Courts Now Have More Discretion Regarding Plans of Arrangement Under Alberta's Amended Business Corporations Act
Written By Denise Bright, Mike Theroux, Kelsey Meyer and Graham Cook
As discussed in our previous insight, Additional Changes to Alberta's Business Corporations Act Now in Effect, several changes to the Business Corporations Act (Alberta) (ABCA) came into force on May 31, 2022 (the Amendments). Among other things, the Amendments afford more flexibility to Alberta corporations in organizing their affairs, including by expanding court discretion and eliminating a number of the previous statutory requirements in relation to plans of arrangement. The purpose of the amendments is to facilitate doing business in Alberta.
Plan of Arrangement Provisions Before the Amendments
A plan of arrangement is a court supervised and approved procedure (governed by the applicable corporate statute, such as the ABCA), under which corporations may complete various transactions, including mergers and acquisitions, reorganizations and restructurings.
In some cases, such as corporate debt restructurings, completing a plan of arrangement under the federal Canada Business Corporations Act (CBCA) has been viewed historically as more favourable and flexible than under the ABCA, as the CBCA (i) does not explicitly require a corporation to obtain shareholder approval for a plan of arrangement (even though the definition of "arrangement" in the CBCA encompasses certain corporate transactions that would require shareholder approval if completed outside of an arrangement); and (ii) gives the court broad discretion to make any order it thinks fit, which allows the court to grant a stay of proceedings at the start of plan of arrangement proceedings to allow a corporation to focus strictly on such proceedings.
Prior to the Amendments, the ABCA was less flexible than the CBCA for completing a plan of arrangement, as the ABCA (i) required a corporation to obtain approval from shareholders holding 2/3 of the votes cast to approve the plan of arrangement; (ii) required a corporation to obtain approval from a majority in number of creditors and holders of debt obligations representing at least 2/3 of the amount of such obligations, if the court determined that such stakeholders would be affected by the plan of arrangement; (iii) required a corporation to obtain approval from holders of options or rights to acquire securities of the corporation if the court determined that such stakeholders would be affected by the plan of arrangement; and (iv) did not give the court broad discretion to make any order it thought fit, which caused uncertainty about whether the court could grant a stay of proceedings at the start of plan of arrangement proceedings.
Changes to Plan of Arrangement Provisions
The Amendments provide the court with broad discretion, including the ability to make any order it thinks fit in connection with a plan of arrangement. Presumably this authorizes the court to grant a request for a stay of proceedings at the start of plan of arrangement proceedings, or, in appropriate circumstances, to approve a plan of arrangement without first obtaining the approval of shareholders or other affected stakeholders.
The Amendments did not change the aspects of the ABCA that make it more favourable than the CBCA for corporations facing financial difficulties. For example, unlike the CBCA, the ABCA does not require a corporation to be solvent to use the plan of arrangement process1 and it explicitly provides that a compromise between a corporation and its creditors is an arrangement.2
As a note, the Amendments also require that notice of an application for an order approving an arrangement be provided to the Registrar under the ABCA, to allow the Registrar to intervene if necessary.
It remains to be seen whether the courts' familiarity with the CBCA will cause it to remain the statute of preference for corporate restructurings, or whether the ability for ABCA corporations to proceed under their own legislation, rather than continuing under the CBCA,3 will gain traction as a result of the Amendments.
Given that the ABCA does not have a solvency requirement and now gives the court broad discretion to make any order it thinks fit, restructuring under the ABCA's plan of arrangement provisions may prove to be an attractive option for corporations facing financial difficulties who do not want to pursue their options under the Company Creditors' Arrangement Act, the Winding Up Act or the Bankruptcy and Insolvency Act.
If you have questions about the changes to the plan of arrangement provisions or any of the other amendments enacted by the Business Corporations Amendment Act, 2021 (formerly Bill 84), please contact any of the authors.
1 CBCA, s 192(3).
2 ABCA, s 193(1)(h).
3 CBCA, s 187.