Lutheran Church Canada (Re), 2016 ABQB 419

Court of Queen’s Bench of Alberta Citation: Lutheran Church Canada (Re), 2016 ABQB 419 Date: 20160802 Docket: 1501 00955 Registry: Calgary In the Matter of The Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36, as amended and In the Matter of Lutheran Church - Canada, the Alberta - British Columbia District, Encharis Community Housing and Services, Encharis Management and Support Services, and Lutheran Church – Canada, The Alberta – British Columbia District Investments Ltd.

Corrected judgment: A corrigendum was issued on August 30, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Decisions of the Honourable Madam Justice B.E. Romaine _______________________________________________________ I. Introduction [ 1 ] This CCAA proceeding has been complicated by some unusual features. There are approximately 2,592 creditors of the Church extension fund with proven claims of approximately $95.7 million, plus 12 trade creditors with claims of approximately $957,000.

There are 896 investors in the Church investment corporation with outstanding claims of $22.4 million. Many of these creditors and investors invested their funds at least in part because of their connection to the Lutheran Church. Many of them are elderly. Some of them are angry that what they thought were safe vehicles for investment, given the involvement of their Church, have proven not to be immune to insolvency. Some of them invested their life savings at a time of life when such funds are their only security during retirement.

Inevitably, there is bitterness, a lack of trust and a variety of different opinions about the outcome of this insolvency restructuring.

[ 2 ] A group of creditors have applied to replace the Monitor at a time when the last two plans of arrangement and compromise in these proceedings had been approved by the requisite double majority of creditors. I dismiss the application to replace the Monitor on the basis that there is no reason arising from conflict or breach of duty to do so. I find that the proposed plans are within my jurisdiction to sanction are fair and reasonable in the circumstances and should be sanctioned. These are my reasons. II. Factual Overview A.

Background [ 3 ] On January 23, 2015, the Lutheran Church – Canada, the Alberta – British Columbia District (the “District”), Encharis Community Housing and Services (“ECHS”), Encharis Management and Support Services (“EMSS”) and Lutheran Church – Canada, the Alberta – British Columbia District Investment Ltd. (“DIL”, collectively the “District Group”) obtained an initial order under the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36, as amended.

Deloitte Restructuring Inc. was appointed as Monitor and a CRO was appointed for the District and DIL. [ 4 ] The District is a registered charity that includes the Church Extension Fund (“CEF”), which was created to allow District members to lend money to what are characterized as faith-based developments. Through the CEF, the District borrowed approximately $96 million from corporation, churches and individuals.

These funds were invested by the District in a variety of ways, including loans and mortgages available to congregations to build or renovate churches and schools, real estate investments, and a mortgage on a real estate development known as the Prince of Peace Development. [ 5 ] CEF was managed by the District’s Department of Stewardship and Financial Ministries and was not created as a separate legal entity.

As such, District members who loaned funds to CEF are creditors of the District (the “District Depositors”). [ 6 ] ECHS owned land and buildings within the Prince of Peace Development, including the Manor and the Harbour, senior care facilities managed by EMSS.

EMSS operated the Manor and Harbour for the purpose of providing integrated supportive living services at the Manor and the Harbour to seniors. [ 7 ] The Prince of Peace Development also included a church, a school, condominiums, lands known as the Chestermere lands and other development lands. [ 8 ] DIL is a not-for-profit company that acted as a trust agent and investment manager of registered retirement savings plans, registered retirement income plans and tax-free savings accounts for annuitants. Concentra Trust acted as the trustee with respect to these investments.

Depositors to DIL are referred to as the “DIL Investors”. The District Depositors and the DIL Investors will collectively be referred to as the “Depositors”. [ 9 ] Soon after the initial order, the District and the Monitor received feedback that the District Depositors and the DIL Investors wanted to have a voice in the CCAA process. Thus, on February 13, 2015, Jones, J granted an order creating creditors’ committees for the District (the “District Creditors’ Committee”) and DIL (the “DIL Creditors’ Committee”), tasked with representing the interests of the District Depositors and DIL Investors.

The members of the committees were elected from among the Depositors. By the order that created them, they must act in a fiduciary capacity with respect to their respective groups of creditors. The committees were authorized to engage legal counsel, who have represented them throughout the CCAA process, and the committees and their counsel have been active participants in the process. [ 10 ] ECHS and EMSS prepared plans of compromise and arrangement that were approved by creditors and sanctioned by the Court in January 2016.

Pursuant to those plans, ECHS’ interest in the condominiums was transferred to a new corporation that is to be incorporated under the District Plan (“NewCo”). The Chestermere lands were sold.

The remainder of the lands and buildings (the “Prince of Peace properties”) are dealt with in the District Plan. [ 11 ] On 22 nd and 23 rd of February, 2016, a Depositor and an agent of a Depositor commenced proceedings against Lutheran Church – Canada, Lutheran Church – Canada Financial Ministries, Francis Taman, Bishop & McKenzie LLP, John Williams, Roland Chowne, Prowse Chowne LLP, Concentra Trust, and Shepherd’s Village Ministries Ltd., all defendants with involvement in the District Group’s affairs, pursuant to the Class Proceedings Act , S.A. 2003, c. C-16.5 (Alberta).

Two other Depositors issued a Notice of Civil Claim in the Supreme Court of British Columbia pursuant to the Class Proceedings Act , R.S.B.C. 1996, c.50 (British Columbia) against the same defendants (together with the Alberta proceeding, the “class action proceedings”). [ 12 ] On March 3, 2016, DIL submitted a plan of arrangement that had been approved by creditors for sanction by the Court. I deferred the decision on whether to sanction the DIL plan until the District plan had been finalized, presented to District creditors, and, if approved, submitted for sanctioning.

At the same time, I stayed the class action proceedings. The DIL and District plans contain similar provisions that are subject to controversy among some Depositors. There is considerable overlap among the DIL Investors and the District Depositors. [ 13 ] On July 15, 2016, the District applied for an order sanctioning the District plan. On the same day, the Depositors who commenced the class action proceedings applied for an order replacing the Monitor. B. The District Plan [ 14 ] The District plan has one class of creditors. Pursuant to the claims process, there were 2,638 District Depositors.

An emergency fund was implemented prior to the filing date and approved by the Court as part of the initial order, to ensure that District Depositors, many of whom are seniors, would have sufficient funds to cover their basic necessities. Taking into account those payments,

District Depositors had proven claims of approximately $96.2 million as at December 31, 2015. [ 15 ] Under the plan, each eligible affected creditor will be paid the lesser of $5,000 or the total amount of their claim (the “Convenience Payment(s)”) upon the date that the District plan takes effect. This will result in 1,640 District Depositors (approximately 62%) and 10 trades creditors (approximately 77%) being paid in full. The Convenience Payments are estimated to total $6.3 million. [ 16 ] The District plan contemplates the liquidation of certain non-core assets.

Each time the quantum of funds held in trust from the liquidation of these assets, net of the “Restructuring Holdback” and the “Representative Action Holdback” referred to later in this decision, reaches $3 million, funds will be distributed on a pro-rata basis to creditors. [ 17 ] If the District plan is approved, a private Alberta corporation (“NewCo”) will be formed following the effective date of the plan. NewCo will purchase the Prince of Peace properties from ECHS in exchange for the NewCo shares. The value of the NewCo shares would be based on the following:

a) the forced sale value of the Harbour and Manor seniors’ care facilities based on an independent appraisal dated November 30, 2015;

b) the forced sale value of the remaining Peace of Peace properties, based on an independent appraisal dated October 15, 2015;

c) the estimated value of the assets held by ECHS that would be transferred to NewCo pursuant to the ECHS plan; and

d) the estimated value of the assets held by EMSS that would be transferred to NewCo pursuant to the EMSS plan. [ 18 ] ECHS will then transfer the NewCo shares to the District in partial satisfaction of the District – ECHS mortgage. The NewCo shares will be distributed to eligible affected creditors of the District on a pro-rata basis. The Monitor currently estimates that creditors remaining unpaid after the Convenience Payment will receive NewCo shares valued at between 53% and 60% of their remaining proven claims.

