British Columbia Supreme Court Rejects Plan Of Arrangement For Barring Claims Of Historical Shareholders

• Published date: 23 November 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Siskinds LLP
• Author: Ms Sana Ebrahimi

Overview

In Re iAnthus Capital Holdings, Inc., 2020 BCSC 1442, Justice Gomery of the BCSC rejected a plan of arrangement due to the overly broad scope of release and injunction clauses which were found to bar claims of historical shareholders which preceded the plan. His Honour did not dismiss the petition, but rather provided iAnthus and its noteholders with an opportunity to amend the plan to "narrow the release and injunction to the point of acceptability".¹

Background

iAnthus Capital Holdings, Inc. ("iAnthus") develops, owns, and operates licensed cannabis cultivation, processing, and dispensary facilities in the United States. iAnthus is incorporated pursuant to British Columbia's Business Corporations Act (the "BCA"), and its shares trade on the Canadian Securities Exchange.

In April 2020, iAnthus defaulted on multiple debt obligations to both secured and unsecured debenture holders. On July 10, 2020, after negotiations, iAnthus, all secured noteholders, and holders of 91% of the indebtedness under the unsecured notes entered into a Restructuring Support Agreement ("RSA").

The RSA contemplated a restructuring of iAnthus by way of a plan of arrangement, requiring court approval pursuant to s. 291 of the BCA. The terms of the RSA provided the noteholders would release iAnthus of its debt obligations (US$33 million to secured noteholders and US$45 million to unsecured noteholders) in exchange for 97.25% of the outstanding common shares of the company. Accordingly, the interest of iAnthus' present holders of common shares would be reduced to the remaining 2.75% in the equity. The noteholders unanimously approved the arrangement.

iAnthus petitioned the court seeking to obtain the required approval of the arrangement. The order sought by iAnthus included a permanent injunction enjoining "all persons" from advancing any of the released claims.²

Justice Gomery declined to approve the plan of arrangement, citing specific concern with the broad scope of its release and injunction clauses as they pertained to the rights of historic shareholders.

Analysis

Justice Gomery began his analysis by noting that the court's power to approve an arrangement is conferred by s. 291 of the BCA. His Honour noted the legal framework governing the exercise of the court's power under s. 291 was settled in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 ("BCE"), and requires the court explore the following questions:

1. Have the statutory requirements been met?
2. Is the arrangement made...