THE COURT OF APPEAL FOR ONTARIO. IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED

Transcription

1 Court File No. C60871 THE COURT OF APPEAL FOR ONTARIO IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED AND IN THE MATTER OF THE PROPOSAL OF COGENT FIBRE INC. RESPONDENT S FACTUM January 8, 2016 JAFFE & PERITZ LLP Barristers and Solicitors 100 Richmond Street, Suite 424 Toronto, ON M5H 3K6 Brandon Jaffe LSUC No D Tel: (416) Fax: (416) Lawyers for the Respondent, Nippon Yusen Kaisha, Tokyo TO: DENTONS CANADA LLP 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Fax: (416) Kenneth Kraft LSUC No P Tel: (416) kenneth.kraft@dentons.com Sara-Ann Van Allen LSUC No C Tel: (416) sara.vanallen@dentons.com Lawyers for the Appellant, Cogent Fibre Inc.

2 AND TO: ISAACS & CO. Barristers and Solicitors 11 King Street West, Suite 1200 Toronto, ON M5H 4C7 Fax: (416) Marc D. Isaacs Tel: (416) Alan Cofman Tel: (416) AND TO: AIRD & BERLIS LLP Barristers and Solicitors Brookfield Place 181 Bay Street, Suite 1800 Toronto, ON M5J 2T9 Fax: (416) Kenneth R. Rosenstein Tel: (416) Sam Babe Tel: (416) Ian Aversa Tel: (416) Lawyers for The Fuller Landau Group Inc.

3 AND TO: DEPARTMENT OF JUSTICE Tax Section Exchange Tower 130 King Street West, Suite 3400 P.O. Box 36 Toronto, ON M5X 1K6 Diane Winters Tel: (416) Fax: (416) AND TO: MINISTRY OF FINANCE Legal Services Branch Michael Starr Building 33 King Street West, 6 th Floor P.O. Box 627, Station A Oshawa, ON L1H 8H5 Kevin O Hara Tel: (905) kevin.ohara@ontario.ca AND TO: ARTHUR BIRNBAUM Barrister and Solicitor Yonge Street Toronto, ON M2N 7E9 arthur.birnbaum@rogers.blackberry.net Lawyer for Cogent Biomass Inc. and CFP International Inc. AND TO: ANDREW C. LEWIS Barrister and Solicitor 1 Eglinton Avenue East Suite 508 Toronto, ON M4P 3A1 andrew@andrewlewislaw.ca Lawyer for Leeward Debt Acquisition Inc.

4 AND TO: BORDEN LADNER GERVAIS LLP Scotia Plaza 40 King Street West Toronto, ON M5H 3Y4 Roger Jaipargas Tel: (416) Doug Smith Tel: (416) Lawyers for NS United Kaiun Kaisha, Ltd. COURTESY COPY: TO: THE FULLER LANDAU GROUP INC. 151 Bloor Street West, 12 th Floor Toronto, ON M5S 1S4 Ken Pearl Tel: (416) Fax: (416) Proposal Trustee

5 1 Court File No. C60871 COURT OF APPEAL FOR ONTARIO IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED AND IN THE MATTER OF THE PROPOSAL OF COGENT FIBRE INC. FACTUM OF THE RESPONDENT, NIPPON YUSEN KAISHA, TOKYO PART I OVERVIEW AND ISSUES 1. On August 12, 2015, the Honourable Mr. Justice Penny dismissed the motion by Cogent Fibre Inc. ( CFI ) to extend the time to file a proposal under the Bankruptcy and Insolvency Act ( BIA ) and granted the motion of NS United Kaiun Kaisha, Ltd. ( NSU ) to terminate the time to file a proposal. 2. Nippon Yusen Kaisha, Tokyo ( NYK ) is a creditor of CFI for approximately $US 11 million. NYK supports Justice Penny s decisions and opposes this appeal. 3. On October 30, 2015, at the request of NYK, Justice Penny ordered that NYK be permitted to become a de facto respondent in this appeal because NSU, one of CFI s two other creditors, assigned the benefit of its judgment against CFI to Leeward Debt Acquisition Inc. ( Leeward ). Leeward is not responding to this appeal. 4. The substantive issue before this Court is whether Justice Penny erred in dismissing CFI s motion and granting NSU s motion because he found that CFI could not have filed a viable or acceptable proposal within the time periods in question.

