2023 NLSC 139, 2023 NLSC 139

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Edward Collins Contracting Limited (Re) , 2023 NLSC 139 Date : October 20, 2023 Docket : 202201G1964 In The Matter of the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 , as amended (the " CCAA ") And In The Matter of an application of Edward Collins Contracting Limited, Classic Security Ltd., FGC Holdings Ltd., 51037 Newfoundland and Labrador Inc. and H & E Designs Ltd. (collectively, the “ECC Group”) Before: Justice Alexander MacDonald Edited Transcript of Oral Reasons for Judgment Place of Hearing: St.

John’s, Newfoundland and Labrador Date of Hearing: September 26 and 29, 2023 Date of Oral Judgment: October 3, 2023 Appearances: Darren D. O’Keefe Appearing on behalf of the ECC Group Caitlin E. Fell Appearing on behalf the Monitor Alexander T. Wells Appearing on behalf of 92712 Newfoundland and Labrador Inc. Neil L. Jacobs, K.C. Appearing on behalf of Royal Bank of Canada Maeve A. Baird Appearing on behalf of the Minister of National Revenue

David L. Hearn Appearing on behalf of the Government Chelsey Buggie of Newfoundland and Labrador Jason Dutrizac Appearing on behalf of Intact Insurance Western Surety Company Phil Clarke Appearing on behalf of Grant Thornton Limited Ronald A. Cole, K.C. CANAM Construction William S. Kennedy EMCO Limited Authorities Cited: CASES CONSIDERED: Royal Bank of Canada v. Soundair Corporation (1991), (ON CA), 4 O.R. (3d) 1, 7 C.B.R.(3d) 1 (C.A.); Harte Gold Corp. (Re), 2022 ONSC 653; 9354-9186 Québec Inc. v.

Callidus Capital Corporation, 2020 SCC 10; LydianInternational Limited (Re), 2020 ONSC 4006; PricewaterhouseCoopers Inc. v. Canadian Fluorspar (NL) Inc., 2023 NLSC 88; TargetCanada Co., Re, 2016 ONSC 3651; Sports Villas Resort Inc. (Re), 2020 NLSC 109 STATUTES CONSIDERED: Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 REASONS FOR JUDGMENT macdonald j.

INTRODUCTION [1] On July 8, 2022, the Royal Bank of Canada (RBC) applied to appoint Ernst and Young Inc. as a court-appointed receiver overall or substantially all of the assets of Edward Collins Contracting Limited, Classic Security Ltd., FGC Holdings Ltd., 51037Newfoundland and Labrador Inc., and H & E Designs Ltd. (EEC Group). The ECC Group opposed the application. [2] On July 18, 2022, the ECC Group applied for creditor protection and other relief under the Companies’ CreditorsArrangement Act, R.S.C. 1985, c. C-36, as amended (CCAA). [3] On July 20, 2022, the Court granted a consent order (Consent Order).

The Court ordered that any persons having a contractualarrangement or a statutory mandate for the supply of goods or services were restrained until further order from the Court fromdiscontinuing, altering or terminating the supply of such goods or services until September 16, 2022. [4] On September 16, 2022, I continued the Consent Order. On October 5, 2022, I granted an initial order under the CCAA, andextended the stay until the comeback hearing on October 17, 2022.

I appointed Grant Thornton Limited (GTL) as Monitor. [5] On October 17, 2022, I issued the Amended and Restated Initial Order (ARIO). [6] On November 3, 2022, I dismissed an application by His Majesty in right of Newfoundland and Labrador seeking amendmentsto the ARIO.

[ 7 ] On December 14, 2022, I extended the stay until March 17, 2023. [ 8 ] On March 14, 2023, I issued a claims procedure order.

The order provides for a procedure to resolve Edward Collins Contracting Limited’s (CCL) claims relating to construction project receivables holdbacks, liquidated damages, and force account balances owing to CCL. [ 9 ] On April 17, 2023, I issued a Vesting Order allowing for the sale of certain real property. [ 10 ] On June 16, 2023, I approved a Sales Investment and Solicitation Process (SISP) and extended the stay until September 14, 2023. [ 11 ] The SISP included a so-called stalking horse bid. This bid set a floor sales price for the assets of CCL and H & E Designs Ltd. (Vendors).

The Asset Purchase Agreement (APA) between the Monitor and 92712 Newfoundland and Labrador Inc. (Purchaser) provides that the purchase price is $6.9 million, together with some other adjustments as is provided for in that Agreement, described in paragraph 74e of the Monitor’s Ninth Report. [ 12 ] A third party unrelated to the Collins family now owns 100% of the shares of the Purchaser.

