Summary
In a decision released last week, in addition to providing
useful guidance regarding the objectives of the Companies'
Creditors Arrangement Act (CCAA), the Supreme Court of Canada
(SCC) approved a litigation funding agreement in an insolvency
proceeding. The case could have significant implications for the
use of litigation funding in future cases.
Background
The case involves an ongoing proceeding under the CCAA by the
debtor companies, Bluberi Gaming Technologies Inc. and Bluberi
Group Inc. (collectively, "Bluberi"). In
the CCAA proceeding, Bluberi liquidated substantially all of its
assets, such that its only remaining asset was a claim against one
of its largest creditors, Callidus Capital.
To pursue its claim against Callidus, Bluberi attempted to secure
litigation funding from a publicly traded litigation funder, IMF
Bentham Limited, or its Canadian subsidiary, Bentham IMF Capital
Limited (collectively, "Bentham"). As
part of the litigation funding agreement, Bluberi applied for court
approval of a $20 million super-priority charge in favour of
Bentham over Bluberi's assets, which would rank ahead of the
claims of Bluberi's creditors. Callidus and certain other
creditors opposed approval of Bluberi's litigation funding
agreement, arguing it constituted a plan of arrangement requiring
applicable creditor approval because it purported to compromise
creditors' claims.
The CCAA supervising judge approved Bluberi's application and
declined to submit the litigation funding agreement to a
creditors' vote. The Quebec Court of Appeal reversed the CCAA
supervising judge's decision, holding Bluberi was required to
obtain creditor approval of the litigation funding agreement.
The SCC's Decision
The SCC overturned the Quebec Court of Appeal's findings and
reinstated the CCAA supervising judge's order.
The SCC emphasized that supervising judges in CCAA proceedings
have considerable discretion, including to decide whether to
approve interim financing provided for under the CCAA, noting that
"whether proposed interim financing should be approved is a
question that the supervising judge is best-placed to answer."
With respect to the litigation funding, the SCC concluded that
"third party litigation funding agreements may be approved as
interim financing in CCAA proceedings when the supervising judge
determines that doing so would be fair and appropriate, having
regard to all the circumstances and the objectives of the
[CCAA]".
The SCC found there was no reason to overturn the CCAA supervising
judge's exercise of discretion in approving the litigation
funding as interim financing without requiring a creditor vote.
That finding was largely tied to the specific circumstances of this
case, including that the only remaining major asset of Bluberi was
its claim against Callidus. The SCC noted that "where there is
a single litigation asset that could be monetized for the benefit
of creditors, the objective of maximizing creditor recovery has
taken centre stage. In those circumstances, litigation funding
furthers the basic purpose of interim financing: allowing the
debtor to realize on the value of its assets." Accordingly,
the SCC found no reason to interfere with the CCAA supervising
judge's decision to approve the litigation financing.
In addition, the SCC found the litigation funding was not a plan
of arrangement "because it does not propose any compromise of
the creditors' rights." When making that finding, the SCC
stated that plans of arrangement "determine how to distribute
the pot [of assets]", but they "do not generally
determine what a debtor company should do to fill it." The SCC
also noted that the super-priority charge over Bluberi's assets
in favour of Bentham did not automatically convert the litigation
funding plan into a plan of arrangement. While the effect of the
charge is to place creditors like Callidus behind the prior rank of
Bentham, the SCC concluded that such a result is expressly
contemplated by the CCAA's interim financing provisions. Again,
there was no reason to disturb the CCAA supervising judge's
findings on this point.
Potential Implications
This case could have significant implications for the future of
litigation financing in CCAA proceedings. The SCC expressly stated
that, in appropriate circumstances, litigation funding can be
approved as interim financing in CCAA proceedings, which could lead
to an expansion of litigation funding in future cases. However,
many issues remain unresolved, as the SCC largely left the decision
of whether to approve litigation funding in the supervising
judge's hands in each proceeding, granting supervising judges
considerable discretion to decide whether litigation funding is
consistent with the CCAA's objectives based on the particular
facts of the case.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
