Cite as: Roynat Inc. v. Keddy Motor Inns. Ltd., s.c.A. No. 02595 1992 NSCA 89 S.C.A. No. 02598 IN THE SUPREME COURT OF NOVA SCOTIA APPEAL DIVISION Clarke, C.J.N.S., Matthews and Freeman, JJ.A. B E T W E E N: ROYNAT INC. and ROYAL TRUST ) Daniel M. Campbell, Q.C. CORPORATION OF CANADA ) for appellant RoyNat Inc. ) appellants ) Peter G. MacKeigan and ) Gregory Cooper - and - ) for Royal Trust Corporation ) of Canada KEDDY MOTOR INNS LIMITED ) ) John D. Stringer, respondent ) Richard Freeman and ) Roy F. Redgrave ) for Keddy Motor Inns Limited ) } Gerald R.P. Moir ) for Central Guaranty Trust ) Company ) ) Appeal Heard: ) February 1., 1992 ) ) Judgment Delivered: ) March 2, 1992 ) ) ) ) ) THE COURT: Appeal dismissed from order sanctioning plan of arrangement under Companies' Creditors Arrangement Act between hotel chain and creditors per reasons for judgment of Freeman, J.A.; Clarke, C.J.N.S., and Matthews, J.A., concurring.
• 1 FREEMAN, J.A.: Two secured creditors are Supreme Court order sanctioning arrangement under the Companies' R.S.C. 1985, c. C-36, on grounds of voting irregularity and unfair practices. Faced with debts threatened to overwhelm it, the respondent, Limited, brought proceedings under the!£!· court orders creditors' actions were stayed, creditors into classes according to interest, and a schedule established requiring a plan to be voted on by November 2, 1991. Following the vote approving the plan as the meetings, it was sanctioned on application to Mr. Nathanson of the Trial Division. The issues on the appeal from his decision he should not have allowed the inclusion of a proxy vote that arrived late, resulting in approval of the plan by the class seeking to overturn the a hotel chain's plan of Creditors Arrangement Act totalling $42,000,000 that Keddy's Motor Inns Under a series of divided amended at Justice are that of
2 capital lease creditors1 that negotiate preferential treatment inducement to vote for a plan confiscatory of secured creditors' rights1 and that the creditors The appellants must strong creditor approval of the plan, a well reasoned decision by Mr. Justice Nathanson and able submissions on behalf of both respondents. The scheme of the Act is contained in s. 6: 6. Where representing three-fourths in value of the creditors or class of creditors, as the case may and voting, either in meeting or meetings thereof pursuant to sections 4 sections, agree to any compromise either as proposed or as altered or modified at the meeting or meetings, the compromise may be sanctioned by the court, and if so sanctioned is binding (a) on all the creditors, as the case may be, and for any such class of creditors, whether secured or unsecured, as the case may be, and on the company1 Important features are that the majority creditors were permitted to within their classes as an had been unfairly classified. overcome obstacles including a majority in number be, present person or by proxy, at the respectively held and 5, or either of those or arrangement or arrangement creditors or class of on any trustee • as defined
3 in the Act can bind the minority, that the final plan is defined by the vote of the creditors modifications can be negotiated up to the time of voting. The right of majority creditors of a class to bind the mi nor i ty is an extraordinary one, reflecting a willingness on the part of Parliament to deprive contractual rights in the interest econanic unit comprised of the creditors. Fairness is preserved by the requirement for court sanction. But fairness must be understood withirt the spirit of the statute. The Act itself, apart from the jurisprudence which has developed around it, is little nicety and provides minimal direct guidance as to procedures to be followed. It is intended to provide distressed businesmen and their creditors with a means of benefit to both, and to the public generally. British Columbia Court of Appeal, Mr. the ·Act in Chef Ready Foods Ltd. [1991] 2 W.W.R. 136 at p. 142: at the meetings, and that some creditors of their of the survival of the ailing corporation and its encumbered by detail or reaching an accommodation of Writing for the Justice Gibbs described v. Hongkong Bank of Canada,
