The Evolving Role of a CCAA Monitor
April 9th, 2018
We’ve previously blogged about whether a monitor appointed under the Companies’ Creditors Arrangement Act (CCAA) can act outside of their neutral role as an officer of the court an bring an oppression action. Two recent decisions read together provide that a CCAA monitor should not bring such an action unless they have authorization of the court, and that such authorization will only be provided in exceptional circumstances. This week, we explore what the role of a CCAA monitor is in a bit more detail.
What is a Monitor?
When originally introduced, the CCAA was a short statute and made no mention of monitors.
The term was first introduced by the British Columbia Supreme Court in a 1988 decision. In that case, an interim receiver was introduced. Their role was described by the court as being that of a “monitor” or a “watchdog”. In this function, the monitor could “observe the conduct of management and the operation of the business while a plan was being formulated”. The monitor, therefore, became a court-appointed officer.
In 1997, amendments to the CCAA provided legislative recognition to the role of the monitor and made their appointment mandatory. Further amendments to the CCAA in 2007 expanded the monitor’s role and responsibilities.
Duties of a Monitor
The minimum powers of the monitor are now explicitly set out in s. 23 of the CCAA but may be augmented or added to through the discretion of the court (usually a CCAA supervising judge).
Express duties outlined in section 23(1)(c) include making, or causing to be made, any appraisal or investigation that the monitor “considers necessary to determine with reasonable accuracy the state of the company’s business and financial affairs and the cause of its financial difficulties or insolvency”. Monitors must also file a report on their findings.
In addition to these duties, section 23(1)(k) states that a monitor shall carry out “any other functions in relation to the company that the court may direct”.
Evolution of the Monitor’s Role
The role of the monitor has evolved over time from that of a passive observer to that of a more active participant.
In their article The Changing Role of the Monitor (2008 2 Bank. & Fin. L. Review), authors David Mann and Neil Narfason note that:
…[t]he monitor has enhanced communication, mediated disputes, provided input into plans of reorganization, and provided expert advice in complex affairs. As the business community has become more sophisticated and global, so too has the monitor–taking on larger mandates, often times involving complex, cross-border restructurings.
Court have recognized that:
…The monitor is to be the eyes and the ears of the court and sometimes, as is the case here, the nose. The monitor is to be independent and impartial, must treat all parties reasonably and fairly, and is to conduct itself in a manner consistent with the objectives of the CCAA and its restructuring purpose. In the course of a CCAA proceeding, a monitor frequently takes positions; indeed it is required by statute to do so. See for example s. 23 of the CCAA that describes certain duties of a monitor.
The Monitor as Complainant in an Oppression Action
Prior to the recent decisions about the appropriateness of a monitor filing an oppression action, there had been some academic debate on the suitability of the oppression remedy in insolvency proceedings.
Some academics argued that the remedy should be unavailable to use once a debtor entered into a court-supervised reorganization under the Bankruptcy and Insolvency Act or the CCAA.
Other academics argued that the oppression remedy continues to be an important corporate law remedy that should be available in such instances.
Section 238 of the Canada Business Corporations Act (CBCA) defines a complainant as:
(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
(b) a director or an officer or a former director or officer of a corporation or any of its affiliates,
(c) the Director, or
(d) any other person who, in the discretion of a court, is a proper person to make an application under this Part [emphasis added].
Section 241 of the CBCA outlines the oppression remedy:
(1) A complainant may apply to a court for an order under this section.
(2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates
(a) any act or omission of the corporation or any of its affiliates effects a result,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.
Courts have previously addressed whether a monitor could be a complainant, and have answered in the affirmative, noting:
As is clear from s. 238(d) of the CBCA, a court exercises its discretion in determining who may be a complainant, and this discretion is broad. There has been much jurisprudence on who qualifies as a complainant. In Olympia & York, a trustee in bankruptcy, acting on behalf of the creditors of the bankrupt estate, was entitled to be a complainant in an oppression action involving an oppressive agreement between the debtor and a non-arm’s length party. As this court said in that case at para. 45:
…the trustee is neither automatically barred from being a complainant nor automatically entitled to that status. It is for the judge at first instance to determine in the exercise of his or her discretion whether in the circumstances of the particular case, the trustee is a proper person to be a complainant.
Courts have noted that:
Admittedly, a monitor differs from a trustee in bankruptcy in that the latter represents the interests of the creditors whereas the monitor has a broader mandate. However, like a trustee in bankruptcy, a monitor is neither automatically barred from being a complainant nor automatically entitled to that status.
Courts have also gone on to say that:
Section 241 speaks of a proper person, not the proper person, therefore allowing for discretion to be exercised in the face of more than one proper person. The appellants did not direct us to any authority saying that a monitor could not be a complainant. Paragraph 23(1)(k) of the CCAA expressly provides that a monitor shall carry out any functions in relation to the company that the court may direct. Moreover, s. 23(1)(c) directs a monitor to conduct any investigation that the monitor considers necessary to determine the state of the company’s business and financial affairs. It does not strain credulity that this responsibility will frequently place a monitor at odds with the shareholders or other stakeholders.
In addition courts have noted that there is nothing in the CCAA itself that suggests that a monitor cannot act as a complainant. Instead, the broad language of s. 11 permits a supervising court to “make any order it considers appropriate in the circumstances”.
While monitors generally play a neutral role in a CCAA proceeding, in exceptional circumstances it may be appropriate for a monitor to serve as a complainant.
At Financial Litigation, Eli Karp is an experienced commercial litigator who focuses on the financial elements of legal disputes. Eli continually strives to minimize the impact of commercial disputes on our client’s financial security, and resolve litigation as quickly as possible, so they can get back to business. Schedule your consultation online, or by calling us at 416-769-4107 x1.