The cash payments arising from liquidation of non-core assets and the distribution of shares are anticipated by the Monitor to provide creditors who are not paid in full by the Convenience Payments with distributions valued at between 68% and 80% of their remaining proven claims, after deducting the Convenience Payments. Non-resident creditors (8 in total) will receive only cash. [ 19 ] Distributions to creditors will be subject to two holdbacks:

a) the “Restructuring Holdback”, to satisfy reasonable fees and expenses of the Monitor, the Monitor’s legal counsel, the CRO, the District Group’s legal counsel and legal counsel for the District Creditors’ Committee, the amount of which will be determined prior to the date of each distribution based on the estimated professional fees required to complete the administration of the CCAA proceedings; and

b) the “Representative Holdback”, an amount sufficient to fund the out-of-pocket costs associated with the “Representative Action” process described later in this decision, and to indemnify any District Depositor who may be appointed as a representative plaintiff in the Representative Action for any costs award against him or her.

The Representative Action Holdback will be determined prior to any distribution based on guidance from a Subcommittee appointed to pursue the Representative Action and retain representative counsel. [ 20 ] The District will continue to operate but the District’s bylaws and handbook will be amended such that the District would no longer be able to raise or administer funds through any type of investment vehicle.

NewCo will continue to operate the Harbour and Manor seniors’ care facilities. [ 21 ] NewCo’s bylaws will include a clause requiring that 50% of the board of directors must be comprised of District Depositors or their nominees. Although NewCo is being created with the object of placing the NewCo assets in the hands of a professional management team with appropriate business and real estate expertise, the District Creditors’ Committee wanted to ensure that affected Creditors will have representation equal to that of the professional management team on the NewCo board.

The members of the NewCo board may change prior to NewCo being formed, subject to District Creditors’ Committee approval. Subsequent changes to the NewCo board would be voted on at future shareholder meetings. [ 22 ] The articles of incorporation for NewCo will be created to include the following provisions, which are intended to provide additional protection for affected creditors:

a) NewCo assets may only be pledged as collateral for up to 10% of their fair market value, subject to an amendment by a special resolution of the shareholders of NewCo;

b) a redemption of a portion of the NewCo shares would be allowed upon the sale of any portion of the NewCo assets that generates net sale proceeds of over $5 million;

c) NewCo would establish a mechanism to join those NewCo shareholders who wished to purchase NewCo shares with those NewCo shareholders who wished to sell them;

d) a general meeting of the NewCo shareholders will be called no later than six months following the effective date of the plan for the purpose of having NewCo shareholders vote on a proposed mandate for NewCo, which may include the expansion of the Harbour and Manor seniors’ care facilities, the subdivision and orderly liquidation or all or a portion of the NewCo assets or a joint venture to further develop the NewCo assets; and

e) to provide dissent rights to minority NewCo shareholders. The Representative Action

[ 23 ] The District plan establishes a Representative Action process whereby a future legal action or actions, which may be undertaken as a class proceeding, can be undertaken for the benefit of those District Depositors who elect or are deemed to elect to participate. The Representative Action would include only claims by District Depositors who are not fully paid under the District plan and specifically includes the following:

a) claims related to a contractual right of one or more of the District Depositors;

b) claims bases on allegations of misrepresentation or wrongful or oppressive conduct;

c) claims for breach of any legal, equitable , contractual or other duty;

d) claims pursuant to which the District has coverage under directors’ and officers’ liability insurance; and

e) claims to be pursued in the District’s name, including any derivative action or any claims that could be assigned to a creditor pursuant to

Section 38 of the Bankruptcy and Insolvency Act , if such legislation were applicable. [ 24 ] District Depositors may opt-out of the Representative Action process, in which case they would be barred from further participation. Evidently, some Depositors are precluded by their religious beliefs from participating in this type of litigation. [ 25 ] The District Depositors who elect to participate in the Representative Action process will have a portion of their cash distributions from the sale of assets withheld to fund the Representative Action Holdback.

It will only be possible to estimate the value of the Representative Action Holdback once representative counsel has been retained.

At that point, the Monitor will send correspondence to the participating Depositors with additional information, including the name of the legal counsel chosen, the estimated amount of the Representative Action Holdback, the commencement date of the representative action, the deadline for opting out of the Representative Action and instructions on how to opt out of the Representative Action should they choose to do so. [ 26 ] A Subcommittee will be established to choose legal counsel to represent the participating District Depositors.

The Subcommittee will include between three and five individuals and all members of the Subcommittee will be appointed by the District Creditors’ Committee. The Subcommittee is not anticipated to include a member of the District Committee. [ 27 ] The duties and responsibilities of the Subcommittee will include the following:

a) reviewing the qualifications of at least three lawyers and selecting one lawyer to act as counsel;

b) with the assistance of counsel, identifying a party(ies) willing to act as the Representative Plaintiff;

c) remaining in place throughout the Representative Action with its mandate to include: (

i) assisting in maximizing the amount available for distribution; (ii) consulting with and instructing counsel including communicating with the participating District Depositors at reasonable intervals and settling all or a portion of the Representative Action; (iii) replacing counsel; (iv) serving in a fiduciary capacity on behalf of the participating District Depositors; (

v) establishing the amount of Representative Action Holdback and directing that payments be made to counsel from the Representative Action Holdback; and (vi) bringing any matter before the Court by way of an application for advice and direction. [ 28 ] The Representative Action process will be the sole recourse available to District Depositors with respect to the Representative Action claims. [ 29 ] The District plan releases:

a) the Monitor, the Monitor’s legal counsel, the District Group’s legal counsel, the CRO, the legal counsel for the District Committee and the District Committee members, except to the extent that any liability arises out of any fraud, gross negligence or willful misconduct on the part of the released representatives, to the extent that any actions or omissions of the released representatives are directly or indirectly related to the CCAA proceedings or their commencement; and

b) the District, the other CCAA applicants, the present and former directors, officers and employees of the District, parties covered under the D&O Insurance and any independent contractors of the District who were employed three days or more on a regular basis, from claims that are largely limited to statutory filing obligations. [ 30 ] The following claims are specifically excluded from being released by the District plan:

a) claims against directors that relate to contractual rights of one or more creditors or are based on allegations of misrepresentations made by directors to creditors or of wrongful or oppressive conduct by directors as set out in

Section 5.1(2) of the CCAA ;

b) claims prosecuted by the Alberta Securities Commission or the British Columbia Securities Commission arising from compliance requirements of the Securities Act of Alberta and the Financial Institutions Act of British Columbia;

c) claims made by the Superintendent of Financial Institutions arising from the compliance requirements of the Loan and Trust

Corporations Acts of Alberta and British Columbia; and

d) any Representative Action claims, whether or not they are insured under the District’s directors and officers liability insurance, that are advanced solely as part of the Representative Action. C. The District Meeting [ 31 ] On March 21, 2016, I granted an order authorizing the District to file the District plan of compromise and arrangement and present it to the creditors. A draft version of the Monitor’s Report to District Creditors was provided to both the Court and counsel for the class action plaintiffs ahead of the District meeting order being granted.

Neither class action counsel voiced specific concerns with the disclosure provided therein. [ 32 ] The first meeting of District creditors was held on May 14, 2016. Counsel for the BC and Alberta class action plaintiffs were in attendance and able to make submissions to the meeting and to question the Monitor. A number of attendees made submissions and asked questions.