"The CCAA was enacted 1933 when the nation and the world were in the grip of an economic depression. insolvent liquidation followed because that was the only consequence of the only insolvency which then existed--the Winding-up Act. Almost destroyed the shareholders' little by way of recovery exacerbated the social evil of devastating levels of unemployment. The government through the CCAA , to create a principals of the company and the creditors could be brought together under the supervision of the court to attempt a reorganization arrangement under which the company could continue in business.• The~ was considered by the Supreme Court of Canada soon after its enactment in Re Companies' Creditors ~1 A.G. Can. v. A.G. Que., [1934] S.C.R. 659 in which Cannon, J. described it as follows: "Therefore, if the proceedings under this new Act of 1933 are not, 'bankruptcy' proceedings, object the sale and division of the debtor, they may, however, 'insolvency' proceedings preventing a declaration of bankruptcy and the sale of these assets. If interested for the time being reach the conclusion that an opportune arrangement would better protect their interest, as a whole or in part, pr9visions for liabilities of the insolvent element of any insolvency legislation ••• • The Act fell into disuse until recent years 4 by Parliament in When a company became legislation Bankruetcl Act and the invariab y ---r"iquidation investment, yielded to the creditors, and of the day sought, regime whereby the or compromise or Arrangement strictly speaking, because they had not for assets of the be considered as with the object of the creditors directly to avoid such sale the settlement of the are an essential but now
5 appears to be enjoying a resurgency. McEachern, C.J.B.C., discussed its purpose in the influential case of Northland Properties Limited~ al. v. Excelsior Life Insurance Company of Canada~ al. (1989)' 73 C.B.R. 195 (B.C.C.A.): ". there can be no doubt about the purpose of the C.C.A.A. It is to enable compromises to be made for the common benefit of the creditors and of the company,· particularly to keep a company in financial difficulties alive and out of the hands of liquidators. To make the Act workable, it is often necessary to permit a requISTte majority of each class to bind the minority to the terms of the plan, but the plan must be fair and reasonable." Nathanson, J. recognized that court sanction for the plan required that. the court be sati~fied as to three criteria which have evolved through the case law and which were stated in the Northland Properties case. 1. There must be strict compliance with all statutory requirements. 2. All material filed and procedures carried out must be examined to determine if anything has been done or purported to be done which is not authorized by the Companies' Creditors Arrangement Act. 3. The plan must be fair and reasonable. Each of the six classes of creditors voted in favour of the plan by the majority required under the Act. The
6 creditors did not vote as a whole. meetings--including the proxy appeal--showed 92 per cent of the per cent of the value of the claims favored the plan. After three days of hearings in November, 1991, Mr. Justice Nathanson sanctioned the plan. unprofitable hotel or motel properties to be sold or transferred to mortgagees, and the eight profitable "core" properties to be retained. Interest rates on standardized at eleven per cent and amortization periods at years. Numerous variations negotiations, as· contemplated acceptable to the majority of received concessions of particular themselves, that were not made to their class of creditors as whole. Central Guarantee, the largest creditor, was added as respondent in this appeal. It was owed $16,600,000 secured by mortgages on hotels in Halifax, Moncton and Fredericton. Relying on provisions of its security monthly payments of $66,000 to cover municipal taxes and for The votes cast at the class vote at issue in this creditors representing 86.6 It provides for three the core properties were 25 were arrived at through by the ~, to make the plan creditors. Many creditors interest or benefit to a contracts, it negotiated for
payment of its legal fees disbursement out of a trust fund held for renovation expenses. The appellants did not receive equivalent benefits. appear that they engaged in negotiations with the respondents to improve their positions, although they would have been do so. They did not expect the plan to be appoved. The appellants, in voting against the plan, were in the minority in the secured creditor class. the few secured creditors who were fully secure. held a first mortgage for $985,000 on a hotel at Moncton, and RoyNat, Inc., held a first mortgage for $3,750,000 on Keddy's Saint John hotel. Both excess of the first mortgages. position has worsened because their interest rates were £ran 13 per cent, the amortization periods were increased, and they are precluded £ran realizing on their security five-year currency of the plan. creditors negotiated benefits appellants did not receive. bound by a majority of creditors voting out of self-interest in hope of realizing the benefits themselves. 7 of $25, 000 as a protective It does not free to They were among Royal Trust Shediac Road, properties are valued in The appel~ants claim their reduced during the They also object that some for themselves which the They say that they should not be they had negotiated for
