2022 QCCA 1073, 2022 QCCA 1073

Arrangement relatif à Blackrock Metals Inc. 2022 QCCA 1073 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-030101-224 (500-11-060598-212) DATE: 5 August 2022 BEFORE THE HONOURABLE PATRICK HEALY, J.A. IN THE MATTER OF the compromise or arrangement under the companies’ creditor arrangement act, r.s.c. 1985, c. c-36 of blackrock metals inc., blackrock mining inc., brm metals gp inc. and blackrock metals lp. WINNER WORLD HOLDINGS LIMITED 4470524 CANADA INC. GOLDEN SURPLUS TRADING PROSPERITY STEEL APPLICANTS – Intervenors v. BLACKROCK METALS INC.

RESPONDENT – Debtor and INVESTISSEMENT QUÉBEC OMF FUND II H LTD.

RESPONDENTS – Secured creditors JUDGMENT [ 1 ] There is before me an application for leave to appeal against a judgment of the Superior Court, District of Montreal, dated 31 May 2022, [1] that granted a reverse vesting order (RVO) to the respondents pursuant to sections 11 and 36 of the Companies’ Creditors Arrangement Act ( CCAA ). [2] There is also an application to issue a safeguard order to prohibit the respondents from selling, transferring, or otherwise disposing of the company’s shares, or to issue new shares or transfer, sell, assign or otherwise dispose of permits or agreements that are to the company’s benefit and that are useful in its operations pending the outcome of appeal. [ 2 ] In 2008, one of the respondents, the debtor BlackRock Metals Inc. (BlackRock) began the development of “Project Volt” in the mining sector.

During the search for financing, BlackRock signed a loan with two other of the respondents, OMF II H Ltd. (Orion) and Investissement Québec (IQ), which were secured creditors in this project and who held respectively 18% and 12% of the shares of BlackRock. [ 3 ] For their part, the petitioners were members of a group of shareholders holding 54% of the shares in the enterprise. [ 4 ] In December 2021, following the refusal of Orion and IQ to renew the loan, BlackRock, then facing financial difficulties, filed a request for an initial order in conformity with the CCAA .

In January 2022, the Superior Court issued orders establishing the modalities of the process of call for submissions concerning the assets and companies, “Sale or Investment Solicitation Process” (SISP). During Phase 1 of the process, apart from the secured creditors, only one other submission was submitted and accepted, that of Canada Inc. In Phase 2, Canada Inc. sought an extension of the deadlines to complete the search for financing, which was denied and led to the failure of the SISP . [ 5 ] As a result of the failure of this process, the respondents submitted to the Superior Court a proposal for a RVO.

The judge at first instance granted the order sought for various reasons, of which some are of particular importance to the application of which I am now seized. [ 6 ] At the outset, I note again that the petitioners did not have the benefit of the judge’s written reasons at the time of filing the present application. [ 7 ] To begin, the judge noted that considerable efforts were made to obtain the best possible price for the assets of the company, but despite the intensive search for an interested investor or buyer to join the project or take it over, no reasonable offer was advanced.

The requirements in the mining sector for permits and authorisations also complicated the transfer of the company’s assets and the solution of an RVO was best suited to assure certainty in the restructuring of BlackRock. In this regard it is helpful to note one of the judge’s conclusions, which well illustrates the singularity of the matter:

[116] lndeed, BlackRock operates in the highly regulated mining industry. Their business is almost entirely constituted of such intangible assets, which provide a head start of several years to the purchaser. Some of these assets cannot be assigned or are at least difficult to assign. Therefore, the capacity to restructure BlackRock depends heavily on the capacity to keep the existing legal entities in place while restructuring the share-capital of BlackRock.

That is exactly what the RVO provides for. [117] If BlackRock was forced to proceed with a traditional asset sale, it could significantly increase the costs, generate uncertainties and reduce the value its assets, to the detriment of all parties involved . [118] Moreover, despite the intervenor's firm belief, the SISP has unequivocally demonstrated that there is no realizable value in BlackRock's business or assets beyond the secured debt of IQ and Orion, such that there is no equity left for its unsecured creditors, let alone its shareholders.

The judge then explained that the company’s creditors and shareholders were not not in a more disadvantageous position with the RVO than they would have been with a more traditional transaction: [119] The Court adds that shareholders have little or no say in CCAA proceedings like the present one, where the debtor company is insolvent and its shares have lost all value.

This goes to their legal interest in contesting an arrangement or transaction proposed by the company. [120] In any case, the shareholders and unsecured creditors of BlackRock are not in a worse position with an RVO than they would be under a traditional asset sale. Either way,they would have no economic interest because the purchase price paid would not generate any value for the unsecured creditors (and even less so for the shareholders). [ 8 ] In this court, the petitioners seek to contest even the power of supervising judges under the CCAA to issue an RVO.

They submit also that in the circumstances the release of debtors that was contemplated in the RVO was not authorised. The present motion for leave is governed by

section 13 of the CCAA and the standard for granting leave is strict. To be granted leave the petitioners must satisfy four cumulative criteria: 1. The point on appeal is of significance to the practice; 2. The point is of significance to the action or proceedings; 3. The appeal is prima facie meritorious; 4.

The appeal will not unduly hinder the progress of the proceedings. [3] [ 9 ] Even where these criteria are met, the court may still refuse leave if it is in the interest of justice to do so. [4] I note too that, due to the “obvious expertise » of judges at first instance in the matters, leave to appeal is granted only parsimoniously. [5] [ 10 ] In my view the application for leave to appeal should be dismissed. [ 11 ] On the first point, I recognise immediately that the questions raised in the petitioners’ application are important in the law of insolvency.