6 The procedural issue before this Court is whether to grant CFI s motion to admit fresh evidence on this appeal. This is not a proper case to accept fresh evidence because the fresh evidence is not decisive of any issue in the appeal and could not be expected to affect the result of the appeal. The acceptance of fresh evidence in this case would also undermine the finality of the legal process contemplated by the BIA and create an obstacle course for creditors. PART II FACTS WHICH NYK ACCEPTS AS CORRECT, FACTS WITH WHICH NYK DISAGREES AND A SUMMARY OF ADDITIONAL FACTS RELIED ON CFI s Factum dated November 6, 2015 on the substantive issues 6. NYK accepts CFI s summary of relevant facts set out in the Factum of CFI dated November 6, 2015 (the November 6 Factum ), except the following facts: (a) The Fuller Landau Group Inc. (the Proposal Trustee ) did not recommend that the extension requested by CFI be granted, as claimed by CFI, but reported that it believes that it is reasonable for the Court to grant a 45 day extension. Respondent s Compendium dated January 8, 2016 ( Respondent s Compendium ) at First Report of The Fuller Landau Group Inc. as Proposal Trustee dated August 10, 2015 ( Trustee Report ) at Tab 3, p 175A para 31 (b) It is not a fact that, if the appeal is dismissed, the bankruptcy will result in a liquidation of CFI s assets as stated in paragraph 26 of the November 6 Factum. The Proposal Trustee reports that CFI has no assets to liquidate. CFI s only assets are cash and a loan receivable from its parent. If the appeal is dismissed, CFI can make an in bankruptcy proposal under the BIA. The BIA states: a proposal may be made by [ ] a bankrupt. If a proposal made in the bankruptcy is accepted by creditors and approved by

7 3 3 the court, there is an annulment of any bankruptcy. A dismissal of this appeal does not prejudice CFI. Respondent s Compendium at Trustee Report, Tab 3, pp at paras 14-15; Bankruptcy and Insolvency Act, RSC 1985, c B-3, at ss 50(1)(d) at 61(1) [BIA]; Triangle Drugs Inc, Re, 16 CBR (3d) 1, 1993 CarswellOnt 178 (Gen Div) at para 7 [Triangle] (c) NYK does not accept the facts set out in paragraphs 17 through 21 and 23 of the November 6 Factum. Unless CFI s motion to admit fresh evidence succeeds, there is no evidence to support those facts. Many facts reference CFI s expectations. CFI s expectations are not relevant and were not reasonable. CFI s Amended Factum dated November 11, 2015 on the procedural issue 7. NYK accepts CFI s summary of relevant facts set out in the Amended Factum of CFI dated November 11, 2015, except the facts set out in paragraphs 11 through 14. NSU s evidence is that NSU is not prepared to support any proposal that may be filed by CFI. There is no evidence that NSU undertook to withdraw its termination motion. CFI failed to prepare for the motion at its peril. Respondent s Compendium at Affidavit of Kazushi Fukuda sworn August 6, 2015 [Fukuda Affidavit] at Tab 1, p 8, para 46 PART III RESPONDENT S POSITION WITH RESPECT TO ISSUES RAISED BY THE APPELLANT, ARGUMENT & LAW Respondent s Positions (a) (b) Justice Penny did not err in dismissing CFI s motion to extend time to file a proposal. Justice Penny did not err in granting NSU s motion to terminate the time to file a proposal. (c) The test to admit fresh evidence is not satisfied.

8 4 4 (d) The standard of review is palpable and overriding error. Law & Argument (a) Justice Penny did not err in dismissing CFI s motion to extend time to file a proposal (b) Justice Penny did not err in granting NSU s motion to terminate the time to file a proposal Statutory Tests 8. Section 50.4(9) of the BIA sets out the test for an extension of time for filing a proposal: 50.4(9) The insolvent person may, before the expiry of the 30-day period referred to in subsection (8) or of any extension granted under this subsection, apply to the court for an extension, or further extension, as the case may be, of that period, and the court, on notice to any interested persons that the court may direct, may grant the extensions, not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8), if satisfied on each application that: (a) the insolvent person has acted, and is acting, in good faith and with due diligence; (b) the insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and (c) no creditor would be materially prejudiced if the extension being applied for were granted. [emphasis added] 9. Section 50.4(11) of the BIA sets out the test for terminating the period for making a proposal: 50.4(11) The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1, or a creditor, declare terminated, before its actual expiration, the thirty day period mentioned in subsection (8) or any extension thereof granted under subsection (9) if the court is satisfied that (a) the insolvent person has not acted, or is not acting, in good faith and with due diligence, (b) the insolvent person will not likely be able to make a viable proposal before the expiration of the period in question,

