Extending “Protection” to Third Parties in a Restructuring Plan – An Overview

Extending “Protection”
Extending “Protection” to Third Parties
in a Restructuring Plan – An Overview
Mark E. Meland*
The depth and duration of the current economic recession has
caused a corresponding increase in the number of corporate debtors
seeking to restructure their affairs and to arrive at court-supervised
settlements with their creditors. Because any restructuring necessarily
involves many different constituencies, restructuring plans need to
delicately balance the often conflicting demands and expectations of
all such constituencies. In that regard, it is becoming more common to
include in plans of compromise and arrangement under the
Companies’ Creditors Arrangement Act [R.S.C. 1985, c. C-36] (the
“CCAA”) and in proposals under the Bankruptcy and Insolvency Act
[R.S.C. 1985, c. B-3] (the “BIA”), provisions which seek to grant
releases in favour of third parties (i.e., parties other than the debtor and
its creditors). Usually, the releases therein contemplated are in favour
of the principals of the debtor and their advisors in situations where
the principals are being called upon to give up economic or operational
control of the debtor.
The purpose of this paper is to discuss whether such third-party
releases fall within the scope of the BIA and the CCAA and, if so,
what are the parameters which should be considered in determining
whether a proposal or a plan of arrangement containing such releases
should be sanctioned by the Court.
The Contract Analogy
It is generally acknowledged that a proposal is a contract be-
*Partner in Goldstein, Flanz & Fishman.
tween the debtor and its creditors.1 In the case of Re Lipson,2 Fisher
J. of the Ontario Supreme Court stated the following at p. 643
Duncan in his work on Bankruptcy, at p. 214, states that a composition
or scheme of arrangement, though approved by the Court and
by statute binding on all the creditors, is at bottom only a contract
between the parties; and I agree that this is a correct statement of the
In principle, therefore, the only limitation to the “schemes” offered
in a proposal “is the ingenuity of the draughtsman and the question
of whether or not creditors will accept them.”3
However, the Quebec Court of Appeal arrived at a different conclusion
in a recent judgment.4 The Court refused to sanction, as
drafted, a plan of arrangement submitted by Steinberg Inc. and which
had been approved by the statutory majority of creditors. In that case,
the Court held that although the plan of arrangement binds all
creditors, including dissident creditors, the contract analogy is inapplicable.
The Court of Appeal concluded that provisions in the plan
which deemed it to be a binding contract between the debtor and all of
its creditors, with the effect that each of the creditors was deemed to
have executed and delivered to the debtor all consents, waivers, etc.
necessary to give effect to the plan, were outside of the scope of the
The judgment of the Quebec Court of Appeal in Steinberg Inc.5
did not consider the judgment of the Supreme Court of Canada in the
1Re Lipson, 3 C.B.R. 640, 4 C.B.R. 115, 53 O.L.R. 399, [1923] 2 D.L.R. 347
(S.C.), affirmed 4 C.B.R. 432, 55 O.L.R. 215, [1924] 3 D.L.R. 761 (C.A.);
Employers’ Liability Insurance Corp. v. Ideal Petroleum (1959) Ltd., [1978] 1
S.C.R. 230, 26 C.B.R. (N.S.) 84, 75 D.L.R. (3d) 63, 14 N.R. 503; Re Canadian Vinyl
Industries Inc. (1978), 29 C.B.R. (N.S.) 12 (Que. S.C.); Metrocan Leasing Ltee c.
Francois Nolin Ltee, 55 C.B.R. (N.S.) 192, [1984] C.A. 505 (Que.); Seward v.
Marcoux, [1991] RJ.Q. 1832, (sub nom. Re Seward) 41 Q.A.C. 213.
2Re Lipson, ibid.
3Houlden and Morawetz, Bankruptcy and Insolvency Law of Canada, Vol. 1, 3d
ed. (Toronto: Carswell, 1993), at 2-115.
4Michaud c. Steinberg Inc. (16 juin 1993), n° C.A. Montreal 500-09-000668-939
(C.A. Que.).
