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CORPORATIONS - Arrangement - Approval - Corporation not insolvent

Monday, January 18, 2021 @ 9:19 AM  

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Appeal by Wilks Brothers from the approval of a plan of arrangement put forward by the respondent Calfrac Entities under the Canada Business Corporations Act. The Plan was a recapitalization transaction designed to reduce Calfrac’s outstanding indebtedness and annual cash interest payments and improve its liquidity to provide the sustainable capital structure required for Calfrac to continue its business operations. Under the Plan, some of Calfrac’s senior unsecured noteholders would provide financing to Calfrac through a $60-million loan facility. The proceeds would be used to reduce Calfrac’s debt under its first lien credit agreement. The transaction reduced Calfrac’s outstanding indebtedness by $561 million and its annual cash interest payments by $53 million. It improved Calfrac’s liquidity by $41 million. Legal and financial advisers considered and endorsed the arrangement. The Plan was supported by all stakeholders except the appellant. The appellant was a competitor, creditor and 20 per cent shareholder of Calfrac. It declined to participate in the recapitalization negotiations. It purchased over 50 per cent of second lien notes to try to block the recapitalization. The chambers judge found the Plan was fair and reasonable.

HELD: Appeal dismissed. The chambers judge was within his jurisdiction to order the waiver of any default provisions that might have been triggered by the implementation of the Plan. The absence of the waiver would likely frustrate the restructuring efforts. The mere loss of the opportunity to destabilize the arrangement was not prejudice and was contrary to the fundamental purpose of s. 192 of the Act. The fact that second lien noteholders did not vote on the arrangement did not alter the fairness of the Plan as second lien notes were not compromised by the Plan. The chambers judge’s conclusion that the solvency test was met post-arrangement and for a reasonable period thereafter was sustainable on the record. He did not err in finding the Plan was fair and reasonable. The chambers judge was entitled to conclude there was no genuine commercial reason for the appellant to oppose the arrangement other than its desire to see the arrangement fail. Concurring reasons were provided.

12178711 Canada Inc. v. Wilks Brothers, LLC, [2020] A.J. No. 1318, Alberta Court of Appeal, M.S. Paperny, P.W.L. Martin and F.F. Slatter JJ.A., December 1, 2020. Digest No. TLD-January182021001