Certain documents that had been referenced in a Monitor’s FAQ report on the issue of future potential development of the Prince of Peace properties (described later in this decision) were discussed in detail and questions with respect to these documents were answered by the Monitor. The meeting lasted approximately six hours.

It was adjourned at the request of the representative of a Depositor who wanted more time to consider the Prince of Peace development disclosure and obtain further instructions from his congregation. [ 33 ] After making inquiries and being satisfied that congregations who wished further consultation had time to do so, the Monitor posted a notice on its website on May 20, 2016 that the reconvened meeting was to be held on June 10, 2016. The notice was sent by email to those creditors who are congregations on May 20, 2016 and sent by regular mail to all creditors on May 24, 2016.

The notice advised creditors that they had additional time to change their vote on the District plan, should they choose to do so. Four congregations asked the Monitor for further information before the reconvened meeting. [ 34 ] The Monitor received a total of 1,294 votes on the District plan from eligible affected creditors with claims totalling approximately $85.1 million. Of these votes, 1,239 were received by way of election letters and 55 were received by way of written ballots submitted in person or by proxy at the District meeting.

In total, 50% of eligible affected creditors voted and the claims of those creditors who voted represented 88% of the total proven claims of eligible affected creditors. [ 35 ] Of the creditors who voted, 1,076 or approximately 83% voted in favour of the District plan and 218 or approximately 17% voted against the District plan.

Those creditors who voted in favour of the plan held claims totalling approximately $65 million, or approximately 76% in value of the voting claims, and those creditors who voted against the plan held claims totalling approximately $20.1 million or approximately 24% in value of the voting claims. Therefore, the District plan was approved by the required majority, being two-thirds in dollar value and a majority in number of voting eligible affected creditors. D. The DIL Plan [ 36 ] The DIL plan includes only one class of affected creditors consisting of DIL Investors.

The DIL Investors reside in eight provinces and territories in Canada and in three U.S. states.

Most of the accounts held by DIL Investors are RRSP and RRIF accounts. [ 37 ] Following the release of the original DIL package of meeting materials, based on discussions with DIL Investors, the Monitor prepared two documents entitled “Answers to frequently asked questions” (the “FAQs”), one of which was dated December 24, 2015 and the other dated January 18, and amended January 20, 2015. [ 38 ] The DIL plan contains provisions for the orderly transition of the registered accounts from Concentra to a replacement trustee and administrator.

As part of this transition, the cash and short-term investments held by DIL will be transferred, net of holdbacks outlines in the DIL plan, to the replacement fund manager. The mortgages held by Concentra and administered by DIL will be converted to cash over time and paid to the fund manager. [ 39 ] Pursuant to previous order, DIL was authorized to distribute up to $15 million to the DIL Investors.

For those DIL Investors who held registered retirement savings plan, tax free savings accounts or locked-in retirement accounts with DIL, their pro-rate share of the first DIL Distribution was transferred into accounts that had been established with the replacement fund manager. For those DIL Investors who held RRIFs or LIFs, their pro-rate share of the first DIL distribution was transferred upon their request, to an alternate registered account of their choosing.

A second distribution of up to $7.5 million was made in April, 2016. [ 40 ] In addition to this these interim distribution, statutory annual minimum payment to RRIF holders were made for 2015. Selected DIL Investors also received payments pursuant to the emergency fund.

Taking into account these payments, pre-filing distributions to DIL Investors totalled approximately $15.6 million, 41% of their original investment without taking into account any estimated write-downs on the value of the assets held by DIL. [ 41 ] The DIL plan contains substantially the same provisions with respect to limited releases and a Representative Action process as the District plan. [ 42 ] The Monitor estimates that, prior to any recovery under the Representation Action, DIL Investors will recover between 77% and 83% of their original investment as of the filing date. E.

The DIL Meeting [ 43 ] The DIL meeting of creditors was held on January 23, 2016.

[ 44 ] There were 87 attendees at the DIL meeting. The Monitor received a total of 472 votes from DIL Investors with claims totalling approximately $14.5 million. In total, 53% of DIL Investors voted and the claims of those DIL Investors who voted represented 65% of the total proven claims of DIL Investors. [ 45 ] Of the 472 DIL Investors who voted, 434, or approximately 92%, voted in favour of the DIL plan and 38 DIL Investors, or approximately 8%, voted against the DIL plan.

Those DIL Investors who voted in favour of the DIL plan had claims totalling approximately $12.7 million, or approximately 87% of the claims, and those DIL Investors who voted against the DIL plan had claims totalling approximately $1.8 million, or approximately 13% of the claims and a majority in number of voting DIL Investors. Therefore, the DIL plan was approved by the required double majority. III. The Applications A. Application to Remove the Monitor [ 46 ] The Depositors who commenced the British Columbia class action proceedings, Elvira Kroeger and Randall Kellen, apply:

a) to remove the Monitor and replace it with Ernst & Young LLP; or alternatively

b) to appoint Ernst & Young as a “Limited Purpose Monitor” to review the Representative Action provisions of the District plan and render its opinion to the Court with respect to whether the plan is fair and reasonable to the District Depositors;

c) to authorize Ernst & Young to retain legal counsel to assist it in rendering its opinion to the Court if it considers it reasonable and necessary to do so; and

d) to secure Ernst & Young’s fees and those of its counsel to a maximum amount of $150,000.00 plus applicable taxes under the current Administration Charge or under a second Administration Charge to rank pari passu with the current Administration Charge. [ 47 ] They are supported in their application by the Alberta class action plaintiffs, collectively the “opposing Depositors”. The opposing Depositors submit that the Monitor is unable by reason of conflict of interest to provide the Court with a neutral and objective opinion with respect to the Representative Action provisions of the District plan.

They also submit that the Monitor has breached its fiduciary duty to the Court and to the District creditors by failing to disclose certain municipal planning documents relating to the Prince of Peace Development. 1. Overview [ 48 ] It is trite law that the Monitor in CCAA proceedings is an officer of the Court and that its duty is to act in the best interests of all stakeholders.

Monitors are required to act honestly and fairly and to provide independent observation and oversight of the debtor company. [ 49 ] The Monitor is expected and required to report regularly to the Court, creditors and other stakeholders, and has a statutory obligation to advise the Court on the reasonableness and fairness of any plan of arrangement proposed between the debtor and its creditors: section 23(1) of the CCAA.

Courts accord a high level of deference to decisions and opinions of the Monitor. [ 50 ] The opposing Depositors submit that the Monitor is acting as an advocate of the debtor, without a sufficient degree of neutrality. They submit, by implication, that I should give the Monitor’s recommendations on the plans little or no deference for that reason. [ 51 ] An attack on the Monitor is an attack on the integrity of the CCAA process, and must be taken seriously. 2. Conflict of Interest [ 52 ] The opposing Depositors allege that the Monitor has a conflict of interest on the following bases:

a) In its Pre-Filing Report to the Court, the Monitor disclosed that it had provided consulting services to the District between February 6, 2014 and the date of the initial order, including: (

i) on February 6, 2014; to provide an independent evaluation of the potential options relating to the Prince of Peace Development and to create a plan for executing the option that was ultimately chosen; (ii) on June 30, 2014; to provide an evaluation of the debt structure of the CEF as it related to the District, the members of the District, ECHS, EMSS and the Prince of Peace Development; and (iii) on July 25, 2014; to act as a consultant regarding the informal or formal restructuring of the District Group.

b) In its Fourth Report dated June 24, 2015, the Monitor advised that it had recently determined that a related professional accounting firm, Deloitte & Touche (now Deloitte LLP) had acted as auditor for the District from 1990 to 1998 or 1999. While the Monitor had performed a conflicts check prior to agreeing to act as Monitor, this check failed to flag the previous audit engagement. The Monitor further stated that, while its former role as auditor to District did not preclude it from acting as Monitor in these proceedings, it might be precluded from conducting a preliminary review of the District’s expenditures in relation to the Prince of Peace development for the

period during which it had acted as auditor. However, as the District had been unable to produce supporting documentation with respect to funds expended on the Prince of Peace development prior to 2006, and Deloitte did not act as auditor subsequent to 1999, the Monitor took the position that “it was not conflicted from completing the Review to the extent that they can for the period for which documentation is available”.

c) On March 8, 2016, the Monitor advised the Court and the parties that Deloitte & Touche had completed the DIL audit for the years ended January 31, 1998 and January 31, 1999, the first two years during which DIL operated the registered fund. Again, the reason for the late disclosure appears to be that the engagements were recorded under different names those now used by the District. [ 53 ] These previous services do not, on their face, disqualify the Monitor from acting as Monitor.

