Court File and Parties

Court File No.: 21-2109581 21-2109607

Date: 2016-10-19

Superior Court of Justice - Ontario

Re: In the Matter of the Proposal of Wasaya Airways Limited Partnership and Wasaya General Partner Limited of the City of Thunder Bay in the Province of Ontario

Before: Regional Senior Justice G.B. Morawetz

Counsel: Alex Ilchenko, for Vine and Williams Inc., Proposal Trustee Alex MacFarlane, for the Applicants Jeremy Nemers, for Royal Bank of Canada Vern DaRe, for Business Development Bank of Canada

Heard and Decided: June 8, 2016 Written Reasons: October 19, 2016

Endorsement

[1] Vine and Williams Inc., in its capacity as the Trustee (the “Proposal Trustee”) in the proposal of Wasaya Airways Leasing Ltd. (“WALL”) (the “WALL Proposal”) and the joint proposal of Wasaya Airways Limited Partnership (“WALP”) and Wasaya General Partner Limited (“WGPL”), (the “Joint Proposal”) (WALL, WALP and WGPL being collectively, the “Debtors”) brought these motions for orders, inter alia, approving these proposals (the “WALL Proposal and the Joint Proposal” being collectively, the “Proposals”) as voted on and approved by creditors at the meeting of creditors held on May 17, 2016 (the “Meetings of Creditors”).

[2] At the conclusion of the hearing I endorsed the record of both motions as follows:

June 8, 2016 - “Motion granted. Order signed. Reasons will follow.”

[3] These are the reasons.

[4] The Wasaya Group of Companies and limited partnerships, which includes the Debtors, are 100% First Nations owned. The Debtors provide air transportation services in northern Ontario.

[5] The Debtors have been in operation for more than twenty-six years. WALP is the primary operating arm of the Debtors.

[6] WALP serves 25 destinations and has bases located in Thunder Bay, Sioux Lookout, Pickle Lake and Red Lake, Ontario. WALP provides air transportation services including passenger, charter and cargo, and is a critical lifeline for the delivery of food, medical supplies and other essential services to several remote First Nations communities. It also supplies and delivers bulk fuel for many of the Hydro One and community owned power generating plants in remote northern communities.

[7] WALL is an affiliate of WGPL and WALP and owns or leases the aircraft and other critical assets used by WALP in its operations. The operations of the Debtors are integrated and dependent on one another and, consequently, it is a condition of the proposal of WGPL and WALP that the WALL Proposal be approved, and vice-versa.

[8] The Debtors seek court approval of the Joint Proposal. WALP is a limited partnership and, WGPL, as the general partner of WALP, is liable in law for all the obligations of WALP. WGPL does not carry on business independently, and has no separate purpose, other than to serve as the general partner of the WALP.

[9] The Official Receiver accepted the filing of the Joint Proposal and the holding of a combined meeting of creditors for the unsecured creditors of WGPL and WALP.

[10] The Debtors have experienced negative cash flow, losses and operational problems resulting in financial difficulties for several years leading up to 2014, at which time a comprehensive operational and financial restructuring was initiated. R.e.l. group inc. (“REL”) was retained to act as Chief Restructuring Officer of the Debtors to assist in the development and implementation of the turnaround plan.

[11] The Debtors have the support of their secured creditors and key equipment lessors for the restructuring on the basis provided for in the proposals. Royal Bank of Canada (“RBC”) holds general security agreements over all of the assets of the Debtors as security for its loans. The total amount owing to RBC is approximately $7.85 million.

[12] Business Development Bank of Canada (“BDC”) has specific security on certain aircraft and other assets of WALL and holds general security agreements against WALL ranking behind RBC’s security. BDC is owed approximately $2.6 million.

[13] RBC and BDC entered into forbearance agreements with the Debtors to maintain their loans if the Proposals are accepted and implemented. The claims of secured creditors are not being compromised.

[14] Each Proposal provides that there is one class of unsecured creditors that is comprised of all Unsecured Creditors for each entity to the extent of their proven unsecured claims. Proposals are only being made to unsecured creditors.

[15] Unaffected creditors under the Proposals include claims of:

(a) secured creditors; (b) the Proposal Trustee, its counsel and counsel to the Debtors for administrative fees and expenses; (c) the Crown with respect to certain Crown claims which are not subject to compromise under the Bankruptcy and Insolvency Act (“BIA”); (d) any creditors for amounts owing by the Debtors on account of goods, property and services received after the filing date; and (e) employees of WALP and WGPL who shall continue to receive payment of their earnings on a regular basis.