Extending “Protection” 63
case of Employer’s Liability Insurance Corp.6 In that case, the
Supreme Court of Canada, speaking through De Grandpre J.,
described a proposal made under the Bankruptcy Act as follows (at
p. 239) [S.C.R.]:
The proposal is a contract between the debtor and his creditors.
When it is made in accordance with certain formalities prescribed in
the Act this contract, which binds all the creditors, even the dissenting
minority, is not an act of bankruptcy, and the situation which
results from it is not a situation of bankruptcy. (emphasis added)
Similarly, it appears that the Quebec Court of Appeal did not
consider its previous judgments in the cases of Metrocan Leasing,
etc.7 and Seward v. Marcoux8 wherein it held that a proposal made
under the Bankruptcy Act constitutes a contract between the debtor
and its creditors.
The CCAA contemplates the debtor making a compromise or an
arrangement with its creditors. A compromise implies a mutual or
consensual agreement between opposing interests and an adjustment
of contested claims by mutual accommodation or concession.9
Similarly, the essence of a proposal is that it is a judicially supervised
settlement of claims between a debtor and its creditors. Hr In his text,
Debt Restructuring,11 John D. Honsberger writes the following in
respect of an arrangement:
An arrangement is a contract and by reason of problems of consideration
it is drafted usually in out of court proceedings as a contract
between the debtor and the creditors and also among the
creditors themselves.
Therefore, in each of the cases of a compromise, an arrangement and a
6Supra, note 1.
7 Supra, note 1.
8 Supra, note 1.
9Re Ursel Investments Ltd. (1990), 2 C.B.R. (3d) 260 (Sask. Q.B.) [reversed in
part 10 C.B.R. (3d) 61, (sub nom. Deloitte & Touche Inc. v. Ursel Investments Ltd.
(Receiver of)) [1992) 3 W.W.R. 106, 89 D.L.R. (4th) 246, 97 Sask. R. 170, 12
W.A.C. 170 (C.A.)].
10John D. Honsberger, Debt Restructuring – Principles and Practice (Aurora:
Canada Law Book Inc., 1993) at 1-21.
11Ibid at 1-19.
proposal, the notion of contract is prevalent.
In view of the foregoing, it is submitted that a bankruptcy
proposal or a CCAA plan should, when approved by the requisite
statutory majority of creditors and sanctioned by the Court, be interpreted
as a binding contract between the debtor and its creditors.
Although the case law approving the contract analogy deals primarily
with bankruptcy proposals, the “cram-down”12 provisions of the BIA
have virtually the same effects as those contained in the CCAA.
Consequently, the above quoted dictum of De Grandpre J. in
Employer’s Liability Insurance Corp.13 should be applicable to cases
under the CCAA.
Releases in Favour of Third Parties
Since a bankruptcy proposal or a CCAA plan (hereinafter collectively
referred to as a “Restructuring Plan”) is, in essence, merely a
contract between a debtor and its creditors, there appears to be no
reason, either from a public policy perspective or an “equity” perspective,
why the Restructuring Plan cannot provide for the granting of
certain releases in favour of third parties as long as the rights being
released are not personal to any one or more creditors and that such
releases are fair and reasonable in the circumstances. In Olympia &
York Developments Ltd. v. Royal Trust Co.,14 Mr. Justice Blair of the
Ontario Court of Justice stated at p. 19 [C.B.R.J:
There is, indeed, authority to suggest that a Plan of compromise or
arrangement is simply a contract between the debtor and its creditors,
sanctioned by the court, and that the parties should be entitled to put
anything into such a Plan that could be lawfully incorporated into any
Certainly, the capacity of contracting parties to stipulate in
favour of third parties is recognized both by the civil law of Quebec
12The expression “cram-down” as used in this paper contemplates a situation
where a minority of creditors in a class who voted against a proposal or a CCAA
plan or abstained from voting become bound by the proposal or the CCAA plan,
once sanctioned by the Court. It should be noted, however, that the expression has
wider implications when used in the context of restructurings under the U.S.