8 Moreover, they say the class of secured creditors is too broad, and that ~hey are unfairly secured by non-core properties, and by mechanics' lienholders. They should not, they say, be bound creditors with whom they have no community of interest. I will dispose of issue first. Similar arguments were considered by Forsyth, J. of the Alberta Queens' Bench in Noreen Energy Resources Limited and Prairie Oil Royalties Company Ltd. Ltd., (1988), 72 C.B.R. 20. Be discussed the "commonality of interests test" described in Sovereign Life Assur. Co. v. (1892] 2 Q.B. 573 (C.A) in which Lord Esher stated: ". • If we find a different state of facts among different differently affect their minds and their they must be divided into different classes." Bowen, L.J. stated that a class: " must be confined to those persons whose rights are not so dissimilar impossible for them to consult together with a view to their conunon interest." Forsyth, J. also referred to the "bona fide lack grouped with creditors by the votes of secured the classification of creditors v. Oakwood Petroleums Dodd, creditors which may judgments, as to make it of
9 oppression test" considered in the widely cited case of Alabama, ~Orleans, Texas!~ Junction !1.:_ ££., (C.A.). Lindley, L.J. stated at pl. 239: "The Court must look at the scheme, and see whether the Act has been complied with, the majority are-icting bona fide, and whether they are coercing the minority interests adverse to those of the class whom they purport to represent •••• " Forsyth, J. considered Robertson, Q.C., in a publication entitled "Legal Problems on Reorganizing of Major Financial Canadian Bar Assoclation--Ontario 5th April 1983, at pl. 15 and summarized it as follows: "These comments may c09ent points. First, it is crear that the C.C.A.A. grants a court the authority rights of parties other without their consent. Second, the primary purpose of the Act is to facilitate reorganizations and this factor iiiUit be given due stage of the process, including the classification of creditors made under a proposed plan. the 'identity of interest' proposition as a starting point in the classification of creditors necessarily results in a 'multiplicity which would make any reorganization not impossible, to achieve. In the result, reorganization arises under reject the arguments put forth by the Hongkong Bank and the Bank of America, l [1891] 1 Ch. 2123 whether rn--order to promote an article by Ronald N. and Commercial Debtors," Continuing Legal Education, be reduced to two to alter the legal than the debtor company consideration at every To accept of discrete classes' difficult, if given that this planned the C.C.A.A., I must that since they hold
• separate security over different assets, therefore be classified creditors." There is undoubtedly merit in the . appellants in the present case. doubt be arranged with the benefit of hindsight. been beneficial if secured creditors of core a separate class from secured creditors of and holders of mechanics' liens. require more than a single class of secured creditors, and I satisfied the present classification of creditors rise to any. substantial injustice. court order following a hearing entitled to be heard. That order was distinct from the sanctioning classification order was never appealed, and the 21-day appeal period expired before the class meetings. debtor company were entitled to rely upon it as a foundation for the plan. It is not specifically included in the present appeal because it was not subject proceedings before Nathanson, J. who was bound by it. The proper procedure for attacking the classification order was by appeal from that order, not 10 they must as a separate class of arguments of the Better classifications could no It might have properties were in non-core properties However the Act does not am does not give Classification was by a at which the creditors were made earlier than and the plan. The The creditors and the to collateral attack in the way of the sanctioning order.
