that the approval of the RVO was the best possible outcome in light of the alternatives, being : (i) the realization of the rights held by secured creditors, (ii) the suspension of the restructuring process to attempt a new SISP at a high cost with an uncertain outcome in an uncertain market that had previously been thoroughly canvassed and had led to a single acceptable bid, or (iii) the bankruptcy of the debtor companies.

17 He underlined the catastrophical impact of these alternatives on all stakeholders being the employees, creditors, suppliers, the Cree community and local economies.

18 As far as the various arguments raised by Cantore are concerned, the CCAA judge pointed out that his attorney had conceded that his client would not have continued to oppose the RVO if his sui generis rights had been settled and incorporated into an offer to be approved by the Court.

19 The CCAA judge dismissed Cantore's argument regarding the Court's limited authority to grant a vesting order, stating that the terms « Sell or otherwise dispose of assets outside the ordinary course of business » under subsection 36 (1) CCAA should be broadly interpreted to allow a CCAA judge to grant innovative solutions such as RVOs on a case by case basis, in accordance with the wide discretionary powers afforded the supervising judge pursuant to section 11 CCAA, as recognized by the Supreme Court in Callidus. 6

20 He insisted that this would be particularly appropriate, where the proposed RVO brings an outcome to creditors more favourable than the alternatives and where available tax attributes contribute to significantly improve the offer, to eventually bring a greater distribution to the creditors.

21 The CCAA judge also insisted on the fact that the expungement of real rights was contemplated by subsection 36(6) and was a necessary condition to the implementation of a solution, and served to prevent a veto on the part of the holders of those real rights.

22 The CCAA judge further held that the offer did not constitute a plan of arrangement subject to prior creditor approval and that the residual companies would be submitting a plan of arrangement to the remaining creditors for a vote once the first step, being the acquisition of the Nemaska shares by the impleaded parties, is accomplished.

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23 He dismissed the argument of a potential violation of the applicable securities laws, insisting on the fact that the issue had become moot, given the written confirmation obtained from a representative of the Autorité des marchés financiers that they would not object to the interpretation of Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions 7 proposed in the context of the RVO.

24 He dismissed the argument related to an « impermissible disguised substantive consolidation » of the Nemaska entities and the alleged lack of approval of a consolidation plan, insisting on the fact that the offer had been made by the impleaded parties in response to a SISP process which had not been contested and clearly contemplated the purchase of all or part of the assets of the debtor companies.

25 Additionally, the CCAA judge held that the release in favour of the directors and officers of the debtor companies contained in the RVO was qualified in such a manner so as to protect the rights of shareholders and creditors whose claim is based on Section 5.1 (2) of the CCAA.

26 Moreover, he concluded that Cantore's sui generis real rights were being fully protected by the reserve set out under the RVO and he dismissed his proposition that the proposed transaction was not fair and reasonable or that the Monitor had acted in a partial or improper manner, given the serious efforts put forward to salvage the operations of the companies, the rigorous SISP process carried out and the fact that the offer at issue was the only acceptable and serious bid received and that it allowed the mining project operations to resume.

27 Lastly, he insisted on the urgency to approve the RVO and the fact that that any additional delay would work to the detriment of the impleaded parties as well as the debtor companies, their employees and suppliers, the Cree community and their local economies.

28 In the applications for leave to appeal, Applicants Cantore and Shenker both argue that the CCAA judgment is flawed, in that the CCAA judge did not have the power to approve a transaction which is structured in such manner as to allow the debtor companies to emerge from CCAA protection free and clear of their pre-filing obligations outside the confines of a plan of compromise or arrangement and without the benefit of an approval by the required majority of creditors.

29 Both Applicants add that the CCAA judge also erred in approving the broad releases in favour of third parties, including the directors and officers, outside the context of a plan of arrangement and without first determining whether they were fair, reasonable and necessary to the restructuring and whether they could prejudice creditor rights.

30 In addition Cantore raises essentially the same arguments which were previously dismissed by the CCAA judge, being that:

1. The pre-filing obligations were essentially "novated" by the Court and consolidated (without prior determination of the need for such consolidation), and were illegally transferred to third parties without prior creditor consent;

2. The CCAA judge erred in law by approving the transaction and issuing the RVO on the basis of evidence given by the Monitor who was not neutral nor impartial;

3. The CCAA judge focused exclusively on the outcome of the proposed transaction which he qualified to be the "best and only alternative available in the circumstances", while failing to give any meaningful consideration to creditor rights.

4. The CCAA judge approved a transaction that violates applicable securities law, more precisely the minority shareholder approval requirements.

5. The CCAA erred in granting provisional execution and failed to support this order with sufficient reasons relating to the nature and the extent of the harm which could be suffered.