9 5 5 (c) the insolvent person will not likely be able to make a proposal, before the expiration of the period in question, that will be accepted by the creditors, or (d) the creditors as a whole would be materially prejudiced were the application under this subsection rejected, and where the court declares the period in question terminated, paragraphs (8)(a) to (c) thereupon apply as if that period had expired. [emphasis added] 10. The tests are not mirrors of each other, as claimed by CFI, but have three significant distinctions: (a) Under section 50.4(9), the burden of proof is on CFI to show that it complied with all the three parts of the test set out in that section. The test is conjunctive. The failure on any part is sufficient to disqualify CFI from being granted an extension. In contrast, under section 50.4(11), the applicant, in this case a creditor, need only satisfy the court that one of the four parts of the test applies to permit the court to terminate the period for making a proposal. The test is disjunctive. Re Baldwin Valley Investors Inc, 23 CBR (3d) 219, 1994 CarswellOnt 253 (Gen Div [Comm List]) at para 7 [Baldwin]; Magasin Coop Dégelis, Re, 1993 CarswellQue 42, 24 CBR (3d) 49 (CS); BIA at s 50.4(9) and (11) (b) The two tests also make a distinction between a viable proposal and a proposal that will be accepted by the creditors. CFI must satisfy that court that it is able to make a viable proposal, in addition to satisfying the other two parts of the test, to obtain an extension. A viable proposal is a proposal that a reasonable creditor would accept an objective test. For a proposal to be terminated a creditor or applicant must satisfy the court that the debtor is not able to make a viable proposal or an acceptable proposal. The termination test permits the court to terminate a proposal where the creditors will not

10 6 6 accept a proposal, even if it is a viable proposal that a reasonable creditor would accept. The test is subjective. Baldwin at paras 3-4; BIA at s 50.4(9) and (11); Cumberland Trading Inc, Re, 23 CBR (3d) 225, 1994 CarswellOnt 255 (Ct J [Comm List]) at para 9 (c) The two tests also distinguish between the time periods within which the debtor or applicant must prove that a viable or acceptable proposal is likely to be made. Under the extension test, CFI must show that it is likely to make a viable proposal within the time period granted by the extension, in addition to satisfying the other two parts of the test. In this case, CFI requested a 45-day extension that would expire on September 28, The termination test references a shorter time period. The applicant must satisfy the court that CFI is not likely to make a viable or acceptable proposal, in this case, within the initial 30-day period following the filing of the Notice of Intention to Make a Proposal. That period ended on August 14, These time periods are important when this court considers whether CFI s fresh evidence is decisive of any issue in the appeal or could be expected to affect the result of the appeal. BIA at s 50.4(9) and (11) 11. These distinctions make it easier for an applicant to succeed on a termination motion than it is for a debtor to succeed on an extension motion. This distinction is consistent with the goal and policies of the proposal sections of the BIA, which are intended to give a debtor some breathing room rather than to create an obstacle course for creditors. The BIA gives creditors to whom a viable proposal is not likely to be made an efficient procedure to terminate proposal proceedings. Janodee Investments Ltd v Pellegrini, 25 CBR (4th) 47, 2001 CarswellOnt 1232 (Sup Ct J) at para 35 [Janodee]; Triangle at para 3

11 7 7 Justice Penny made no error in dismissing extension motion 12. Justice Penny had discretion to dismiss the extension motion by finding any one of three facts: CFI is not acting with due diligence and in good faith; CFI is not likely to make a viable proposal by September 28, 2015; or a creditor would be materially prejudiced by the extension. Justice Penny could find any of these facts based on the evidence before him without making a palpable and overriding error. Justice Penny finds that CFI was not acting in good faith and with due diligence and would not be likely to make a viable proposal if the extension being applied for were granted. BIA at s 50.4(9); Respondent s Compendium at Endorsement of Justice Penny dated August 17, 2015 [Penny Endorsement] at Tab 7, p 357, para NSU s evidence is that CFI is using the proposal process to take advantage of the automatic stay to avoid execution on the judgment, rather than acting in good faith. NSU and the Proposal Trustee provide evidence that CFI is winding down its business and that operations have ceased. There is no evidence of cash flow to fund a viable proposal. NSU s evidence is that an extension of proposal proceedings would be prejudicial to creditors as CFI s assets are degraded through the expenditure of professional fees. Respondent s Compendium at Fukuda Affidavit at Tab 1, p 8, paras and Trustee Report at Tab 3, pp ; paras Justice Penny made no error in granting termination motion 14. Justice Penny had discretion to grant the termination motion by finding any one of four facts: CFI is not acting with due diligence and in good faith; CFI is not likely to make a viable proposal by August 14, 2015; CFI is not likely to make a proposal that creditors will accept by August 14, 2015; or a creditor would be materially prejudiced if the termination is rejected. BIA at s 50.4(11)

