Lee M. Nicholson

The applicant sought court sanction of a plan of compromise and arrangement under the Companies’ Creditors Arrangement Act to resolve extensive litigation arising from the audit of Castor Holdings Ltd. The plan involved contributions from partners, insurers, and related entities totaling approximately $220 million and included third‑party releases.

A creditor group opposed the sanction, arguing that the releases violated Quebec civil law and that the claims process was unfair.

The court rejected these objections, finding the expert evidence unreliable, confirming that federal insolvency law permits third‑party releases notwithstanding provincial law, and concluding the plan was fair and reasonable given overwhelming creditor approval.

The plan was sanctioned.

On a motion by a major contingent creditor to set aside an Initial Order under the CCAA, the court held that the applicant corporation, whose only asset was its partnership interest in an insolvent accounting partnership facing massive legacy negligence claims, was insolvent when contingent liabilities and defence costs were properly considered.

The court declined to deny CCAA relief based on allegations about historical litigation misconduct, holding that the relevant good faith inquiry concerns conduct within the CCAA proceeding itself.

The stay was properly extended to the partnership and its insurers because their affairs were inextricably intertwined with the debtor and a global resolution of the Castor litigation would be significantly impaired without that protection.

The court also upheld the creditors’ committee and CLCA’s ability to fund its reasonable legal fees as part of the negotiated restructuring framework.