COURT OF APPEAL FOR ONTARIO
MORDEN, BORINS and FELDMAN JJ.A.
B E T W E E N :
IN THE MATTER OF ANVIL RANGE MINING CORPORATION;
AND IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, C. c-36, AS AMENDED;
Kevin R. Aalto and David Estrin for the appellants Cumberland Asset Management, Berner & Company, Global Securities Corporation, Peel Brooke Inc, Inukshuk Resources Inc., Robert N. Granger and Adrian M.S. White
AND IN THE MATTER OF THE COURTS OF JUSTICE ACT, R.S.O. 1990, c. C-43, AS AMENDED;
George Karayannides and Kenneth Kraft for the respondent Deloitte & Touche Inc., Interim Receiver of Anvil Range Mining Corporation and Anvil Mining Properties Inc.
AND IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, C. B-3, AS AMENDED;
David Hager for the respondent Cominco Ltd. John Porter, for the respondent Department of Indian Affairs and Northern Development
AND IN THE MATTER OF THE PLAN OF COMPROMISE OR ARRANGEMENT OF ANVIL RANGE MINING CORPORATION
Jeremy Dacks for the respondent the Yukon Territorial Government
Derek T. Ground for the respondent Ross River Dena Council and Ross River Development Corporation
Geoffrey B. Morawetz for the respondent Yukon Energy Corporation
Heard: March 6, 2002
On appeal from orders of Justice James Farley dated March 29, 2001 and May 7, 2001.
Introduction
- [1] Cumberland Asset Management, and others, appeal from orders made by Farley J. dated March 29, 2001 and May 7, 2001. In the March 29, 2001 order Farley J. sanctioned a plan of arrangement under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (C.C.A.A.) proposed by Deloitte & Touche Inc., the Interim Receiver of Anvil Range Mining Range Mining Corporation and Anvil Range Properties Inc. In his May 7, 2001 order, Farley J. ordered that the appellants pay costs relating to the sanction motion in the total amount of $28,500.
Background
[2] The facts respecting the sanctioning of the plan are set forth in Farley J.’s reasons which are reported at 2001 28449 (ON SC), 25 C.B.R. (4th) 1 and need not be repeated in detail. The following is an outline, which contains some history of this proceeding which is not included in Farley J.’s reasons.
[3] Anvil Range Mining Corporation is the owner of a lead and zinc mine, known as the Faro Mine, in the Yukon Territory. It bought this mine for about $27,000,000 in 1994 from KPMG Inc., in its capacity as Interim Receiver of the then owner, Curragh Inc.
[4] Anvil Range began production in August 1995 after conducting a nine-month $75,000,000 pre-stripping and mill refurbishment program. It suspended mining operations in December 1996 and milling operations in the spring of 1997 because of falling metal prices. It recommenced operations in the fall of 1997 but ceased mining and milling early in 1998.
[5] In January 1998, Anvil Range applied for and received protection from its creditors under the C.C.A.A. This was the beginning of the proceeding in which the orders under appeal were, eventually, made. In March 1998, Cominco Ltd., a secured creditor of Anvil Range, moved for the appointment of an interim receiver and termination of the stay provided for in the C.C.A.A. proceeding. Deloitte & Touche Inc. was appointed Interim Receiver and the court directed it to report to the court on certain matters, including seeking advice and directions respecting a marketing plan for the mine.
[6] In response to this, the Interim Receiver filed its second report dated June 17, 1998 in which it recommended that “no funds be spent on marketing the mine for the present”. This was based on several different facts, one of them being “the fact that no prospective purchasers had emerged to that date …. to express even minimal interest in the mine site despite the well publicized facts in the industry press”.
[7] As part of the ongoing dispute among the parties, the Interim Receiver brought a motion before Blair J., which was heard on August 20, 1998, seeking approval to sell certain assets at the mine. Blair J. noted that the Interim Receiver had expressed the opinion on the basis of its market analysis that it was “unlikely that the Faro Mine can be reopened within the next 2-3 years and possibly as long as 5 years.” He then said:
I agree that it is difficult to be very optimistic about the future prospects of the Faro Mine, including the chance of its re-opening. On the other hand, Strathcona (acknowledged by all to be expert in the field) seems to feel strongly that the best chance of recovery is if the Grum Pit at least is kept on a “standby-mode” ready to be made operative quickly when a period of good metal prices arrives. To do this the equipment in question will be necessary. To replace it would be costly and it may well be a non-starter if what is being considered is only a 3 year operation or so.