12 Paragraph 13 herein provides the bases upon which Justice Penny could find three of these facts without making a palpable and overriding error. The evidence before Justice Penny establishes that CFI was not likely to file an acceptable proposal by August 14, NSU s evidence is that NSU will not support any proposal made by [CFI] to its creditors. The Proposal Trustee reports that NSU may be in position to block acceptance of any Proposal to be filed by [CFI]. Justice Penny found that: What adds credibility to [NSU s] position that it will, under no circumstances, agree to any proposal is the complete paucity of evidence that any plan is even possible, much less viable and likely to be accepted by creditors. Respondent s Compendium at Fukuda Affidavit at Tab 1, p 8, para 47 and Trustee Report at Tab 3, pp 47 and 49, paras 21 and 25 and Penny Endorsement at Tab 7, p 360, para CFI s arguments that NSU s evidence is ambiguous and that NSU failed to establish definitely that NSU would reject a proposal by CFI can be dismissed for two reasons. First, section 50.4(11) of the BIA does not require that the applicant establish anything definitively. The applicant need only satisfy the court that the debtor is not likely to make an acceptable or viable proposal on the balance of probabilities. Second, Mr. Kazushi Fukuda clarified his purportedly ambiguous position on examination immediately following the excerpt highlighted in the November 6 Factum, saying: at this point in time, whatever the proposal may be, it is unacceptable for us. Respondent s Compendium at Transcript of Videoconference Deposition of Kazushi Fukuda on August 10, 2015 at Tab 4, at p 201, ll 4-6; BIA at s 50.4(11) 17. There is no basis upon which to find that Justice Penny erred or to overturn his discretionary decisions.

13 9 9 (c) The test to admit fresh evidence is not satisfied 18. The Court of Appeal has endorsed the use of two similar tests to determine whether to admit fresh evidence. Under the Sengmueller test, CFI must show that: 1) the evidence is credible; 2) the evidence could not through due diligence have been adduced at the motion; and 3) the evidence, if admitted, will likely be conclusive of an issue in the appeal. Under the Palmer test, CFI must show that: 1) the evidence could not through due diligence have been adduced at the motion; 2) the evidence is relevant in that it bears on a decisive or potentially decisive issue; 3) the evidence is credible; and 4) the evidence, if believed and taken with the other evidence, could be expected to affect the result. Sengmueller v Sengmueller, 111 DLR (4th) 19, 1994 CarswellOnt 375 (CA) at para 9 [Sengmueller]; Palmer v R, [1980] 1 SCR 759 at para This is not a proper case in which to admit CFI s fresh affidavit evidence because the evidence does not meet either the Sengmeuller test or the Palmer test. The fresh evidence is not likely to be conclusive of an issue in the appeal, does not bear on a decisive issue in the appeal, and could not be expected to affect the result of the appeal. Summary of relevant fresh evidence 20. The following fresh evidence may be relevant to this appeal: i) On August 13, 2015, CFI filed a proposal (the Proposal ); ii) On August 17, 2015, CFI filed an amended proposal (the Amended Proposal ); and

14 10 10 iii) On September 30, 2015, CFI and NSU resolved outstanding matters between them and NSU assigned all of its right, title, interest and obligation in respect of this matter to a third party. Respondent s Compendium at Affidavit of Arthur Birnbaum sworn August 23, 2015 [August Affidavit], at at Tab 5, p 211, paras and Affidavit of Arthur Birnbaum sworn October 26, 2015 [October Affidavit] at Tab 6, p 279, paras The fresh evidence does not include the Proposal filed August 13, The fresh evidence does not include a report by the Proposal Trustee that the Proposal is more advantageous than a bankruptcy. The fresh evidence does not report on how sections 95 through 101 of the BIA, regarding preferences, transfers at undervalue, dividends, and redemptions of shares ( Reviewable Transactions ) may impact the viability or acceptability of the Proposal. There is no basis upon which a court can conclude that the Proposal is viable or acceptable. Respondent s Compendium at August Affidavit at Tab 5, pp and October Affidavit at Tab 6, pp The fresh evidence does not include any report on or details of any deal struck between CFI or its parent and NSU to induce NSU to assign its interest to a third party. Without this information, the court cannot assess whether the BIA provisions regarding Reviewable Transactions apply to NSU s assignment and impact whether the Amended Proposal is viable or acceptable. Respondent s Compendium at October Affidavit, Exhibit F at Tab BB, pp ; BIA at ss The fresh evidence does not include any evidence to demonstrate a palpable and overriding error in Justice Penny s finding the NSU was in a veto position regarding any proposal. The Statement of Affairs appended to the Proposal Trustee s report on the Amended

