IAnthus Decision Changes The Landscape For Corporate Plans Of Arrangement Under The BCBCA By Permitting Third-Party Releases

• Published date: 07 July 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Shareholders
• Law Firm: McMillan LLP
• Author: Mr Jeffrey Levine, James R. Munro and Tushara Weeasooriya

Originally published February 23, 2021 .

In two decisions rendered less than one week apart, Justice Gomery of the Supreme Court of British Columbia held that third-party releases may be incorporated into plans of arrangement made under the British Columbia Business Corporations Act (the "BCBCA"). According to the rulings in iAnthus Capital Holdings, Inc. et al. (Re),¹ now upheld by the Court of Appeal for British Columbia,² third-party releases may be acceptable so long as they are incidental and supplemental to an order sanctioning the plan of arrangement, and necessary to ensure the arrangement is fully and effectively carried out. Significantly, the ruling means that the BCBCA now offers an attractive option to companies looking to undergo a plan of arrangement containing third-party releases.

Background to the Case

iAnthus Capital Holdings, Inc ("iAnthus" or the "Company") is incorporated under the BCBCA. The Company is the publicly traded, top-level holding company for the broader group of companies that operate under the iAnthus brand as owners and operators of medical and adult-use licensed cannabis cultivation, processing, and dispensary facilities throughout the United States. At the end of March, 2020, iAnthus missed an interest payment due on certain secured notes issued to secured creditors in the principal amount of approximately US$100 million. iAnthus had insufficient liquidity to make the interest payment. The missed interest payment resulted in cross defaults on the secured notes and outstanding unsecured debentures.

After a months' long strategic review process, the Company entered into a restructuring support agreement with the secured noteholders and unsecured debentureholders. The agreement contemplated a restructuring implemented under the BCBCA or, alternatively, under the Companies' Creditors Arrangement Act ("CCAA") if the BCBCA restructuring was not successful. The BCBCA restructuring provided for a compromise of the debt owing on the secured notes and unsecured debentures, in exchange for the issuance of new shares to the compromising creditors that would leave them with 97.25% of the total outstanding common shares of the Company. Accordingly, under the BCBCA arrangement, existing shareholders would retain 2.75% of the outstanding common shares of iAnthus. Under the alternative CCAA plan, existing shareholders would recover nothing.

Fairness of the BCBCA Plan

Creditors voting on the BCBCA plan approved it unanimously. In addition...