When Can A CCAA Monitor Bring An Oppression Claim Against A Stakeholder?

Until a court orders otherwise, a monitor appointed under the Companies' Creditors Arrangement Act1 is a neutral party and may not take sides in favour of one stakeholder over another.

When can a monitor depart from this neutral role and launch litigation that favours certain creditors to the detriment of others? Specifically, under what circumstances can a CCAA monitor act as a "complainant" under the powerful "oppression remedy" provisions of Canadian corporate statutes, arguing that transactions involving the applicant company and its affiliates were oppressive to particular creditors?2

Until last year, no reported case had considered this question. A clear answer is now available thanks to two Ontario decisions, released a day apart in late December 2017. Monitors should not bring oppression actions without court authorization, and such authorization will only be provided in exceptional circumstances.3

As held by the Court of Appeal for Ontario in Ernst & Young Inc. v. Essar Global Fund Limited, 2017 ONCA 1014 ["Essar"], courts will consider at least the following three factors in determining whether a monitor should proceed with an oppression action:

(i) there is a prima facie case that merits an oppression action or application;

(ii) the proposed action or application itself has a restructuring purpose, that is to say, materially advances or removes an impediment to a restructuring; and

(iii) any other stakeholder is better placed to be a complainant.4

In the result, the Court of Appeal upheld the trial decision of Newbould J. which, for the first time in a reported Canadian decision (as far as the authors are aware), allowed a monitor to successfully bring an action for an oppression remedy. The remedy ordered by His Honour materially altered a major pre-filing transaction involving a critical asset of the applicant, a result which supported the overall restructuring efforts, but which detrimentally affected certain secured creditors.5

The day before the Essar decision was released, the Ontario Superior Court (Commercial List) issued a decision in the ongoing CCAA proceedings involving certain special-purpose real estate development entities within the Urbancorp corporate group, using a very similar analysis to that of the Court of Appeal in Essar, but arriving at a different result.

In Urbancorp Cumberland 2 GP Inc., Re, 2017 ONSC 7649 ["Urbancorp"], Myers J. denied a monitor's motion for advice and directions as to whether a...