DATE: 20010525
DOCKET: M27359
COURT OF APPEAL FOR ONTARIO
RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36 AND THE BUSINESS CORPORATIONS ACT, R.S.O. 1990, c. B.16
AND IN THE MATTER OF A PROPOSED PLAN OF ARRANGEMENT WITH RESPECT TO ALGOMA STEEL INC.
ALGOMA STEEL INC. (Applicant/Responding Party)
BEFORE: OSBORNE A.C.J.O., DOHERTY AND MACPHERSON JJ.A.
COUNSEL: John B. Laskin and David Outerbridge for the moving party First Mortgage Noteholders
Michael Barrack, Geoff Hall and Sarit Batner for the responding party Algoma Steel Inc.
John T. Porter, Alan Merskey and Mario Forte for the DIP Lenders
Ken Rosenberg, Lily Harmer and Marcus Knapp for the United Steelworkers of America
James H. Grout for the Monitor
Andrew Hatnay for the Superintendent of Financial Services
Michael Weinczok for the Directors of Algoma Steel Inc.
HEARD: May 18, 2001
On appeal from the order of Justice James M. Farley dated April 23, 2001.
E N D O R S E M E N T
[1] The First Mortgage Noteholders (“the Noteholders”) seek leave to appeal, pursuant to s. 13 of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“the CCAA”), from the order of Farley J. dated April 23, 2001. The Noteholders are a consortium of about a dozen companies and groups which holds first mortgage notes totalling about $550 million issued by the respondent Algoma Steel Inc. (“Algoma”).
[2] Farley J.’s order was an initial order made pursuant to s. 11(3) of the CCAA, on a motion by Algoma. It was made without notice to the Noteholders. The essence of Farley J.’s order was an authorization to Algoma to obtain additional financing (“the DIP Financing”) from its existing bank lenders during the 30 day stay period permitted by s. 11(3) of the CCAA. The purpose of the order was to respond, on an urgent and interim basis, to a serious negative cash flow crisis at Algoma. Indeed, without short-term financial assistance designed to serve as a base for restructuring Algoma’s current indebtedness, Algoma might well have had to cease operations. The order also gave priorities (which the parties call superpriorities) to the DIP Financing charge and to certain Administration and Directors Charges over the Noteholders’ existing security.
[3] In his endorsement, Farley J. said, inter alia:
Algoma qualifies as a corporation with the threshold debt re seeking relief under the CCAA.
The noteholders who are owed in excess of $1/2 billion were not represented today for the very simple reason that none of them were served. The reason for that as I understand it is that there is no set up at the present time of a Creditor’s Committee or any equivalent. I note that there is a comeback clause and I would particularly emphasize that if it is felt appropriate and needed, this clause should be used on a timely basis.
Order to issue as per my fiat.
[Emphasis added.]
[4] The comeback clause in the underlined passage is reflected in paragraph 48 of Farley J.’s order:
- THIS COURT ORDERS that any interested person may apply to this court to vary or rescind this order or seek other relief upon seven (7) days’ notice to the Applicant, the Monitor and to any other party likely to be affected by the order sought or upon such other notice, if any, as this court may order.
[5] Once the Noteholders became aware of Farley J.’s order, they decided to challenge it. They did so in two ways: by seeking leave to appeal to this court and by initiating a motion to vary before Farley J. The former proceeded before this court, on a preliminary basis, on May 15 and, on the merits, on May 18. The latter was scheduled to be heard by Farley J. on May 23.
[6] The Noteholders seek leave to appeal Farley J.’s order on three bases, which they frame as Proposed Questions for this court:
(1) Did the motions judge exceed his jurisdiction in making the initial order by altering existing priorities of and between secured creditors through the granting of superpriorities without the consent of the First Mortgage Noteholders?
(2) Did the motions judge exceed his jurisdiction or otherwise err in law by granting these superpriorities without any notice to the First Mortgage Noteholders or to the trustee under the trust indenture?
(3) Did the motions judge err in law by failing: (a) to treat the First Mortgage Noteholders in an equitable and even-handed manner relative to the Bank Lenders; and (b) to give due regard to the prejudice suffered by the First Mortgage Noteholders as a result of the initial order?
[7] In our view, the motion for leave to appeal is premature. Initial orders, made on a without notice basis, are specifically authorized by s. 11(1) of the CCAA. Proceedings under the CCAA are often urgent, complex and dynamic. The Algoma proceedings fit that description. Farley J. was faced with complex facts and a difficult decision potentially implicating the closure of one of the largest companies in Ontario. Moreover, he had to make his decision in a very timely fashion. In these circumstances, he recognized that his initial order might not be acceptable to all interested parties, including some of Algoma’s creditors. That is why he included a comeback clause in his order and specifically invited parties to resort to it in his endorsement.
[8] The fact that the CCAA provides that an appeal of an initial order is only available with leave indicates that appeals in CCAA proceedings should be limited. An appeal court should be cautious about intervening in the CCAA process, especially at an early stage. On this point, we are attracted to the reasoning of MacFarlane J.A. (in chambers) in Re Pacific National Lease Holding Corp. (1992), 1992 CanLII 427 (BC CA), 15 C.B.R. 265 at 272 (B.C.C.A.):
[T]here may be an arguable case for the petitioners to present to a panel of this court on discrete questions of law. But I am of the view that this court should exercise its powers sparingly when it is asked to intervene with respect to questions which arise under the C.C.A.A. The process of management which the Act has assigned to the trial court is an ongoing one. . . .
A colleague has suggested that a judge exercising a supervisory function under the C.C.A.A. is more like a judge hearing a trial, who makes orders in the course of that trial, than a chambers judge who makes interlocutory orders in proceedings for which he has no further responsibility.
. . . In supervising a proceeding under the C.C.A.A. orders are made, and orders are varied as changing circumstances require. Orders depend upon a careful and delicate balancing of a variety of interests and of problems. In that context appellant proceedings may well upset the balance, and delay or frustrate the process under the C.C.A.A. I do not say that leave will never be granted in a C.C.A.A. proceeding. But the effect upon all parties concerned will be an important consideration in deciding whether leave ought to be granted.
[9] Like MacFarlane J.A., we do not say that leave to appeal should never be granted in the midst of CCAA proceedings. However, it is premature to grant such leave at this juncture in the Algoma proceedings. Farley J.’s order was only an initial order brought on an urgent basis to deal with seemingly desperate circumstances. Moreover, the order specifically opened the proceedings to all interested parties and invited dissatisfied parties to bring their concerns to the court on a timely basis. The Noteholders availed themselves of this opportunity by initiating a motion to vary which was scheduled to be heard on the very day the initial order expired. In our view, this is precisely how a dynamic CCAA proceedings should unfold. Accordingly, it would be unwise to interrupt this normal and desirable process by granting leave to appeal at this juncture. The issues that the Noteholders want to raise can be considered by Farley J., importantly in the context of the entire proceedings with which he is familiar. Moreover, if at a later point in time this court grants leave to appeal, it will then have the benefit of the considered reasons of the motions judge flowing from a complete record and from full argument by all interested parties.
[10] For these reasons, the motion for leave to appeal is dismissed, without prejudice to the right of the Noteholders, or any other interested party, to make a similar motion at a later juncture in the proceedings, and to do so on an expedited basis. Only the United Steelworkers of America requested their costs of the motion. They are entitled to their costs which we would fix at $1000.
“C. A. A. Osborne A.C.J.O.”
“ D. Doherty J.A.”
“J. C. MacPherson J.A.”