• 11 Nevertheless, because of the overall court to ensure fairness of could intervene with respect to necessary to avert substantial injustice. the present circumstances warrant this court's intervention. would reject the grounds of appeal based on classification. The ground of appeal first stated by the is their assertion that a late-arriving proxy have been counted in the voting for the plan for the capital lease creditors. Without that vote that plan would have been defeated. The assumpton of the appellants that rejection of a class plan would defeat the entire plan, or at least render it unfeasible, intention of the Act and to s. They assert a right to appeal from the result of plan approved by another class of creditors because approval of that plan was essential to the overall plan which is binding them. Without endorsing that reasoning, the duty of this court, once again, is to consider assessing the fairness of the plan. over the votes of all classes of vote is a nullity it must be rejected. supervisory duty o~ the the plan, it is my view that we the classification order if I am not satisfied I appellants vote should not class of appears to be but that is contrary to the 7.03 of the plan as sanctioned. voting for a on whether the trial judge erred in This includes jurisdiction creditors: if the impugned
12 Meetings of the six classes of creditors took place November 1 and 2, 1991. The meeting of creditors was held the first day. entire plan, including the plan for statements of amendments were before the creditors. of results of the most recent negotiations were made orally at the meeting, having the effect of amending the plan them. Marcus Wide of Coopers & Lybrand, the court appointed monitor, acted as chairman of all a motion of •closure• of the meeting following the is, he sought a motion prior to the vote to take effect after the vote. The minutes disclose that such a motion was made and seconded but do not show that it was voted on. motion the creditors and their dispersed. There was no motion for adjournment. was sealed. The votes were not to be counted until after the last class meeting the next day. Martin MacKinnon, Keddy's representative, was Wide at 5:08 p.m. on November 1. that Mr. Wide the capital leasing The origi'nal draft of the that class, and written Disclosures to include the meetings. He called for vote. That After this proxies cast their votes and The ballot box The Bruncor proxy in favour of received by Mr. Mr. Justice Nathanson said
" • • declined to include and count the vote in the final tabulation of votes. reluctant to deny a opportunity to express its view concerning the plan, he brought the matter to the attention of the court in the monitor's final report". The Monitor's report on the result of the vote capital lease creditors, and follows: 2. Capital Lease approve the plan Value of creditors voting $679,148 Percentage Number of creditors voting Percentage The Monitor wishes that a proxy, instructing Mr. vote in favour of the Bruncor Leasing Inc., a capital the amount of $212,959, on the afternoon of November 1, 1991, subsequent to the meeting for that class, but not before the final meeting while the ballots were still in sealed boxes. instruction regarding proxies notice of Meeting provides as follows: A proxy may faxed or mailed- to monitor at any time creditor meeting, thereof, or may be chairman of the meeting 13 However, legitimate creditor an by the the controversial proxy, is as Creditors--failed to For Against $261,509 72 28 8 1 89 11 to advise the Court Martin MacKinnon to plan, was received from lease creditor in of creditors and The circulated with the be deposited with, and received by the up to the respective or any adjournment deposited ·with the immediately prior
14 to the creditors meet.ing, or any adjournment thereof. This vote has tabulated,. Had the vote been tabulated Lease Class of Creditors plan with 77.3 of the value of that class and 90 per Mr. Justice Nathanson Orleans, Texas and Pacific Junction Railway Company, Ch. 213 at p. 245 as authority for the statement that the vote required for approval of a plan is Ra condition precedent to the jurisdiction of the court.R He stated that Rif the vote is not in accord with the statutory exercise its jur isd ic.tion under plan. Strict canpliance with mandatory. R The Act provides statutory majorities necessary to approve a plan by a class of but no guidance as to the Rpresent and voting either in person or by proxy at the or meetingsR of the creditors or a class of creditors have been referred to by counsel as a voting therefore not been the Capital would have approved the the votes cast in cent of the number. cited In re Alabama, New [1891] 1 requirement, the court cannot the statute to sanction the the statutory requirement is requirements as to the creditors, manner of voting. The words meeting directive. In context,.