I will describe the potential future changes in this ownership later. [ 13 ] In August, I amended the Claims Procedure Order to provide for certain claims made by Western Surety Company. [ 14 ] On September 13, 2023, I extended the stay until October 11, 2023. [ 15 ] On September 20, 2023, I ordered the Town of Deer Lake pay certain sums to the Monitor. [ 16 ] This is a Motion by the Vendors for an approval of: (

a) an Asset Vesting Order (AVO) to allow for the sale of their assets and certain liabilities to the Purchaser as set out in the APA; (

b) an order, also contained in the AVO, releasing the Vendors, the Purchaser, and the Monitor (and certain individuals associated with each as described in the AVO). They also seek a release of Universal Environment Services Inc. (UESI) as I describe later in this decision (UESI Release); (

c) a Distribution Order authorizing the Monitor to disburse the proceeds of the AVO; and (

d) an order sealing the

Schedule A of Josh Collin’s Affidavit filed September 21, 2023. [ 17 ] The Vendors served the Monitor and all known creditors and shareholders with its application materials. Monitor’s counsel provided notice to stakeholders previously registered for prior court applications. It also published its report accompanying this application on GTL’s website. [ 18 ] No one opposes the AVO. CanAm, an unsecured creditor, wants the Monitor to pay it even if I grant the AVO. The Sureties and EMCO Limited (EMCO) oppose the UESI Release. The Canada Revenue Agency (CRA), RBC and the Monitor all asked me to approve the AVO and the Releases contained in it. [ 19 ] I hereby approve: (

a) the AVO including the Releases as set out in the revised AVO provided to me by counsel at the end of the hearing; (

b) the Distribution Order; and (

c) an order sealing

Schedule A of Josh Collins’ Affidavit filed September 21, 2023. FACTS [ 20 ] I explained the background of this CCAA proceeding and the circumstances that gave rise to it in my previous oral decisions. I will not repeat all of that background today. [ 21 ] ECC Group as of June 16, 2023, owes RBC, as principal secured creditor, about $5.7 million.

It owes CRA about $4.98 million of which about $1.86 million is a deemed trust amount that ranked ahead of the RBC security. [ 22 ] The ECC Group also owes secured equipment lenders about $1.36 million. [ 23 ] Intact Insurance Company and Western Surety Limited (Sureties) provided construction bonding to CCL. They are unsecured creditors of ECC Group. They do hold indemnity agreements from UESI as I will describe in a moment.

[ 24 ] Although not a debtor company under the CCAA , UESI, a company associated with the ECC Group, has: (

a) guaranteed the ECC Group’s debts to RBC. RBC has a General Security Agreement dated in May 2005 and registered that month at the Newfoundland and Labrador Personal Property Registry (PPR); (

b) guaranteed CCL’s account with EMCO. Although EMCO identified its claim, it did not tell me the outstanding amounts due. EMCO opposed the UESI Release; (

c) guaranteed CCL’s fuel account with Energie Valero Inc. Valero did not make any submissions in this Motion; and (

d) indemnified the Sureties for any losses it suffers because of payments it makes under the construction bonds. Intact registered its indemnity at the PPR in March of 2022. Western registered its indemnity in December 2021. The Sureties oppose the UESI Release. [ 25 ] Western Surety Limited claims it paid about $1.04 million in claims against its construction bonds and has outstanding claims against it of about $1.66 million.

It also says it has incurred about $659,000 in legal fees and expenses. [ 26 ] Intact Insurance Company claims it paid about $154,000 in claims under its construction bonds and has outstanding claims of about $1.31 million. It also says it has incurred about $164,000 in legal fees and expenses. [ 27 ] As of July 31, 2022, UESI had shareholders equity, mostly in the form of retained earnings, of about $1.9 million. Its property and equipment was valued at about $1.7 million. [ 28 ] The Monitor has completed the SISP. It describes a process it followed pursuant to the SISP in paragraph 62 of its Ninth Report.

Despite its best efforts, the Monitor received no bids by the bid deadline. [ 29 ] On that basis, the Monitor deemed that the stalking horse bidder, the Purchaser, was the successful bidder. The Vendors seek approval of sale to, the Purchaser.

