Court File No.: CV-11-9532-00CL
Superior Court of Justice
IN THE MATTER OF THE COMPANIES’ CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF CRYSTALLEX INTERNATIONAL CORPORATION
REASONS FOR DECISION OF JUSTICE NEWBOULD
Heard April 11, 2016
April 18, 2016
Clifton Prophet, Nichols Kluge and Delna Contractor, for the Proposed Committee
Maria Konyukhova for the Monitor
Jay Swartz and Natalie Renner, for Crystallex International Corporation
John Porter for Juan Antonio Reyes
Timothy Pinos, R. Shayne Kukulowicz and Ryan Jacobs, for the DIP Lender
A. Cobb for Greywolf
Robert Chadwick, Chris Armstrong, for the Ad Hoc Committee of Noteholders
Heard: April 11, 2016
Nine shareholders holding approximately 10% of the outstanding shares of Crystallex have moved to (i) have themselves appointed as a committee to represent the interests of shareholders of Crystallex who opt in to be represented by the committee; (ii) approve the by-laws of the committee; (iii) appoint Gowling WLG (Canada) LLP as counsel to the committee; (iv) ordering Crystallex to pay the cost of publishing notice to all shareholders of the order not to exceed $50,000; and (v) granting immunity from liability to committee members and their counsel save for negligence or wilful misconduct.
For the reasons that follow, the motion is dismissed.
A decision of the arbitration panel in the dispute between Crystallex and Venezuela was released recently in which judgment was rendered ordering Venezuela to pay to Crystallex $1.386 billion plus interest. There are obviously prospects that if this award is collected, there will be some amount available for the shareholders. The DIP agreement contains a waterfall provision which provides a mechanism for distributing the proceeds of the arbitration to the creditors and to the company.
When this motion was brought and until the reply factum of the proposed Committee was delivered on April 8, 2016, the Committee refused to disclose what actions it could take if appointed by the Court. This led Crystallex and the DIP Lender to question the need for a court order appointing a Committee whose purpose was undeclared. They said an ad hoc committee could act without court order.
In the reply factum, the proposed Committee stated its intentions which included possible litigation to challenge the waterfall contained in the DIP agreement as being in breach of the Criminal Code and challenging the fourth DIP financing approved by the Court on the basis that the shareholders were not provided an opportunity to participate in that financing.
There would be nothing stopping the applicants from forming an ad hoc committee without court order and approving their own by-laws and from notifying all shareholders of the formation of the committee and determining whether the shareholders wish the committee to represent them and be bound by the committee’s actions taken on their behalf. The order sought does no more than sanction that process.
The applicants would not benefit directly from other shareholders opting into the committee’s plans. Each shareholder will receive a pro rata distribution based on their shareholdings. A larger shareholder group would benefit Gowlings who have agreed to act on a contingency basis. The more shareholders the larger the fees to Gowlings (the exact terms of the contingency agreement have not been disclosed, but Gowlings does not contest this fact). I recognize that the larger the shareholder group represented by Gowlings, the larger the incentive might be for Gowlings to pursue litigation. In saying that, I do not in any way suggest that Gowlings would not act appropriately for their clients.
The applicants state in their factum that the order sought “will legitimize the purpose for which the committee has been found”. I agree with Crystallex, the DIP Lender and Mr. Reyes, a shareholder who opposes the matter, that the Court at this stage should remain neutral as to the prospects of any litigation that the Committee might see fit to bring, and that to make the order sought will be used by the Committee to legitimize its purposes in the eyes of the shareholders by referring to the order made establishing the committee. The Court should avoid that if at all possible and be completely neutral on the prospects of future litigation that would have to be decided by the Court.
There is no need for an order appointing a committee for the committee to take the actions it wishes, or put the other way, there is no benefit to the Company by such an order. The applicants do not seek to have their legal costs paid by the Company (other than $50,000 for notice to the shareholders).
The authority to make the order sought is a discretionary matter under section 11 of the CCAA which permits a court to make any order which it considers appropriate in the circumstances. What is appropriate obviously must depend on the circumstances of any particular case. The applicants have referred to Re: Canwest Publishing Inc. 2010 ONSC 1328 in which a representative counsel was appointed to represent former salaried employees and retirees of Canwest. Pepall J. (as she then was) listed factors that had been considered in granting representation orders for former employees in other cases. I do not quarrel with the list of factors considered in these cases, but it must be recognized that Justice Pepall was not purporting to define a list of factors that must be considered in all cases. Some factors may be relevant and some may not be in any particular case. A matter of discretion such as an order under section 11 of the CCAA cannot be codified.
It is argued that the balance of convenience favours the applicants as no funding is sought from the company and the litigation issues will be solely a matter between the shareholders and the DIP lender. This ignores, however, the liability of the company for the DIP lender’s expenses and the Monitor’s expenses that would be involved. It cannot be said that the order would benefit the Company.
The applicants are sophisticated investors. Some are well heeled. There is no evidence they are vulnerable or in need of $50,000 to provide notice to shareholders. They are quite able to do this without Crystallex money and without a Court order.
In the circumstances, and taking into account the matters that I have discussed, I do not find it appropriate to make the orders sought.
I do not need to discuss the request for immunity for liability sought for the applicants and their counsel.
The motion is dismissed.