15 however, they merely define the creditors to be considered in determining whether the requisit~ majorities for approval of the plan have been met. The somewhat unusual meeting by motion prior to the vote presumably fixed the plan in the form it had attained up to the moment of closure and cut off further discussion while the creditors turned their attentions to the actual process of voting. of the meeting as discussion of the plan: while the voting was in progress the meeting necessarily Counting the ballots is as casting them. Apart fran the security measure of ballot box, no step was taken, no motion moved nor voted on, to end the meeting or to close the voting, the votes and the counting of them. The meeting must still have been an existing, though fictitious, entity at the time the votes were counted: the count necessarily occurred within the context of continuation of the meeting and the acceptance of the late proxy vote finds support in the case Concessions Limited, [1913] 1 Ch. ( procedure of •closing• the Voting is as much a function continued in existence. much a function of the vote as sealing the between the casting of the meeting. The law. See Shaw v. Tati 292, Washington State Labour
16 Council v. Federate American Insurance Company, Wash. 98 (S. C. En Banc) • Counsel for the appellants complain that the proxy was obviously solicited fran Bruncor Keddy's. However they specifically acknowledged that they do not allege it was induced by improper benefits. While it was obviously intended that proxies should be produced prior to the meetings, there appears to in the Act, nor in the orders, nor in the voting instructions of the monitor, to preclude the submitted prior to the counting applies. That is stated in Company Meetings by J.M. Q.C. 2nd ed., 1969 at p. 72 in his discussion of Rules of Order: When a poll is taken forthwith. If the poll is on the election of a chairman or on a motion shall be counted forthwith, and the result declared before any further business is other question the count may be made at such time as the chairman directs, and proceeded with pending the results of the poll. to the time the poll is declared closed and the chairman (or the scrutineers) ballots, any qualified voter may vote. 474 P. 2d by representatives of side deals or secret be nothing tabulation of a proxy vote of ballots. The common law Wainberg, demanded, it shall be to adjourn, the votes conducted. On any other business may be Up begin examining
The vote was carefully conducted, with due attention to fairness and security. I am not satisfied that prejudice was suffered by creditors of any other class counting of the vote of a creditor qualified to vote in every respect save for tardiness. It is important that creditors not be disenfranchised for technical reasons; an expression of the collective will of the creditors, and it is important that be as broadly based as possible. borne in mind that this was a Companies' Creditors Arrangement~' not a meeting of municipal councillors or a company board of directors. illegality within the spirit and purpose of the irregularity, is necessary to invalidate the ballot. ballot was n9t invalid, it must be counted. As McEachern, C.J.B.C. said in Northland, "As the authorities say, we should not be astute in finding technical the decision of such a majority.• Nevertheless, late proxies are not desirable. create uncertainty, and there exists a perceived possibility for abuse. The reason for holding the counting of the all creditors had voted was ( 17 as a result of the approval of a plan is It must be vote by creditors under the Clear evidence of Act, not mere If the arguments to overcome They votes until to ensure that classes with the
18 latest meetings would not have knowing how other classes had voted. meetings would be well advised pranptly after they are cast properly adjourned. There would be no need results until after the last meeting. I am not satisfied the appellants have demonstrated that Mr. Justice Nathanson erred at law in approving the Bruncor ballot. I would dismiss this ground of appeal. The remaining grounds allegation that the plan for secured creditors was actually a number of plans tailored to individual creditors. is closely related to the classification issue. of interests test is no longer strictly applied because of its unwieldiness. It necessarily classes of secured creditors must contain variations tailored to the situations of the various Equality of treatment--as opposed to equitable treatment--is not a necessary, nor even a desirable goal. and of themselves unfair, provided there is proper disclosure. They must, however, be determined to the negotiating advantage of Chairmen of creditors' to have the ballots counted and then to have the meeting to announce the of appeal include the This ground The commonality follows that plans for broad creditors within the class. Variations are not in be fair· and reasonable