It seeks to implement the transaction through a proposed AVO. [ 30 ] An AVO generally involves a series of steps whereby the Purchaser acquires the assets of the debtor company free and clear of any encumbrances or claims, other than those assumed by the Purchaser, as contemplated by s. 36(4) of the CCAA . [ 31 ] The purchase price stands in place of the assets and is available to satisfy creditor claims in accordance with their pre-existing priority. [ 32 ] In this case, the Purchaser, agreed to pay $6.9 million, subject to the adjustments for assets and assumed liabilities provided for in the APA.

In particular, the Purchaser will acquire all of the assets of the Vendors including most ongoing contracts, excluding one with the Government of Newfoundland and Labrador. The Purchaser intends to initiate a process whereby the Purchaser will hire ECC Group’s employees. [ 33 ] The Purchaser will assume liabilities of about $340,000 to Newport Capital Corporation (an arm’s-length entity but related by common control to the Purchaser) and the Placentia Mall Ltd. (a non-arm’s-length entity).

The Vendors and the Monitor refer to these entities, not subject to the CCAA proceedings, as the Third Party Sponsors. [ 34 ] The Purchaser paid a $200,000 deposit to the Monitor on May 19, 2023. It will pay an additional deposit of $490,000 upon issuance of the AVO. [ 35 ] Pillar Capital Corporation (Pillar) will fund $6.1 million of the cash component of the purchase price while UESI will fund $800,000. [ 36 ] After or on closing, the Monitor will pay secured creditors about $8,946,958 as of June 16, 2023, by paying: (a) $4,058,070 to RBC.

The ECC Group, the Monitor, and RBC agreed to this amount in a confidential settlement agreement executed on June 16, 2023 (Settlement Agreement). $3,817,957 of this amount is due from ECC and the balance from FGC Holdings Ltd.; (b) $1,885,494 to CRA for its deemed trust (This amount is now $2,079,198 in the Distribution Order).

An additional amount of $347,743.63 is due from Classic Security Limited; and (c) $1,362,094 to equipment lease holders. [ 37 ] I will deal with the Distribution Order later in this decision. [ 38 ] Secured creditors subordinate to RBC, and unsecured creditors will receive nothing. [ 39 ] The payments to RBC will repay all mortgages, lines of credit, equipment leases, Visa overdraft balances, and certain accrued

interest, which as of March 7, 2023. This excludes a mortgage on real property that another of the ECC Group will deal with. [ 40 ] The Monitor will not repay RBC Highly Affected Sectors Credit Availability Program (HASCAP) loan secured by a 90% guarantee from the Business Develop Bank of Canada.

It will not pay its protective disbursements (expenses incurred in enforcing its security) and the Canada Emergency Business Account (CEBA) loan of about $1.6 million. [ 41 ] CRA will not receive any outstanding HST amounts or income taxes owed by the ECC Group sellers as these claims are subordinate to RBC and other secured creditors. [ 42 ] The combined ECC Group and UESI asset value is about $8.37 million.

Thus, there is about a $572,000 shortfall on the total secured and deemed trust debt due (and is more than this given that the CRA debt is more than what is set out in Josh Collins’ Affidavit filed on September 21, 2023), assuming liquidation of assets at 100% of their values. [ 43 ] To make up the shortfall on the secured debt and to pay other expenses, the Third Party Sponsors will make a contribution of about $1.8 million. This is made up as follows: (

a) A transfer of 11 acres of land in Point Verde appraised at $500,000 to support the Pillar financing; (

b) A transfer of land with an appraised value of $300,000 to support the Pillar financing; (

c) A subordination of Newport Capital Corporation and Placentia Mall Limited’s first mortgage of certain equipment to support the financing; and (

d) A cash injection of $1,023,000 to pay Pillar’s legal and loan fees and make up the remaining shortfall. UESI’s $800,000 is included in this amount. [ 44 ] The Settlement Agreement also provides that: (

a) RBC, UESI, Josh Collins, and Frank Collins will provide mutual releases; (

b) the “Third-Party Sponsors have agreed to make such contributions… on the condition that UESI is released from the subordinated debts of ECC that existed prior to the CCAA proceedings”; (

c) parties acknowledge that the ECC Group requires a release of UESI “as a Third-Party Sponsor in order for the proposed settlement scheme to work as it should”; and (

d) the Purchaser informed RBC and ECC Group that the asset sale is only viable if the Purchaser can operate the construction business as a going concern with the support of UESI. [ 45 ] The Monitor recommends that the Purchaser’s bid is in the best interests of the creditors and I should approve its acceptance. [ 46 ] The Monitor says that, but for the contribution of UESI the Vendors’ restructuring would not occur.

