COURT OF APPEAL FOR ONTARIO
IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended
IN THE MATTER OF SECTION 191 OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985, C-44, as amended
IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF AIR CANADA AND VARIOUS APPLICANTS
APPLICATION UNDER THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended
RE: BANKRUPTCY OF AIR CANADA
BEFORE: O’CONNOR A.C.J.O., SHARPE and BLAIR JJ.A.
COUNSEL: William V. Sasso and Sharon Strosberg for the appellant Mizuho International plc
Peter Howard, Sean Dunphy and Jessica S. Bookman for Air Canada
Robert Thornton and John Finnigan for GECAS
James P. Dube for Lufthansa, AG
Peter Griffin for Ernst & Young Inc., the monitor
James C. Tory for the Board of Directors of Air Canada
Mark A. Gelowitz and Edward A. Sellers for Trinity Time Investments Limited
Richard B. Jones and Kevin A. Taylor for the Air Canada Pilots Association
Ian Dick and J. Dais-Visca for the Attorney General of Canada
Chris Besant for Lessor/Lenders Group
Matthew Gottleib for Deutsche Bank
Howard A. Gorman for the Ad Hoc Committee of Unsecured Creditors
John R. Varley for Non-Union and ACPA Retirees
HEARD: December 17, 2003
RELEASED ORALLY: December 17, 2003
On appeal from the order of Justice James M. Farley of the Superior Court of Justice dated December 8, 2003.
E N D O R S E M E N T
1Mizuho International plc (“Mizuho”) seeks leave to appeal from the order of Farley J. dated December 8, 2003. In that order, Farley J. (a) declined Mizuho’s request for an adjournment of the hearing pending what is said to be a final proposal from Cerberus; and (b) approved what is know as the “Trinity Agreement” concerning Trinity’s proposed equity investment in the insolvent Air Canada. If leave be granted, Mizuho will argue the appeal as well.
2We are all of the view that the motion for leave to appeal should be dismissed. It is well-settled that this court will only sparingly grant leave to appeal in the context of a Companies’ Creditors Arrangement Act (“CCAA”) proceeding. The court must be satisfied there are “serious and arguable grounds that are of real and significant interest to the parties”: see Re Country Style Food Services Inc., [2002] O.J. No. 1377 (C.A.). In our view, the test has not been met in the circumstances of this case.
3In this particularly complex restructuring involving Air Canada, the company some time ago embarked upon an equity solicitation process that was ultimately narrowed down to two potential investors, namely Trinity and Cerberus.
4On November 8, 2003, Air Canada selected Trinity as the equity investor and entered into an agreement with Trinity to that effect. The agreement contains confidentiality provisions and a “fiduciary out” clause that allows the Air Canada Board to consider a “superior proposal” as therein defined. This process has been supervised by the Monitor and all the stakeholders, including Mizuho, have bought into it as the most effective way of moving the restructuring along.
5Indeed, until a few days before the approval hearing before Farley J., Mizuho was urging all concerned to accept the Trinity Agreement. In late November, however, Cerberus made a series of unsolicited proposals to the Air Canada Board seeking to best the Trinity proposal. During a chambers meeting with Farley J. on December 4th, Cerberus indicated that it would be putting forward its final proposal the following week and that it was content to do so under the rubric of the fiduciary out clause in the Trinity Agreement.
6On December 8th, Farley J. refused Mizuho’s request for an adjournment and for an order requiring that the forthcoming Cerberus proposal be disclosed to the court and to the creditors. On the urging of virtually all of the parties, and on the recommendation of the Monitor and in the interests of facilitating the urgent need for the Air Canada restructuring to proceed, Farley J. approved the Trinity Agreement.
7Mr. Sasso argues that he erred in doing so and that the court had a duty to consider and review competing offers before deciding whether to approve the Trinity Agreement as the one in the best interests of the creditors. He relies on the decision of this court in Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1.
8What Farley J. did, however, was to conclude in effect that the equity solicitation process and the Trinity agreement which resulted from it were fair and reasonable in the circumstances and advanced the interests of the stakeholders and Air Canada in the restructuring. All parties had accepted this process, which has, as a significant feature, the fiduciary out clause. This clause calls for other investor proposals to be put forward in the framework of the Trinity Agreement. It also places in the Air Canada Board, in the exercise of its business acumen as a board, the duty to determine whether such a proposal is a “superior proposal”. The Board is, of course, bound to consider any such proposal in good faith and in the context of its fiduciary duties as directors. If it considers the proposal to be a “superior” one, it must bring it to the court for consideration. We note as well that the court-appointed Monitor remains inextricably involved in this exercise.
9Given these circumstances, accepted by all, it was well within the appropriate exercise of Farley J.’s discretion to refuse the adjournment, approve the Trinity Agreement and hold the parties to the process to which they had agreed. We see no error in principle on his part in doing so.
10We observe that the approval of the equity investor is but one of many steps along the route towards an ultimate plan of compromise and arrangement which will require the approval of creditors and the sanction of the court.
11Accordingly, the motion for leave to appeal is dismissed. The costs of this motion, and of the chambers motion before Blair J.A. on December 5, 2003, are fixed as follows, and payable by Mizuho:
To Air Canada $30,000
To Trinity Time Investments $20,000
To Air Canada Pilots Association $10,000
To GECAS $10,000
To Lessors/Lenders Group $ 5,000
“D. O’Connor A.C.J.O.”
“R.J. Sharpe J.A.”
“R.A.. Blair J.A.”