Bankruptcy Code.
13Supra, note I.
140lympia & York Developments Ltd. v. Royal Trust Co. (1993), 17 C.B.R. (3d)
1, (sub nom. Re Olympia & York Developments Ltd.)’12 O.R. (3d) 500 (Gen. Div.).
Extending “Protection” 65
and, in analogous circumstances, by the common law of other
provinces of Canada such that there is no prohibition, per se, to the
granting of releases in favour of third parties. IS In fact, the ability to
grant such releases is implicitly recognized in the BIA in Section
101.1(1) which reads as follows:
101.1(1) [Application of sections] Where a proposal is made
under Division I of Part III, sections 91 to 101 apply to the proposal,
with such modifications as the circumstances require, except where
the proposal otherwise provides. (emphasis added)
The effect of Section 101.1(1) is that a debtor, in its proposal,
can prevent the exercise by the trustee of recourses against third
parties in respect of settlements and preferences and, thus, is able to
effectively cause the “release” of the beneficiaries of such settlements
and preferences.
For the purposes of this paper, releases in favour of third parties
can be broken down into the following three main categories:
i) Releases granted or deemed to be granted by creditors in
favour of persons who have guaranteed the obligations of the
debtor to one or more of its creditors;
ii) Releases granted by the debtor in favour of third parties; and
iii) Releases granted or deemed to be granted by creditors in
favour of the debtor or in favour of third parties in respect of
claims which are common to all creditors in the affected class.
Releases in Favour of Guarantors
The acceptance of a proposal by creditors does not release any
15In Quebec, article 1029 of the Civil Code of Lower Canada recognizes the
validity of stipulations contained in a contract for the benefit of third parties. Under
common law, it is generally recognized that the third party beneficiary of a release
(when the granting of such release was one of the considerations of the contract) is
entitled to raise common law estoppel as a shield to an action asserted by the party
who executed the release. In addition, the Supreme Court of Canada relaxed the rule
of privity of contract to enable employees to benefit from a limitation of liability
clause stipulated in a contract entered into between their employer and the releasing
party in the case of London Drugs v. Keuhne & Nagel International Ltd., [1992) 3
S.C.R. 299, [1993) 1 W.W.R. 1, 43 C.C.E.L. 1, 13 C.C.L.T. (2d) 1, 73 B.C.L.R. (2d)
1, 97 D.L.R. (4th) 261, (sub nom. London Drugs Ltd. v. Brassart) 143 N.R. 1, 18
B.C.A.C. 1, 31W.A.C.1.
person who would not be released by the discharge of the debtor.16
Section 179 of ~he BIA states that “an order of discharge does not
release a person who at the date of the bankruptcy … was surety (for
the bankrupt).” This is the general rule under the BIA.
Similarly, it has been held that the CCAA does not extend its
“protection” to cover any guarantor of the obligations of a corporation
subject to the CCAA.17 The case law under the CCAA in respect of
the treatment of guarantors has generally relied upon judgments
decided under the BIA (or earlier versions of the Act). In the case of
Re Keddy Motor Inns (No. 3 ), l8 the Nova Scotia Supreme Court held
that where a CCAA plan of compromise or arrangement includes
provisions prohibiting creditors from proceeding against guarantors of
indebtedness of the debtor company, the proposed plan cannot be
sanctioned in that the remedies provided by the CCAA are not available
to third parties and, thus, strict compliance with statutory requirements
is not met.
Consequently, it appears that the first category of releases in
favour of guarantors is not contemplated by either the BIA or the
CCAA. Therefore, a Restructuring Plan should not be sanctioned by
the Court if it contains such releases unless all creditors relying on
such guarantees have approved the plan. Alternatively, the Court may
sanction the Restructuring Plan and, as in the case of Re Keddy Motor
16Section 62(3) of the BIA, Re Kern Agencies Ltd. (No. 2), 43 C.B.R. 11, [1931] 2
W.W.R. 633; Standard Trust Co. v. Paragon Homes Ltd. (1987), 66 C.B.R. (N.S.)