[8] Blair J. did not dismiss the request for approval to sell the equipment but adjourned it to October 29, 1998 to enable the Yukon Territorial Government to do further analysis. This was because of the importance of the mine to the fabric of the Yukon Territory.
[9] After extensive negotiations and a filing of the Yukon Territorial Government report, a funding formula was established in December 1998 whereby the Department of Indian Affairs and Northern Development (“DIAND”) assumed most of the funding obligations of going forward. This funding was secured by a charge against the real property.
[10] In December 1999, the court granted leave to the Interim Receiver or the secured creditors to file a plan of arrangement. About a year of negotiations among the secured creditors followed, eventually leading to an extensive settlement conference held in Vancouver under the direction of Justice Kierans, sitting as a justice of the Supreme Court of the Yukon Territory. The conference resulted in a settlement among three groups of secured creditors: (1) the Mining Lien Act Claimants; (2) Cominco Ltd.; and (3) DIAND, the Yukon Territorial Government and the Yukon Workers’ Compensation, Health and Safety Board. The settlement was to be implemented by a plan under the C.C.A.A.
[11] As will be set forth in more detail later in these reasons, the three groups of secured creditors were the only parties with a legal and economic interest in the assets of Anvil Range. The plan settled a series of complex priority disputes both within creditor classes and among creditor classes and also dealt with allocating funds in the Interim Receiver’s possession.
[12] The plan divides the creditors who are affected by it (the “Affected Creditors”) into three classes (the three groups mentioned above):
The Mining Lien Act Claimants.
Cominco Ltd.
The government creditors, DIAND, the Yukon Territorial Government, and the Yukon Workers’ Compensation, Health and Safety Board.
[13] The plan provides for the class 3 creditors to acquire the mine and the mill located on it and certain other assets (the “Excluded Assets”) and to assume responsibility for funding the ongoing necessary environmental, maintenance and security programs. The other two classes of Affected Creditors are to share in the proceeds of the sale of the remaining assets (the “Realization Assets”).
[14] The Interim Receiver recommended approval of the plan as the best alternative for settling the outstanding priority issues in dispute and because there was no recovery possible other than to the Affected Creditors.
[15] The class 1 creditors’ secured claims against Anvil Range property, as judicially declared by judgments of the Supreme Court of the Yukon Territory, total $18,312,169. The claim of the class 2 creditor, Cominco Ltd., was judicially determined by the Superior Court of Justice (Ontario) on January 27, 1999 to be $24,353,657 with post-judgment interest accruing on this amount at 8.5% per annum.
[16] With respect to the class 3 creditors, the Yukon Territorial Government and the Yukon Workers’ Compensation and Health and Safety Board claim is about $1,000,000. The claim advanced on behalf of DIAND is said to total over $60,000,000 for funding the Interim Receiver’s expenses and, also, the environmental remediation costs. We shall deal with the salient details of it shortly.
[17] The Affected Creditors unanimously approved the plan which was then sanctioned by the order of Farley J. dated March 29, 2001.
Analysis
- [18] The appellants’ appeal is substantially based on the following submissions:
The plan is not “fair and reasonable” in all of its circumstances as it effectively eliminates the opportunity for unsecured creditors to realize anything.
The plan is contrary to the purposes underlying the C.C.A.A.
DIAND’s reclamation claim is inconsistent with the “fair and reasonable principles” of the C.C.A.A. and environmental remediation legislation.
- [19] Underlying these submissions is the submission that Farley J. erred in not requiring a more complete and in-depth valuation of Anvil Range’s assets be obtained by the Interim Receiver.
Valuation of Assets
[20] This last submission should be dealt with first because it is fundamental to the success of the appeal. Farley J.’s findings were based on two reports, one by Strathcona Mineral Services Ltd. dated March 12, 2001 and the other by Deloitte & Touche Corporate Finance Canada, Inc. dated March 13, 2001. In preparing its report, Deloitte & Touche reviewed the Strathcona report, among other materials.
[21] In its report Strathcona noted that in the Interim Receiver’s 22nd report there was an estimate of the capital expenditures that would be required to resume mining activity at the Grum deposit (which was the only accessible resource base on the Anvil property) including the purchase of mining equipment, rehabilitation of the pit walls, and modifications and repairs to the process facilities. Strathcona said:
The total is estimated at $80 to $100 million before working capital requirements and we consider this estimate to be reasonable and in the general range of what could be expected. It is clear that the capital expenditures to restart mining operations are going to exceed, perhaps by a factor of two, the cumulative gross operating margins for three years of operation that are indicated.