[16] Upon implementation of each of the Proposals, each unsecured creditor will receive payment as follows:

(a) for proven claims of less than $1,000, a dividend payment equal to the full amounts of the claim; (b) for proven claims between $1,000 and less than $10,000, a dividend payment of $1,000 within 30 days of the effective date; (c) for proven claims in excess of $10,000, a dividend payment of ten cents on the dollar payable in four equal payments over 12 months; and (d) creditors having proven claims in excess of $10,000 who notify the Proposal Trustee at least three days before the first dividend payment, may elect to receive $1,000 on the first dividend payment in full and final satisfaction of their claim.

[17] The Proposals also provide that certain related party creditors will waive their rights to receive dividends on their unsecured claims and, in the case of WALL, that certain First Nations creditors agree to irrevocably direct that the dividends payable on their claims be reinvested as unsecured loans to WALL.

[18] The Proposal Trustee further reports that the liabilities of WGPL and WALP are virtually identical, with the only creditors unique to WGPL, being individual claims related to the payroll for the WALP Senior Management Team, all of which will be satisfied in full.

[19] In the event of bankruptcy of each of the Debtors, the Proposal Trustee reports that the unsecured creditors would receive no distribution, and any proceeds of any liquidation of the assets of each of the Debtors would be paid to the secured creditors.

[20] On May 17, 2016, the Meeting of Creditors for the Debtors was held. The Proposals were accepted by the requisite value and dollar value of the unsecured creditors of each of the Debtors entitled to vote at the Meeting of Creditors.

[21] With respect to WALP and WGPL, 96.15% in number representing 99% in dollar value voted in favour of the Proposal.

[22] With respect to the Proposal of WALL, 87.5% in number representing 99.76% in dollar value voted in favour of the Proposal.

[23] The Proposal Trustee is of the opinion that the Proposals are advantageous to the creditors of the Debtors. The Proposal Trustee recommended that the Proposals be approved by the court.

[24] The significant issue on this motion was whether it was appropriate to approve the filing of a Joint Division I Proposal by WGPL and WALP.

[25] The Joint Proposal provides that:

(a) all claims asserted by Unsecured Creditors against either WGPL or WALP will be treated as claims in each estate; (b) Unsecured Creditors only need to submit one proof of claim with respect to their claim; (c) only one joint meeting of the Unsecured Creditors of WGPL and WALP would be held; (d) if an Unsecured Creditor wished to submit a proxy or voting letter, only one proxy or voting letter need be submitted; and (e) dividends will be based on proven claims submitted by Unsecured Creditors (without duplication) and only one distribution will be made to each Unsecured Creditor with a proven claim. Distributions will be made or issued by WALP, however, WGPL will be jointly liable for all payments.

[26] There is very little authority or guidance on the subject of whether the filing of a Joint Proposal by related corporations is permitted under the BIA and whether an order should issue approving a Joint Proposal.

[27] Counsel to the Proposal Trustee submits that the filing of a Joint Proposal by related corporations is permitted under the BIA and that, on the facts of this case, an order should issue approving the Joint Proposal.

[28] Counsel to the Proposal Trustee referenced the proposal of Golden Hill Ventures Limited Partnership and Golden Hill Ventures Ltd., Estate No.: 11-1292335 and 11-252902 (Yukon, S.C.), unreported, where the court approved a single proposal for both the general partner and the limited partnership. No reasons were provided. According to counsel to the Proposal Trustee, the proposal in that case did not provide for a consolidated estate, but rather, similar to the terms of the Joint Proposal, the Golden Hill proposal provided that all claims asserted against either Debtor, or both Debtors, would be treated as claims against the limited partnership for which the general partner was also liable by operation of law.

[29] Counsel further noted that in Re Howe, 2004 ONSC 66325, [2004] O.J. No. 4257, Registrar Sproat allowed for the filing of a “joint proposal” by spouses who carried on a business together.

[30] In Convergix Inc. (Re), [2006] NBQB 288, Glennie J. of the New Brunswick Court of Queen’s Bench expanded the category of parties eligible for the filing of a “joint proposal” to related entities. In allowing the filing of a “joint proposal”, Glennie J. took into account the inter-relatedness of the insolvent corporations, that the “joint proposal” would not prejudice any creditors and that the filing of a “joint proposal” by related companies in certain circumstances may be consistent with the filing of a “joint proposal” by partners in a partnership.

[31] Justice Glennie opined that the filing of a joint proposal is permitted under the BIA and, in that case, the filing of a joint proposal by the related corporations was permitted. Glennie J. noted that the BIA should not be construed so as to prohibit the filing of a joint proposal. In his analysis, Glennie J. referenced Re Nitsopoulos, 2001 ONSC 28464, O.J. No. 2181 where Farley J. concluded that the BIA should not be construed so as to prohibit the filing of a Joint Division I Proposal.