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31 In order to obtain leave to appeal a judgment pursuant to section 13 CCAA, the Applicants must demonstrate that they satisfy the following four-pronged test in that:

1. The point on appeal is of significance to the practice;

2. The point is of significance to the action or proceedings;

3. The appeal is prima facie meritorious;

4. The appeal will not unduly hinder the progress of the proceedings 8 .

32 Such leave is only granted sparingly given the nature of the powers afforded the CCAA judge.

33 All parties agree that RVOs are a novelty and that, until now, they have only been granted by consent. They also agree that a delimitation of powers of the CCAA judge under section 11 of the CCAA where the RVO transaction is contested by certain creditors is a point of principle which could be of interest to the practice and could, in certain circumstances, justify granting leave to appeal 9 .

34 They claim, however, that in the particular context of the transaction, such leave should not be granted as it will serve to hinder the progress of the CCAA proceedings in a context where the great majority of creditors will be prejudiced.

35 As underlined by the CCAA judge, the only determination that the courts are asked to make is whether or not to approve the RVO, without having the power to dictate its terms:

[16] L'offre Orion/IQ/Pallinghurst est soumise au Tribunal telle que déposée, et il ne revient pas au Tribunal d'indiquer aux Offrants quels termes et conditions doivent en faire partie.

[17] Le choix du Tribunal est le suivant : il approuve ou il refuse l'Offre Orion/IQ/Pallinghurst.

36 Certain issues raised in appeal do appear to qualify as being significant to the practice of insolvency. This is particularly the case regarding the issue of the scope of authority of the CCAA supervising judge in the context of an order that is not strictly limited to the "sale or disposition of assets" provided for under section 36 (6) CCAA, which, according to the Applicants, results in an outcome that would normally form part of an arrangement subject to prior approval by the creditors. There is also an issue of principle raised regarding the granting of broad third party releases (that are not limited to the transaction itself), outside the confines of an arrangement and without determining their appropriateness and submitting same to the required vote of creditors.

37 There is however reason to question the merit of the appeal in the particular context of the file. The CCAA judge's comments on Cantore's approach in the file (notwithstanding the parties' agreement to postpone the debate regarding the expungement of his "bene esse real rights" in the mining claims), provide the context in which his arguments are being advanced and somewhat affect their legitimacy:

[30] Le report de ce débat, lequel avait essentiellement pour but que la Demande Cantore ne soit plus un obstacle à l'obtention urgente de l'approbation par le Tribunal de l'Offre Orion/IQ/Pallinghurst, dans la mesure où le Tribunal était disposé à aller dans ce sens, n'a pas mis fin à l'opposition du Créancier Cantore à la Demande pour ODI, loin de là.

[31] Ainsi, le Créancier Cantore a continué à prétendre que le Tribunal n'avait tout simplement pas l'autorité et la compétence pour accueillir la Demande pour ODI sauf, par contre, si elle incluait aussi un règlement de la Demande Cantore qui serait alors approuvé par le Tribunal.

[32] Tel que discuté ci-après, il est apparu clairement au Tribunal, tout au long de l'audition, que le Créancier Cantore, par les arguments qu'il présentait, ne prenait nullement en considération ce qui avait été décidé par l'Ordonnance SISP, la Toile de fond de la Demande pour ODI.

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[33] Tout était décortiqué à la pièce par le Créancier Cantore, isolé du portait global, loin de ce que le Tribunal avait déjà autorisé.

[34] À plusieurs occasions, le Tribunal a eu l'étrange impression que l'opposition du Créancier Cantore était un exercice de négociation avec les Débitrices et les Offrants, portant ainsi ombrage à la légitimité des arguments qu'il avançait.

[35] À un tel point tel que, le 8 octobre 2020 05 :19, le Tribunal a fait parvenir un courriel aux procureurs présents à l'audition, mentionnant, entre autres, ce qui suit :

[ . . . ]

• I ask you all to be practical and don't take a legal position in front of the Court on this issue, or any other issue, as a bargaining tool.

[ . . . ]

[Emphasis added]

38 As it turns out 10 , the value of the Cantore provable claims (setting aside the later debate regarding his potential real rights) stands at $8,160 million out of a total value of provable claims of $200 million. Thus, Cantore's provable claims represent at this point in time 4% of the total value of unsecured creditors' claims as determined by the Monitor. Yet, Cantore is the only creditor having voiced an objection to the RVO approval. This begs the question: whose interest is being served by the proposed appeal? What would be the true impact of the Cantore vote on the RVO transaction if it were made subject to prior approval on the part of the creditors as he suggests?

39 In these circumstances, I am simply not convinced that the arguments that are advanced by Cantore are anything but a "bargaining tool", while he pursues multidirectional attacks on the RVO with the same arguments that were dismissed in first instance.

