John Fiddick and Robert Fischer acted as counsel to the City of Vancouver, opposing the approval and vesting order for one of Donnelly Holdings Ltd.’s (“DHL”) assets, Cinema Public House Ltd. (“Cinema”). This included opposing the court approval of the assignment of the lease held for Cinema under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 [CCAA], under section 11.3(3) of the CCAA.
Section 11.3(3) is noteworthy because an applicant in CCAA proceedings will turn to this provision to have a court exercise its jurisdiction to assign an executory contract (in this case, a commercial lease) based on evidence that the proposed assignment was important to facilitate the reorganization process, did not unduly prejudice the rights of the third party, and was consistent with the objectives of the CCAA.
Appearing in the CCAA proceeding of Donnelly Holdings Ltd. (Re), 2024 BCSC 275, Mr. Fiddick argued that one of the requirements for assignment under CCAA, s. 11.3(3), could not be satisfied in this case. Namely, the assignment was not appropriate because the person to whom the rights and obligations were to be assigned would not be able to perform the obligations of the assigned agreement.
The Court agreed. The decision in Donnelly is significant for insolvency and restructuring practitioners for various reasons:
- The Court confirmed that the power under s.11.3 is extraordinary (at para 57).
- The Court noted the distinct requirement under CCAA, s. 11.3(3)(b)—there must be an evidentiary foundation to support a finding that the purchaser will be able to perform the obligations of the assignment.
- The Court confirmed that the discretion under s. 11.3 must be exercised after a consideration of all the circumstances, with the degree of importance of the assignment to the overall restructuring being a factor in the balancing exercise. “Critical” and “vital” are seen as appropriate descriptions as to the appropriate degree of importance (at para 59).
- When it is a landlord facing an application for a section 11.3 assignment of a lease, the decision signals that landlords must move beyond a traditional ‘reasonably withhold consent’ test.[1] Rather, when encountering a section 11.3 assignment application, there is no closed list of factors and counsel should be assessing the assignment in light of the rehabilitation aims of the CCAA and its policy objectives.
- Whether a proposed assignee is a fully established entity or a shelf company remains an important fact in s. 11.3 applications—at least in terms of what evidence ought to be marshalled.
In this case, the Court granted DHL leave to renew their application if further evidence (if available) could address concerns with respect to whether the proposed assignees could actually meet the obligations imposed by the lease. Whether this will happen, or whether the Monitor will disclaim the lease, or whether some other interested buyer will emerge remains to be seen.
For more information, please contact a member of Whitelaw Twining’s Restructuring & Insolvency Group, including John Fiddick and Robert Fischer.