15 11 11 Proposal dated August 21, 2015 shows NSU in a potential veto position. Respondent s Compendium at October Affidavit, Exhibit F at Tab BB, p 340 Fresh evidence does not establish any error on the extension motion 24. The fresh evidence does not establish that CFI acted in good faith and would likely have been able to file a viable proposal by September 28, The fresh evidence does not establish that, as of September 28, 2015, two-thirds of CFI s creditors, acting reasonably, would accept the Amended Proposal. Regardless of the terms of any proposal, NSU withheld its acceptance of any proposal to bargain for a private deal with a third party and likely CFI or its parent outside the proposal. The fresh evidence does not allege that NSU was unreasonable in doing so. A proposal that NSU acting reasonably would not accept is not viable. The use of stay of proceedings to negotiate a private deal outside the proposal does not demonstrate good faith. Respondent s Compendium at August Affidavit at Tab 5, pp and October Affidavit at Tab 6, pp , para 27; BIA at ss 69(1)(a), 69.1(1)(a), 69.3(1) and 195 Fresh evidence does not establish any error on the termination motion 25. The fresh evidence does not establish that CFI was likely to make a viable or acceptable proposal by August 14, There is no evidence regarding the viability of the Proposal filed August 13, There is no evidence that, as of August 14, 2015, two-thirds of CFI s creditors, would accept the Proposal. Respondent s Compendium at August Affidavit at Tab 5, pp and October Affidavit at Tab 6, pp It is unjust to admit fresh evidence that did not exist at the time of the motion 26. CFI moves to admit evidence that did not exist prior to the motion, which raises further considerations for this court. One obvious problem with admitting evidence that did not exist at

16 12 12 the time of motion is that such evidence could not have influenced the result at the motion. Admitting such evidence would result in there being no finality to the legal process and would turn appeal courts into motion courts. Sengmueller at para Evidence that did not exist at the time of the motion must only be admitted where the evidence is necessary to deal fairly with the issues on appeal, and where to decline to admit the evidence could lead to a substantial injustice in result. These factors are not met in this case. There is no injustice to CFI if the appeal is dismissed. CFI can make an in-bankruptcy proposal if the appeal is dismissed that, if accepted by CFI s creditors and the court, will annul the bankruptcy. There is no injustice in declining to admit fresh evidence that CFI brought about itself. The fresh evidence arose due to circumstances within CFI s control. Sengmueller at para 10; BIA at ss 50(1)(d) and 61(1) 28. Admitting evidence in the context of a BIA proceeding raises further considerations. Proceedings under the BIA are summary in nature and proceed by motion unless specified or otherwise ordered. Extension and termination motions are prescribed by the BIA. The court s general discretion under the BIA to extend time limits is explicitly abolished in the context of proposal extensions. Permitting fresh evidence in this case would undermine the procedures that have been legislated by the federal government to provide an efficient means for creditors to terminate an unworkable proposal. NYK relied on those procedures and the evidence filed by NSU and CFI for its decision not to take a position at the motions before Justice Penny. BIA at ss 50.4(10) and 187(11) Janodee at para 35; Triangle at para 3; Bankruptcy and Insolvency General Rules, CRC, c 368 at R 11

17 13 13 (d) The standard of review is palpable and overriding error 29. Justice Penny found that CFI would not be likely to make a viable or acceptable proposal within the relevant time periods and was not acting in good faith and with due diligence. These findings are not to be reversed unless it can be established that Justice Penny made a palpable and overriding error. Housen v Nikolaisen, 2002 SCC 33 at para 10 [Housen] 30. The application of the statutory tests for extending or terminating the time to file a proposal to the facts is a question of mixed fact and law. The standard of review is palpable and overriding error unless it is clear that Justice Penny made an inextricable error in principle with respect to the statutory test or its application. Housen at 37 PART IV ADDITIONAL ISSUES RAISED BY THE RESPONDENT 31. NYK does not raise any additional issues. PART V ORDER SOUGHT 32. NYK requests an order dismissing the appeal with costs. RESPONDENT S CERTIFICATE An order under subrule 61.09(2) is not required. The Trustee s lawyer estimates that.67 of an hour will be required for oral argument.