The RVO is a complex mechanism that consists in the sale « à un acquéreur des actions du capital-actions d’une compagnie insolvable, délestée de certains de ses actifs et dettes non voulus par l’acquéreur, lequel poursuit alors les opérations de la compagnie » [6] .

Canadian courts have been rarely called upon to consider approval of such transactions under the CCAA . [7] To begin, the ramifications of RVO’s with regard to the powers given to a judge under the CCAA have not been addressed, to date, by an appellate court in Canada. [8] The grounds raised in the present matter appear similar to those in Nemaska , [9] in which Marcotte J.A. expressed herself as follows: [36] Certain issues raised in appeal do appear to qualify as being significant to the practice of insolvency.

This is particularly the case regarding the issue of the scope of authority of the CCAA supervising judge in the context of an order that is not strictly limited to the “sale or disposition of assets” provided for under section 36 (6) CCAA , which, according to the Applicants, results in an outcome that would normally form part of an arrangement subject to prior approval by the creditors.

There is also an issue of principle raised regarding the granting of broad third party releases (that are not limited to the transaction itself), outside the confines of an arrangement and without determining their appropriateness and submitting same to the required vote of creditors. [10] [ 12 ] Nevertheless, even if the first criterion for leave to appeal is satisfied, I cannot say the same for at least two of the three others, which makes dismissal of the application inevitable because the requirements of the four criteria are cumulative. [ 13 ] In the circumstances, I cannot conclude that the proposed appeal would be of significance to the action or proceedings or sufficiently meritorious, not just because the transaction is virtually complete but because the petitioners have no financial or legal interest with regard to the sale of the company’s assets.

The judge persuasively demonstrates that the RVO is no prejudicial to the shareholders given that they cannot in all probability draw anything from it irrespective of the nature of the transaction. There might be no doubt that the proposed appeal is meritorious in the sense that it raises a point of principle that merits the attention of this court but the point of principle does not imply in the circumstances of this case a case of comparable practical importance to the evolution and disposition of this matter.

In no way do I suggest that the present application for leave is frivolous but, despite their importance in principle, the questions raised by the petitioners appear more abstract and advisory as their practical importance in this case diminishes toward mootness. [ 14 ] These observations entail inevitably that an appeal in these circumstances would unduly hinder the progress of the proceedings,

which is the fourth ground on which the present application must fail. An appeal by the petitioners, especially in view of their lack ofgenuine financial interest, would unquestionably hinder the progress of proceedings. [15] On the second ground advanced by the petitioners, that is the release of the debtors by the RVO, the Superior Court of Ontariohas acknowledged that the release of a debtor in respect of third parties can be granted under

section 11 CCAA but to date no court ofappeal has ruled on this point. In this regard the question is important but it is by nature a highly factual determination on which a judgeat first instance has notable expertise.

She was clearly aware that such releases should not be granted lightly et is careful to explain herdecision in detail: [131] In the present file, IQ’s and Orion’s participation was obviously instrumental to the restructuring of BlackRock’s business.Considering the SISP and the opportunity given to BlackRock’s stakeholders to participate in the process, it is reasonable for IQ andOrion to now start with a clean slate and not to be under the threat of potential claims as they will be leading BlackRock’s effort withProject Volt.

The release will provide more certainty and finality. [132] The release is thus reasonably connected and justified as part of the Proposed Transaction, and it is to the benefit of BlackRock andits stakeholders generally as it will allow BlackRock to emerge as a solvent entity and be in the best possible position to, hopefully,secure financing for Project Volt. They are also fair and reasonable in the present circumstances. [16] In view of what the petitioners might obtain the risk that an appeal would hinder the transaction, which is practically complete, istoo great.

As well noted by the judge, the respondents exhausted all possible options to obtain financing or the sale of assets at a goodprice, and in the end the RVO was the most profitable solution. [17] I say nothing of the merits of the proposed because the questions posed will undoubtedly return in a case that will address themas required. [18] In view of my conclusion on the application for leave, I need not address the application for a safeguard order. FOR THESE REASONS I : [19] DISMISS the application for leave to appeal, without legal costs in view of the grounds that were raised. PATRICK HEALY, J.A.

Mtre Doug MitchellIMKFor Applicants Mtre Jean LegaultMtre Ouassim TadlaouiMtre Jonathan WarinLAVERY, DE BILLYFor Blackrock Metals inc. Mtre Luc MorinMtre Noah ZuckerMtre Guillaume MichaudMtre Arad MojtahediNORTON ROSE FULBRIGHT CANADAFor Investissement Québec Mtre Julie HimoSOCIÉTÉ D’AVOCATS TORYSFor OMF FUND II H LTD. Date of hearing: 2 August 2022 [3] Arrangement relatif à Nemaska Lithium inc., 2020 QCCA 1488, para. 31 (Judgein chambers) application for leave to appeal dismissed (SCC)[Arrangement]; Cantore v.

Nemaska Lithium inc., 2022 QCCA 598, para. 8 (Judge inchambers) [Cantore]; Aviva compagnie d’assurances du Canada v. Béton Brunet2001 inc., 2016 QCCA 1837, para. 13 (judge in chambers); Bridging Finance inc. v.

Béton Brunet 2001 inc., 2017 QCCA 138 , para. 14-15 (judge in chambers) ; Bloom Lake, g.p.l. (Arrangement relatif à), 2015 QCCA 1351 (Judge in chambers) ; Statoil Canada Ltd. (Arrangement relatif à), 2012 QCCA 665 , para. 4 (Judge in chambers) .