- [22] Strathcona concluded its report as follows:
The total amount realized from the sale or disposition of the foregoing assets on a salvage basis would appear to be in the order of $10-$15 million without making any contribution towards the ongoing care and maintenance costs for the property or the reclamation requirements which we understand have become the responsibility of DIAND. There may also be some value ascribed to tax pools that remain from operating losses, capital expenditures and exploration expenditures by Anvil Range. However, presumably most of the value, if any, of those tax pools would only be applicable upon the resumption of mining operations on the property, and the Interim Receiver would be best positioned to comment on this item.
[23] Deloitte & Touche Corporate Finance Canada, Inc. concluded that the established market value of all the assets to be “in the range of $11.1 to $19.9 million (Schedule 1), as at January 31, 2001” and that, if it were asked to be more specific, “[it] would suggest the mid-point of the foregoing range, being $15.5 million.” It concluded: “Based on the above, there is no value remaining for the unsecured creditors, as the amount owed to secured creditors of over $90.0 million exceeds the value of the assets of Anvil Range.”
[24] The appellants submitted a letter from Watts, Griffis & McOuat, Consulting Geologists and Engineers, dated March 21, 2001 which reviewed several documents, “in particular” the Strathcona report dated March 12, 2001. In this letter, Watts, Griffis & McOuat stated “a number of questions about the methodology and logic that Strathcona is using”. It did not state an opinion on the value of the Anvil Range property.
[25] On these materials, Farley J. concluded that “the secured claims are far in excess of the value of the assets” and that the value had to be determined “on a current basis” and not “on a speculative or (remote) possibility basis.” He dealt with the evidence submitted by the appellant as follows:
The Watts, Griffis & McOuat letter of March 21, 2001 has been hastily prepared in an attempt to throw doubt on some of the Strathcona observations and conclusions – but not to discredit them. In fact in numerous instances [the] letter concurs with the Strathcona report. Rather the author of the letter has some questions. It must be appreciated that Strathcona/Farquharson has had significant involvement with the Anvil mining facilities over the past several years, whereas Watts, Griffis & McOuat has only had this rather peripheral engagement. I do not find it unusual that two experienced consultants in this mining field may have different views or approaches, nor that one may feel the need for more information than it was able to glean from reviewing the listed documents before reaching a conclusion. In the result, I think it reasonable to accept the views of Farquharson, an established and recognized expert in this field, who has had, as indicated, considerable experience with this matter over the past several years. Further, I think it inappropriate and unnecessary to further delay and incur additional costs to engage upon a further study.
[26] In our view, Farley J. did not err in accepting the respondent’s evidence as affording a reasonable basis for his findings and, further, he did not make any error in his assessment of this evidence that would justify our interfering with his conclusions: Equity Waste Management of Canada v. Halton Hills (Town) (1997), 1997 2742 (ON CA), 35 O.R. (3d) 321 (C.A.) at 333-336.
[27] It may be that the Strathcona report, as a free standing document, could have been more detailed but this is far from saying that it was not capable, particularly in the context of this proceeding, which began in 1998, of forming a reasonable basis for Farley J.’s findings. This context includes the evidence that Anvil Range bought the property in 1994 for $27,000,000, that its resources underwent depletion since then, that the cost of putting the property in a state where it could recommence operations was some $80,000,000 to $100,000,000 and, although it had been known for sometime in the industry that the property was “available”, no one had expressed any interest in it.
The Submissions
[28] We turn now to the three basic submissions of the appellant set forth in paragraph 18 of these reasons.
[29] It will be helpful to deal with the third submission first, that relating to the DIAND claim. The total DIAND claim is for something over $60,000,000. The appellants submit that by reason of the “polluter pays” principle, it is wrong that DIAND should have a secured claim against the assets of Anvil Range for environmental remediation at the expense of the unsecured creditors. There are several facets to this submission but, because of the particular facts of this case, we need not explore them. Of the total DIAND claim, some $16,000,000 relates to funds expended under court orders for the Interim Receiver and this is, undeniably, a valid secured claim. As will be apparent, it is sufficient to resolve this appeal if only this part of DIAND’s claim is taken into account – and it may well not be necessary to take any part of the claim into account.
[30] We turn now to the first two of the appellant’s specific submissions. The first is that the plan is not fair and reasonable because it effectively eliminates the opportunity for unsecured creditors to realize anything.