With respect to the audit services, it is not a conflict of interest for the auditor of a debtor company to act as Monitor in CCAA proceedings. In this case, the sister company of the Monitor has not been the auditor of either the District or DIL for over 16 years, The Monitor does not suffer from any of the restrictions placed on who may be a Monitor by

Section 11.7(2) of the Act . While the late disclosure of the historical audits was unfortunate, audits performed more than 16 years ago by a sister corporation raise no reasonable apprehension of bias, either real or perceived. [ 54 ] It is also not a conflict of interest, nor is it unusual, for a proposed Monitor to be involved with the debtor companies for a period of time prior to a CCAA filing.

The Monitor made full disclosure of that involvement prior to being appointed, more than a year before this application was brought. [ 55 ] This is not a case where a Monitor was involved in or required to give advice to the Court on the essential issue before it, such as a pre-filing sales process.

The issues with respect to the plans before the Court arise from details of the plans that have been the subject of negotiation and consultation among the District Group, the Creditors’ Committees and the Monitor post-filing. [ 56 ] The opposing Depositors, however, point to certain representations that were made by the District in letters to some of Depositors in the months prior to the CCAA filing, which they say were untrue and misleading.

They submit that the Monitor must have known about these letters, and thus condoned, if not participated in, misrepresentations made to the Depositors. [ 57 ] The Monitor responds that it did not act in a management capacity with respect to the District nor did it prepare or issue communications pre-filing. It did not control the District Group. [ 58 ] There is no realistic indication of conflict arising from these allegations.

The attempt to taint the Monitor with knowledge of letters sent by the District to the Depositors is speculation unsupported by any evidence. [ 59 ] The opposing Depositors also submit that the prior audit engagements create a potential conflict for the Monitor in the event that the Subcommittees of the Creditors’ Committees decide to bring a claim against Deloitte & Touche as former auditor of the District or DIL. In that respect, Ms. Kroeger and Mr. Kellen have by letter dated March 4, 2016 demanded that the District commence legal proceedings against the District’s auditors, including Deloitte & Touche.

Given the stay, the District took no action, and the opposing Depositors concede that they did not expect the District to act during the CCAA proceedings. [ 60 ] It is not appropriate for this Court to determine or to speculate on whether the Depositors have a realistic cause of action against an auditor sixteen years after the final audit engagement, but assuming that the Representative Action provisions of the plans could result in an action against a sister corporation of the Monitor, the proposed ongoing role of the Monitor in those proceedings should be examined to determine whether such role could give rise to a real or perceived conflict of interest. [ 61 ] As the Monitor points out, its role with respect to the Representative Action is limited to assisting in the formation of the Subcommittees (although it has no role in deciding who will serve on the Subcommittees), facilitating the review of qualifications of legal counsel who wish to act in the Representative Action (although the Monitor will not participate in the selection of the representative counsel), and communicating with Depositors based on instructions given by the Subcommittees with respect to the names of the members of the Subcommittees, the name of the representative counsel, the estimated amount of the Representative Action Holdback, the commencement date of the Representative Action, the deadline for opting out of the Representative Action, and instructions on how to opt-out of the Representative Action should Depositors choose to do so.

The Monitor’s involvement will be directed by the Subcommittees and is anticipated to be limited to these tasks. The Monitor notes that, should it or the Subcommittees determine that the Monitor has a conflict of interest in respect of completing any of these tasks, the Monitor would recuse itself.

It submits however, that it is appropriate that it be involved in order to ensure that the Subcommittees are able to undertake these duties in a manner that complies with the requirements of the plans and does not prejudice the rights of Depositors under the plans. [ 62 ] The Monitor will aid in making distributions under the plans, including with respect to the release of any unused portion of the Representative Action Holdback, which it anticipates will be determined on a global basis and communicated by the Subcommittees to the Monitor on a global basis.

The Monitor will have no knowledge of the considerations or calculations that so into establishing the Representative Action Holdback.

Further, the Monitor does not need to be, and will not under any circumstances be, privy to any information regarding the strategy that the representative counsel chooses to communicate to Depositors, including the parties to be named in the Representative Action. [ 63 ] In the circumstances, the Monitor is the most appropriate party to be involved in communication with Depositors in the early stages of the Representative Action process, as it has the information and experience necessary to ensure that such communication is done quickly, effectively, and at the lowest possible expense. [ 64 ] The mere possibility of a decision to proceed against the Monitor’s sister corporation does not justify the expense and disruption of bringing in a new Monitor to perform these administrative tasks.

If the Subcommittees determine that an action can be commenced against the historical auditors that is not barred by limitations considerations, the issue of a real, rather than a speculative conflict, can be raised before the Court for advice and direction in accordance with the plans. The possibility that the Subcommittees may decide not to proceed against the historical auditors does not imply undue influence from the Monitor. The members of the Subcommittees will be fiduciaries, bound to act in the best interests of the remaining creditors.

[ 65 ] There is no persuasive argument nor any evidence that they would act other than in those best interests. [ 66 ] The opposing Depositors’ submission that the Monitor cannot with any degree of neutrality or objectivity advise the Court on the reasonableness and fairness of the Representative Action provisions of the plans ignores the fact that the Monitor is not released from liability for any damages arising from its pre-CCAA conduct as auditor to the District by the plans. [ 67 ] The opposing Depositors submit that there are “substantive and procedural benefits” from its continuing position that the Monitor may take advantage of.

On closer examination, those alleged advantages are insignificant. [ 68 ] In

summary, I find that there is no actual or perceived conflict of interest that would warrant the replacement of the Monitor, particularly at this late state of the CCAA proceedings. The Monitor made full disclosure of the historical audit relationship of its sister corporation to the District and DIL and its own pre-filing relationship to the District Group. Neither the Monitor nor Deloitte & Touche benefit from any releases as part of the plans. The Monitors’ continuing involvement in the Representative Action process is limited, administrative in nature, and would take place pre-litigation. 3.

Breach of Fiduciary Duty [ 69 ] A more serious charge against the Monitor than conflict of interest is the opposing Depositors’ allegation that the Monitor breached its fiduciary duty to the Court and to District Depositors by failing to disclose certain municipal planning documents. [ 70 ] The documents at issue are:

a) a master-site development plan (the “MSDP”) that was prepared for the District by an architectural firm in December, 2012 and was subsequently approved by the Municipal District of Rocky View County. This plan includes site information, layout and analysis of activities, facilities, maintenance and operations and a context for land use and the associated population density; and

b) an approved area structure plan for the Hamlet of Conrich (the “Conrich ASP”), which was put forward by the MD of Rocky View and which includes reference to the Prince of Peace properties. [ 71 ] The MSDP identifies several prerequisites to development of the Prince of Peace properties, including a connection to the municipal water supply, the upgrading of the sanitary sewer lift station and work on a storm water management infrastructure.

The Monitor notes the MSDP was prepared specifically for the development contemplated by EHSS in 2012, being medium density residential and additional assisted living capacity, ground floor retail and a parkade structure. As such, it is likely outdated and may not align with future development. A more recent appraisal of the properties in 2015 assumed low density development.

