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ARRANGEMENT - Powers of court - Approval - Fair and reasonable

Tuesday, March 30, 2021 @ 6:21 AM  

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Appeal by certain debenture holders from an order approving a plan of arrangement of iAnthus Capital. iAnthus’s secured creditors held secured debentures charging iAnthus’ assets and unsecured creditors which held convertible unsecured debentures. The Restructuring Agreement provided that the plan of arrangement was to include a release of claims against groups defined as “iAnthus Released Parties” and “Securityholders’ Released Parties” except for claims of gross negligence, fraud or wilful misconduct. It further provided that there was to be an injunction against persons taking steps to enforce the released claims. The appellants claimed they were entitled to a secured interest in the assets previously owned by MPX that was combined with iAnthus through a plan of arrangement. The appellants held debentures against these assets and claimed that the debentures continued to subsist because they were not honoured in accordance with the provisions of the plan of arrangement.  The chambers judge initially declined to approve the Plan of Arrangement because he found that the release and accompanying injunction contained in the plan rendered the arrangement unfair and unreasonable. iAnthus amended the Plan of Arrangement to narrow the scope of the release and to delete the injunction, and the judge approved the Revised Plan. The chambers judge held that the Revised Plan did not extinguish the appellants’ claim. The appellants argued the judge erred in approving the plan because of the misrepresentation of facts by iAnthus that all material financial information had been provided to the shareholders and the court and in determining the Revised Plan to be fair and reasonable when the appellants were denied their security interest under the Revised Plan.

HELD: Appeal dismissed. The judge made a palpable error in his first jJudgment. The evidence did not support the submission made by iAnthus’ counsel, which the judge accepted, that the shareholders were advised by press release that there were no undisclosed material changes from the first quarter financial results. The statement in the press release issued by iAnthus was that there had been no material business developments. The appellants had not, however, demonstrated that the judge’s error was overriding. It was likely the judge would have reached the same conclusion regarding the fairness and reasonableness of the Revised Plan had he understood that the press release referred to business developments rather than financial results. The appellants’ right to claim security against the MPX assets was unaffected by the Revised Plan.  iAnthus was not compelled to concede the appellants’ claim in the Revised Plan. There was no requirement for iAnthus to settle the appellants’ claim as part of the arrangement. iAnthus was not obliged to include all classes of security holders in the arrangement. The appellants’ claimed debentures were of a different class than the secured debentures and the unsecured debentures because they created security over part of iAnthus’ assets only and had a different ranking of security. The proposed second quarter financial statements the appellants sought to adduce as fresh evidence was not admissible under the Palmer test. The appellants did not exercise proper due diligence and the evidence could not reasonably be expected to have affected the shareholder vote or the judge’s decision.

Walmer Capital Ltd. v. iAnthus Capital Holdings, Inc., [2021] B.C.J. No. 153, British Columbia Court of Appeal, D.F. Tysoe, L.A. Fenlon and B. Fisher JJ.A., January 29, 2021. Digest No. TLD-March292021003