SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF THE BANKRUPTCY OF Shaw Canada L.P.

BEFORE: D. M. Brown J.

COUNSEL:
A. Slavens, for Duff & Phelps Canada Restructuring Inc., Trustee in Bankruptcy of Shaw Canada L.P.

J. Harnum, for certain employees and retirees of the bankrupt

P. Riesterer, for The Shaw Group Inc.

HEARD: September 21, 2012

REASONS FOR DECISION

I. Motion by Trustee to permit employees of bankrupt corporation to vote on election of inspectors

[ 1 ] Shaw Canada L.P. (“Shaw”) is an indirect subsidiary of The Shaw Group Inc., a United States global provider of engineering, construction, technology and other services for clients in the energy, chemicals, environmental and infrastructure industries. On August 31, 2012 Shaw made an assignment in bankruptcy pursuant to the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 and Duff & Phelps Canada Restructuring Inc. was appointed as Trustee, subject to affirmation at the first meeting of creditors.

[ 2 ] That meeting is scheduled for next Monday, September 24, 2012. The Trustee moves for an order permitting any employee or retiree of Shaw as at August 31, 2012 who is a creditor of the corporation to nominate and vote on the appointment of inspectors at the first meeting of creditors. No person opposed the order sought. At the hearing I granted the order requested, with these written Reasons to follow.

II. The affairs of the bankrupt

[ 3 ] The Trustee reports that as at the date of bankruptcy Shaw possessed assets valued at slightly over $8.3 million consisting of (i) cash of $1.1 million, (ii) inter-company accounts receivable of about $7.2 million, and (iii) office and computer equipment worth several hundred thousand dollars. Shaw’s balance sheet reflects an obligation to Shaw Overseas (Far East) Ltd. of about $14.9 million. The Trustee is investigating the impact of that obligation on the collectability of the intercompany receivables.

[ 4 ] As at the date of bankruptcy Shaw employed 107 non-unionized individuals. The company’s pension plan included defined benefit and defined contribution components. Based on initial discussions the Trustee believes the deficit in the defined benefit component of the pension plan may be $5 million.

[ 5 ] It appears that the only priority claim is approximately $200,000.00 in respect of unpaid source deductions. There are no secured creditors. All wages and vacation pay were paid; rent was paid through to the date of bankruptcy.

[ 6 ] Based on its initial review of the bankrupt’s affairs, the Trustee understands that the principal unsecured creditors consist of (i) Shaw Overseas, (ii) claims by employees for unpaid severance and termination claims, which the Trustee thinks “are likely among the largest claims against the Company”, and (iii) members of the pension plan for which there is a deficit.

III. Analysis

[ 7 ] Prior to its amendment in 2009, section 113(3) of the BIA provided that where the bankrupt was a corporation, any director, officer or employee thereof was not entitled to vote on the appointment of a trustee or inspectors. The rationale for that proscription was explained by the British Columbia Supreme Court in Re Fintry Estates Ltd. :

An officer, director or employee of a corporation owes a duty to the corporation, and the observance of that existing duty might conflict with the best interests of the creditors as to the person to be elected trustee or as to the persons to be elected as inspectors. In my view, the purpose of s. 79(3)(b) is to protect the creditors against the election of a trustee or inspectors who might be partial to the bankrupt rather than wholly devoted to the welfare of the creditors . [1]

More recently, in Re Galaxy Sports Inc. , the British Columbia Court of Appeal stated, in the context of the ineligibility of directors to vote for the trustee or inspectors:

All directors are required to devote their best efforts to the company's affairs, and every director can by the very nature of his or her office "influence" those affairs. [2]

[ 8 ] In 2009 section 113(3) of the BIA was amended. The current section preserves the proscription on employees voting on the appointment of a trustee, but provides the court with the discretion to allow them to vote on the election of inspectors:

113. (3) The following persons are not entitled to vote on the appointment of a trustee — and except with the permission of the court and on any condition that the court may impose, the following persons are not entitled to vote on the appointment of inspectors:

( b ) where the bankrupt is a corporation, any officer, director or employee thereof…

[ 9 ] The Industry Canada Clause-by-Clause Briefing Book: An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts explained that the amendment was “intended to allow related parties to vote on the appointment of inspectors, who act as representatives of the creditors, in appropriate circumstances – for example, where the majority creditors are related parties.”

[ 10 ] In the present case, apart from the priority claim for unremitted source deductions, it appears that the remaining claims against the bankrupt’s estate will be those of unsecured creditors – no secured creditor exists and rent was paid up to the date of bankruptcy. The Trustee estimates that the claims of the employees for severance and termination pay and the claims of the retirees in respect of the deficit in their pension plan in aggregate exceed the claim which Shaw Overseas may assert in respect of the inter-company obligation. Shaw Overseas does not object to the order sought.

[ 11 ] Given that state of affairs, I think it fair that the employees and retirees, who constitute the major creditors of the estate, should have some say in the selection of the inspectors – their economic welfare makes up a large part of the overall economic welfare of creditors which the bankruptcy proceeding seeks to protect. In my handwritten endorsement made at the hearing I wrote: “BIA 109(1) and 115, of course, apply.” By requiring compliance with the obligation to file proofs of claim in order to vote and by stipulating that the standard method of counting votes will apply, no undue prejudice should result to any other interested party.

[ 12 ] For those reasons I ordered that any retiree or employee of Shaw as at August 31, 2012 who is a creditor of Shaw be permitted to nominate and vote on the appointment of inspectors at the first meeting of creditors.

_______ (original signed by) ____________

D. M. Brown J.

Date : September 21, 2012

[1] (1962), 1962 449 (BC SC) , 35 D.L.R. (2d) 584 (B.C.S.C.), p. 589.

[2] 2004 BCCA 284 , para. 56 .