Sydney Young

The applicant, Zochem Inc., applied under Part IV of the CCAA for recognition of First Day Orders made by the U.S. Bankruptcy Court in Chapter 11 proceedings.

The court found that the U.S. proceeding was a foreign main proceeding, as the debtors were managed as an integrated group from the United States, despite Zochem's operations being in Ontario.

The court also recognized the interim financing order and granted a super-priority charge for the DIP lender, noting that the interim advance was necessary to meet payroll and that the directors must act in the best interests of the Canadian corporation.

In CCAA proceedings involving an educational publisher, the secured lender sought full indemnity costs following a successful motion resulting in the replacement of the monitor and related relief.

The court considered a contractual costs provision in the second lien credit agreement permitting recovery of enforcement costs, subject to the court’s supervisory discretion to ensure fairness and reasonableness.

The court confirmed that contractual provisions for full indemnity costs are generally enforceable where reasonable and declined to defer determination of costs.

Canadian counsel fees were found fair and reasonable, while the claim for U.S. counsel fees was reduced due to insufficient justification.

Costs of $194,091.59 were ordered payable to the secured lender.

In a comeback motion under the CCAA, the second lien agent challenged the appointment of the proposed monitor on the basis that its affiliate had acted for the debtor for more than two years, directed the pre-filing SISP, and participated in negotiations concerning the restructuring that would eliminate second lien recoveries.

The court held that a monitor must be independent and be seen to be independent, and found the proposed monitor could not impartially advise the court on the central issue of the reliability of the pre-filing sales process.

The court replaced the proposed monitor with another insolvency firm.

The court also ordered that, pending further order, the debtor could not pay interest or other expenses to the first lien lenders unless the same payments owing to the second lien lenders were made.