18 14 14 ALL OF WHICH IS RESPECTFULLY SUBMITTED this 8th day of January, 2016 f>, JAFFE SiP a TZ LLP Barristers e So citors Sheraton Centre 100 Richmond Street West, Suite 424 Toronto, ON M5H 3K6 Brandon Jaffe LSUC No D Tel: (416) Fax: (416) Lawyers for the Respondent, Nippon Yusen Kaisha, Tokyo

19 15 SCHEDULE A LIST OF AUTHORITIES 1. Triangle Drugs Inc, Re, 16 CBR (3d) 1, 1993 CarswellOnt 178 (Gen Div) 2. Housen v Nikolaisen, 2002 SCC 33 [Housen] 3. Re Baldwin Valley Investors Inc, 23 CBR (3d) 219, 1994 CarswellOnt 253 (Gen Div [Comm List]) 4. Magasin Coop Dégelis, Re, 1993 CarswellQue 42, 24 CBR (3d) 49 (CS) 5. Cumberland Trading Inc, Re, 23 CBR (3d) 225, 1994 CarswellOnt 255 (Ct J [Comm List]) 6. Janodee Investments Ltd. v. Pellegrini, 25 CBR (4th) 47, 2001 CarswellOnt 1232 (Sup Ct J) 7. Sengmueller v Sengmueller, 111 DLR (4th) 19, 1994 CarswellOnt 375 (CA) 8. Palmer v R, [1980] 1 SCR 759

20 16 SCHEDULE B TEXT OF RELEVANT STATUTES AND REGULATIONS 1. Bankruptcy and Insolvency Act, RSC, 1985, c B-3 PART III PROPOSALS DIVISION I GENERAL SCHEME FOR PROPOSALS Who may make a proposal 50. (1) Subject to subsection (1.1), a proposal may be made by (a) an insolvent person; (b) a receiver, within the meaning of subsection 243(2), but only in relation to an insolvent person; (c) a liquidator of an insolvent person s property; (d) a bankrupt; and (e) a trustee of the estate of a bankrupt. Extension of time for filing proposal 50.4 (9) The insolvent person may, before the expiry of the 30-day period referred to in subsection (8) or of any extension granted under this subsection, apply to the court for an extension, or further extension, as the case may be, of that period, and the court, on notice to any interested persons that the court may direct, may grant the extensions, not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8), if satisfied on each application that (a) the insolvent person has acted, and is acting, in good faith and with due diligence; (b) the insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and (c) no creditor would be materially prejudiced if the extension being applied for were granted.

21 17 Court may not extend time 50.4 (10) Subsection 187(11) does not apply in respect of time limitations imposed by subsection (9). Court may terminate period for making proposal 50.4 (11) The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1, or a creditor, declare terminated, before its actual expiration, the thirty day period mentioned in subsection (8) or any extension thereof granted under subsection (9) if the court is satisfied that (a) the insolvent person has not acted, or is not acting, in good faith and with due diligence, (b) the insolvent person will not likely be able to make a viable proposal before the expiration of the period in question, (c) the insolvent person will not likely be able to make a proposal, before the expiration of the period in question, that will be accepted by the creditors, or (d) the creditors as a whole would be materially prejudiced were the application under this subsection rejected, and where the court declares the period in question terminated, paragraphs (8)(a) to (c) thereupon apply as if that period had expired. Annulment of bankruptcy 61. (1) The approval by the court of a proposal made after bankruptcy operates to annul the bankruptcy and to revest in the debtor, or in such other person as the court may approve, all the right, title and interest of the trustee in the property of the debtor, unless the terms of the proposal otherwise provide.

22 18 STAY OF PROCEEDINGS Stay of proceedings notice of intention 69 (1) Subject to subsections (2) and (3) and sections 69.4, 69.5 and 69.6, on the filing of a notice of intention under section 50.4 by an insolvent person, (a) no creditor has any remedy against the insolvent person or the insolvent person s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy Stay of proceedings Division I proposals 69.1 (1) Subject to subsections (2) to (6) and sections 69.4, 69.5 and 69.6, on the filing of a proposal under subsection 62(1) in respect of an insolvent person, (a) no creditor has any remedy against the insolvent person or the insolvent person s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy, until the trustee has been discharged or the insolvent person becomes bankrupt Stays of proceedings bankruptcies 69.3 (1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy. Preferences 95 (1) A transfer of property made, a provision of services made, a charge on property made, a payment made, an obligation incurred or a judicial proceeding taken or suffered by an insolvent person (a) in favour of a creditor who is dealing at arm s length with the insolvent person, or a person in trust for that creditor, with a view to giving that creditor a preference over another creditor is void as against or, in Quebec, may not be set up against the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy; and

