20 July 2020
Invoking “Critical supplier” status pursuant to the Companies’ Creditors Arrangement Act (CCAA)
The Commercial Division of the Superior Court recently adopted a restrictive interpretation as to the opportunities for third-party suppliers to benefit from “Critical supplier” status as identified at S. 11.4(1) of the CCAA.
In Nemaska Lithium Inc. et al., Justice Louis J. Gouin, j.s.c., rejected an application by Veolia Water Technologies, Inc., for recognition of status as a critical supplier to the insolvent entity. Had the application been granted, not only would Veolia have continued servicing Nemaska (and been paid to do so), it would also have obtained payment of pre and post-filing receivables.
The Court rejected the application for two primary reasons:
- It adopted a literal interpretation of S. 11.4(1) of the CCAA, in which the prerogative to identify a third-party as a critical supplier lies solely with the debtor company, at its own discretion and in line with the insolvent entity’s objectives and business strategy as per its plan of arrangement.
- Even if the request to the Court had come directly from the debtor company, such an application would have been inappropriate, given that the debtor company is no longer operational and therefore, does not actually have any critical suppliers at this time.
Succinctly, the message from the Court is that creditors will not be permitted to manipulate the CCAA to do indirectly what cannot be done directly. In the opinion of the Court, the petitioner’s obvious goal was to obtain immediate payment of pre and post-filing receivables from the debtor company, which would have been to the detriment of the general body of creditors.
If you are a creditor of a debtor entity facing insolvency proceedings and need assistance navigating the process, please contact a member of KRB’s litigation team.