Important Restrictions Placed on Use of CBCA for Debt Restructurings

In a recent unreported decision denying approval of a plan of arrangement under the Canada Business Corporations Act (CBCA) proposed by Connacher Oil and Gas Limited, Justice C.M. Jones of the Alberta Court of Queen's Bench considered the solvency test that corporations must meet in order to obtain a final order approving a plan of arrangement under the CBCA. Prior to Justice Jones' decision, courts had not explicitly considered the issue of whether, in order to grant a final order approving a CBCA arrangement, the court first needed to be satisfied that the entity emerging from the CBCA proceedings would not be insolvent. Justice Jones opined on that novel issue and concluded that: 1) In order to make a final order under the CBCA plan of arrangement provisions, the court must be satisfied that the entity emerging from the proceeding will not be insolvent; and 2) It is not appropriate for the court to exercise its discretion to essentially "deem away" events of default which underlie the determination of whether the entity emerging from the proceeding will not be insolvent. Published in Volume 31, Number 1 of Banking & Finance Law Review by Carswell, a Division of Thomson Reuters Canada Limited.