224, 54 Alta. L.R. (2d) 48, 81 A.R. 187 (Q.B.); Y. Goldstein, Bankruptcy As It
Affects Third Parties: Some Aspects in Meredith Memorial Lectures (Cowansville:
Les Editions Yvon Blais Inc., 1985) 198 al 202.
11Browne v. Southern Canada Power Co. (1941), 23 C.B.R. 131, 71 Que. K.B.
136 [affirmed (1941), 23 C.B.R. 131 at 138, 78 Que. S.C. 540 (C.A.)]; Re 229531
B.C. Ltd. (1989), 72 C.B.R. (N.S.) 310 (B.C. S.C.); Re Fairview Industries Ltd.
(1991), 11 C.B.R. (3d) 37, (sub nom. Re Fairview Industries Ltd. (No. 1)) 109
N.S.R. (2d) 8, 297 A.P.R. 8 (T.D.); Re Keddy Motor Inns Ltd. (sub nom. Re Keddy
Motor Inns Ltd. (No. 2)) (1991), 107 N.S.R. (2d) 419, 290 A.P.R. 419 (T.D.) and Re
Keddy Motor Inns Ltd. (sub nom. Re Keddy Motor Inns (No. 3)) (1991), 107 N.S.R.
(2d) 424, 290 A.P.R. 424 (T.D.) [affirmed (1992), 13 C.B.R. (3d) 245, 90 D.L.R.
(4th) 175, 6 B.L.R. (2d) 116, (sub nom. Re Keddy Motor Inns Ltd. (No. 4)) 110
N.S.R. (2d) 246, 299 A.P.R. 246 (C.A.). For the contra position see Re Quintette
Coal Ltd. (1991), 7 C.B.R. (3d) 165, (sub nom. Quintette Coal Ltd. v. Nippon Steel
Corp.) 56 B.C.L.R. {2d) 80 (S.C.), with reference to the ex parte order rendered by
Thackray J., on June 13, 1990, enjoining creditors from making demands for payment
upon any guarantor of an obligation of the debtor.
18Re Keddy, supra, note 17.
Extending “Protection” 67
Inns (No. 3),19 delete the provisions granting such releases.20
Releases Granted by the Debtor
Insofar as the second category of releases granted by the debtor
in a Restructuring Plan,21 there is little doubt that such releases are
consistent with the BIA and the CCAA in that the general rule under a
proposal or a plan of arrangement is that the debtor retains the administration
of its property once the Restructuring Plan is sanctioned
by the Court. A release granted by the debtor in favour of a third party,
when adequately disclosed to the creditors,22 merely constitutes one of
the many ways that a debtor deals with its assets in the context of a
In the CCAA plan submitted by Olympia & York Developments
Ltd. and 25 other Applicants and sanctioned by the Court,23 a series of
releases24 were stipulated which had the effect of releasing designated
third parties from claims or rights of action which any of the debtor
companies or their successors, assigns, trustees in bankruptcy or any
19Re Keddy, supra, note 17.
2°Because of the rough and tumble nature of the negotiations leading up to the
acceptance of a Restructuring Plan, Courts should hesitate before deleting components
thereof in order to avoid upsetting the delicate balance struck between
competing interests.
21Supra, note 3 at 2-112. In the United States, there is some controversy regarding
the inclusion of releases in a restructuring plan. See Honsberger, supra, note 10
at 5-29. The case of Re Texaco Inc., 84 B.R. 893 (S.D.N.Y., 1988) is, however,
noteworthy. In that case (which was the largest bankruptcy case in U.S. history), the
Court held that a plan which provided, inter alia, for releases of officers, directors
and representatives of Texaco from claims which could be asserted by the debtor (or
by creditors by way of derivative claims) did not contravene the provisions of the
U.S. Bankruptcy Code.