The 2015 appraisal of the properties takes into account the work that would need to be undertaken by any third party who wished to further develop the Prince of Peace properties. [ 72 ] The opposing Depositors submit that the infrastructure projects identified by the MSDP would be costly and would likely pose barriers to development. They presented hearsay evidence of a conversation Mr.

Kellen had with a Rocky View official that is of limited relevance apart from its hearsay nature, because future development would likely be different from what was contemplated in 2012. [ 73 ] The Conrich ASP stipulates that no development may occur within the Hamlet of Conrich until the kinds of infrastructure requirements identified in the MSDP are met. The ASP is being appealed by the City of Chestermere. [ 74 ] The Monitor became aware of these documents during its pre-filing services to the District Group.

When a Depositor raised a question about these reports on April 28, 2016 at an information meeting, the Monitor prepared a QFA document dated April 29, 2016 regarding the future subdivision and development of the Prince of Peace properties and referencing the documents. This QFA was posted on the Monitor’s website on April 29, 2016 and mailed to all affected creditors with claims over $5,000 on May 3, 2016, more than a month before the meeting at which the District plan was approved. [ 75 ] The issue is whether the Monitor breached its duty to the Court and creditors by failing to disclose these reports earlier.

The answer to this question must take into account the context of the District plan and the nature of the Monitor’s recommendations. [ 76 ] The District plan does not contemplate that any further development of the Prince of Peace properties would occur pursuant to the CCAA proceedings. The possibility that NewCo shareholders would pursue further development is one of the options available to NewCo or to a third party purchaser of the Prince of Peace properties if NewCo shareholders decide to sell the properties, as recognized in the plan materials.

The plan gives NewCo shareholders the opportunity to consider their options. [ 77 ] As the Monitor notes, a vote on the District plan is not a vote in favour of any particular mandate for NewCo.

The District plan contemplates that a NewCo shareholders’ meeting will be held within six months of the District plan taking effect, at which time the NewCo shareholders will vote on a proposed mandate for NewCo, which may include the expansion of the Harbour and Manor seniors’ care facilities, the subdivision and orderly liquidation of all or a portion of the assets held by NewCo, a joint venture to further develop the Prince of Peace properties or other options.

These options will need to be investigated and reported on by NewCo’s management team ahead of the NewCo shareholders’ meeting. [ 78 ] It was in this context that the Monitor considered the content of its reports to Depositors on the District plan and did not disclose the two plans, which in any event may be dated and of little relevance to a future development. I do not accept the opposing Depositors’ allegation that the Monitor “concealed” this information. [ 79 ] In that regard, I note that, although Mr.

Kellen in a sworn affidavit deposed that he became aware of the MSDP and Conrich ASP on or about April, 2016, he appears to have posted a link to the Conrich ASP in the CEF Forum website on February 24, 2015. It also appears that the MSDP document was discussed in the CEF Forum in January, 2016, with a link posted for participants in the

forum. Mr. Kellen filed a supplementary affidavit after the Monitor noted these facts in its Twenty-First Report. He says that he now recalls reviewing the Conrich ASP, which references the MSDP, in February, 2015, but does not recall reading it in any great detail, that he did not appreciate the significance of the documents and simply forgot about them. This is hard to reconcile with Mr. Kellen’s present insistence that the documents are highly relevant. [ 80 ] A further issue is whether the Monitor’s recommendation of the District plan gave rise to a duty to disclose these documents.

The opposing Depositors submit that the Monitor endorsed the plan on the basis of potential upside opportunities available through development.

This submission appears to refer to a sentence in the Monitor’s March 28, 2016 report to creditors, as follows: The issuance of NewCo Shares pursuant to the District Plan allows District Depositors to benefit from the ability to liquidate the Prince of Peace Properties at a time when market conditions are more favourable or the ability to benefit from potential upside opportunities that may be available such as through the further expansion of the Harbour and Manor seniors’ care facilities, through a joint venture to further develop the Prince of Peace Properties or through other options (emphasis added). [ 81 ] Clearly, the Monitor in its report referenced further development as only one of the options available to NewCo shareholders at the time of their first shareholders’ meeting.

It is incorrect to say that the Monitor’s endorsement of the District plan was based solely on the option of development by NewCo acting alone.

The Monitor did not recommend any particular mandate for NewCo in its various reports. [ 82 ] The Monitor decided that disclosure of the two documents at issue was not necessary in the context of a plan that put decisions with respect to the various options available to the new corporate owner of the property in the hands of the shareholders at a future date. [ 83 ] The opposing Depositors submit, however, that the District Depositors had the right to this information relating the pros and cons of development before deciding whether to become NewCo shareholders in the first place. [ 84 ] As it happened, they did have such access through the Monitor’s April 29, 2016 QFA document, and also, it appears, through information posted on the CEF Forum and from information communicated during the information meetings for Depositors.

There is no evidence that any Depositor failed to receive the Monitor’s QFA document prior to the June 10, 2016 District meeting date. [ 85 ] The opposing Depositors are critical of the Monitor’s QFA disclosure.

The problem appears to be that the Monitor does not agree that the issues disclosed in the MSDP and the Conrich ASP are as dire as the opposing Depositors describe. [ 86 ] The opposing Depositors also fault the Monitor for not referencing a website where the documents could be found, but I note that the QFA provides a telephone numbers and email address for any inquiries. [ 87 ] They fault the Monitor for not discussing in the QFA the requirement to upgrade the sanitary sewer lift station and to provide for the disposal of storm water.

As noted by the Monitor, those issues are typical of what would be encountered by any developer in considering a new development.

The QFA refers to the development risks as follows: All development activities have risk associated with them, however, the Monitor is not aware of any known issues related to the PoP Development which would suggest that the future subdivision or development of Prince of Peace Properties would not be feasible other than the risks that are typically associated with real estate development generally. [ 88 ] A difference of opinion between the opposing Depositors and the Monitor with respect to the significance of these development requirements does not constitute concealment, bad faith or breach of duty by the Monitor. [ 89 ] The opposing Depositors also fault the Monitor for failing to provide Depositors with new election letters and forms of proxy in its May 20, 2016 notice of adjournment of the District meeting.

The notice clearly sets out the procedure to be followed if a Depositor wishes to change his or her vote or proxy. It invites Depositors to contact the Monitor by telephone or email if they have any additional questions. The Monitor notes that it sent out three election forms with its initial mail-out to Depositors, and received no requests for a new election form. It received at least one change of vote after sending out this notice. [ 90 ] One of the Alberta class action plaintiffs alleges that the Monitor impeded them from distributing material at the information meetings.

The Monitor reports that the Alberta plaintiffs were present at the Sherwood Park meeting, handing out material and requesting contact information from other attendees. Some of the attendees expressed confusion as to who had authored the material being handed out by the two Alberta plaintiffs and who was requesting their contact information.

The Monitor requested that the Alberta plaintiffs hand-out material at a reasonable distance from the meeting room entrance and communicate clearly to attendees that the material they were handing out was not authored, endorsed or being circulated by the Monitor and that they were not requesting contact information on behalf of the Monitor. [ 91 ] The Monitor wrote to class action counsel as follows: The Monitor recognizes that your clients have expressed views thus far which are in opposition to the District’s plan. Of course it is up to each depositor, including your clients, to decide how to vote.

We also recognize that any party, including your clients, are entitled to voice their support or opposition to the District’s plan. However, in the interest of ensuring an efficient meeting that respects the CCAA process and the interests of other depositors in attendance, the Monitor is implementing the below referenced rules and procedures.

These rules and procedures are intended to provide your clients with the ability to convey their opinions in a fashion which does not impede the meeting and respects the rights of other parties in attendance. [ 92 ] The Monitor had a table established for the use of the class action representatives within reasonable proximity to the entrance to the room in which the meetings were held.

