Our Montreal and Toronto offices acted for Stornoway Diamond Corporation (SWY) and its affiliates (SWY Group) in the context of its CCAA restructuring process. SWY is a Canadian mining corporation, which was listed on the TSX prior to the CCAA proceedings. Its main operation was the Renard Mine, one of only four diamond mines in Canada and a flagship component of Québec’s Plan Nord, employing over 500 employees. The Renard Mine financing in 2014 was the largest single project financing transaction for a publicly listed diamond company in Canada, and included equity, senior and convertible debt, equipment financing and the world’s first ever diamond stream financing.
On September 9, 2019, the Superior Court of Quebec (Commercial Division) (the “Court”) issued the Initial Order. At that point, the SWY Group had an accumulated deficit of approximately C$660m, with outstanding liabilities, on a consolidated basis, of approximately C$715m. On October 4, 2019, the Court approved a transaction, whereby certain secured creditors became the sole shareholders of the operating entity of the SWY Group whose underlying assets were expunged from any encumbrances.
Our bench strength, not only in bankruptcy and restructuring, but also in related practice areas such as M&A, tax, real estate, employment and labour, intellectual property and litigation across Canada gives us the ability to handle complex matters of this magnitude.
The transaction was approved through what can most appropriately be called a “reverse vesting order” (the “RVO”). Through the RVO, instead of vesting assets out of the insolvent debtor in favour of another entity, leaving the unwanted assets/liabilities behind, the insolvent debtor is rather vested out of unwanted assets/liabilities, which are transferred/assigned in favour of sole purpose entities. The insolvent debtor emerges from CCAA proceedings upon filing of the monitor’s certificate while sole purpose entities holding the unwanted assets/liabilities are deemed to become CCAA parties, in lieu of the insolvent debtor. The advantage of this innovative approach is to minimise the impact of distressed CCAA transaction on the going concern of the business (no need to transfer agreements/license/permits) while preserving tax attributes. All of that without having to secure a vote from any creditors through a plan of arrangement. As counsel to the debtor companies, we were instrumental in developing and implementing this RVO structure. The RVO transactional structure is innovative as no contested precedent exists in this regard. Ultimately, this transaction allowed for the successful restructuring of approximately C$1bn in debt while preserving the going concern of a flagship component of the Quebec Plan Nord and saving over 500 jobs.
The team was led by Luc Morin and Steve Malas and included Evan Cobb, Martin Thériault, Miguel Manzano, Renée Loiselle and Arad Mojtahedi.