Kocken Energy Systems Inc. (Re), 2017 NSSC 215

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: Kocken Energy Systems Inc. (Re) , 2017 NSSC 215 Date: 20170811 Docket: Hfx. No. 458774 Bankruptcy No. 40675 Estate No. 51-2097016 Registry: Halifax In the Matter of the Proposal of Kocken Energy Systems Incorporated Decision Judge: The Honourable Justice Gerald R.P.

Moir Heard: June 28, 2017, in Halifax, Nova Scotia Decided: August 11, 2017 Counsel: Tim Hill, Q.C., for Kocken Energy Systems Incorporated Gavin MacDonald, for the Bank of Montreal Moir, J (orally) [ 1 ] Last winter, the Bank of Montreal opposed Kocken's motion to extend time for it to make a proposal. I granted the motion on reasons given from the bench. Kocken requested transcription.

The transcript was published. [ 2 ] I am told that the decision lead to news reports unfavourable to Kocken, and these reports hurt its reputation with some international businesses. [ 3 ] This summer I heard an uncontested motion to approve Kocken's proposal. I read the proposal and studied the Trustee's report. I found the creditors voted unanimously in favour of the proposal and the proposal provides a much better recovery for creditors than bankruptcy would have done. Therefore, I was prepared to grant the motion. [ 4 ] However, Kocken asked that I issue reasons in writing because of the news reports.

I agreed. The reports should be corrected.

[ 5 ] Also, we have here an example of something seldom written about but relevant in early challenges to a reorganization effort. A secured creditor who is able to veto a proposal, or a plan of arrangement, vehemently opposes the effort from the beginning and says it is doomed because the creditor will exercise its veto when the time comes. That forecast does not always come true. [ 6 ] My earlier decision was published as Re . Kocken Energy Systems Inc. 2017 NSSC 80 . I summarized the bank's concerns and expressed a reservation.

I also noted the banks present intention to veto any proposal. [ 7 ] I said at para. 8, "At the heart of [the bank's] concerns is the belief that Kocken underwent some kind of reorganization and Kocken assets are being transfered to a related company recently incorporated in Barbados." Note that this is a statement about the bank's concerns, and it would be wrong to report that the court made any finding against Kocken on that score. Further, at the time of the hearing for an extension, Kocken made a disclosure relevant to the expressed concern.

See para. 14. [ 8 ] At para. 13, I said "...the bank and the insolvency practitioners had a rationally founded suspicion that equipment may be transferred to Kocken Barbados without payment...". This refers to the bank's suspicion, not my findings. [ 9 ] I found Kocken acted in good faith (para. 18). I found there was a good chance a viable proposal would be developed (para. 24).

Subject to one reservation, I found that no creditor would be materially prejudiced by the extension (para. 25). [ 10 ] I said at para. 25, "The reservation stems from very strange purchase orders from Kocken Barbados to Kocken with very large prices." I said at para. 26, "The extension would prejudice the bank if it was used to deliver inventory off shore without getting paid first." The solution was an injunction restraining Kocken from shipping product out of Canada without notice to the bank: para. 27.

Nothing came of this. [ 11 ] As I said, the creditors voted unanimously to accept the proposal that was developed further in the extended period. That included the positive vote of the Bank of Montreal, who is to receive substantial funds under a formula and write off any balance. [ 12 ] In conclusion, the outcome bore out Kocken's submission that a threat to veto a developing proposal is always subject to assessment. See para. 21. I regret that my earlier decision was misinterpreted by some to cast doubt on Kocken's business efficacy. I have granted the requested order. J