The class action representatives were entitled to circulate written information to attendees within the reasonable vicinity of that table, but not permitted to disseminate any written material within the room or in the doorway entering the room in which the meetings were held.

[93] The rules provided that any written communication circulated by the class action representatives was to include a prominentlydisplayed disclaimer that such materials were not authored, endorsed or being circulated by the Monitor.

A sign identifying the classaction representatives was to be prepared by them and displayed at the table established for their use. [94] These are reasonable rules, designed to avoid confusion, and they did not impede the class action plaintiffs from voicing theirviews. [95] The opposing Depositors submit that the Monitor instructed attendees at information meetings to cast their votes immediately,without waiting for the District meeting. The Monitor denies encouraging creditors one way or the other with respect to when to vote.

Itcommunicated to attendees the options available to creditors for voting on the District plan and the deadlines associated with eachoption. It also communicated at meetings that creditors who wished to do so could provide the Monitor with any paperwork they hadbrought with them. It is a stretch to impute any kind of bad faith to the Monitor in conveying this information. [96] The class action plaintiffs and their counsel had the ability to attend all of the information meetings.

They were in attendanceand actively participated in the information meeting in Langley, BC, at the Sherwood Park Meeting, the Red Deer Meeting and theDistrict Meeting. Both counsel were in attendance and participated in the District Meeting. The Monitor notes that it is aware of at leasttwo emails that were widely circulated by a relative of one of the class action plaintiffs outlining the views of the class action plaintiffson the District Plan.

I am satisfied that the opposing Depositors had a more than adequate opportunity to communicate their views toother Depositors and to attempt to garner support for their opposition, and that they were not impeded by the Monitor. [97] I must address one more disturbing allegation.

Two opposing Depositors submit that the Monitor’s non-disclosure of theMSDP and the Conrich ASP in the context of what they allege is the Depositor’s false and misleading communications with CEFDepositors might lead a reasonable and informed person to believe that “the Monitor is prepared to condone and facilitate the District’sdishonest conduct”. This is a disingenuous attack on the Monitor’s professional reputation, made without evidence or any reasonablefoundation. There is no air of reality to this allegation.

There is no evidence that the Monitor was aware of misleading statements, if any,made by the District or its employees or agents before or during the CCAA proceedings. [98] The Monitor has prepared 22 regular reports during the approximately 18 months of these proceedings, plus five confidentialsupplements and three special reports providing creditors with specific information relating to their respective plans of compromise andarrangement.

The Monitor also prepared hand-outs tailored to provided information to specific groups of creditors, and five QFAs withinformation on multiple topics, including NewCo, the potential outcomes of the CCAA proceedings, estates, trust accounts, theassignment of NewCo shares by creditors and the potential future subdivision of the Prince of Peace properties. [99] The Monitor attended five regional information meetings in Alberta and British Columbia between April 19 and April 28,2016 to review the contents of the District plan and respond to any inquiries by District Depositors related to the plan.

The InformationMeetings were each between approximately two and a half and four hours long. It is clear that the information provided to creditorsduring these CCAA proceedings was far more extensive than that which would normally be provided. [100] Monitors, being under a duty to the Court as the Court officer and to the parties involved in a CCAA proceeding under statute,must sometimes make recommendations that are unpopular with some creditors. The Court expects a Monitor’s honest and candidadvice, and relies on it.

The Monitor in this case went to great lengths to inform the great number of Depositors of ongoing proceedings,and to give its well-reasoned and measured opinion on the myriad of issues in this complex proceeding. In retrospect, it may have beenprudent for the Monitor to reference the MSDP and Conrich ASP earlier, in substantially the way it was later referenced in the Monitor’sQFA on development, but that is a hindsight observation, and unlikely to resolve other than one of the opposing Depositors’ manycomplaints in support of their application. 4.

Cost and Delay [101] The Monitor and the District Group submit that the timing of this application to remove the Monitor is suspect: that the allegedconflicts complained of have been disclosed for months.

The opposing Depositors say that they were awaiting the outcome of theDistrict vote, and that it was not until the May 14, 2016 District meeting that they knew that the Monitor knew about and had failed todisclose the MSDP and the Cornich ASP. [102] It is clear that the timing of the application is strategic: a clear majority of the DIL and District creditors have voted in favour ofthe plans despite the efforts of the relatively few opposing Depositors to convince others to join in their opposition. They must now relyon other grounds to frustrate, delay or defeat the Court’s sanction of the plans.

That is their prerogative as creditors who oppose the plan,and the Court must, and does, consider their objections seriously, whatever the underlying motivation. However, relief on a motion ofthis kind should only be granted where the evidence indicates “a genuine concern with respect to the merits of the alleged conflict”:Moffatt v Wetstein, (ON SC), [1996] O.J.

No. 1966 at para 131. [103] While the timing of this application to replace the Monitor does not preclude the opposing Depositors from bringing theapplication, the Court must balance the potential risk to creditors and the District Group arising from the alleged potential conflict ofinterest against the prejudice to creditors and the District Group arising from the inevitable delay, duplication of effort and high costsinvolved with replacing the Monitor at this very late stage of the proceedings. [104] I have found that the Monitor does not have any legitimate conflict of interest, real or perceived, and that it has not breached anyfiduciary duty.

Even if I am wrong in this determination, the damage caused by such conflict or breach of duty has been mitigated by fulldisclosure of potential conflicts and disclosure of the information that the opposing Depositors submit should have been disclosed priorto the vote on the District Plan. [105] Compared to this, appointing a replacement Monitor would involve costs in excess of $150,000, taking into account that thereplacement Monitor would need to retain counsel. The process would cause substantial delay in already lengthy proceedings while thereplacement Monitor reviews the events of the last eighteen months.

[ 106 ] I also take into account that the key issue that the opposing Depositors want a replacement Monitor to review is whether the Representative Action provisions of the plans are within the jurisdiction of a CCAA court to sanction.

This is a question of law, on which a replacement Monitor would have to rely on counsel. [ 107 ] At this point in the proceedings, in addition to being reviewed by the Monitor’s legal counsel, the provisions of the plans related to the Representative Action have been reviewed by the creditors’ committees for the District and DIL, who act in a fiduciary capacity with respect to the creditors of those respective entities and by each committee’s independent legal counsel. The jurisdictional issue related to the Representative Action provisions is a legal matter rather than a business issue.

As such, this Court is qualified to opine on it independently, without the assistance of a new Monitor. [ 108 ] I note that the creditors’ committees who represent the majority of Depositors are strongly opposed to a replacement Monitor.

They pointed out that the plans have been approved by the requisite majorities, and delay and additional cost does not serve the interests of the general body of creditors, particularly without what they consider to be any justifiable reason. [ 109 ] The assistance of a further limited purpose Monitor would likely be of little to no further assistance to the Court and would result in increased professional costs to the detriment of creditors as a whole. This is the tail-end of a lengthy process.

The introduction of another Monitor without any clear, ascertainable benefit to the body of creditors, leading to uncertainty, costs and delay, is unwarranted. 5. Conclusion [ 110 ] The anger and frustration expressed in these proceedings by a small minority of Depositors, while perhaps understandable given their losses and the trust they placed in their Church, is misplaced when it is directed against the Monitor. [ 111 ] There is no reason arising from conflict of interest or breach of fiduciary duty to replace the Monitor. [ 112 ] I therefore dismiss the application. B.