If I do not approve the AVO, the Monitor says it is unlikely that the combined value of the assets of the ECC Group and UESI in a forced liquidation will exceed the outstanding amount owed to RBC and CRA. [ 47 ] The parties agreed that the Vendors would ask me to approve the UESI Release as part of the transaction. If granted, UESI will not be liable for the contingent EMCO or the Surety Indemnity claims. The Vendors do not ask me to release the directors of UESI. [ 48 ] The Purchaser will then own all of the Vendors’ assets and liabilities.

The Vendors retain its environmental obligations. [ 49 ] It became apparent in argument, and in the Monitor and Vendors’ filings, that the APA and AVO is a vehicle to allow for an eventual transition of the ownership of the Purchaser to the Collins family to allow it to continue to operate the construction business through the auspices of the Purchaser. [ 50 ] Although the Purchaser is now 100% owned by an unrelated party, counsel tells me that it is likely that post-transaction the Collins family will eventually control the Purchaser.

Monitor’s counsel tells me that some of the Collins family have creditor issues with creditors that make it impossible to make this transition now. [ 51 ] It is now clear that UESI operated as a proxy for the Collins family’s construction business interests during the CCAA process. I will describe this later when I discuss the Releases. [ 52 ] This AVO structure sees the Purchaser continue to operate the Collins construction business as a successor to CCL. It offers the possibility of continued employment for CCL employees.

[53] None of this can happen unless UESI can pay the $800,000. UESI says it will not pay it unless it receives the UESI Release. [54] UESI’s counsel and Josh Collins say it is an essential component of the transaction that I release UESI from the SuretyIndemnities and the EMCO claim. The Vendors says I should order the UESI Release or UESI will be liable for construction claimsarising from the default of CCL. [55] Finally, the Monitor obtained a security review from its counsel, which concluded that the RBC security from the debtors isvalid, enforceable, and effective against a trustee in bankruptcy. ISSUES [56] The issues are, should I approve the: (

a) AVO; (

b) the AVO provisions providing the Releases; and (

c) order sealing

Schedule A of Josh Collins’ Affidavit, filed on September 21, 2023? [57] I will first deal with whether I should approve the AVO. ANALYSIS Should I approve the AVO? [58] I hereby approve the AVO. I will deal with the UESI Release in a moment. [59] A successful CCAA process offers results in a plan of arrangement that creditors approve. However, s. 36(1) of the CCAA says,“A debtor company in respect of which an order has been made under this Act may not sell or otherwise dispose of assets outside theordinary course of business unless authorized to do so by a court.” [60]

Section 36 provides that shareholder approval is not necessary. Furthermore, it does not require creditor approval.

Section 11 ofthe CCAA also gives me general authority. It provides, "[t]he court, on the application of any person interested in the matter, may …make any order that it considers appropriate in the circumstances.” [61] Thus, creditors need not approve a sale of assets outside the ordinary course of business. An AVO is such a transaction. No onedisputes that I have authority to approve an AVO. Many courts have approved these types of transactions on numerous occasions. [62]

Section 36 of the CCAA directs I consider: (

a) whether the SISP process leading to the proposed sale or disposition was reasonable in the circumstances; (

b) whether the Monitor approved the process leading to the proposed sale or disposition; (

c) whether the Monitor filed with the Court a report stating that in their opinion the sale or disposition would be more beneficialto the creditors than a sale or disposition under a bankruptcy; (

d) the extent to which the creditors were consulted; (

e) the effects of the proposed sale or disposition on the creditors and other interested parties; and (

f) whether the consideration for the assets is reasonable and fair, taking into account their market value. [63] Additional factors apply if the AVO vests to a related person. Given the unusual circumstances of this case, I will also onlyapprove the AVO if I am satisfied that: (

a) Good-faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the company; and (

b) the consideration is superior to the consideration under any other offer made in accordance with the process leading to theproposed sale or disposition. [64] I will also consider the guidance in Royal Bank of Canada v. Soundair Corporation (1991), (ON CA), 4

O.R. (3d) 1, 7 C.B.R. (3d) 1 (C.A.), a case for the approval of the sale of assets in an insolvency, and the additional factors referred to in paragraph 38 of Harte Gold Corp. (Re) , 2022 ONSC 653 , a case for the approval of a reverse vesting order. I consider many of the factors described in these cases applicable to an AVO. [ 65 ] I need not consider all of these factors. Each need not support the issuing of the AVO. I use them to assist me in exercising the broad discretion I have under the CCAA . [ 66 ] Finally, I will bear in mind the direction of the Supreme Court of Canada in 9354-9186 Québec Inc. v.

