ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY) [COMMERCIAL LIST] Court File No.31-2016058 Estate No. 31-2016058 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 COGENT FIBRE INC. Date: October 28, 2015 DENTONS CANADA LLP 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Fax: (416) 863-4592 Kenneth Kraft LSUC No. 31919P Tel: (416) 863-4374 Email: kenneth.kraft@dentons.com Sara-Ann Van Allen LSUC No. 56016C Tel: (416) 863-4402 Email: sara.vanallen@dentons.com Lawyers for Cogent Fibre Inc.
Court File No.31-2016058 Estate No. 31-2016058 ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY) [COMMERCIAL LIST] 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 COGENT FIBRE INC. PART I. OVERVIEW 1. Cogent Fibre Inc. ( CFI ) files this factum in support of its motion for an order pursuant to Section 187(5) of the Bankruptcy and Insolvency Act (Canada) ( BIA ) rescinding or varying the Order of the Honourable Justice Penny, dated August 12, 2015 (the Termination Order ). PART II. FACTS Background 2. On July 15, 2015, CFI filed a Notice of Intention to Make a Proposal (the NOI ) under the BIA. 1 3. The Fuller Landau Group Inc. was appointed as Proposal Trustee in respect of the proceedings (the NOI Proceedings ). 4. On August 12, 2015, this Honourable Court heard the motions of (i) NS United Kaiun Kaisha, Ltd. ( NSU ) pursuant to s. 50.4(11) of the BIA to terminate the time available to CFI to file a proposal, and (ii) CFI pursuant to s. 50.4(9) of the BIA to extend the 30 day time period within which to file a proposal. 2 1 Affidavit of Arthur Birnbaum, sworn October 26, 2015, para 5 [Birnbaum Affidavit]. 2 Birnbaum Affidavit, para 6.
- 3-5. Once the NOI Proceedings commenced, NSU and CFI engaged in settlement discussions. 3 6. CFI was in a position to file a proposal on August 11, 2015, ahead of the motion date. However, due to the status of the ongoing negotiations, and since CFI had satisfied the preconditions NSU laid out for an in-person meeting, CFI expected that a meeting with NSU would be held. As a result, CFI anticipated there would be an agreement to a short extension for the agreed upon meeting to take place. It was only just minutes before the hearing commenced that CFI learned that NSU would not meet despite CFI having satisfied the conditions NSU specified. 7. In addition, CFI did not want to take any steps that may undermine or possibly derail the ongoing settlement discussions. For these reasons, CFI did not instruct its counsel to file a proposal in advance of the August 12, 2015 court hearing. 4 8. Pursuant to the Termination Order, CFI s motion to extend was denied and NSU s motion to terminate was granted. 5 9. That same day, CFI served a Notice of Appeal in respect of the Termination Order. 6 10. On August 17, 2015, Mr. Justice Penny released his written reasons for granting the Termination Order and, on August 21, 2015, CFI served an Amended Notice of Appeal to reflect Justice Penny s reasons. 7 Fresh Evidence 11. Subsequent to the Termination Order and the filing of the Notice of Appeal, on August 13, 2015, CFI filed a proposal to its creditors dated August 13, 2015 (the Proposal ). 8 This 3 Birnbaum Affidavit, para 7. 4 Birnbaum Affidavit, paras 10-11. 5 Birnbaum Affidavit, para 13. 6 Birnbaum Affidavit, para 14. 7 Birnbaum Affidavit, paras 15-16. 8 Birnbaum Affidavit, para 19.
- 4 - was necessary to avoid a deemed bankruptcy and was consistent with CFI s position if its motion to extend was denied. 12. The Proposal was subsequently amended on August 17, 2015 (the Amended Proposal ). 9 13. The Amended Proposal provides for an overall greater recovery for CFI s unsecured creditors than would otherwise be achieved in a bankruptcy and was substantially similar to the proposal that could have been filed before the motions. 10 14. Subsequent to the filing of the Amended Proposal, NSU and CFI continued discussions with a view to resolving the outstanding matters between them. 11 15. On September 30, 2015, NSU assigned all of its right, title, interest and obligations in respect of this matter to Leeward Debt Acquisition Inc. ( Leeward ). 12 Leeward is at arm s length from CFI. 16. Consequently, NSU, the only party who opposed the continuation of the NOI Proceedings, no longer has any interest in the within proceedings. 17. Leeward has advised that, (a) they do not oppose CFI s appeal of the Termination Order and they do not intend to file any responding materials in respect of same, and (b) they support CFI s within motion for an order pursuant to Section 187(5) of the BIA. 13 18. No other parties have advised CFI that they will be responding to CFI s appeal. 9 Birnbaum Affidavit, para 21. 10 Birnbaum Affidavit, paras 20 & 23. 11 Birnbaum Affidavit, para 27. 12 Birnbaum Affidavit, para 27. 13 Birnbaum Affidavit, paras 29-30.
