Representing Vulnerable Stakeholders in Insolvency Proceedings

A successful restructuring under the CCAA or BIA requires that the interests of all key stakeholders are suitably and fairly represented.  Representation orders can be an effective mechanism to give stakeholder groups a cohesive voice and access to legal and financial representation so that they can properly participate in complex restructuring proceedings.

Farber has first-hand experience representing employees and pensioners, as their financial advisors, in large CCAA cases such as US Steel Canada aka Stelco and has seen the benefits that effective group representation can bring.

The case for Representation

In addition to the obvious benefit of protecting vulnerable stakeholders and giving them cost-effective representation, Representation Orders also help with the efficient administration of the case:

  • Rep counsel frequently works hand in hand with Monitor in CCAA cases to communicate with the broader stakeholder group. This is often achieved by way of a website that is set up for this purpose and, in cases like US Steel and others, a number of large town hall meetings were held to report to the broader constituency on the restructuring and what it meant for them.
  • Rep Counsel can also assist the Monitor with the design and administration of the claims process – for example in Sears Canada & other retail insolvencies, due to the complex nature and calculation of employee-related claims, it very difficult for individuals to submit individual proofs of claim, without appropriate legal, financial and actuarial input.
  • Importantly, Rep Counsel also acts as an effective counter-party in the negotiations: It has been said that Restructuring structures and alternatives are not unilateral decisions by any company. A successful CCAA Plan is usually the result of extensive bargaining and compromise, so all key stakeholders should be at the table. Financial parties such as are Banks and bondholders are well-represented and judges recognize that there would be a huge imbalance if the more vulnerable stakeholders were not suitably represented. While the Monitor’s role is to balance all of these interests, a Court officer is by design not an advocate for any particular party, so it makes sense for Rep counsel, together with a financial advisory firm, to play that role.

Rep Counsel for employees & retirees are a common feature in many cases but in recent years, Canadian Courts have ordered the appointment of representatives for a broader range of interest groups. including:

·        Unsecured Noteholders

·        Investors

·        Shareholders

·        Real Estate Purchasers

·        Real Estate Occupants

·        Tort Claimants

·        Customers of Securities Firms

·        Class Action Plaintiffs

·        Construction Subcontractors

·        Franchisees

 

Recurring Themes Supporting Granting of Rep Orders

There is well-established case law to support the appointment of Representative Counsel (and financial advisors) and the factors that the Courts consider are well -articulated in the Nortel Networks[1]  and Canwest[2] cases. Some of the themes that commonly emerge to support the requests for these Representation Orders are:

  • Vulnerability – This seems to be a factor that the Courts weigh heavily in the need for representation. It is good public policy to facilitate effective representation for unsophisticated or impecunious parties. The Quebec Court of Appeal in the Hexagone CCAA made it clear that representation orders are not limited to widows and orphans but that a broader range of stakeholders were eligible.
  • Affordability / Cost-effectiveness – It’s not cost effective for individuals to hire the level of legal, financial and other advice that is needed in a complex case….so getting together makes sense.
  • Complexity – Many insolvency cases deal with complex legal and financial issues. Highly technical issues need to be synthesized and decisions need to be taken on an expedited basis.
  • Commonality of Interest – Sufficient commonality of interest should be demonstrated such that the interests of the group can be best served by one representative or group of representatives.
  • Benefits to Applicant – As already noted above, Rep Counsel can help to facilitate an efficient restructuring process and provides a mechanism to build consensus around a Plan.
  • Social benefits – In cases involving wider social issues, for example, the Lac-Mégantic[3] train derailment case, Representative counsel was appointed for victims and worked in conjunction with the debtors and the CCAA monitor (among others) towards the implementation of a Plan that provided for compensation to the victims.

In summary, representation orders can be an important and effective mechanism in the appropriate cases to allow a stakeholder group to have a cohesive and coordinated voice in the process, as well as access to legal and financial expertise.

This article is a synopsis of issues more fully articulated in a paper[4] co-authored by Allan Nackan, Co-Head of Farber’s Insolvency and Restructuring Group and George Benchetrit of Chaitons LLP that as presented at the Insolvency Institute of Canada in September 2018. For more information or for a copy of that paper, please contact Allan at anackan@farbergroup.com .

[1] Nortel Networks Corp. (Re) [Appointment of Representative Counsel], [2009] O.J. No. 2166 (Ont. Sup. Ct.–Commercial List).

[2] Canwest Publishing Inc. (Re), 2010 Carswell Ont. 1344 (S.C.) (Ont. Sup. Ct.– Commercial List).

[3] Montreal, Maine & Atlantic Canada Co., Re (QBSC, 2014)

[4] Journal of The Insolvency Institute of Canada Volume 7 2018, published by Thompson Reuters

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