Callidus Capital Corporation , 2020 SCC 10 (at para. 49 ), when it said, “The discretionary authority conferred by the CCAA , while broad in nature, is not boundless. This authority must be exercised in furtherance of the remedial objectives of the CCAA . … Additionally, the court must keep in mind three ‘baseline considerations’ which the applicant bears the burden of demonstrating: (1) that the order sought is appropriate in the circumstances, and (2) that the applicant has been acting in good faith and (3) with due diligence.” [ 67 ] I find as follows: (

a) The Vendors have acted in good faith with due diligence. The Monitor is also of this opinion; (

b) The AVO produces an economic result at least as favourable as any other viable alternative. There are no other bids; (

c) No stakeholder is worse off under the AVO than it would have been under any other viable alternative. If the AVO fails, it is likely RBC will pursue its receivership motion and a receiver will sell the assets of the ECC Group at a liquidation sale; (

d) The AVO better preserves the value of the Vendors’ assets than this liquidation alternative; (

e) No stakeholder is worse off under the AVO than it would have been under any other viable alternative. Simply stated, there is no other alternative. A liquidation sale will hurt all creditors; (

f) Furthermore, the transaction contemplates the sale to a new corporate entity. Thus, the Vendors’ shareholders receive no recovery of their investment; (

g) The SISP is reasonable in the circumstances. I find that the Monitor approved the SISP. The Monitor ran the SISP in a fair, open and transparent manner. The Monitor ran the process supported by the Vendors; (

h) The Monitor sufficiently canvassed the market. Third parties could participate in the sale process in a confidential manner. The SISP provided sufficient time for parties to express interest and evaluate the opportunity. The SISP was open to all parties; (

i) The process leading to the AVO was reasonable in the circumstances. The Monitor sought Court approval of the SISP. Creditors received notice of these applications. The Court process allowed secured creditors the opportunity to provide input to the Court on these processes. The SISP is not innovative or unique; and (

j) Many courts have approved similar sales processes. The use of the stalking horse bid is widely accepted in Canadian CCAA proceedings. [ 68 ] I find that the Monitor made sufficient effort to obtain the best price. There is no evidence that the Vendors acted improvidently. I agree with the Monitor and find that the purchase price is fair and reasonable. [ 69 ] The Monitor says that the proposed sale would be more beneficial to the creditors than disposition under a bankruptcy. [ 70 ] Bankruptcy would jeopardize the possibility of future operations.

As structured, the Purchaser will continue CCL’s relationship with UESI. A bankruptcy would destroy this form of a going-concern sale and thereby risk the sale or reduce the purchase price. [ 71 ] A bankruptcy sale would delay and perhaps jeopardize the sale. Before an AVO can be approved under a bankruptcy, Vendors must be bankrupt, a meeting of creditors must be held, inspectors must be appointed, and they must approve the sale.

Thus, this transaction will provide a superior recovery for creditors than would a liquidation of the Vendors’ assets in bankruptcy. [ 72 ] The Monitor did consult with CRA and other secured creditors. I have no evidence if it consulted with unsecured creditors. I do know that it did not consult with the Sureties on the APA or the Settlement Agreement.

[ 73 ] Although there is no obligation for the Monitor to consult with creditors who will receive nothing, it is good practice that they do so. [ 74 ] In this case, I find that the lack of consultation did not have a material effect on the Sureties’ position. They are to receive, and were likely always to receive, nothing in this CCAA proceeding. [ 75 ] Given that the APA and the AVO intend to support a transaction whereby the Collins family may eventually gain control of the Purchaser and continue the CCL business through this company, I must be satisfied that: (

a) good-faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the company; and (

b) the consideration is superior to the consideration under any other offer made in accordance with the process leading to the proposed sale or disposition. [ 76 ] I find that the Monitor did make good-faith efforts to sell the assets to the public. The use of the stalking horse bid does not create any assumption that this is not so. Since there was no other bid, arm’s length or otherwise, the Purchaser’s bid is inherently superior. [ 77 ] Furthermore, the proposed transaction has the prospect of renewed employment for some of the CCL employees.

It has the prospect of providing ongoing business opportunities for suppliers of goods and services to the construction business. [ 78 ] The AVO will provide an expedient efficient transfer of Vendors’ intangible assets to the Purchaser. This would support a timely continuation of the construction business through the auspices of UESI and the Purchaser. This will provide an opportunity for employees, stakeholders, and the unsecured creditors to engage with the new business.