- 5 - PART III. LAW AND DISCUSSION 19. Section 187(5) of the BIA reads as follows: 14 (5) Every court may review, rescind or vary any order made by it under its bankruptcy jurisdiction 20. This Honourable Court has jurisdiction to hear a motion pursuant to Section 187(5) even though an appeal of the Termination Order remains pending. 15 21. The relevant principles governing a motion pursuant to Section 187(5) are as follows: 16 (a) (b) (c) (d) (e) (f) (g) the issue before the court is whether the order should remain in force because of changed circumstances or fresh evidence and not, as on appeal, whether it ought to have been made; fresh evidence in this context means that it is material, substantial in nature, and something that, with reasonable diligence, could not have been known at the time of the original application; the application must be made promptly, within a reasonable time of acquiring knowledge of the order; review jurisdiction is exercised sparingly; in exercising its discretion, the court must consider the rights not only of the debtor and of the creditors but also of the public; the court should resort to its s. 187(5) jurisdiction if it is just and expedient in the control of its own process; and the applicant bears the onus of establishing that exercise of the review jurisdiction is warranted. 22. These principles are satisfied here. 14 Bankruptcy and Insolvency Act, R.S.C. 1995, c. B-3, as amended, s. 187(5) [BIA]. 15 Elias v. Hutchison, 1980 CarswellAlta 169, 35 C.B.R. (N.S.) 30 (Q.B.) at para 27 [Elias], affirmed (1981), 37 C.B.R. (N.S.) 149 (Alta. C.A.); Re Garrity, 2006 CarswellAlta 382, 2006 ABQB 238 (Q.B.) para 81 [Garrity]; Duclos v. Coulombe, 1946 CarswellQue 31, 28 C.B.R. 110 (C.A.). 16 Garrity, para 46; See also Elias, para 28; Re HOJ National Leasing Corp., 2008 CarswellOnt 2749, 42 C.B.R. (5th) 208 (C.A.), paras 27-28 [HOJ National Leasing]; Strachan, Re, 1980 CarswellOnt 153, 34 C.B.R. (N.S.) 136 (S.C.), para 10.
- 6 - (a) There has been a fundamental change in circumstances 23. Two significant events have transpired since the granting of the Termination Order. First, the filing of the Amended Proposal, and second the assignment of NSU s claim to Leeward on September 30, 2015. 17 24. These events constitute a fundamental change in circumstances that arose after the original August 12, 2015 hearing date. 18 25. In particular, the assignment of NSU s claim to Leeward has eliminated the only known opposition to the continuation of CFI s NOI Proceedings. NSU was the only party who opposed CFI s motion to extend the time to file a proposal, and the only party who brought a motion to terminate the 30 day time period to file a proposal. No other party opposed the continuation of the NOI Proceedings. The Proposal Trustee expressly supported CFI s motion for an extension of the time to file a proposal. 19 26. Leeward, in contrast to the position taken by NSU, is in favour of the NOI Proceedings continuing. They do not oppose CFI s appeal of the Termination Order and they do not intend to file any responding materials in respect of same. 20 (b) Fresh evidence is material and could not have been known 27. The fresh evidence, in particular the assignment of NSU s claim on September 30, 2015, is material in that it markedly changes the dynamics of the NOI Proceedings. The NOI filing by CFI, which NSU opposed, now has no known opposition from any of CFI s creditors. Leeward, CFI s most significant creditor, supports the NOI Proceedings continuing. 21 28. Further, the filing of the Proposal, and the Amended Proposal, days after the Termination Order negates the concerns originally raised before this Honourable Court that CFI would not be able to put forward a proposal before the expiry of the 30 day time period. 17 Birnbaum Affidavit, paras 19 & 27. 18 HOJ National Leasing, para 27. 19 Birnbaum Affidavit, para 28. 20 Birnbaum Affidavit, paras 29 & 30. 21 Birnbaum Affidavit, para 30.