22In determining whether release provisions are fair and reasonable, the Courts
may look to see whether adequate and material disclosure has been made by the
debtor to the creditors in respect of existing or foreseeable claims and recourses
which are being released under the Restructuring Plan. For a review of the disclosure
requirements, see Keddy Motor Inns (No. 3 ), supra, note 17 at 432.
23Supra, note 14.
24The Plan defined 31 specific transactions in respect of which releases were
being granted.
creditor taking up a cause of action of a trustee in bankruptcy who
declines to act, could assert against such third parties. One of the
releases contained in that plan was drafted as follows:
10.3(A) From and after the Sanction Date, each Applicant and its
successors, assigns and trustees in bankruptcy, the Administrator and
any creditor of an Applicant taking up a cause of action of a trustee in
bankruptcy who declines to act, hereby forever remises, releases and
discharges each and every member of the Reichmann Family and
each and every Reichmann Entity and the present and former officers,
directors, employees, auditors, legal counsel and agents of the
Applicants acting in such capacities from any and all demands,
liabilities, claims, counterclaims, debts, sums of money, accounts,
judgments, recoveries, actions, suits, remedies, proceedings, damages
and causes of action whatsoever based upon or arising out of any
Reichmann Released Transaction.
The releases contemplated in the Olympia & York plan envisaged
claims or potential claims which could be asserted by the
debtor companies against third parties such that all creditors of the
debtor companies were treated equally.25 Consequently, a creditor
relying upon the guarantee of a third party was not compelled to give
up any personal rights as a result of the vote of other creditors in the
same class who may not have benefited from such third party
The Olympia & York plan, as a quid pro quo, also stipulated
inter alia:
25The class of OYDL unsecured claims approved the plan with the affirmative
vote of 90.6% in number and 92.3% in value of claims voted. At such meetings of
unsecured creditors held on January 25, 1993, one of the co-chairs of the Unsecured
Creditors’ Committee stated the following in respect of the releases contained in the
Olympia & York plan:
On behalf of the co-chairs, the subject of Reichmann Released
Transactions has been reviewed with the full committee on a number
of occasions . . . We satisfied ourselves on a number of transactions
for release. We endeavoured to negotiate with the debtor to have the
Reichmann Released Transactions removed from the Plan. After
several hours over more than two occasions, it was the conclusion of
the debtor with its legal counsel that the Released Transactions must
form part of the CCAA Plan. The vote that was taken today in the
Committee was fully cognizant of the 31 Released Transactions being
contained as part of the Plan and what each member within that
Committee determined is that it is prepared … to support the Plan
with the Reichmann Released Transactions being a component of the
total Plan. (Transcript of meeting held ·on January 25, 1993,
pp. 75-76)
Extending “Protection” 69
i) general releases by the Applicants and their successors in
favour of creditors; and
ii) releases by Reichmann Family members and Reichmann
Entities in favour of the Applicants and their successors in
respect of the Reichmann Released Transactions (details of
which were given in the Plan).
In the Judgment sanctioning the Olympia & York Plan,26 Mr.
Justice Blair stated the following at p. 9 [C.B.R.]:
[It] must be “fair and reasonable”. That the ultimate expression
of the Court’s responsibility in sanctioning a pJan should find itself
telescoped into those words is not surprising. “Fairness” and
“reasonableness” are, in my opinion, the two keynote concepts underscoring
the philosophy and workings of the Companies’ Creditors
Arrangement Act. “Fairness” is the quintessential expression of the
Court’s equitable jurisdiction – although the jurisdiction is statutory,
the broad discretionary powers given to the judiciary by the legislation
makes its exercise an exercise in equity – and “reasonableness”
is what lends objectivity to the process.