The Monitor says, and I agree that this will benefit the local community. [ 79 ] Finally and importantly, the Monitor supports the use of the AVO. [ 80 ] The AVO will: (

a) provide for timely, efficient and impartial resolution of the Vendors’ insolvency; (

b) preserve and maximize the value of the Vendors’ assets; (

c) ensure a fair and equitable treatment of the claims against the Vendors; (

d) protect the public interest and have the potential to preserve employment and third-party suppliers and service providers; and (

e) Balance the costs and benefits of Vendors’ restructuring. [ 81 ] For all these reasons, I find the proposed AVO is necessary to achieve the clear benefits of the purchase and that it is appropriate to approve this transaction in the circumstances. I find there is no reason to exempt CanAm from the operation of this order, and I dismiss its request to do so. I now turn to whether I should approve the Releases. Should I approve the AVO provisions providing for the Releases? [ 82 ] I approve the Releases. No one disputes most of the Releases. The only dispute is whether I should order the UESI Release.

Notably, no one asks me to release UESI’s directors or any of the Collins family in their personal capacity (other than in their roles as directors, officers or employees of the Vendors). [ 83 ] The Releases will cover any present and future claims against the released parties based on any fact, or matter, or occurrence in respect of the purchase transaction. It does not release any claim for fraud or willful misconduct. It does not release any claim that I may not release pursuant to s. 5.1(2) of the CCAA .

It does not release any environmental liability to the Government of Newfoundland and Labrador (GNL). [ 84 ] I find that the Releases are reasonable and appropriate in the circumstances. [ 85 ] I base my decision on an assessment of s. 5.1 of the CCAA and the factors taken from Lydian International Limited (Re) , 2020 ONSC 4006 (at para. 54 ) , and from my decision in PricewaterhouseCoopers Inc. v. Canadian Fluorspar (NL) In c., 2023 NLSC 88 . [ 86 ] Justice Morawetz in Target Canada Co., Re, 2016 ONSC 3651 , gave an oral judgement on approval of the plan of arrangement under the CCAA .

One of the issues was the matter of providing releases to Target Corporation (the U.S. parent of the Canadian entity), one of the “Plan Sponsor Released Parties.” [ 87 ] Target was not a debtor under the CCAA . At paragraph 40 he says, “It is not uncommon for CCAA courts to approve third-

party releases in favour of a person … who could assert contribution and indemnity claims against the debtor company.” He considered the economic contributions made by Target Corporation as a plan sponsor. He gave the third-party release. The Court did preserve Target Corporation guarantees of certain landlord claims for reasons not applicable here. [ 88 ] I find this case supports the proposition that I have authority to issue a third-party release. I will consider the following factors: (

a) Whether the parties to be released from claims were necessary and essential to the restructuring of the debtor; (

b) Whether the claims to be released were rationally connected to the purpose of the plan and necessary for its success; (

c) Whether the plan could succeed without the Releases; (

d) Whether the parties being released were contributing to the AVO; and (

e) Whether the Releases will benefit the debtors as well as the creditors, generally. [ 89 ] Again, I need not consider all of these factors. Each need not support the issuing of the Releases. I use the factors to assist me in exercising the broad discretion I have under the CCAA . [ 90 ] No one says that the Releases do not meet this criteria, other than the one to UESI. I find that each of the Monitor, the Purchaser, the Vendors, and their current and former directors, officers, employees, legal counsel and advisors, met these criteria and I hereby order their release. [ 91 ] With respect to the UESI Release, no one seriously disputes that the UESI Release satisfies consideration (a), (

b) or (d). Stated simply, without the UESI contribution as I described in this judgement, the CCAA process could have unfolded in a very different fashion. [ 92 ] This proceeding is notable in that there is no Debtor in Place financing (DIP). In many ways, the CCL avoided DIP financing by the following mechanism. [ 93 ] After the commencement of the CCAA , UESI became the contracting party in its first major contract, the so-called Boskalis Contract in Argentia.

CCL had negotiated much of this contract before the CCAA , however, CCL could not obtain bonding because of its insolvency and because of the claims of Intact and Western. [ 94 ] The parties enter into an arrangement whereby UESI and an independent third party obtain bonding for that contract. UESI became the contracting party and split the proceeds: 8% to the independent third party, and 92% to UESI. From the 92%, UESI rented equipment from ECC Group at market rates. [ 95 ] The same parties entered into an Argentia road-widening contract on similar terms.