19 within the context of the plan as a whole. The other grounds to be considered within the general heading of unfairness include allegations that votes of creditors obtained by inducements that the plan was not fair .creditors and that the process employed by the respondent was inherently unfair. The instances complained of Justice Nathanson's decision and need not be repeated here. dealing with them generally, appellants overlooked was "that examined in the light of what is in the best· interests class of secured creditors to creditors as a whole." He summarized his conclusions about the complaints as follows: " • • some of relatively inconsequential, context which is not stated. surface to be the whole truth is, in reality, of less moment • • • " secured should have been excluded, and reasonable among secured are set forth in Mr. In he remarked that what the their objections must be of the which they belong and of the the complaints are others have another . What appears on the
20 Be stated that he applied the following principles, which he derived from the case law: 1.. Negotiations between the debtor company and creditors are salutary and ought to be encouraged. 2. Secret or side deals or arrangements are improper. Their impropriety can be ameliorated by making full disclosure in a timely manner. 3. There is no authoritative definition of what constitutes full disclosure or timely manner; therefore, these may be questions of fact to be determined in each individual case. 4. Members of a class of creditors must be treated fairly and equitably. Where different members are treated differently, all members of the class must have knowledge of the plan overall and for the particular class. Mr. Justice Nathanson made the following findings: ~r find that the debtor company made full disclosure in a timely manner by setting out the essential characteristics of the proposed plan, that is, all material information needed by a creditor in order to make a fair and informed judgment, in the draft plan as filed, in the two addenda circulated to the members of the class, and in the oral communications made during the meeting which could not have been made in writing at an earlier time because of the continuance of negotiations with various creditors. I also find that the members of the secured creditors class had full knowledge of the plan in its application to all members of that class and generally in its application to all creditors of all classes. I find that the members of the secured
creditors class are treated fairly and equitably the plan as amended. Some sacrifices will be made, but the evidence discloses that those sacrifices are of windfalls which might accrue if the plan is no~ approved and the sacrificing creditors are able to realize on the security they hold. I hold that the proposed plan is fair and reasonable. It is a bona attempt to achieve a resu~hie1ll"s generally to the creditors •••• • The burden on the appellants to show otherwise is a very heavy one. In considering fairness Mr. Nathanson was in the last discretion in addition to identifying and of law and making findings of fact. repeatedly, on sound authority, interfere with discretionary findings by a trial judge serious or substantial injustice, material injury or very great prejudice would otherwise result. McCarthy v. Acadia University (1977), 18 N.S.R. ~ Corporation v. Nova Scotia Savings and~~ al. 59 N.S.R. (2d) 331: Coughlan et al. Holdings Ltd. et al • ( 1 9 8 9) , 91 N• s. R. v. Poole and Lambert (1991), 101 N.S.R. authorities cited therein. 21 in at least some of which fide and creditable fair Justice analysis exercising his applying rules This court has ruled that it should only if See, for example, (2d) 364: v. Westminer Canada (2d) 214: Minkoff (2d) 143: and the
22 ·When the judicial discretion is exercised in favour of sanctioning a plan proposed by a debtor but in a very re?l way created by a resounding majority vote of its creditors, the burden becanes even heavier. Nevertheless, there serious concern which the appellants including the fact that the Guaranty did not support the plan until been made for paying its legal instalments of municipal taxes. characterized as inducements unfairness would be apparent. A creditor which withholds its support plan because it has failed to address legitimate concerns arising from its contractual relationship with the company is perfectly within its improvements. The Act encourages negotiation. It is not material whether agreement occurs soon after the first draft of the plan is the resulting amendments can canpany on the appellants remain sane matters of have raised, respondent Central Trust arrangements had costs and for monthly If these could be to procure its vote, fran a debtor right to insist on just this kind of circulated, so also be circulated to
23 creditors, or whether a last-minute compromise is reached moments before the vote. The disclosure to be made in the latter instance will be necessarily sketchier than the one made in the former. On the other hand a creditor whose legitimate concerns have been met on a basis similar to that of other creditors in its class, but which continues to insist on a benefit to which it is not entitled as the price of its vote, is attempting to commit the debtor to an unfair practice which could invalidate the whole plan. The distinction between the two situations must be drawn by the trial judge, and there will be occasions when it is a very difficult and murky one. The benefit derived by the Relax Company in the Northlands case is an example of the first instance. So are the benefits negotiated by the Central Guaranty Trust in the present case. It seems clear that when other complaints of instances of unfairness were found by Mr. Justice Nathanson to involve matters of substance, he was able to consign them to the first category. I am not satisfied that he was wrong in doing so.
