Case: Essar Steel Algoma Inc. (Re), 2017 ONCA 478 (CanLII)
Keywords: CCAA Proceedings; Restructuring; Leave to Appeal
GIP Primus LP and Brightwood Loan Services LLC (collectively “GIP”) and Port of Algoma Inc. (“Portco”) apply for leave to appeal an order made in the context of insolvency proceedings under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA”). The proceedings involve Essar Steel Algoma Inc. (“Algoma”) and related companies.
Algoma addresses its need for “cash injection” via solvent restructuring under the CCAA. This results in a transaction involving four basic components:
- the sale by Algoma to Portco of port facilities at Sault Ste. Marie, Ontario;
- a lease of the port lands to Portco for a period of 50 years;
- a “Cargo Handling Agreement” under which Algoma pays Portco for the use of port and cargo-handling facilities at a cost of $36 million annually (in monthly instalments); and
- a “Shared Services Agreement” which requires Portco to pay Algoma $11 million annually in exchange for Algoma providing operation and maintenance services at the port. (See para. 2).
Ultimately, this restructuring is unsuccessful and Algoma files for protection under the CCAA. As per CCAA Order, Algoma is required to pay post-filing expenses as set out in a cash-flow budget approved by the debtor-in-possession (“DIP”) lenders. Payments stop when DIP lenders refuse approval of Algoma’s cash-flow budgets. This triggers a series of motion proceedings which eventually lead GIP and Portco to apply for leave to appeal to the Court of Appeal.
The Court of Appeal rejects GIP and Portco’s bid for leave to appeal. The motion is neither meritorious nor of significance to the practice.
The Court of Appeal affirmed that leave to appeal is to be granted “sparingly” for CCAA proceedings. Citing Re Stelco Inc., 2005 CanLII 42247 (ON CA) at paras. 15-20 and Nortel Networks Corporation (Re), 2016 ONCA 332 (CanLII) at para. 34, the Court of Appeal found that, in considering whether to grant leave, a Court should consider whether:
( i) the proposed appeal is prima facie meritorious or frivolous;
(ii) the point on the proposed appeal is of significance to the practice;
(iii) the point on the proposed appeal is of significance to the proceeding; and
(iv) whether the proposed appeal will unduly hinder the progress of the action. (See para. 19).
With respect to the first factor, the Court of Appeal concluded that, since the issue in question had been raised and determined adversely against the moving parties three times, there was no prima facie merit. (See paras. 23-29). While the Court found the issues raised on the application had considerable significance for the CCAA proceedings in question (see para. 30) and that they would not unduly hinder their progress (see para. 32), the Court of Appeal was not persuaded of any significance for the practice generally: “…the proposed appeals arise out of the unique and inter-related agreements that formed the Port Transaction. We see little of assistance to the general practice of insolvency law that would arise in the proposed appeals”. (See para. 30).
Counsel for the Moving Parties, GIP Primus LP and Brightwood Loan Services LLC: Peter Griffin, Matthew Lerner, Kimberley Nusbaum and Robert Trenker (Lenczner Slaght Royce Smith Griffin LLP, Toronto)
Counsel for the Moving Party, Port of Algoma Inc.: Patricia Jackson, Andrew Gray, Jeremy Opolsky and Alexandra Shelley (Torys LLP, Toronto)
Counsel for the Applicants/Respondents: Ashley Taylor, Eliot Kolers and Sanja Sopic (Stikeman Elliot, Toronto)
Counsel for the Moniter Ernst & Young Inc.: Clifton Prophet, Nicholas Kluge and Delna Contractor (Gowling WLG, Toronto)