CITATION: Return On Innovation Capital Ltd. v. Gandi Innovations Limited, 2012 ONCA 10
DATE: 20120109
DOCKET: M40553
COURT OF APPEAL FOR ONTARIO
Sharpe, Blair and Rouleau JJ.A.
BETWEEN:
Return on Innovation Capital Ltd. as agent for ROI Fund Inc., ROI Sceptre Canadian Retirement Fund, ROI Global Retirement Fund and ROI high Yield Private Placement Fund and Any Other Fund Managed by ROI from time to time
Applicants/Respondents
and
Gandi Innovations Limited, Gandi Innovations Holdings LLC and Gandi Innovations LLC
Respondents/Appellants
Christopher J. Cosgriffe and Natasha S. Danson, for James Gandy, Hary Gandy and Trent Garmoe
Matthew J. Halpin and Evan Cobb, for TA Associates Inc.
Harvey Chaiton and Maya Poliak, for the Monitor
Heard: In writing January 3, 2012
ENDORSEMENT
Overview
[1] The moving parties (James Gandy, Hary Gandy and Trent Garmoe) are officers, directors and shareholders in the Gandi Group, a series of related companies currently under CCAA protection. In those proceedings they assert indemnity claims in the range of $75 – 80 million against each of the companies in the Gandi Group. The indemnity claims arise out of arbitration proceedings brought against them individually, as officers and directors, by TA Associates, a disgruntled investor in the Gandi Group. TA Associates is the major unsecured creditor in the CCAA proceedings.
[2] The assets of the Gandi Group have been sold and what remains to be done in the CCAA process is the finalization of a plan of compromise and arrangement for the distribution of the proceeds among the various creditors. Before settling on the most effective type of plan for such a distribution – a consolidated plan, a partial consolidation plan, or individual corporate plans – the Monitor and the creditors sought to have two preliminary issues determined by the Court:
a) whether the moving parties (the Claimants) are entitled to indemnity from all of the entities which comprise the Gandi Group, and, if so,
b) whether those indemnification claims are “equity” or “non-equity” claims for purposes of the CCAA (non-equity claims have priority).
[3] On August 25, 2011, Justice Newbould, sitting on the Commercial List, ruled :
a) that the Claimants were only entitled to indemnity from the direct and indirect parent company, Gandi Holdings (except that the Claimant, James Gandy only was also entitled to indemnification from a second entity in the Group, Gandi Canada);
b) that any claim of James Gandy was subordinated to the claim of TA Associates because of an earlier existing Subordination Agreement; and
c) that the claims for indemnification in respect of the TA Associates claim in the arbitration were equity claims for purposes of the CCAA and therefore subsequent in priority to the claims of unsecured creditors.
[4] The Claimants seek leave to appeal from that order.
[5] We deny the request.
Analysis
The Test
[6] Leave to appeal is granted sparingly in CCAA proceedings and only when there are serious and arguable grounds that are of real and significant interest to the parties. The Court considers four factors:
(1) Whether the point on the proposed appeal is of significance to the practice;
(2) Whether the point is of significance to the action;
(3) Whether the appeal is prima facie meritorious or frivolous; and
(4) Whether the appeal will unduly hinder the progress of the action.
See Re Stelco (Re), (2005) O.R. (3d) 5, at para. 24 (C.A.).
[7] The Claimants do not meet this stringent test here.
The Indemnification Issue
[8] Whether the Claimants are entitled to indemnification from all or just one or some of the entities in the Gandi Group was essentially a factual determination by the motion judge, is of no significance to the practice as a whole, and the proposed appeal on that issue is of doubtful merit in our view. We would not grant leave to appeal on that issue.
The Subordination Issue
[9] The same may be said for the Subordination Agreement issue. The Claimants argue that by declaring that the indemnity claim of James Gandy is subordinate to the CCAA claim of TA Associates, the motion judge usurped the role of the pending arbitration. We do not agree. The subordination issue needed to be clarified for purposes of the CCAA proceedings. None of the criteria respecting the granting of leave is met in relation to this proposed ground.
The “Equity Claim” Issue
[10] Nor do we see any basis for granting leave to appeal on the equity/non-equity claim issue.
[11] “Equity” claims are subsequent in priority to non-equity claims by virtue of s. 6(8) of the CCAA. What constitutes an “equity claim” is defined in s. 2(1) and would appear to encompass the indemnity claims asserted by the Claimants here. Those provisions of the Act did not come into force until shortly after the Gandi Group CCAA proceedings commenced, however, and therefore do not apply in this situation. Newbould J. relied upon previous case law suggesting that the new provisions simply incorporated the historical treatment of equity claims in such proceedings: see, for example, Re Nelson Financial Group Ltd., 2010 ONSC 6229, (2010), 75 B.L.R. (4th) 302, at para. 27. He therefore concluded that TA Associates was in substance attempting to reclaim its equity investment in the Gandi Group through the arbitration proceedings and that the Claimants’ indemnity claims arising from that claim must be equity claims for CCAA purposes as well.
[12] This issue in the proposed appeal is not of significance to the practice since all insolvency proceedings commenced after the new provisions of the CCAA came into effect in September 2009 will be governed by those provisions, not by the prior jurisprudence. The interpretation of sections 6(8) and 2(1) does not come into play on this appeal. To the extent that existing case law continues to govern whatever pre-September 2009 insolvency proceedings are still in the system, those cases will fall to be decided on their own facts. We see no error in the motion judge’s analysis of the jurisprudence or in his application of it to the facts of this case, and therefore see no basis for granting leave to appeal from his disposition of the equity issue in these circumstances.
Disposition
[13] The motion for leave to appeal is therefore dismissed. Costs to the Monitor and to TA Associates fixed in the amount of $5,000 each, inclusive of disbursements and all applicable taxes.
“Robert J. Sharpe J.A.”
“R.A. Blair J.A.”
“Paul Rouleau J.A.”