In a recent decision of the Supreme Court of British Columbia, Quest University Canada (Re) 2020 BCSC 1883, the court became the second in Canada to grant a reverse vesting order in contested proceedings under the Companies' Creditors Arrangement Act, RSC 1985, c C-36, after another recent decision of the Québec Superior Court.
The debtor, Quest University Canada, sought a reverse vesting order that would permit a proposed purchaser, Primacorp Ventures Inc., to purchase substantially all of the assets of Quest free and clear of the claims of creditors. The steps in the proposed reverse vesting order essentially included:
- adding a subsidiary of Quest as a petitioner in the proceeding;
- transferring claims and liabilities (and certain assets) of Quest to the subsidiary;
- Primacorp paying a portion of the purchase price equivalent to secured claims against Quest to Quest’s Monitor, with secured charges being extinguished and the purchase price standing in place of the assets purchased by Primacorp;
- Quest’s assets vesting in Primacorp free and clear of any security interests or claims;
- Quest then ceasing to be a petitioner, leaving only its subsidiary as a petitioner in the proceeding.
This proposed order permitted Quest to continue as a going concern in partnership with Primacorp, without requiring Quest to obtain creditor and court approval of a plan under the CCAA. Instead, the creditors would vote on a plan of arrangement of Quest’s subsidiary as the remaining petitioner in the CCAA proceeding.
Despite opposition from two creditors, each of which complained the reverse vesting order would negate their right to vote on a plan for a restructuring of Quest, the court granted the order due to the “unique and exceptional circumstances” and to achieve the remedial purposes of the CCAA. Significantly, Quest could not sell its ability to grant degrees and no purchaser could acquire this right indirectly through a share purchase due to Quest’s status as a corporation without shareholders, as established by legislation. The Primacorp transaction permitted Quest to continue as a going concern, which provided the greatest benefit to the various stakeholders.
The court cautioned, however, that the reverse vesting order structure should not generally be employed “to simply rid a debtor of a recalcitrant creditor who may seek to exert leverage through its vote on a plan while furthering its own interests.” On this basis, it appears the reverse vesting order will, when opposed, remain a remedy for unusual circumstances in CCAA proceedings and only when the order is sought in good faith, will best accord with the remedial purposes of the statute, and will provide the best outcome for stakeholders.