Sanctioning of the DIL and District Plans 1. Overview [ 113 ] As provided in section 6(1) of the CCAA , the Court has the discretion to sanction a plan of compromise or arrangement where, as here, the requisite double majority of creditors has approved the plan. The effect of the Court’s approval is to bind the debtor company and its creditors. [ 114 ] The general requirements for court approval of a CCAA plan are well established: (

a) there must be strict compliance with all statutory requirements; (

b) all materials filed and procedures carried out must be examined to determine if anything has been done or purported to have been done that is not authorized by the CCAA; and (

c) the plan must be fair and reasonable. Olympia & York Developments Ltd v Royal Trust Co (1993), 17 CBR (3d) 1 (Ont Ct J(Gen Div)) at para 17; Re Canadian Airlines Corp , 2000 ABQB 442 at para 60 , leave to appeal refused 2000 ABCA 238 , affirmed 2001 ABCA 9 , leave to appeal refused [2001] SCCA No 60; Re Canwest Global Communications Corp, 2010 ONSC 4209 at para 14 . [ 115 ] It is clear that there has been strict compliance with all statutory requirements with respect to both the DIL and the District plans, assuming jurisdiction as a different issue. The opposing Depositors attack the plans on the basis of the second and third requirements. [ 116 ] They submit: (

a) the plans contain provisions that are not within the scheme and purpose of the CCAA ; (

b) the plans compromise third party claims; (

c) the plans provide no benefit to Depositors within the purpose of the CCAA; (

d) the plans contravene

section 5.1(2) of the CCAA ; (

e) the plans have not been advanced in good faith, with due diligence and full disclosure; and (

f) the plans are not fair and reasonable. 1. Do the plans contain provisions that are not within the scheme and purpose of the CCAA ? [ 117 ] The opposing Depositors submit that the Representative Action provisions of the plans do not advance the District Group’s restructuring goals.

[118] The District and the Creditors’ Committees respond that the Representative Action provisions follow the “one proceeding”model that underpins the CCAA and will prevent maneuvering among Depositors for better positions in subsequent litigation, which,they say, has already commenced with the stayed class action proceedings.

They submit that the provisions provide certainty toDepositors and allow the District to continue its core function without the distraction of a myriad of claims, consuming its limitedresources and having the potential to compromise its insurance coverage. [119] The opposing Depositors submit that procedural rules can be used to limit proceedings in the absence of the RepresentativeAction provisions, and that if more than one class proceeding is brought within a jurisdiction, carriage motions can be brought todetermine which action can proceed to certification.

Thus, they argue, there is little likelihood that the District will be overwhelmed bylitigation in the event that the plans are not approved. Rather, there will be one class proceeding in each of British Columbia and Alberta,and potentially a number of independent claims advanced by those who choose to opt out of those actions or whose claims are of anindividual nature not suited to determination in a class proceeding. It is open to the District to apply to have those individual claimsconsolidated if is appropriate to do so. [120] This argument contains its own contradictions.

It anticipates multiple actions that may have to resolved through courtapplication and carriage motions, the very multiplicity of actions that the Representative Action provisions are proposed to alleviate. [121] The opposing Depositors cite Re Metcalfe & Mansfield Alternative Investments II Corp, 2008 240 OAC 245, 2008 ONCA 587; leave dismissed [2008] SCC No. 32765 for the proposition that the Court does not have the jurisdiction to approve a plan thatcontains terms that fall outside the purpose, objects and scheme of the CCAA.

The Metcalfe decision dealt with a unique situationinvolving the Court’s jurisdiction to approve a plan that involved wide-ranging releases. In the result, the Court approved the planincluding the releases. The DIL and District plans do not involve third-party releases except in a limited sense that is not at issue. It istrue that Blair, J.A. noted in the Metcalfe decision that there must a reasonable connection between the third party claim beingcompromised in the plan and the restructuring achieved by the plan to warrant inclusion of a third party release.

However, he also notedat para 51 that, since its enactment: Courts have recognized that the [CCAA] has a broader dimension than simply the direct relations between the debtor company andcreditors and that this broader public dimension must be weighed in the balance together with the interests of those most directlyaffected. [122] The opposing creditors in Metcalfe raised many of the same arguments that the opposing Depositors raise in this case, and theCourt noted that they “reflect a view of the purpose and objects of the CCAA that is too narrow”: para 55. [123] The opposing Depositors also argue that any provision of a plan that may benefit the District is improper.

They submit that theDistrict’s arguments “anticipate that it will be the beneficiary of [the Subcommittee’s] goodwill”, and that this betrays the District’simproper motive. There is nothing improper or contrary to the scheme and purpose of the CCAA for a debtor company to attempt to beable to continue its business more efficiently and effectively post-CCAA. That is the very core and purpose of the Act. This argumentassumes that the Subcommittees would betray their fiduciary duty to act in the best interests of the creditors they will represent byfavouring DIL or the District.

There is no evidence that this would happen; on the contrary, the Creditors’ Committees have ablyrepresented the interests of creditors as a whole in this restructuring, and there is no reason that the Subcommittees would do otherwise. [124] Finally, the opposing Depositors submit, referencing the results of a survey conducted by the Lutheran Church – Canada, thatthere is little likelihood of the District remaining in operation in the future without being subsumed into a single administrative structure.At this point, this is only a possibility that would not be implemented for more than a year, if it is implemented at all. [125] There is a nexus between the Representative Action provisions of the plans and the restructuring in that these provisions aredesigned to allow the District to continue in the operation of its core function without the distraction of multiple litigation, whilepreserving the rights of Depositors to assert actions against third parties involved in the events that led to this insolvency.

This Court doesnot lack jurisdiction to sanction the plans for this reason. 2. Do the Representative Action provisions of the plans compromise third party claims? [126] The basis for this submission is that the Subcommittees will have absolute discretion to commence and compromise third partyclaims (including derivative claims), to instruct counsel, and to determine the litigation budget to be shouldered by the Depositors.

Underthe terms of the plans, a Depositor whose third-party claim is denied by the Subcommittee has no right to proceed independently. [127] The plans impose fiduciary duties on the Subcommittee members to act in the best interest of Depositors who do not opt-out.No claims are prima facie released, other than the partial releases that are unopposed.

Thus, it must be assumed that a claim against athird party will not be advanced by a Subcommittee only if not doing so is consistent with its fiduciary duties for whatever reason (forexample, advice from representative counsel that a claim has no basis for success). [128] The opposing Depositors put forward a hypothetical situation in which an individual may have a meritorious claim that he orshe wishes to pursue, but the Subcommittee doesn’t wish to proceed due to lack of funding. The District and the Monitor point out, and Iaccept, that the definition of Representative Action permits more than one action.

There is no provision of the plans that prevents thishypothetical individual from funding the Subcommittee to pursue such an action on his or her behalf as a Representative Plaintiff. Theindividual would become part of the Subcommittee and the action would be advanced by the Subcommittee using representative counsel.The hypothetical action would be treated like any other representative action claim under the plans.

The Subcommittee would havecarriage and control of such litigation, subject to its fiduciary obligations. [129] If any issues arose from such a hypothetical situation, the advice and direction of the Court is available. [130] It is important to note that the Representative Action provisions of the plans do not deprive any Depositors of the right to pursueclaims as described against third-parties. They merely funnel the process through independent Subcommittees of creditors chosen from

among the Depositors who have claims remaining after the Convenience Payments and who will have the fiduciary duty to act in the best interests of the body of such creditors to maximize recovery of their investments. [ 131 ] While third-party claims could be pursued in another fashion, through uncoordinated action by individual Depositors, that does not mean that the Representative Action provisions constitute a compromise of such claims. There is no jurisdictional impediment to sanction arising from this inaccurate characterization of the plan provisions. 3.

Do the Representative Action provisions provide any benefit to Depositors within the purpose of the CCAA? [ 132 ] The Monitor identified the benefits of the Representative Action provisions in its reports to Depositors as follows: (

a) they provide a streamlined process for the establishment of the Representative Action class and the funding of the Representative Action; (

b) they prevent a situation where Depositors are being contacted by multiple groups seeking to represent them in a class action or otherwise; (

c) they may result in increased recoveries through settlement of the Representative Action claims on a group basis; and (

d) as certain Depositors have indicated that they view any involvement in litigation as inconsistent with their personal religious beliefs, the Representative Action process allows them to opt-out before litigation is even commenced, should that be their preference. [ 133 ] The opposing Depositors suggest that none of these benefits fall within the “express purposes” of the CCAA.

