Neil A. Peden

In the context of ongoing CCAA proceedings where substantially all assets of the debtor companies had been liquidated, the supervising judge barred the sole secured creditor from voting on a proposed plan of arrangement on the basis that it was acting for an improper purpose, and authorized the debtor companies to enter into a third party litigation funding agreement as interim financing.

The Quebec Court of Appeal set aside those orders.

The Supreme Court of Canada restored the supervising judge's orders, holding that: (1) a supervising judge has discretion under s. 11 of the CCAA to bar a creditor from voting on a plan of arrangement where the creditor is acting for an improper purpose; and (2) a supervising judge may approve third party litigation funding as interim financing pursuant to s. 11.2 of the CCAA, provided the funding agreement does not constitute a plan of arrangement.

The Court affirmed the high degree of deference owed to discretionary decisions of a supervising judge and found the Court of Appeal had failed to treat those decisions with the appropriate degree of deference.

The trustees of a sole shareholder trust sued lawyers and accountants after tax assessments led to bankruptcies within a corporate group and the trust’s loss in share value.

The majority held that shareholders cannot sue for corporate losses unless they plead breach of a distinct obligation and direct personal injury.

On the pleaded facts, the claimed injury reflected corporate losses and did not establish sufficient interest under Quebec procedure.

The appeal was dismissed, with a dissent that would have allowed the action to proceed to trial.