In a previous post we discussed how the Court of Queen’s Bench of Alberta recently authorized a sale transaction after being satisfied with the appropriateness of a sales process that was undertaken prior to the issuance of the receivership order. A pre-filing marketing and investment process may also be used to justify a sale transaction under section 36 of the Companies’ Creditors Arrangement Act. The most recent Alberta authority on this issue is Sanjel Corporation, where the Alberta Court of Queen’s Bench authorized a large and sophisticated oilfield services company to sell substantially all of its assets on the strength of a pre-filing sales process and over the strenuous objection of junior creditors. Sanjel signals a continued willingness by the courts to respect a robust pre-filing process and confirms that the CCAA may be used to liquidate or wind-down a business in appropriate circumstances.
Introduced in 2009, section 36 of the CCAA sets out six non-exhaustive factors to be considered by the court when approving a sale. The court also reiterated that the principles arising from the Soundair test at common law are useful guidelines in assessing a sale approval application occurring under section 36 of the CCAA. The analysis on the pre-filing sales process in Sanjel was both comprehensive and cognizant of the unique challenges faced by an oilfield services company dealing with an unprecedented drilling slowdown. In particular, the court recognized that the debtors had a high cash burn rate and faced deteriorating market conditions. Notwithstanding these challenges, the evidence established a thorough canvassing of the market for both sale and investment transactions. As is common in applications of this nature, the court identified that experienced financial advisors had been engaged early in the process and noted facts pertinent to the promotion efforts including the number of parties contacted, NDA’s executed and management meetings that occurred. All of this led to a conclusion that, while some parts of the timeframe were condensed, the process was competitive and robust in a compromised market.
In addition to authorizing a sale based on a pre-filing sales process, Sanjel is also significant in that it is further authority that the CCAA is an appropriate vehicle to downsize or wind-down a debtor company’s business, as opposed to merely restructuring the debtor as a going concern. Prior to the incorporation of section 36 into the CCAA in 2009, some case law had questioned whether the CCAA could be used in such fashion. Several decisions in Ontario, including Nortel Networks Corporation and Target Canada Co., had confirmed that the broad and flexible nature of the CCAA allowed transactions that were, in effect, a liquidation of assets. Sanjel signals a continued willingness by the courts to respect a pre-filing process organized by a debtor company even when that process results in a liquidation of assets.