Dutil, Schrager, Dumas (ad hoc)
Appeal from a judgment of the Superior Court refusing to order a creditors’ meeting and approving a financing agreement. Allowed.
The trial judge authorized the financing of a proposed lawsuit against a creditor for $200 million, which was the only asset available to the debtors as a basis for a plan of arrangement. He also refused to allow that creditor to vote on a plan of arrangement that it intended to present to the creditors, the terms of which provided for a release in its favour.
It was clear that the proposed plan was in that creditor’s interest because it would have allowed it to be released from any litigation instituted by the debtors, including the litigation supported by the financing. It proposed to finance the plan itself and that suited the vast majority of creditors. It was not an “improper purpose”, either in law or in fact. In the circumstances, depriving it of its voting rights, which were required to approve the plan, constituted a reviewable error.
The judge also committed a reviewable error when he characterized the financing agreement as “interim financing” because there was no connection between it and the debtors’ commercial operations. Rather, it is an accessory to the proposed plan of arrangement. The concept of “plan of arrangement” should be given a broad interpretation. As such, the judge should have made it subject to creditor approval, especially since he had opted for that solution in a previous scenario. His decision in this respect was an inappropriate exercise of his discretion.
In light of the foregoing, the debtors and the creditor should each be allowed to present their own plan of arrangement.
*Summary by SOQUIJ
Text of the decision: Http://citoyens.soquij.qc.ca