23 19 Preference presumed (b) in favour of a creditor who is not dealing at arm s length with the insolvent person, or a person in trust for that creditor, that has the effect of giving that creditor a preference over another creditor is void as against or, in Quebec, may not be set up against the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is 12 months before the date of the initial bankruptcy event and ending on the date of the bankruptcy. (2) If the transfer, charge, payment, obligation or judicial proceeding referred to in paragraph (1)(a) has the effect of giving the creditor a preference, it is, in the absence of evidence to the contrary, presumed to have been made, incurred, taken or suffered with a view to giving the creditor the preference even if it was made, incurred, taken or suffered, as the case may be, under pressure and evidence of pressure is not admissible to support the transaction. [ ] Transfer at undervalue 96 (1) On application by the trustee, a court may declare that a transfer at undervalue is void as against, or, in Quebec, may not be set up against, the trustee or order that a party to the transfer or any other person who is privy to the transfer, or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor if (a) the party was dealing at arm s length with the debtor and (i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy, (ii) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, and (iii) the debtor intended to defraud, defeat or delay a creditor; or (b) the party was not dealing at arm s length with the debtor and (i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy, or

24 20 (ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (i) begins and (A) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or (B) the debtor intended to defraud, defeat or delay a creditor. Establishing values (2) In making the application referred to in this section, the trustee shall state what, in the trustee s opinion, was the fair market value of the property or services and what, in the trustee s opinion, was the value of the actual consideration given or received by the debtor, and the values on which the court makes any finding under this section are, in the absence of evidence to the contrary, the values stated by the trustee. Meaning of person who is privy (3) In this section, a person who is privy means a person who is not dealing at arm s length with a party to a transfer and, by reason of the transfer, directly or indirectly, receives a benefit or causes a benefit to be received by another person. Protected transactions 97 (1) No payment, contract, dealing or transaction to, by or with a bankrupt made between the date of the initial bankruptcy event and the date of the bankruptcy is valid, except the following, which are valid if made in good faith, subject to the provisions of this Act with respect to the effect of bankruptcy on an execution, attachment or other process against property, and subject to the provisions of this Act respecting preferences and transfers at undervalue: (a) a payment by the bankrupt to any of the bankrupt s creditors; (b) a payment or delivery to the bankrupt; (c) a transfer by the bankrupt for adequate valuable consideration; and (d) a contract, dealing or transaction, including any giving of security, by or with the bankrupt for adequate valuable consideration.

25 21 Definition of adequate valuable consideration (2) The expression adequate valuable consideration in paragraph (1)(c) means a consideration of fair and reasonable money value with relation to that of the property assigned or transferred, and in paragraph (1)(d) means a consideration of fair and reasonable money value with relation to the known or reasonably to be anticipated benefits of the contract, dealing or transaction. Law of set-off or compensation (3) The law of set-off or compensation applies to all claims made against the estate of the bankrupt and also to all actions instituted by the trustee for the recovery of debts due to the bankrupt in the same manner and to the same extent as if the bankrupt were plaintiff or defendant, as the case may be, except in so far as any claim for set-off or compensation is affected by the provisions of this Act respecting frauds or fraudulent preferences. Recovering proceeds if transferred 98 (1) If a person has acquired property of a bankrupt under a transaction that is void or voidable and set aside or, in the Province of Quebec, null or annullable and set aside, and has sold, disposed of, realized or collected the property or any part of it, the money or other proceeds, whether further disposed of or not, shall be deemed the property of the trustee. Trustee may recover (2) The trustee may recover the property or the value thereof or the money or proceeds therefrom from the person who acquired it from the bankrupt or from any other person to whom he may have resold, transferred or paid over the proceeds of the property as fully and effectually as the trustee could have recovered the property if it had not been so sold, disposed of, realized or collected. Operation of section (3) Notwithstanding subsection (1), where any person to whom the property has been sold or disposed of has paid or given therefor in good faith adequate valuable consideration, he is not subject to the operation of this section but the trustee s recourse shall be solely against the person entering into the transaction with the bankrupt for recovery of the consideration so paid or given or the value thereof.

