Cline Mining Corporation (Re), 2015 ONSC 622
Court File and Parties
COURT FILE NO.: CV-14-10781-00CL
DATE: 2015-01-30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE AND ARRANGEMENT OF CLINE MINING CORPORATION, NEW ELK COAL COMPANY LLC AND NORTH CENTRAL ENERGY COMPANY
BEFORE: Regional Senior Justice G.B. Morawetz
COUNSEL: Robert J. Chadwick and Logan Willis, for the Applicants Cline Mining Corporation et al.
Michael DeLellis and David Rosenblatt, for the FTI Consulting Canada Inc., Monitor of the Applicants
Jay Swartz, for the Secured Noteholders
HEARD: January 27, 2015
ENDORSEMENT
[1] Cline Mining Corporation, New Elk Coal Company LLC and North Central Energy Company (collectively, the “Applicants”) seek an order (the “Sanction Order”), among other things:
a. sanctioning the Applicants’ Amended and Restated Plan of Compromise and Arrangement dated January 20, 2015 (the “Plan”) pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”); and
b. extending the stay, as defined in the Initial Order granted December 3, 2014 (the “Initial Order”), to and including April 1, 2015.
[2] Counsel to the Applicants submits that the Recapitalization is the result of significant efforts by the Applicants to achieve a resolution of their financial challenges and, if implemented, the Recapitalization will maintain the Applicants as a unified corporate enterprise and result in an improved capital structure that will enable the Applicants to better withstand prolonged weakness in the global market for metallurgical coal.
[3] Counsel submits that the Applicants believe that the Recapitalization achieves the best available outcome for the Applicants and their stakeholders in the circumstances and achieves results that are not attainable under any other bankruptcy, sale or debt enforcement scenario.
[4] The position of the Applicants is supported by the Monitor, and by Marret, on behalf of the Secured Noteholders.
[5] The Plan has the unanimous support from the creditors of the Applicants. The Plan was approved by 100% in number and 100% in value of creditors voting in each of the Secured Noteholders Class, the Affected Unsecured Creditors Class and the WARN Act Plaintiffs Class.
[6] The background giving rise to (i) the insolvency of the Applicants; (ii) the decision to file under the CCAA; (iii) the finding made that the court had the jurisdiction under the CCAA to accept the filing; (iv) the finding of insolvency; and (v) the basis for granting the Initial Order and the Claims Procedure Order was addressed in Cline Mining Corporation (Re), 2014 ONSC 6998 and need not be repeated.
[7] The Applicants report that counsel to the WARN Act Plaintiffs in the class action proceedings (the “Class Action Counsel”) submitted a class proof of claim on behalf of the 307 WARN Act Plaintiffs in the aggregate amount of U.S. $3.7 million. Class Action Counsel indicated that the WARN Act Plaintiffs were not prepared to vote in favour of the Plan dated December 3, 2014 (the “Original Plan”) without an enhancement of the recovery. The Applicants report that after further discussions, agreement was reached with Class Action Counsel on the form of a resolution that provides for an enhanced recovery for the WARN Act Plaintiffs Class of $210,000 (with $90,000 paid on the Plan implementation date) as opposed to the recovery offered in the Original Plan of $100,000 payable in eight years from the Plan implementation date.
[8] As a result of reaching this resolution, the Original Plan was amended to reflect the terms of the WARN Act resolution.
[9] The Applicants served the Amended Plan on the Service List on January 20, 2015.
[10] The Plan provides for a full and final release and discharge of the Affected Claims and Released Claims, a settlement of, and consideration for, all Allowed Affected Claims and a recapitalization of the Applicants.
[11] Equity claimants will not receive any consideration or distributions under the Plan.
[12] The Plan provides for the release of certain parties (the “Released Parties”), including:
(i) the Applicants, the Directors and Officers and employees of contractors of the Applicants; and
(ii) the Monitor, the Indenture Trustee and Marret and their respective legal counsel, the financial and legal advisors to the Applicants and other parties employed by or associated with the parties listed in sub-paragraph (ii), in each case in respect of claims that constitute or relate to, inter alia, any Claims, any Directors/Officer Claims and any claims arising from or connected to the Plan, the Recapitalization, the CCAA Proceedings, the Chapter 15 Proceedings, the business or affairs of the Applicants or certain other related matter (collectively, the “Released Claims”).
[13] The Plan does not release:
(i) the right to enforce the Applicants’ obligations under the Plan;
(ii) the Applicants from or in respect of any Unaffected Claim or any Claim that is not permitted to be released pursuant to section 19(2) of the CCAA; or
(iii) any Director or Officer from any Director/Officer Claim that is not permitted to be released pursuant to section 5.1(2) of the CCAA.
[14] The Plan does not release Insured Claims, provided that any recourse in respect of such claims is limited to proceeds, if any, of the Applicants’ applicable Insurance Policies.
[15] The Meetings Order authorized the Applicants to convene a meeting of the Secured Noteholders, a meeting of Affected Unsecured Creditors and a meeting of WARN Act Plaintiffs to consider and vote on the Plan.
[16] The Meetings were held on January 21, 2015. At the Meetings, the resolution to approve the Plan was passed unanimously in each of the three classes of creditors.