24 The Act clearly contemplates rough-and-tumble negotiations between debtor companies desperately a chance to survive and creditors willing to keep them afloat, but on the best terms they creditors and the company must their own design, not the creation court's role is to ensure that creditors who are bound unwillingly under the Act are not majority and forced to accept unconscionable. No amount of disclosure could compensate for such deliberately unfair disclosure, nor the votes of the majority, can be used victimize a minority creditor. negotiated inequalities of treatment characterized as unfair in another context may well be ameliorated when made part of the plan by voted upon by a majority. Lack of disclosure, however, can transform an intrinsically terms of a plan into an unfair invalidates a plan. As a general include all of the arrangements made between the debtor company and the creditors1 in seeking can get. What the live with is a plan of of a court. The made victims of the terms that are treatment. Neither to On the other hand which might be disclosure and fair alteration in the secret deal which rule the plan must principle, undisclosed
25 arrangements cannot be part of the plan because they are not what the creditors voted for. Nathanson, J. found there is no authoritative definition of full or timely disclosure--these were questions of fact. Consequences of inadvertent and innocent non disclosure and imperfect or inadequate disclosure must be assessed. This involves a fine sifting of all factors to tax the skill of a trial judge; I am not satisfied Nathanson, J. committed reversible error in his analysis nor in his conclusion that all material information had been disclosed. Another concern of the appellants, and of this court, is that regardless of any benefits they did not receive but which were negotiated by other secured creditors in their own interests, they are left worse off under the plan than they were under the provisions of their own security contracts. The appellants had taken pains to protect their own interests when they made the loans, and they would be repaid if they were left the freedan to realize on their security. In his decision on a classification order in Re NsC Diesel Power Inc. (1990), 97 N.S.R. (2d) 295 Mr.
26 Justice Davison cites with approval an Edwards in the Canadian Bar Review quotes Mr. Edwards at p. 595 as follows: •There can hardly be a dispute as to the right of each of the parties to proposal at least as much as he would have received if there had been no reorganization. company is insolvent this have received upon liquidation. At p. 594 Mr. Edwards said •A further element of feasibility is that the plan should embrace all parties if possible, but particularly secured creditors, so not be left in a position to foreclose and dismember the assets after the arrangement is sanctioned as they did in one case.• The one major disadvantage the appellants the loss of the present right to realize on their security. They may well consider that that right has been confiscated from them. It is essential to the purpose of the Act to bring about such a result, but it must be done fairly. With an exception involving a government agency which had not been receiving a commercial rate of secured creditors have their current market level of eleven per article by Stanley E. (1947} Vol. 25 at p. 587. He receive under the Since the is the amount he would that they will suffer is interest, all the interest rates reduced to the cent, amortization periods
increased, and in one case, principal However the appellants' security is unimpaired, and apart from the reduced interest, they stand to would have if the reorganization had not taken place. worst disadvantage is that they are delayed in recovering their security, which appears to be a necessity if the plan is to succeed. There is nothing to suggest that Keddy's, other creditors, sought to take advantage of them. were asked to accept what appears to be the minimum disadvantage consistent with a plan which survival. And, had they chosen to negotiate, they improved the terms. In the long term appellants should be required to appears likely courts must be keeping with the spirit of the Act. At first blush the reduction of their interest from approximately 13 per cent represent a greater loss than can fairly be imposed However what they are entitled to is not what they would recover if the contract were to be 27 and interest blended. recover as much as they Their under or the Rather, they might permit the company's might have creditors in the position of the suffer no loss, and when such vigilant to protect them in rates to 11 per cent appears to upon them. continue to its fulfillment as
