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Houlden and Morawetz On-Line Newsletter | Restructuring

Secured creditor successfully opposes fees for board’s “special” restructuring committee.

Houlden and Morawetz On-Line Newsletter

By: L.W. Houlden and Geoffrey B. Morawetz

Re Veris Gold Corp. 2015 CarswellBC 662 (B.C. S.C.)

The petitioner, Veris Gold Corp., is a publicly-traded company. The remaining petitioners are direct or indirect subsidiaries of Veris Gold Corp. Together they were referred to as “Veris”.

Veris’ corporate office is in British Columbia. Veris’ business is principally comprised of gold-mining operations in Yukon and in the State of Nevada, U.S.A.

Veris began experiencing financial difficulty in early 2014. Veris’ major secured creditor, Deutsche Bank A. G. (”DB”), gave notice of default under its security agreements at that time.

Veris’ board of directors (the “Board”) appointed certain of its members to a special committee (the “Special Committee”) tasked with investigating restructuring options for Veris. The Special Committee members decided upon the remuneration to be paid to each of them for their work on the Special Committee. Since February 2014, the members of the Special Committee had been paid some of these fees, but substantial amounts remained owing.

The amounts said to be owing to the Special Committee members included amounts accrued before the filing pursuant to the Companies’ Creditors Arrangement Act (”CCAA”) in June 2014 and also amounts since that time. The reason for non-payment largely arose from DB’s objections.

In January 2015, Veris brought an application for an order authorizing and directing it to pay the Special Committee members’ fees. The relief was objected to by DB, particularly given the state of the restructuring efforts, which Fitzpatrick J. referred to as having been disappointing, to say the least.

DB had delivered to Veris a notice of default on January 28, 2014. Shortly thereafter, the Board passed a resolution creating the Special Committee. The first meeting of the Special Committee took place on February 20, 2014, at which time there was a discussion regarding fees to be paid to committee members. The matter was deferred pending research on the issue. Despite discussions between the Special Committee members and DB after that time, no real progress was made in the ensuing months in respect of Veris’ restructuring efforts. Ernst & Young Inc., (the “Monitor”), described the relationship between them as “strained”.

At the April 12, 2014 meeting, the matter of fees was again discussed by the Special Committee members. Ultimately, the Special Committee determined that its members would each receive $15,000 per month as a “fair and reasonable” fee.

DB made demand for payment of approximately US $89 million in early June 2014. In response, the Special Committee recommended to the Board that Veris file for creditor protection and seek to restructure in an insolvency proceeding. That recommendation was accepted by the Board.

At the time of the filing under the CCAA, $120,000 was said to be owing to Special Committee members.

On June 9, 2014, the court granted an initial order pursuant to the CCAA and Ernst & Young Inc. was appointed as monitor. Despite the CCAA filing, the Board concluded that there was no need to constitute a new committee going forward and the Special Committee was left in place to address the ongoing restructuring efforts.

The CCAA filing was immediately followed by the Monitor’s application for recognition of the CCAA proceedings in Nevada pursuant to Chapter 15 of the United States Bankruptcy Code (the “Code”). On June 9, 2014, provisional relief was granted by the U.S. court. Sometime after the filing in June 2014, the further amount of $90,000 was paid to Special Committee members.

On August 6, 2014, Veris and DB came to an interim agreement concerning a cash collateral order (”CCO”) relating to Veris’ U.S. operations and that order was approved by the U.S. court on that date. That order allowed Veris to use the assets secured in favour of DB, but also included provisions that restricted spending by Veris, save with the consent of DB.

On September 3, 2014, the U.S. court granted an order recognizing the CCAA proceedings as a foreign main proceeding and extending the previously granted provisional relief.

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