As noted by the Supreme Court in Century Services Inc v Canada (Attorney General) , 2010 SCC 60 , the CCAA has a broad remedial purpose, and permits a company to continue its business through various methods, with a view to becoming viable once again, including compromises or arrangements between an insolvent company and its creditors, and a going-forward strategy. [ 134 ] The Act is aimed at avoiding, where possible, the devastating social and economic consequences of the cessation of business operations, and at allowing the debtor to carry on business in a manner that causes the least possible harm to employees and the communities in which it operates.

I accept that this is what the District Group is attempting to do with the plans, including the Representative Action provisions. While these provisions are of benefit to the District in allowing it to deal with claims affecting its officers, directors and employees from a single source, they also have a rationale and reasonable purpose in protecting the community of mostly older Depositors that the District will continue to serve in a religious capacity, and in attempting to maximize recovery through the possibility of focused negotiations with a limited number of parties.

This does not mean that these types of provisions will always be an appropriate way to deal with third party claims, but, in the circumstances of this rather unique restructuring, the benefits are reasonable, rationale and connected with the overall restructuring. [ 135 ] The DIL and District plans are part of a four component conceptual plan of arrangement and compromise that is designed to permit the District to continue to carry out its core operations as a church entity without the CEF and DIL functions that it has previously carried out and without the senior’s care ministry component it had carried out through ECHS and EMSS.

The opposing Depositors take an overly narrow view of the CCAA’s purpose, and ignore the real benefits identified by the Monitor to the large group of Depositors who are interested in recovering as much of their investment as possible. This Court does not lack jurisdiction to sanction the plans on this ground. 4. Do the plans contravene

section 5.1(2) of the CCAA ? [ 136 ] Claims that may be included in the Representative Action provisions include claims that cannot be compromised pursuant to

section 5.1(2) of the CCAA as they are claims against directors that relate to a contractual right of one or more creditors or are based on allegations of misrepresentations made by directors to creditors or wrongful or oppressive conduct by a director. [ 137 ] As noted previously, the plans do not release or compromise any claims that can be pursued in the Representative Action. Accordingly, the plans permit the directors to be pursued in a Representative Action in accordance with s. 5.1(2) of the CCAA . 5.

Have the plans been advanced in good faith, with diligence and full disclosure? [ 138 ] As noted with respect to the application to replace the Monitor, it was not necessary for the District to disclose the MSDP and the Conrich ASP in the context of the District plan. However, these documents were disclosed to Depositors before the reconvened District meeting, and Depositors had the ability to change their vote on the District plan with this information in hand.

The District was not guilty of bad faith arising from these circumstances. [ 139 ] The opposing Depositors also submit that counsel for the District Group, by acting as counsel and advancing the plans, has “intentionally sought to misuse the CCAA proceedings to shield himself and his law firm from liability”. First, neither counsel nor his firm is released by the plans from any liability, other than the limited release provisions that are not contentious.

The opposing creditors have made a number of allegations against counsel and his firm; none of these allegations have been tested or established and undoubtedly the Subcommittees will have to consider whether to bring proceedings against these parties for advice that may have been provided to the District Group prior to the CCAA filing. This situation does not give rise to bad faith by the District Group. [ 140 ] The opposing Depositors also allege that counsel for the District Group has been unjustly enriched as a result of the legal fees they have been paid while acting as counsel in these proceedings.

Counsel has not been able to respond to this allegation of dubious merit. Again, this is irrelevant to the issue of the District Group’s good faith. [ 141 ] Similar allegations have been made about the Monitor, which have been addressed in the decision relating to the replacement of

Monitor. 6. Are the Plans Fair and Reasonable? a. Overview [142] Farley, J. in Re: Sammi Atlas Inc, (ON SC), [1998] O.J. No. 1089 at para 4 provided a useful description ofthe Court’s duty in determining whether a proposed plan is fair and reasonable: … is the Plan fair and reasonable? A Plan under the CCAA is a compromise; it cannot be expected to be perfect. It should be approved ifit is fair, reasonable and equitable. Equitable treatment is not necessarily equal treatment. Equal treatment may be contrary to equitabletreatment.

One must look at the creditors as a whole (i.e. generally) and to the objecting creditors (specifically) and see if rights arecompromised in an attempt to balance interests (and have the pain of the compromise equitably shared) as opposed to a confiscation ofrights. It is recognized that the CCAA contemplates that a minority of creditors is bound by the Plan which a majority have approved –subject only to the court determining that the Plan is fair and reasonable: see Northland Properties Ltd. at p.201; Olympia & YorkDevelopments Ltd. at p.509.

In an earlier case, he commented: In the give and take of a CCAA plan negotiation, it is clear that equitable treatment need not necessarily involve equal treatment. There issome give and some get in trying to come up with an overall plan which Blair J. in Olympia & York likened to a sharing of the pain.Simply put, any CCAA arrangement will involve pain – if for nothing else than the realization that one has made a bad investment/loan:Re: Central Guarantee Trust Ltd., [1993] O.J.

No. 1479. [143] The objection of the opposing Depositors to these plans focus mainly on whether the different treatment of some creditorsresults in inequitable treatment, whether the plans are flawed is any respect and how much weight I should accord to the approval of themajority. b. Deference to the Majority [144] Dealing with the important factor of the approval of the plans by the requisite double majority of creditors, the Court in ReMuscletech Research & Development Inc., (ON SC), [2007] O.J.

No. 695 at para 18 commented: It has been held that in determining whether to sanction a plan, the court must exercise its equitable jurisdiction and consider theprejudice to the various parties that would flow from granting or refusing to grant approval of the plan and must consider alternativesavailable to the Applicants if the plan is not approved. An important factor to be considered by the court in determining whether the planis fair and reasonable is the degree of approval given to the plan by the creditors.

It has also been held that, in determining whether toapprove the plan, a court should not second-guess the business aspects of the plan or substitute its views for that of the stakeholders whohave approved the plan. [145] The opposing Depositors, however, invite me to do just that. They refer to a remark by McLachlen, J. (as she then was), in ReGold Texas Resources [1989] B.C.J.

No. 167 at page 4, to the effect that the court should determine whether “there is not within anapparent majority some undisclosed or unwarranted coercion of the minority…. (i)t must be satisfied that the majority is acting bona fideand in good faith”. [146] The opposing Depositors submit that, in considering the voting results, I should keep in mind that the many of the Depositors“are not businessmen” and that 60% of them are senior citizens over 60 years of age.

I note that some of the opposing creditors are also“not businessmen” and are over 60, but the Court is not asked to discount their opposing votes for that reason. [147] I have read the considerable disclosure about the plans prepared and distributed by the Monitor, and note the extraordinaryefforts of the Monitor and the District Group to ensure that Depositors had the opportunity to ask questions at the information meetings.The Depositors have had months to inform themselves of the plans.

Even if the disputed development disclosure had been necessary,there were roughly 1 ½ months from the Monitor’s disclosure of the documents to the vote on the District Plan. It would be patronizingfor the Court to assume anything other than the Depositors were capable of reading the materials, asking relevant questions andexercising judgment in their own best interest. Business sophistication is not a necessity in making an informed choice. [148] The opposing Depositors also submit that there is evidence of efforts by Church officials to influence the outcome of the vote infavour of the plans.

This evidence consists of affidavits from the opposing Depositors or their supporters that accuse various Churchpastors of efforts to intimidate or silence those who oppose the plans. These allegations have been made against individuals who are notdirect parties in these pro

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