In this contract, UESI provided cash security in lieu of bond. [ 96 ] UESI also assumed CCL employee obligations and discharged payroll obligations. Josh Collins acted as the construction manager. The net result is that UESI facilitated allowing ECC Group to survive the CCAA proceeding without DIP financing. I will discuss this in more detail later. [ 97 ] This structure allowed for: (

a) UESI to use profits from the work to pay CRA and RBC settlement amounts; and (

b) the Collins family’s core construction business to remain intact, even though UESI operated it using CCL equipment and its former employees. UESI completed both projects July 2023. [ 98 ] Thus in addition to the $800,000 contribution toward the AVO, UESI was instrumental in allowing the CCAA proceeding to continue thereby maintaining ECC Group’s core assets and employees. This, in turn, allows the Vendors to transfer employees and equipment to the Purchaser, which will eventually become the Collins family construction business vehicle.

All of this alleviated the need for DIP financing. [ 99 ] I find that the released parties’ efforts directly lead to the AVO and the sale of the enterprise. Thus, there is cash available to satisfy some creditor claims. If I do not grant the UESI Release, there is a risk that the Purchaser might not proceed. If the Purchaser does proceed, it might reduce the purchase price. [ 100 ] The plan is that the Collins family construction business will transition to another corporate vehicle. It will continue to provide employment. It will provide benefits to suppliers and the larger community.

The Releases help achieve the purposes of a CCAA proceeding, which includes maximizing creditor recovery and preserving continued employment in a restructured enterprise. Therefore, I find that the Releases connect rationally to the restructuring.

[ 101 ] Thus, I find that the released parties made significant contributions to the Vendors' restructuring, both prior to and throughout these CCAA proceedings. [ 102 ] Furthermore, the Sureties’ claims related to CCL construction defaults. These liabilities contributed to the CCL insolvency. [ 103 ] In this case, it would be impossible to restructure CCL under the CCAA if I do not release the Sureties’ indemnities. [ 104 ] This case is unusual in that UESI could have participated in the CCAA proceeding as a debtor.

In that case, the indemnitor could have compromised the Sureties’ claim in a more straightforward manner. [ 105 ] If this did occur, it is unlikely that UESI could have contributed to the Collins construction business in the manner I just described. In particular, it would have been difficult if not impossible for UESI to enter into new contracts. It would have been difficult for it to provide bonding. [ 106 ] UESI will continue to provide bonding support and employees for the short term after the AVO. This will allow the Purchaser the potential to continue the CCL construction business as a going concern.

This contribution helped facilitate RBC and CRA payments. This contribution presumably facilitated their support for the AVO. [ 107 ] The Sureties did not seriously contest these facts. [ 108 ] The Sureties say there is no evidence that the purchase will not close if I deny the UESI Release. They say that if this was so, the APA would have a condition precedent that the debtors arrange for the UESI Release. It did not.

They argue that if UESI was critical to the continued operation as a going concern of the Collins family construction business through the vehicle of the Purchaser, the APA would have said so. [ 109 ] The Sureties acknowledge that if the AVO fails they will likely receive nothing. Sureties’ counsel did not disagree with the Monitor’s contention that there would be insufficient funds to repay both CRA’s and the RBC’s secured debt. [ 110 ] When I asked Sureties counsel what his clients want, he said they want more than nothing.

Thus the Sureties do not oppose the AVO but want more money. [ 111 ] The Sureties say there is no evidence that the Purchaser will not close without the UESI Release. Although this is the Sureties view, I must consider whether UESI will make the $800,000 contribution without a release and, if not, whether RBC or CRA consent to the transaction without the $800,000 injection. [ 112 ] I can only conclude that the parties mean what they say. RBC has compromised its claim significantly. CRA is entitled by law to the deemed trust amount.

This is a carefully negotiated settlement, which balances the amounts paid to principal secured creditors with the risk inherent in demanding that UESI contribute $800,000, while still assuming significant liabilities for CCL residual operations. [ 113 ] The Sureties suggest then that I should force RBC into a high-stakes negotiation knowing that if UESI refuses to contribute without a release RBC will suffer a significantly greater loss. [ 114 ] Fundamentally, the Sureties are and have always been in a second position behind RBC with respect to UESI assets.

RBC is in a second position behind CRA with respect to CCL assets. The two creditors with the strongest claims, who under any reasonable scenario are entitled to all the proceeds of a liquidation sale have compromised their claims. [ 115 ] In a complex settlement agreement with many moving parts, it is not practical to pull out one piece and expect the transaction to survive.

