Expanding the investigative powers of a CCAA monitor
In the matter of the Companies’ Creditors Arrangement Act (the “CCAA”) of Bloom Lake, the Superior Court of Québec rendered a judgment regarding the expansion of the powers of the monitor in a context where a creditor refused to produce documentation requested by the debtors. Based on its exclusive jurisdiction to determine the scope of the monitor’s powers in pursuit of the objectives of the CCAA, the Court authorized the monitor to compel any person to be examined and provide documents on a corporation in which the debtors held shares, including information beyond what would normally be available to a shareholder.
Background: Bloom Lake Mine’s interest in the Twinco joint venture
The debtors owned and operated the Bloom Lake Mine in Québec, near the border with Newfoundland and Labrador. They hold 17% of the shares of Twinco, an incorporated joint venture formed under the Canada Business Corporations Act in 1960, among CFLCo, the debtors and Iron Ore Company of Canada, to develop a hydroelectric generating plant on the Unknown River in Labrador to deliver power to mining operations in nearby Labrador City and Wabush.
In the early 1960s, Twinco was granted the rights to develop a hydroelectric power plant by CFLCo, and then proceeded to build the plant. In 1974, CFLCo took over the plant, as well as extensive maintenance obligations with respect to the plant. CLFCo indemnified Twinco in respect of these obligations and the environmental liabilities associated with the plant. However, since that date, according to various assessments, environmental liabilities may have arisen in connection with the latter.
The debtors are of the view that these environmental liabilities are the responsibility of CLFCo and not of Twinco, but do not know whether, and to what extent, Twinco may have funded any environmental maintenance or remediation work that was the responsibility of CLFCo, and for which Twinco may have a claim against CLFCo for reimbursement. However, in the event of a reimbursement to Twinco by CLFCo, the debtors would be allocated their pro rata share of the amount remitted.
The debtors and the Monitor therefore sought the information to determine the amount of maintenance and other compensable expenses that could be reimbursed by CFLCo, but were denied access to any said information. They therefore applied to the Court for orders granting the monitor the investigative powers necessary to obtain this information.
The Court’s authority to define the powers of the monitor
The Court began by recalling the evolution of the role of the monitor over time. Originally a creation of case law, the role of the monitor was given legislative recognition with the 1997 amendments to the CCAA, in addition to making its appointment mandatory. Subsequently, in 2007, the description of its role and its responsibilities were expanded. Since that time, the minimum powers of the monitor are set out in the CCAA and the court is given the discretion to increase them by paragraph 23(1)(k) of the CCAA, which states that “[t]he monitor shall […] carry out any other functions in relation to the company that the court may direct”, as we’ve explained in a previous blog post.
On this basis, the Court rejected Twinco and CLFCo’s argument that the judicial discretion of the courts under s. 11 of the CCAA is limited in such a way that it does not have the necessary jurisdiction to rule on the aplication. Indeed, Twinco and CLFCo argued that the CCAA, which is aimed at restructuring companies rather than liquidating them, would not be the appropriate vehicle to investigate third parties to the CCAA proceedings. The Court noted, based on the judgment of the Supreme Court of Canada in 9354-9186 Québec inc. v Callidus Capital Corp, that the assignment of a unique supervisory role to judges is one of the principal means by which the CCAA achieves its objectives. Thus, the Court held that the determination of the scope of the monitor's powers in pursuit of the objectives of the CCAA is within its exclusive jurisdiction, particularly where those powers relate directly to an asset or property of the debtors that forms part of a sanctioned plan of compromise or arrangement. It therefore granted the expanded powers of the monitor requested by the debtors.
Monitor’s duty of neutrality
Finally, Twinco and CLFCo argued that the monitor's neutrality would be compromised if it were granted the expanded powers requested, given the existence of ongoing litigation in Québec and Newfoundland and Labrador. In response to this argument, Justice Pinsonnault cited the Quebec Court of Appeal in the matter of Aquadis, according to which the principle of the monitor's neutrality was attenuated when the amendments to s. 23 of the CCAA were adopted, making the latter an active participant in the proceedings. As long as the monitor is objective and not biased and his decisions are based on reasoned criteria that promote the legitimate objectives of the CCAA, the requirement of neutrality is satisfied. In this case, the Court found that the expanded supervisory powers sought were limited to providing information to the monitor, without compromising the rights and remedies of the parties.
The limits of the investigative powers of the monitor
Case law prior to the present case, including the recent decision in Square Candiac of Justice Kalichman of the Québec Superior Court, expanded the powers of the Monitor to include the ability to compel any person reasonably believed to have knowledge of any of the debtors, their business or property, to be examined under oath, as well as to disclose and produce to the monitor all documents in his or her possession pursuant to paragraph 23(1)(c) of the CCAA.
Twinco and CLFCo however argued that the powers of the monitor to determine the state of the commercial and financial affairs of the debtor companies should be limited to the corporate documents available to a shareholder. In rejecting this argument, the Court endorsed the reasoning of the Ontario Court of Appeal in Osztrovics, which was decided in a bankruptcy context, but whose principles remain applicable to the CCAA. In that case, Justice Brown held that this narrow interpretation of the investigative powers of the bankruptcy trustee would preclude the enforcement of the duty to creditors to value and realize the most significant asset of the estate. It is on this basis that the Court concluded that the powers of investigation vested in the Monitor go beyond the information that would normally be available to a shareholder.
Jurisdiction to issue orders against third parties, domiciled elsewhere in Canada
The Court finally agreed with the argument of the debtors that orders made under sections 11 or 23 of the CCAA do not necessarily have to be limited to CCAA debtors. Such orders may therefore provide for relief against third parties, including powers of investigation granted to monitors to investigate third parties with respect to the debtor’s assets. In the present case, the Court finds that the requested expanded supervisory powers, being related to the property of the debtors, relate to the debtor company and that this weighs in favor of granting them. Moreover, orders granting expanded powers to the monitor, being granted under the CCAA, are enforceable throughout Canada.
In the last thirty years, the role of the CCAA Monitor has evolved considerably. Recent developments have allowed the Monitor to take an increasingly active role in the proceedings, to the point where practice and case law have accepted the expanded vision of the monitor's role, or even the baptism of the “super monitor”, to use the words of Justice Pinsonnault. It can therefore be expected that this decision will, under the appropriate factual conditions, constitute a new tool in the hands of the insolvency practitioner to investigate the assets of insolvent companies.
Bloom Lake General Partner Ltd (Arrangement relatif à), 2021 QCCS 2946, leave to appeal to the CA requested
CCAA Superior Court of Quebec CCAA Monitor