40 That being said, the applicants have also failed to convince me that their appeal will not hinder the progress of the proceedings and that it is not purely strategic (insofar as Applicant Cantore is concerned) or theoretical (insofar as Applicant Shenker is concerned).

41 Serious concerns were raised at the hearing regarding the fact that the RVO may be compromised if the closing (which has already been postponed on more than one occasion since the acceptance of the offer in June 2020) cannot take place as determined in the RVO by December 31, 2020. These concerns are compounded by the risk of a potential cash depletion as contemplated by the Monitor (in his Ninth Monitor's Report) at a monthly rate of $2.5 to $3 million. As well, the Monitor deems it unlikely that an alternative or any other new plan of arrangement could generate a distribution to unsecured creditors in the range currently estimated in the RVO (between $6 million and $14 million).

42 This makes the leave to appeal a risky proposition that could turn into the potential "catastrophy" that the CCAA judge referred to in his reasons, one in which all stakeholders, including creditors, employees, suppliers, the Cree community and the local economies stand to lose. In such event, the rights being debated even if important may become theoretical.

43 As far as Shenker is concerned, while the issues that he proposes to raise with respect to overreaching third party releases are not devoid of merit, granting leave is likely to seriously prejudice creditors, with limited gains to be had on the part of shareholders whose rights remain entirely subordinated to those of the creditors. 11 If the manner of constituting the releases makes them invalid or unopposable, then Shenker, and any other party with a claim against directors, may still have a recourse.

THEREFORE, THE UNDERSIGNED:

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44 DISMISSES the applications for leave to appeal;

45 THE WHOLE, with legal costs.

Notes de bas de page 1 R.S.C., 1985, c. C-36.

2 They essentially consist of residual cash defined as follows in the Accepted bid:

38. The Residual Cash is comprised of: (i) the cash still on hand as at the closing date (to be determined and subject to adjustments), the amount of US$7M from the US$20M escrowed funds held in respect of the Livent litigation (plus accrued interest on US$20M), an amount under the Directors and Officers (the « D&O ») trust of approximately $2M, less (ii) the sum of $12M to be retained by New Nemaska Lithium to cover its assumption of the secured claim of JMBM.

3 The Accepted bid provides for the following consideration:

36. The Accepted Bid is submitted as a credit bid and the full amount of the Orion Secured Claim is used as such by the Bid Group as consideration.

37. The consideration offered under the Accepted Bid includes (i) the assumption by New Nemaska Lithium of the Orion Secured Claim ($134,500,000); (ii) the assumption by New Nemaska Lithium of the Johnson Matthey Battery Materials Ltd. (« JMBM ») secured claim ($12,000,000); (iii) the assumption of various liabilities and obligation (including the Livent obligations and all of the Debtors' obligations under the Chinuchi Agreement from the closing onwards) and (iv) the transfer to Residual Nemaska Lithium of Nemaska Lithium's cash on hand on closing, subject to certain adjustments (the « Residual Cash ») and any Excluded Assets.

4 AbitibiBowater inc. (Arrangement relatif à), 2010 QCCS 1742, para.34-35.

5 9354-9186 Quebec inc. c. Callidus Capital Corp.[Callidus], , 2020 CSC 10, para. 38-52, 67-68.

6 See Supra note 5.

7 V-1.1, r. 33.

8 See Bridging Finance inc c. Béton Brunet 2001 inc., 2017 QCCA 138para. 14 and 15 (per Kasirer, J.A., in chambers); Statoil Canada Ltd. (Arrangement relatif à), 2012 QCCA 665, para. 4 (per Hilton, J.A., in chambers).

9 Aviva Cie d'assurance du Canada c. Béton Brunet 2001 inc., 2016 QCCA 1837, para. 16.

10 In May 2020, Cantore delivered to the Monitor 5 proofs of claims which were disallowed in part by the Monitor by way of a Notice of Revision or Disallowance dated October 22, 2020, leaving an outstanding provable claim of $8,160,000. Cantore has since filed an application to appeal from the Monitor's revision or disallowance of a claim dated October 29, 2020.

11 As highlighted by the CCAA judge during a management hearing held on September 18 2020 as reproduced at paragraph 37 of the judgment:

De plus, le Tribunal tient à répéter que dans un contexte d'insolvabilité, tel que dans la présente affaire, les intérêts économiques des Actionnaires, si tant est que de tels intérêts existent encore, sont entièrement subordonnés à ceux de tous les créanciers des Débitrices, et ce, jusqu'à ce que ces créanciers aient été entièrement payés, ce qui n'est nullement envisagé dans le présent dossier et n'a, semble- t-il, jamais été envisagé par qui que ce soit. Il s'agit d'un principe fondamental en la matière et qui ne doit jamais être perdu de vue.

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