28 originally contemplated. What they are Edwards points out, is what they would recover from an insolvent company upon liquidation. That is, they would outstanding balance they are owed plus interest reduced interest rate relates liquidation they may be presumed capital at present market rates. fairly represents the present market obtain on reinvestment of the funds. which they complain are merely delays in recovery for which they will be compensated by interest. inconvenience but no injustice. unfairly within the spirit of the Act. The plan originally unacceptable to many of the creditors, although it would to have been offered in good faith. an acceptable plan, without any certain knowledge of the matters of chief concern to the individual creditors •. If there had been no room for movement the plan would predictably have failed. What appears to be controversial entitled to, as Mc. be entitled to recover the to date. The to future interest. On to reinvest their recovered The eleven per cent rate rate they would likely The other disadvantages of They have suffered They have not been treated proposed by Keddy's was appear Keddy's had to try to offer is that a process of
• 29 negotiations took place within a compressed time Keddy's and the creditors, in creditors were considered. It does not appear that negotiated by any creditor disadvantages to another, nor does it appear that the advantages were so great as to constitute viewed in their worst light. In keeping with the purposes of the Act, substance must prevail over merely theoretical or technical considerations. The process other creditors were reasonably well advised of that were agreed to, with the possible exception of some last minute changes of a relatively detailed disclosure. There appears to have been no deliberate intention to conceal or mislead. The appellants were aware of the process but, in belief that the plan would They were under no duty to However, their choice not to these facts to destroy a plan so strongly supported by the other creditors. The plan does not treat the creditors equally, it treats them equitably. In process by which it was achieved were not frame between which the concerns of the advantages were offset by substantial substantial unfairness even took place in the open, and·the all amendments minor nature that escaped the fail, did not fully participate. negotiate for better terms. do so does not entitle them on but my view both the plan and the perfect, nor. beyond
• 30 criticism, but they were roughly fair and within the objectives of the!.£!, as Nathanson, J. determined. Considered as a whole, the concerns of the appellants are understandable. But when they are examined within the framework of the purposes and objectives of the Companies' Creditors Arrangement Act they lack sufficient substance to justify interference by this court with the plan sanctioned by Mr. Justice Nathanson. I would dismiss the appeal. As the issues involved in this appeal were not previously considered by this court, the parties should bear their own costs. Concurred in: Clarke, C.J.N.S. Matthews, J.A.
• 1991 I~ THE St.:PR~~E COCRT OF TRIAL DIVISION THE COMPA~IES' CREDITORS ~· R.S.C. - and -The Application of KEDDY LI~lTEO, a is~ered off ice in the City of Halifax, County of Halifax, Nova Scotia in Ch~rnbers at Halifax, Nova Scotia before the Honour- ~bla ~r. Justice Nathanson, Trial Divisiont on Novemb~r 20, 27 - 29 and December 5, 1991. u ::c.: ! SI o~: December 5, 1991 COt.:~SC:!.. J. Stringer, Esq. R.F. Redgrave, Esq. R. Freeman, a/c J.F. Merrick, Q.C. D.R. Beveridge, Esq. G.R.P. Moir, Esq. T.O. Boyne, Q.C. D.M. Campbell, Q.C. J.C. McCrea, C:sq. E.A.N. Blackburn, Q.C.) G.A. Macintosh, C:sq. P. MacKeigan, Esq. G. Cooper, Esq. K.A. MacDonald, Esq. T.C. Matthews, Esq. C.A. Holm, Q.C. S • H • No • 7 7 9 7 4 NOVA SCOTIA ARRANGEMENT 1985, c. C-36 MOTOR INNS body corporate with its reg-(oral) - for the applicant, Keddy Motor Inns Limited - for the monitor, Coopers & Lybrand - for creditor, Central Guaranty Trust Company - for creditor, Bank of Montreal - for creditor, RoyNat Inc. - for creditor, Eddy Group ) Limited -_for creditor, R~yal Trust Corporation of Canada - for creditor, Royal Bank of Canada - for creditor, Confederation Trust Company for creditor, Canadian Imperial Bank of Commerce
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