Using the Companies Creditors Arrangement Act to Settle Class Actions: Lessons of Sino-Forest
In class action litigation, a proposed settlement will be assessed by the court on the basis of whether it is fair, reasonable and in the best interests of the class. However, in situations where the defendant is granted protection under the Companies’ Creditors Arrangement Act, the dynamics may drastically change. As illustrated in the Sino-Forest litigation, a settlement within the context of the CCAA may take precedent over the opt-out rights of class members. Further, the class members, if equity claimants, will generally be unable to vote on any plan put forward by the settling parties. Lastly, for some parties, a CCAA settlement may serve as an opportunity to obtain a release it would not have otherwise obtained.
This paper will outline the specific provisions of class proceedings legislation and the CCAA as it pertains to settlements. It will then address how class settlements are impacted by CCAA proceedings by outlining the Ontario court’s equity and settlement decisions in Labourers’ Pension Fund of Central and Eastern Canada v Sino-Forest Corporation. In particular, the authors will canvas when claims will be characterized as “equity claims” for the purposes of the CCAA, the ability to obtain comprehensive third party releases within the context of the CCAA, and the ability to “cram down” a plan on plaintiff shareholders upon approval of the plan by the majority of a debtor company’s creditors. In light of these factors, strategic tips are provided which counsel ought to consider prior to entering into CCAA-focused negotiations.
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