DATE: 20061222

DOCKET: C45428-C45505

COURT OF APPEAL FOR ONTARIO

RE:

IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE A MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF HUNJAN INTERNATIONAL INC. AND THE OTHER APPLICANTS LISTED ON SCHEDULE A

BEFORE:

O’CONNOR A.C.J.O., SIMMONS and JURIANSZ JJ.A.

COUNSEL:

Peter Auvinen and Arthi Sambasivan for the appellant CIT Financial Ltd.

Ashley John Taylor and Diana Juricevic for the appellant GE

Paul Basso for the respondent CIBC

L. Joseph Latham for the respondent KPMG Inc.

HEARD:

December 20, 2006

On appeal from the order of Justice C. Campbell of the Superior Court of Justice dated May 3, 2006.

E N D O R S E M E N T

[1] The sole issue on this appeal is whether the motion judge erred in calculating the Amended DIP Deficiency.

[2] Paragraph 6 of the May 16 order sets out the means by which the Amended DIP Deficiency is to be repaid to CIBC. In summary, the relevant part of that paragraph provides that post-filing receipts shall be applied in payment of Hunjan’s obligations pursuant to the Amended DIP Facility. Any deficiency remaining is to be repaid from the net realizations on the collateral held by Hunjan’s first secured lenders, including CIBC and the appellants, and such deficiency is to be allocated on a pro rata basis among the secured lenders.

[3] Significantly, para. 6 of the order declares that the Amended DIP Facility is secured by the DIP charge and that the repayment scheme in the paragraph does not limit the force and effect of that charge.

[4] On its face, the May 16 order does not require CIBC and EDC to make a contribution to the Amended DIP Deficiency before recourse may be had to the appellants’ collateral.

[5] The appellants argue, however, that the May 16 order incorporated by reference the Accommodation Agreement and that para. 9(b) of that agreement requires that CIBC and EDC contribute up to $2,000,000 of the Amended DIP Deficiency before recourse may be had to the appellants’ collateral.

[6] Paragraph 9(b) of the Accommodation Agreement reads in part as follows:

Each Participating Customer will fund its proportionate share of the lesser of fifty percent of Hunjan’s total net funding losses incurred over the period from May 4, 2005 to and including the Termination Date …. and $2,000,000 ….

CIBC and EDC will each be responsible for their respective shares of the lesser of fifty percent of Hunjan’s total net funding losses over the Funding Period, and $2,000,000. The shares of each of CIBC and EDC shall be as agreed between them.

[7] We do not agree with the appellants’ argument.

[8] Assuming without deciding the Accommodation Agreement is incorporated into the May 16 order, it is important that para. 9(b) be interpreted in the context of the entire Agreement.

[9] Paragraph 7(b) of the Agreement requires CIBC to provide Hunjan with DIP funding in an amount up to $8,800,000. Paragraph 7(e) provides that all amounts owing to CIBC are to be secured by a first ranking charge against all of the property and assets of Hunjan and that CIBC “shall be entitled to apply firstly, the proceeds of post-filing Inventory, tooling and receivables to repay such amounts, and, secondly, if a balance remains, apply the proceeds of all of the other property and assets of Hunjan to repay such amounts.”

[10] Thus, the Agreement does not require CIBC to forego recovery of the amount for which it is responsible under para. 9(b). Instead, the Agreement specifically provides for the means by which CIBC may be repaid if there is a deficiency after applying post-filing receipts. In the same way, para. 9(f) of the agreement provides a means by which the Participating Customers may seek to recoup monies funded by them under para. 9(b).

[11] Viewed in this context, we interpret para. 9(b) as being a means of allocating responsibility for the anticipated $4,000,000 deficiency between the Participating Customers on the one hand and CIBC and EDC on the other. We do not interpret that paragraph as precluding the parties from seeking recovery by the other means set out in the Accommodation Agreement.

[12] We note that the effect of the interpretation of para. 9(b) urged by the appellants would negate the benefit to CIBC of the charge created under para. 7(e).

[13] Finally, we note that the interpretation that we place on s. 9(b) of the Accommodation Agreement can be read harmoniously with the repayment scheme set out in para. 6 of the May 16 order.

[14] Thus, in our view, CIBC is entitled to look to the collateral held by the first secured creditors of Hunjan without first having to forego $2,000,000 of the money advanced pursuant to the DIP Facility.

[15] The appeal is, therefore, dismissed. The respondent did not seek costs and, accordingly, there will be no order as to costs.

“D. O’Connor A.C.J.O.”

“Janet Simmons J.A.”

“R.G. Juriansz J.A.”