Releases By Creditors In Favour of the Debtor and Third Parties
The third category of release provisions herein considered is one
in virtue of which creditors bound by the Restructuring Plan are
deemed to release claims which they may have against the debtor or
third parties when such claims are common to all creditors in the affected
As set out in the Olympia & York27 decision, the overriding
concern of the Court when deciding to sanction a Restructuring Plan is
that such plan be fair and reasonable and treat all creditors affected by
the plan, including dissident creditors, equitably. Mr. Justice Blair
stated the following in respect of the equitable treatment of creditors28
[p. 14 C.B.R.]:
In keeping with an exercise of weighing the equities and balancing
the prejudices, another measure of what is ‘fair and reasonable’ is
the extent to which the proposed Plan treats creditors equally in their
opportunities to recover, consistent with their security rights, and
whether it does so in as non-intrusive and as non-prejudicial a manner
26Supra, note 14.
21Supra, note 14.
28Supra, note 14.
as possible.
In the restructuring of the Algoma Steel Corporation, Limited, the
CCAA plan provided that:
6.03 Releases
From and after the Effective Date, each Creditor and shareholder of
Algoma prior to the Effective Date (other than Dofasco) will be
deemed to forever release Algoma from any and all suits, claims and
causes of action that it may have had against Algoma or its directors,
officers, employees and advisors.
The Algoma plan was ultimately sanctioned by the Court29 and,
consequently, such release provisions became binding on all creditors
bound under the plan.
Similarly, the CCAA plan submitted by Campeau Corporation
to its creditors included the following release provisions:
5.3 Release
From and after the Plan Implementation Date, each holder of Senior
Unsecured Debt, Debt Balances, Debentures, Shares, warrants, options
or share appreciation rights, other than a holder of options or
share appreciation rights who has, prior to the Plan Application Date,
brought an action against the Corporation in respect of such options
or share appreciation rights, will be deemed in its capacity as such to
have forever released the Corporation from any and all suits, claims
and causes of action it had or may have had against the Corporation
or its directors, officers, employees and advisers, arising from any
matter relating to such Senior Unsecured Debt, Debt Balances,
Debentures, Shares, warrants, options and share appreciation rights.
As in the case of Algoma, the Campeau plan, including the
above quoted release language, was sanctioned by the Ontario Court
of Justice.30
The Quebec Court of Appeal decided, however, in the Steinberg
29Algoma Steel Corp. v. Royal Bank, [1992] O.J. No. 889, appeal maintained in
part at (1992), 11 C.B.R. (3d) 11, 8 0.R. (3d) 449, 93 D.L.R. (4th) 98, 55 O.A.C.
303 (C.A.) [leave to appeal to S.C.C. refused (1992), 94 D.L.R. (4th) vii (note), (sub
nom. Royal Insurance Co. of Canada v. Kelsey-Hayes Canada) 145 N.R. 391 (note),
59 O.A.C. 326 (note)].
30Re Campeau, [1992] O.J. No. 237 (Gen. Div.).’
Extending “Protection” 71
/nc.31 case that a CCAA plan which contained the following release in
favour of third parties should not be sanctioned by the Court:
12.9 Release
From the date of sanction, each creditor will be presumed to have
definitively renounced to all suits, actions and recourses that it may
have or could have had against the directors, officers, employees and
advisors of the company. (English translation of French text)
The Quebec Court of Appeal held, essentially, that the foregoing
release provisions were outside of the scope of the CCAA. In part, the
Court of Appeal relied on the fact that such release provisions were
extremely wide and could prevent a creditor from exercising a
recourse against one of the released parties even in respect of faults
committed outside of the exercise of such party’s functions on behalf
of the debtor. Furthermore, the Quebec Court of Appeal relied upon
case law dealing with situations in which rights against guarantors had
been restricted and then extended the application of such jurisprudence
to different forms of releases.
It should be noted that the CCAA is a statute which seeks to
“facilitate”32 compromises and arrangements between a debtor and its
creditors and that the provisions dealing with commercial proposals
under the BIA have evolved in order to encourage consensual restructurings
by broadening the body of creditors bound or deemed to be
bound by the “cram-down” provisions of the BIA. It is submitted that
neither the spirit nor the intent of the BIA or the CCAA would be
defeated if a Restructuring Plan, which provides for an identical treatment
of creditors in situations where all creditors in the affected class
have the same rights against the released third party, is sanctioned by
the Court.