[17] None of the persons with Disputed Claims voted at the Meetings, in person or by proxy. Consequently, the results of the votes taken would not change based on the inclusion or exclusion of the Disputed Claims in the voting results.
[18] Pursuant to section 6(1) of the CCAA, the court has the discretion to sanction a plan of compromise or arrangement where the requisite double-majority of creditors has approved the plan. The effect of the court’s approval is to bind the company and its creditors.
[19] The general requirements for court approval of the CCAA Plan are well established:
a. there must be strict compliance with all statutory requirements;
b. all materials filed and procedures carried out must be examined to determine if anything has been done or purported to have been done, which is not authorized by the CCAA; and
c. the plan must be fair and reasonable.
(see Re SkyLink Aviation Inc., 2013 ONSC 2519)
[20] Having reviewed the record and hearing submissions, I am satisfied that the foregoing test for approval has been met in this case.
[21] In arriving at my conclusion that the Plan is fair and reasonable in the circumstances, I have taken into account the following:
a. the Plan represents a compromise among the Applicants and the Affected Creditors resulting from discussions among the Applicants and their creditors, with the support of the Monitor;
b. the classification of the Applicants’ creditors into three voting classes was previously approved by the court and the classification was not opposed at any time;
c. the results of the Sale Process indicate that the Secured Noteholders would suffer a significant shortfall and there would be no residual value for subordinate interests;
d. the Recapitalization provides a limited recovery for unsecured creditors and the WARN Act Plaintiffs;
e. all Affected Creditors that voted on the Plan voted for its approval;
f. the Plan treats Affected Creditors fairly and provides for the same distribution among the creditors within each of the Secured Noteholders Class, the Affected Unsecured Creditors Class and the WARN Act Plaintiffs Class;
g. Unaffected Claims, which include, inter alia, government and employee priority claims, claims not permitted to be compromised pursuant to sections 19(2) and 5.1(2) of the CCAA and prior ranking secured claims, will not be affected by the Plan;
h. the treatment of Equity Claims under the Plan is consistent with the provisions of the CCAA; and
i. the Plan is supported by the Applicants (Marret, on behalf of the Secured Noteholders), the Monitor and the creditors who voted in favor of the Plan at the Meetings.
[22] The CCAA permits the inclusion of third party releases in a plan of compromise or arrangement where those releases are reasonably connected to the proposed restructuring (see: ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp., 2008 ONCA 587 (“ATB Financial”); SkyLink, supra; and Re Sino-Forest Corporation, 2012 ONSC 7050, leave to appeal denied, 2013 ONCA 456).
[23] The court has the jurisdiction to sanction a plan containing third party releases where the factual circumstances indicate that the third party releases are appropriate. In this case, the record establishes that the releases were negotiated as part of the overall framework of the compromises in the Plan, and these releases facilitate a successful completion of the Plan and the Recapitalization. The releases cover parties that could have claims of indemnification or contribution against the Applicants in relation to the Recapitalization, the Plan and other related matters, whose rights against the Applicants have been discharged in the Plan.
[24] I am satisfied that the releases are therefore rationally related to the purpose of the Plan and are necessary for the successful restructuring of the Applicants.
[25] Further, the releases provided for in the Plan were contained in the Original Plan filed with the court on December 3, 2014 and attached to the Meetings Order. Counsel to the Applicants submits that the Applicants are not aware of any objections to the releases provided for in the Plan.
[26] The Applicants also contend that the releases of the released Directors/Officers are appropriate in the circumstances, given that the released Directors and Officers, in the absence of the Plan releases, could have claims for indemnification or contribution against the Applicants and the release avoids contingent claims for such indemnification or contribution against the Applicants. Further, the releases were negotiated as part of the overall framework of compromises in the Plan. I also note that no Director/Officer Claims were asserted in the Claims Procedure.
[27] The Monitor supports the Applicants’ request for the sanction of the Plan, including the releases contained therein.
[28] I am satisfied that in these circumstances, it is appropriate to grant the releases.
[29] The Plan provides for certain alterations to the Cline Articles in order to effectuate certain corporate steps required to implement the Plan, including the consolidation of shares and the cancellation of fractional interests of the Cline Common Shares. I am satisfied that these amendments are necessary in order to effect the provisions of the Plan and that it is appropriate to grant the amendments as part of the approval of the Plan.
[30] The Applicants also request an extension of the stay until April 1, 2015. This request is made pursuant to section 11.02(2) of the CCAA. The court must be satisfied that:
(i) circumstances exist that make the order appropriate; and
(ii) the applicant has acted, and is acting in good faith and with due diligence.
[31] The record establishes that the Applicants have made substantial progress toward the completion of the Recapitalization, but further time is required to implement same. I am satisfied that the test pursuant to section 11.02(2) has been met and it is appropriate to extend the stay until April 1, 2015.
[32] Finally, the Monitor requests approval of its activities and conduct to date and also approval of its Pre-Filing Report, the First Report dated December 16, 2014 and the Second Report together with the activities described therein. No objection was raised with respect to the Monitor’s request, which is granted.
[33] For the foregoing reasons, the motion is granted and an order shall issue in the form requested, approving the Plan and providing certain ancillary relief.
R.S.J. Morawetz
Date: January 30, 2015