Debtor sought various remedies, Court reviewed required tests under BIA
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The applicant, Colossus Minerals Inc. (the "Applicant" or "Colossus"), sought an order granting various relief under the Bankruptcy and Insolvency Act ("BIA"). The principal secured creditors had been served and no objections had been received regarding the relief sought. In view of the liquidity position of Colossus, the matter was heard on an urgent basis.
The Applicant filed a notice of intention to make a proposal under section 50.4(1) of the BIA on January 13, 2014. Duff & Phelps Canada Restructuring Inc. (the "Proposal Trustee") had filed its first report dated January 14, 2014. The main asset of Colossus was a 75% interest in a gold and platinum project in Brazil (the "Project"), which was held by a subsidiary. The Project was nearly complete at the time of this application, but there was a serious water control issue that required additional de-watering facilities to preserve the Applicant's interest in the Project. None of the Applicant's mining interests were producing and thus there was no revenue and the Applicant had been accumulating losses. At the time of the application, the Applicant had been unable to obtain the financing necessary to fund its cash flow requirements through to the commencement of production and it had exhausted its liquidity.
The Applicants sought approval of a Debtor-in-Possession Loan (the "DIP Loan") and DIP Charge dated January 13, 2014 with Sandstorm Gold Inc. ("Sandstorm") and certain holders of the Applicant's outstanding gold-linked notes (the "Notes") in an amount up to $4 million, subject to a first-ranking charge on the property of Colossus, being the DIP Charge.
Justice Wilton-Siegel noted that the Court had the authority under section 50.6(1) of the BIA to authorize the DIP Loan and DIP Charge, subject to a consideration of the factors under section 50.6(5). In this regard, Wilton-Siegel J. made reference to the sale and investor solicitation process ("SISP"), the confidence of significant creditors in the Applicant and its management, the terms of the DIP Loan that were consistent with the terms of DIP financing facilities in similar proceedings, the imminent liquidity crisis, and, finally, that the DIP Loan was required in order to permit the SISP to proceed. In addition, the Proposal Trustee had recommended that the Court approve the DIP Loan and the DIP Charge. Wilton-Siegel J. was satisfied that he should authorize the DIP Loan and the DIP Charge pursuant to section 50.6(1) of the BIA.
Justice Wilton-Siegel then addressed the issue of the Administrative Charge referenced in section 64.2 of the BIA, which provides jurisdiction to grant a super-priority for such purposes. He noted that the proposed services were essential to both a successful proceeding under the BIA as well as for the conduct of the SISP. He also felt that the quantum of the charge was appropriate and noted that the charge would be subordinate to the security interests of GE and Dell.
Colossus also sought approval of an indemnity and priority charge to indemnify its directors and officers for obligations and liabilities they may incur in such capacities from and after the filing of the notice of intention (the "D&O Charge"). It was proposed that the D&O Charge be in the amount of $200,000 and rank after the Administration Charge and prior to the DIP Charge. Wilton-Siegel J. noted that the Court had the authority to grant such a charge under section 64.1 of the BIA. The Court had been advised that the existing directors' and officers' insurance policies contained certain limits and exclusions that created uncertainty as to the coverage. The proposed orders provided that the benefits of the D&O Charge would be available only to the extent that the directors and officers did not have coverage under such insurance or such coverage was insufficient to pay the amounts indemnified. In addition, the Applicant's directors and officers had advised that they were unwilling to continue their services and involvement with the Applicant without the protection of the D&O Charge. The Proposal Trustee stated that the D&O Charge was reasonable and supported the D&O Charge. Wilton-Siegel J. was satisfied that it was appropriate to grant the relief.
Justice Wilton-Siegel then addressed the approval of the SISP noting that the Court had the authority to approve any proposed sale under section 65.13(1) of the BIA, subject to consideration of the factors in section 65.13(4). Wilton-Siegel J. stated that the following considerations were relevant: First — the SISP was necessary to permit the Applicant to determine whether a sale transaction was available that would be more advantageous to the Applicant and its stakeholders than a proposal under the BIA. Further, it was a condition of the DIP Loan. Wilton-Siegel J.was of the view that, in these circumstances, the sales process was not only reasonable but also necessary; second — it was not possible at this time to assess whether a sale under the SISP would be more beneficial to the creditors than a sale under a bankruptcy; third — the Court retained the authority to approve any sale under section 65.13 of the BIA; and fourth — the Proposal Trustee supported the SISP.
Wilton-Siegel J. was satisfied that the SISP should be approved.
The Applicant also sought approval of an engagement letter with its financial advisor, Dundee Securities Limited ("Dundee"). Under the engagement letter, Dundee would receive certain compensation including a success fee. The engagement letter also provided that any amounts payable were claims that could not be compromised in any proposal under the BIA or any plan of arrangement under the Companies' Creditors Arrangement Act ("CCAA") Wilton-Siegel J. noted that courts have approved success fees in the context of restructurings under the CCAA. The reasoning in such cases was equally applicable in respect of restructurings conducted by means of proposal proceedings under the BIA. The Applicant took the position that a success fee was both appropriate and necessary where the debtor lacked the financial resources to pay advisory fees on any other basis. Wilton-Siegel J. was satisfied that the engagement letter, including the success fee arrangement, should be approved and that the Applicant should be authorized to continue to engage Dundee as its financial advisor in respect of the SISP. In doing so, he noted that the success fee was only payable in the event of a successful outcome of the SISP and that the Proposal Trustee had supported the engagement letter.
Finally, the Applicants sought an extension for the time to file a proposal under the BIA from the thirty-day period provided for in section 50.4(8). The authority to grant such relief is found in section 50.4(9) of the BIA. Wilton-Siegel J. was satisfied that the Applicant was acting in good faith; that the extension of the stay would increase the likelihood of a feasible sale transaction or proposal; that there was no material prejudice likely to result to creditors; and the Applicant's cash flow indicated that it would be able to meet its financial obligations during the extended period with the inclusion of the proceeds of the DIP Loan. Accordingly, Wilton-Siegel J. approved the extension for the time to file a proposal.
See Houlden & Morawetz, Bankruptcy and Insolvency Law of Canada:
E§4 — Extension of Time to Make a Proposal
E§9 — Interim Financing during Proposal Proceedings
E§31 — Indemnification of Directors During Proposal Proceedings
E§32 — Priority Charges relating to Participation in Proposal Proceedings
E§72 — Selling Assets during the Proposal Proceeding
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