31Supra, note 4. The Quebec Court of Appeal referred to the judgment rendered
in the case of Re Philip’s Manufacturing Ltd. (1991), 9 C.B.R. (3d) 1, 60 B.C.L.R.
(2d) 311, [1992] 1 W.W.R. 651 (S.C.). In that decision, Macdonald J. of the British
Columbia Supreme Court left the door open to the possibility of staying proceedings
against directors, officers, employees, agents or consultants of the debtor. He states
at p. 9 of the decision:
Even if the inherent jurisdiction of this Court is sufficient to support
a restraint on actions against officers and directors, and I would
require further argument to so convince me, I am not satisfied that
this is a case where such an order should be made.
32The full name of the CCAA is an “Act to facilitate compromises and arrangements
between companies and their creditors.”
It is submitted that where a Restructuring Plan contemplates
releases by creditors in favour of the debtor or in favour of third
parties in respect of claims that the debtor itself (or its successors and
assigns) could assert against such third parties (whether such claims
are in the nature of settlements or preferences, result from contractual
breaches or arise from damages caused to the debtor), such release
provisions are compatible with the BIA and the CCAA and consistent
with their objectives.
Where, on the other hand, the release provisions are so wide as
to prevent the exercise of an independent claim which an individual
creditor may be entitled to assert against the released third party resulting
from a breach of contract or a fault committed vis-a-vis such
creditor in particular (e.g., a claim against a director of the debtor who
fraudulently induced such creditor to advance monies), the provisions
likely go beyond the scope of the BIA and the CCAA and should not
be sanctioned by the Court33 unless the affected creditors agree to
It has been held on numerous occasions that in considering
whether to sanction a Restructuring Plan, the Court should not substitute
its judgment for that of the creditors at large. As stated in the
case of Re Langley’s Ltd.34 at p. 129 [0.R.]:
What is fair from a business standpoint can generally best be judged
by the opinions of business men rather than Judges.
In addition, Canadian Courts have consistently “pushed the outside
of the envelope” in order to permit debtors and creditors to devise
imaginative ways to effect successful restructurings. In a recent decision
of the Ontario Court of Justice in the case of Lehndorff General
33This is because a dissenting creditor with an independent claim against a third
party could be “crammed-down” by the affirmative vote of creditors in its class who
do not benefit from such claims. This would lead to a result which would likely be
unfair and unreasonable in the circumstances. A solution might be to isolate
creditors with similar identifiable claims against third parties and place them in a
separate class of their own.
34Re Langley’s Ltd., (1938] O.R. 123, (1938] 3 D.L.R. 230 (C.A.). See also
Algoma Steel Corp., supra, note 29 at 15, where the Ontario Court of Appeal held
that “given the primacy accorded by the Act to agreement among affected actors, the
jurisdiction of the court [to intervene to amend the plan] is to be exercised sparingly
and in exceptional circumstances only … ”
Extending “Protection” 73
Partner Ltd.,35 Mr. Justice Farley, relying on the inherent jurisdiction
of the Court to do whatever is just and reasonable, granted a stay under
the CCAA in favour of limited partnerships on the basis that such
relief was ancillary to the relief granted in favour of the corporate applicants.
Although the CCAA envisages relief being granted to
companies, the Court held at p. 40 [C.B.R.] of ~he judgment:
It seems to me that using the inherent jurisdiction of this Court to
supplement the statutory stay provisions of s. 11 of the CCAA would
be appropriate in the circumstances; it would be just and reasonable
to do so.
Because the granting of releases may, in many situations, be an
important tool to “facilitate” successful restructurings (especially in
cases where the principals of the debtor are being called upon to make
substantial concessions of their own), it is suggested that the Courts
should give a broad and liberal interpretation to provisions contained
in Restructuring Plans which extend “protection” to third parties.
35Re Lehndorff General Partner Ltd. (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div.
[Commercial List]).