[31] From the accepted valuation the maximum possible total value of Anvil Range’s assets is $19,900,000. After eliminating the portion of DIAND’s claim for remediation costs, the secured claims total at least $60,000.000. Accordingly, even after allowing for a fair margin of error on each side of the equation (the assets side and the claims side) it can be seen that the unsecured creditors have no legal or economic interest in the assets in question.
[32] The second submission is that the plan is contrary to the purposes of the C.C.A.A. Courts have recognized that the purpose of the C.C.A.A. is to enable compromises to be made for the common benefit of the creditors and the company and to keep the company alive and out of the hands of liquidators. See, for example, Northland Properties Ltd. v. Excelsior Life Ins. Co. of Can. (1989), 1989 2672 (BC CA), 73 C.B.R. (NS) 195 (B.C.C.A.) at 201. Farley J. recognized this but also expressed the view in paragraph 11 of his reasons that:
The CCAA may be utilized to effect a sale, winding up or a liquidation of a company and its assets in appropriate circumstances. See Re Lehndorff General Partner Ltd. (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]) at p. 32; Re Olympia & York Developments Ltd. (1995), 1995 7380 (ON SC), 34 C.B.R. (3d) 93 (Ont. Gen. Div. [Commercial List] at p. 104. Integral to those circumstances would be where a Plan under the CCAA would maximize the value of the stakeholders’ pie.
[33] Further to this it may be noted that the plan in this case reflected a compromise of difficult priority issues among the secured creditors and, as stated later in Farley J.’s reasons, “the approval of this Plan will allow the creditors (both secured and unsecured) and the shareholders of Anvil to move on with their lives and activities while the mining properties including the mine will be under proper stewardship.”
[34] It may also be noted that s. 5 of the C.C.A.A. contemplates a plan which is a compromise between a debtor company and its secured creditors and that by the terms of s. 6 of the Act, applied to the facts of this case, the plan is binding only on the secured creditors and the company and not on the unsecured creditors.
[35] Relevant to this issue is the fact that the appellants put forward an alternative plan, which involved their receiving the corporate shell of Anvil Range together with $500,000, and other terms. This plan, however, had no viability. As Farley J. noted in his reasons for the costs disposition it was “doomed to failure given the stated opposition to same [the alternate plan] of the secureds-Cominco Lien and Claimants and DIAND”.
[36] It is not necessary to resolve this issue to decide the appeal. If the order under appeal was not properly made under the C.C.A.A., there is no doubt that it could have been made by Farley J. in response to the alternative relief sought, which was that of approving a sale of Anvil Range’s assets by the Interim Receiver on terms substantially similar to those provided for in the plan. Taking into account that the assets are insufficient to pay even half of the secured creditors claims, it is clear that the order under appeal occasioned no prejudice whatsoever to the appellants. Accordingly we do not give effect to this submission.
[37] In the complex circumstances of the operation of the mine and given that there is no hope of the sale generating sufficient funds to satisfy the secured creditors, it cannot be said that Farley J. erred in approving the plan as being fair and reasonable.
COSTS
Costs
- [38] The other appeal is from Farley J.’s order requiring the appellants to pay costs relating to the motion which he fixed in the total amount of $28,500 and allocated as follows:
$15,000 to the Interim Receiver;
$ 7,000 to Cominco;
$ 5,000 to DIAND;
$ 1,500 to Yukon Energy Corporation
[39] The appellants submit that Farley J. erred in this costs disposition because parties with an interest in a company governed by the C.C.A.A. should be free to appear in court and oppose the sanctioning of a plan on legitimate grounds without the threat of the penalty of the costs being imposed against them.
[40] The award of costs, of course, was a matter within the discretion of the judge and we are not entitled to interfere with the exercise of the discretion just because we may have exercised it differently. To succeed the appellants must show that the exercise of discretion was affected by some error in principle or by misapprehension of the facts. In this case, while we might have been inclined simply to deprive the appellant of costs relating to the motion, we cannot say that there was no principled basis for the disposition which Farley J. made. He was entitled to conclude, as he did, that there was no realistic basis supporting the appellants’ opposition to the plan.
DISPOSITION
Disposition
[41] In the result, the appeal is dismissed with costs payable by the appellants to the respondents who delivered factums and appeared on the hearing of the appeal. These respondents should deliver their submissions respecting the costs of the appeal, in writing, within seven days of the release of these reasons and the appellants should deliver their submissions within fourteen days of the release of the reasons.
“J.W. Morden J.A.”
“Stephen Borins J.A.”
“K. Feldman J.A.”
Released: July 5, 2002
