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.

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.