SUPERIOR COURT OF JUSTICE – ONTARIO

(IN BANKRUPTCY AND INSOLVENCY)

COURT FILE NO.: CV-13-10181-00CL
32-1763935
32-1763929
32-1764011

DATE: 20130716

RE: IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF COMSTOCK CANADA LTD.

AND IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF CCL REALTY INC.

AND IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF CCL EQUITIES INC.

BEFORE: MORAWETZ J.

COUNSEL:
A. MacFarlane, F. Lamie and A. McFarlane (Corporate Counsel), for Comstock Canada Ltd., CCL Realty Inc., and CCL Equities Inc., Applicants

H. Chaiton, for the Bank of Montreal

R. B. Schwill, for PricewaterhouseCoopers Inc.

B. Harrison, for the Board of Directors

K. Plunkett, for TESC Inc.

J. Milton, for Rio Tinto Alcan Inc.

HEARD & ENDORSED: JULY 9, 2013

REASONS: JULY 16, 2013

ENDORSEMENT

[1] This motion was brought by Comstock Canada Ltd. (“Comstock”), CCL Realty Inc. (“CCL Realty”) and CCL Equities Inc. (“CCL Equities”, and together with Comstock and CCL Realty, the “Comstock Group”) for an order, inter alia:

(a) continuing Comstock Group’s restructuring proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”), effective as of July 9, 2013;

(b) granting an initial order (the “Initial Order”) under the CCAA in respect of the Comstock Group;

(c) declaring that, upon the continuance under the CCAA, the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) proposal provisions shall have no further application;

(d) approving the cost reimbursement agreement entered into by Comstock and Rio Tinto Alcan Inc. (“Rio Tinto”);

(e) approving the Commitment Letter (defined below) and the granting of the DIP Lender’s Charge (defined below) and corresponding priority in favour of Bank of Montreal (“BMO”); and

(f) discharging PricewaterhouseCoopers Inc. (“PwC”) in its capacity as interim receiver (in such capacity, the “Interim Receiver”) of Comstock.

[2] At the conclusion of argument, the motion was granted, with reasons to follow. These are those reasons.

Background

[3] Established in 1904, Comstock is one of Canada’s largest multi-disciplined contractors, currently employing over 1,000 unionized and non-unionized tradespeople and 80 salaried employees across Canada. For over 100 years, Comstock has provided a broad capability in the completion of large-scale electrical and mechanical contracts to the planning, directing and execution of multi-trade, multi-million dollar commercial, industrial, institutional, automotive, nuclear, oil and gas, overhead and underground, and structural steel assignments. Recent projects include work for Enbridge Pipelines Incorporated, Shell Canada Limited, Petro Canada, Imperial Oil, Ontario Power Generation, Bruce Nuclear Power, Ford Motor Company, Chrysler Canada Inc., Winnipeg Airport Authority Inc. and Cadillac Fairview Corporation. In 2012, Comstock provided services to 130 customers and had several recurring customers.

[4] Comstock experienced financial challenges necessitating a restructuring of the company. While Comstock continues to enjoy a strong market reputation, Comstock’s business has experienced liquidity challenges, cost overruns and litigation costs that have imperilled the Comstock Group’s business.

[5] Comstock’s counsel submits that any serious disruption to Comstock’s ability to provide core services would imperil the viability of various projects and have negative effects cascading throughout the trades, subtrades and local economies of these projects. As a result, Comstock’s senior management believes that it is imperative to restructure the Comstock Group as soon as reasonably possible with a focus on avoiding disruption to Comstock’s operations.

[6] The Comstock Group seeks the Initial Order, at this time, to protect its business and preserve its value while it seeks to complete its restructuring.

[7] Comstock is a privately-held corporation incorporated pursuant to the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 (“OBCA”), with headquarters located in Burlington, Ontario and a western office located in Edmonton, Alberta. Comstock maintains additional regional facilities in Ontario, Manitoba, Alberta and British Columbia.

[8] Comstock and CCL Realty, a real estate holding company which holds all of the Comstock Group’s real property, are the direct and wholly-owned subsidiaries of CCL Equities – a holding company incorporated pursuant to the OBCA with headquarters located in Burlington, Ontario.

[9] In 2011, a management buyout was executed in respect of Comstock. Prior to this time, Comstock was a wholly-owned subsidiary of a U.S. publicly-traded company.

Comstock Debt and Lender Security

[10] Pursuant to a credit agreement dated July 29, 2011 (the “Credit Agreement”) among Comstock, as borrower, CCL Equities Inc., CCL Realty Inc., 3072454 Nova Scotia Company, as guarantors (collectively, the “Guarantors”) and BMO, as lender, BMO made available to Comstock a credit facility up to a maximum aggregate amount of $29,200,000 (the “Credit Facility” or the “Loan”).

[11] Comstock’s indebtedness under the Credit Agreement is secured by a general security agreement in favour of BMO; an assignment of insurance policies of Comstock and the Guarantors; an assignment, postponement, and subordination of shareholder loans; guarantees from each of the Guarantors; and mortgages over all of the real property owned by Comstock and CCL Realty (collectively, the “Lender’s Security”).

[12] A number of entities, including CBSC Capital Inc., Transportation Lease Systems Inc., ATCO Structures and Logistics Ltd., Leavitt Machinery General Partnership, Altruck International Truck Centres, Integrated Distribution Systems LP o/a Wajax Equipment, RCAP Leasing Inc., Horizon North Camp & Catering Inc., also have registered a security interest in respect of certain of Comstock’s equipment and vehicles.

[13] According to Comstock’s trade accounts payable records, Comstock owed approximately $47 million of unsecured trade debt to approximately 830 vendors as of June 27, 2013.

[14] As of July 9, 2013, Comstock is not in arrears in respect of payroll. Payroll obligations of the previous week had been funded through an Interim Receiver’s Borrowing Charge, which was subject of an endorsement reported at Comstock Canada Ltd. (Re), 2013 ONSC 4700.

[15] Comstock had payroll of $1.5 million due on Thursday, July 11, 2013, pertaining to the contracted project in Kitimat, British Columbia. The mechanics enabling this payroll to be met were authorized by the Initial Order.

(Complete judgment continues verbatim through paragraphs [16]–[65] exactly as in the source.)

Morawetz J.

Date: July 16, 2013