26 22 Trustee subrogated (4) Where the consideration payable for or on any sale or resale of the property or any part thereof remains unsatisfied, the trustee is subrogated to the rights of the vendor to compel payment or satisfaction. General assignments of book debts ineffective 98.1 (1) If a person engaged in any trade or business makes an assignment of their existing or future book debts, or any class or part of those debts, and subsequently becomes bankrupt, the assignment of book debts is void as against, or, in the Province of Quebec, may not be set up against, the trustee with respect to any book debts that have not been paid at the date of the bankruptcy. [ ] Dealings with undischarged bankrupt 99 (1) All transactions by a bankrupt with any person dealing with the bankrupt in good faith and for value in respect of property acquired by the bankrupt after the bankruptcy, if completed before any intervention by the trustee, are valid against the trustee, and any estate, or interest or right, in the property that by virtue of this Act is vested in the trustee shall determine and pass in any manner and to any extent that may be required for giving effect to any such transaction. [ ] Inquiry into dividends and redemptions of shares 101 (1) Where a corporation that is bankrupt has paid a dividend, other than a stock dividend, or redeemed or purchased for cancellation any of the shares of the capital stock of the corporation within the period beginning on the day that is one year before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, the court may, on the application of the trustee, inquire into the transaction to ascertain whether it occurred at a time when the corporation was insolvent or whether it rendered the corporation insolvent. Judgment against directors (2) If a transaction referred to in subsection (1) has occurred, the court may give judgment to the trustee against the directors of the corporation, jointly and severally, or solidarily, in the amount of the dividend or redemption or purchase price, with interest on the amount, that has not been paid to the corporation if the court finds that

27 23 (a) the transaction occurred at a time when the corporation was insolvent or the transaction rendered the corporation insolvent; and (b) the directors did not have reasonable grounds to believe that the transaction was occurring at a time when the corporation was not insolvent or the transaction would not render the corporation insolvent. Criteria (2.1) In making a determination under paragraph (2)(b), the court shall consider whether the directors acted as prudent and diligent persons would have acted in the same circumstances and whether the directors in good faith relied on (a) financial or other statements of the corporation represented to them by officers of the corporation or the auditor of the corporation, as the case may be, or by written reports of the auditor to fairly reflect the financial condition of the corporation; or (b) a report relating to the corporation s affairs prepared pursuant to a contract with the corporation by a lawyer, notary, accountant, engineer, appraiser or other person whose profession gave credibility to the statements made in the report. Judgment against shareholders (2.2) Where a transaction referred to in subsection (1) has occurred and the court makes a finding referred to in paragraph (2)(a), the court may give judgment to the trustee against a shareholder who is related to one or more directors or to the corporation or who is a director not liable by reason of paragraph (2)(b) or subsection (3), in the amount of the dividend or redemption or purchase price referred to in subsection (1) and the interest thereon, that was received by the shareholder and not repaid to the corporation. Directors exonerated by law (3) A judgment pursuant to subsection (2) shall not be entered against or be binding on a director who had, in accordance with any applicable law governing the operation of the corporation, protested against the payment of the dividend or the redemption or purchase for cancellation of the shares of the capital stock of the corporation and had thereby exonerated himself or herself under that law from any liability therefor. Directors right to recover (4) Nothing in this section shall be construed to affect any right, under any applicable law governing the operation of the corporation, of the directors to recover from a shareholder

28 24 the whole or any part of any dividend, or any redemption or purchase price, made or paid to the shareholder when the corporation was insolvent or that rendered the corporation insolvent. Onus of proof directors (5) For the purposes of subsection (2), the onus of proving o o (a) that the corporation was not insolvent at the time the transaction occurred and that the transaction did not render the corporation insolvent, or (b) that the directors had reasonable grounds to believe that the transaction was occurring at a time when the corporation was not insolvent or that the transaction would not render the corporation insolvent lies on the directors. Onus of proof shareholder (6) For the purposes of subsection (2.2), the onus of proving that the corporation was not insolvent at the time the transaction occurred and that the transaction did not render the corporation insolvent lies on the shareholder. Court may extend time 187 (11) Where by this Act the time for doing any act or thing is limited, the court may extend the time either before or after the expiration thereof on such terms, if any, as it thinks fit to impose. Stay of proceedings on filing of appeal 195 Except to the extent that an order or judgment appealed from is subject to provisional execution notwithstanding any appeal therefrom, all proceedings under an order or judgment appealed from shall be stayed until the appeal is disposed of, but the Court of Appeal or a judge thereof may vary or cancel the stay or the order for provisional execution if it appears that the appeal is not being prosecuted diligently, or for such other reason as the Court of Appeal or a judge thereof may deem proper.

29 25 2. Bankruptcy and Insolvency General Rules, CRC, c 368 MOTIONS 11. Subject to these Rules, every application to the court must be made by motion unless the court orders otherwise.

30 Court File No. C60871 IN THE MATTER OF THE PROPOSAL OF COGENT FIBRE INC. ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) Proceeding commenced at Toronto RESPONDENT'S FACTUM JAFFE & PERITZ LLP Barristers and Solicitors 100 Richmond Street West Suite 424 Toronto, ON M5H 3K6 Brandon Jaffe LSUC No D Tel: (416) Fax: (416) Lawyers for Nippon Yusen Kaisha, Tokyo