- 7-29. These new developments arose after the August 12, 2015 original motion date and clearly could not have been known at the time of the original motion. (c) Motion has been brought promptly 30. CFI has brought its motion pursuant to Section 187(5) promptly after the assignment of NSU s claim to Leeward. 22 31. Furthermore, no parties have changed their position in reliance on the Termination Order. As a result, there is no prejudice to any party that would result from rescinding the Termination Order at this time. 23 (d) Review jurisdiction is appropriate here 32. Although the power under Section 187(5) is to be exercised sparingly, 24 this is an appropriate case for the use of this power. 33. An order rescinding the Termination Order or varying the Termination Order to provide that the time for filing a proposal is not terminated will permit CFI to continue the NOI Proceedings for benefit of all of its stakeholders and hold a meeting of creditors to vote on the Amended Proposal. 34. The requested order will also avoid the unnecessary expenditure of resources to administer a bankruptcy proceeding or to pursue an appeal. This ensures that CFI s limited resources are deployed towards the proposal process and for the benefit of CFI s creditors, instead of in respect of additional litigation. (e) Section 187(5) order is in the best interests of creditors and public 35. The requested order is for the benefit of not only CFI, but also its creditors and other stakeholders. The Amended Proposal was put forward in good faith and provides for a greater recovery for CFI s unsecured creditors than they would receive in a bankruptcy. 25 22 HOJ National Leasing, para 29. 23 HOJ National Leasing, paras 29-30. 24 Garrity, para 46; Elias, para 28.
- 8-36. The continuation of the NOI Proceedings provides for CFI s continued existence for the benefit of all of its stakeholders, as well as preserving any tax losses. (f) The requested order is just and expedient 37. CFI has not at this time perfected its appeal of the Termination Order. NSU (and later Leeward) agreed to extend the perfection date while the parties worked to resolve matters. The granting of an order rescinding the Termination Order will make CFI s appeal of such order moot. 38. Should the requested relief not be granted, CFI will be forced to incur the expense of perfecting and arguing an appeal that has no known respondents and which includes a motion to admit fresh evidence. If that appeal is unsuccessful, CFI will be required to fund the professional fees and expenses of its counsel and the Trustee to administer a bankruptcy proceeding. Also, any tax losses will be lost in a bankruptcy scenario. 39. Although it would be possible to put the proposal through a bankruptcy, such a step would add a layer of unwarranted complexity and costs that do not benefit any party. 40. An order varying or rescinding the Termination Order is, accordingly, the most just and expedient way for CFI to complete and ultimately exit from the NOI Proceedings. (g) The exercise of jurisdiction under Section 187(5) is warranted 41. The realities of this situation call for a pragmatic approach that is sensitive to commercial realities and business efficacy. 26 42. In light of the foregoing, CFI respectfully submits that it has met its burden of establishing that an order under Section 187(5) is warranted. 25 Birnbaum Affidavit, para 23. 26 Garrity, para 56.
- 10 - SCHEDULE A LIST OF AUTHORITIES 1. Elias v. Hutchison, 1980 CarswellAlta 169, 35 C.B.R. (N.S.) 30 (Q.B.), affirmed (1981), 37 C.B.R. (N.S.) 149 (Alta. C.A.). 2. Re Garrity, 2006 CarswellAlta 382, 2006 ABQB 238 (Q.B.). 3. Duclos v. Coulombe, 1946 CarswellQue 31, 28 C.B.R. 110 (C.A.). 4. Re HOJ National Leasing Corp., 2008 CarswellOnt 2749, 42 C.B.R. (5th) 208 (C.A.). 5. Strachan, Re, 1980 CarswellOnt 153, 34 C.B.R. (N.S.) 136 (S.C.).
- 11 - SCHEDULE B RELEVANT STATUTES Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended 187(5) Every court may review, rescind or vary any order made by it under its bankruptcy jurisdiction.
IN THE MATTER OF THE PROPOSAL OF COGENT FIBRE INC. Court File No: 31-2016058 Estate No.: 31-2016058 ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY) [COMMERCIAL LIST] Proceeding commenced at Toronto FACTUM OF COGENT FIBRE INC. DENTONS CANADA LLP 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Fax: (416) 863-4592 Kenneth Kraft LSUC No. 31919P Tel: (416) 863-4374 Email: kenneth.kraft@dentons.com Sara-Ann Van Allen LSUC No. 56016C Tel: (416) 863-4402 Email: sara.vanallen@dentons.com Lawyers for Cogent Fibre Inc.