In the end, the Sureties are unsecured creditors of CCL. [ 116 ] Thus, the Sureties want to evoke a nuclear option that if they do not receive, as counsel said, “something more than nothing” the secured creditors will suffer. [ 117 ] This is an unusual case. This transaction has the potential for the Collins family to continue the business under the auspices of what is now a third party Purchaser. [ 118 ] Unusually, the ECC Group navigated the CCAA without DIP financing.

Because RBC has security over UESI assets, and CCL business could not continue without bonding, UESI stepped into contributing in the manner it did rather than as a DIP lender.

Thus, UESI could not obtain the DIP priority position they might have had under the CCAA . [ 119 ] Finally, the Sureties say the Vendors did not consult them on the AVO or the Settlement Agreement. [ 120 ] Although there is no obligation for the Monitor to consult with creditors who will receive nothing, it is good practice that they do so. [ 121 ] However, I find that the lack of consultation did not have a material effect on the Sureties’ position. They are to receive, and were likely always to receive, nothing in this CCAA proceeding. [ 122 ] In all the circumstances, I find the that: (

a) the Releases are fair and reasonable; (

b) the released claims rationally connect to the restructuring;

(

c) the released parties are necessary and essential to the restructuring of the Vendors; and (

d) the released parties contributed to the restructuring. [ 123 ] With respect to the other releases, the Monitor, Purchaser and Vendors are unaware of any claims against them or their advisors related to these CCAA proceedings. Therefore, the Releases should not materially prejudice any stakeholders. [ 124 ] Furthermore, that the Releases are sufficiently narrow, any environmental liabilities to the GNL are unaffected. The Releases do not affect claims referred to in s. 5.1(2) of the CCAA or claims arising from fraud or willful misconduct. [ 125 ] The scope of the Releases is sufficiently balanced.

It allows the released parties to move forward with the transaction and to conclude these CCAA proceedings. [ 126 ] The Monitor and its counsel served creditors with materials relating to this Motion in accordance with the process set out in the AIROs. [ 127 ] The Monitor included the form of the Releases in the draft AVO. This provided stakeholders with ample notice and time to raise concerns with RBC or the Monitor. Only the Sureties and EMCO objected. The Sureties conceded that I had the power to order these Releases. [ 128 ] I find that the Releases are fair and reasonable.

Because of the unusual circumstances of this case, the willingness of the Court to give third-party releases like the UESI Release has little precedential value. I now turn to the Distribution Order. Distribution Order [ 129 ] Given that I approved the AVO, I also approve the Distribution Order as it relates to the Vendors. The Distribution Order provides that the Monitor will pay $2,079,198 to CRA, and $3,817,957 to RBC. [ 130 ] The Monitor will make a motion approving the distribution of $240,103 to RBC for FGC Holdings Limited, and $347,742.63 to CRA for Classic Security Limited.

I will hear the Motion at 9:30 a.m. on November 6, 2023. [ 131 ] Appendix L of the Monitor’s Ninth Report contains details of the complete distribution. I now turn to whether I should seal

Schedule A of Josh Collins’ Affidavit, filed on September 21, 2023. Should I Approve the Order Sealing

Schedule A of Josh Collins’ Affidavit, Filed on September 21, 2023? [ 132 ] I hereby seal

Schedule A of Josh Collins’ confidential Affidavit filed on September 21, 2023. I have the authority to grant such sealing order (See Sports Villas Resort Inc. (Re) , 2020 NLSC 109 ). [ 133 ] At the hearing, I ordered that the Vendors provide the Sureties with parts of

Schedule A, the UESI Balance Sheet and “Breakdown of the Outstanding Debts.” I did not order the disclosure of the appraisals contained in that schedule. [ 134 ] I also find that the extent of the sealing order required is the minimum that will preserve the confidentiality of the financial information. No less onerous sealing order is suitable in the circumstances.

Other Observations [ 135 ] Finally, I will comment about the way the Monitor and the Vendors presented this Motion to the Court. [ 136 ] It was not apparent that the ultimate objective of this transaction is that the Collins family will eventually acquire the Purchaser. The Monitor and the Vendor described the form of the transaction clearly, but not its substance. [ 137 ] Ultimately, one had to read between the lines that the Purchaser was in effect a proxy for the Collins family interests.

Monitor’s counsel explained, and I accept, that this was a consequence of counsels’ intense focus on the details of the transaction. This focus caused them to assume that the ultimate purpose was obvious to me. [ 138 ] While I appreciate the efforts made by the Monitor and the Vendor’s counsel during the hearing to address my concerns, debtors and monitors should be mindful that they should transparently and plainly describe a transaction so it is understandable to the public and to the Court. __________________________ ALEXANDER MACDONALD Justice