[32] Justice Glennie also took into account that:

(a) the cost of reviewing and vetting all inter-corporate transactions of the insolvent corporations in order to prepare separate proposals; (b) the cost of reviewing and vetting all arms-length creditors’ claims to determine which insolvent corporation they are actually a creditor of; and (c) the cost of reviewing and determining ownership and title to the assets of the insolvent corporations;

would be unduly and counterproductive to the goal of restructuring and rehabilitating the insolvent corporations.

[33] As noted by Vern Da Re in “The treatment of Joint Division I Proposals, 2004 Annual Review of Insolvency Law 21”:

… Joint consumer proposals are explicitly permitted under section 66.12(1.1) of the BIA …

By contrast, Joint Division I Proposals are not specifically permitted under the BIA. Section 50(1) provides that “a proposal may be made by an insolvent person …”. The words “a proposal” and “an insolvent person” are singular and, arguably, limit Division 1 Proposals to one person per filing. While the definition of “person” under section 2(1) of the BIA is inclusive, rather than exhaustive, and includes “a partnership”, there is no reference to the word in its plural form.

[34] The issue identified by Mr. Da Re had been considered by Farley J. in Re Nitsopoulos, who referred to the definition of “person” under section 2(1) of the BIA and concluded that since the definition was inclusive, rather than exhaustive, he was unwilling to prohibit the joint filing.

[35] I agree with the approach taken by Farley J. in Re Nitsopoulos. I do not see anything in the definition which would prohibit the joint filing. In my view, it was appropriate for the Official Receiver to accept the Joint Proposal.

[36] I accept the submissions of counsel to the Proposal Trustee. In doing so, I have taken into account that:

(a) the operations of WALP and WGPL are completely intertwined; (b) WGPL is liable in law for all of the obligations of WALP; (c) the creditors of WGPL and WALP are not prejudiced by the filing of the Joint Proposal, as the only separate claims in WGPL will be satisfied in full as provided in the Joint Proposal and as required under s. 60 of the BIA; (d) the official Receiver permitted the filing of the Joint Proposal; and (e) the creditors of both WGPL and WALP voted overwhelmingly in favour of the Joint Proposal.

[37] In order to approve a proposal, a three-pronged test must be satisfied:

(a) the Proposal is reasonable; (b) the Proposal is calculated to benefit the general body of creditors; and (c) the Proposal is made in good faith.

(see: Re Kitchener Frame Limited (Re), 2012 ONSC 234).

[38] In Kitchener, I stated the following at para. 20:

“The first two factors are set out in section 59(2), while the last factor has been implied by the court as an exercise of its equitable jurisdiction. The courts have generally taken into account the interests of the debtor, the interests of the creditors, and the interests of the public at large in the integrity of the bankruptcy system”.

[39] As I stated in Kitchener, it is appropriate to accord substantial deference to the majority vote of creditors at a meeting of creditors.

[40] In this particular case, it is also important to take into account the operations of the Debtors. The public interest served by the operations of the Debtors is of considerable importance. The Debtors provide essential services to several remote First Nations communities in northern Ontario.

[41] The Proposal Trustee has opined that the Proposals are advantageous to the creditors. The Proposals provide for distribution to the unsecured creditors which exceed the dividend that would otherwise be available from a bankruptcy, as there would be no recovery for unsecured creditors in a bankruptcy, and the Proposals are calculated to benefit the general body of creditors of the Debtors. Further, the Proposal Trustee is of the view that the Debtors have acted in good faith and with due diligence.

[42] The Proposal Trustee is of the view that the releases requested are reasonable, necessary and do not prejudice any creditors. I agree. The orders requested by the Proposal Trustee incorporate a Director and Officer Release. I am satisfied that the orders requested by the Proposal Trustee reflect the required restrictions contained in section 50(13) and 50(14) of the BIA.

[43] In summary, each of the Proposals satisfies the requirements of the BIA and, accordingly, the Proposals are approved.

[44] An order shall issue:

(a) approving the WALL Proposal and releases of the former and current officers and directors of WALL contained therein; (b) approving the Joint Proposal of WALP and WGPL and the releases of the former officers and directors contained therein; and (c) approving the WALL Report and the WALP/WGPL Report, each dated May 27, 2016 and the activities of the Proposal Trustee as described therein.

Regional Senior Justice G.B. Morawetz Date: October 19, 2016