Our Montréal office acted as counsel to Investissement Québec (IQ) in connection with the restructuring of Nemaska Lithium Inc. (Nemaska) and its affiliates (the Nemaska Entities) in a series of transactions structured as a credit bid in connection with proceedings under the Companies’ Creditors Arrangement Act ( the CCAA).
Following the issuance on December 23, 2019 by the Superior Court of Québec of an Initial Order pursuant to the CCAA offering creditor protection to the Nemaska Entities, IQ formed a consortium which included Nemaska’s largest secured creditor, Orion Mine Finance (Orion), and The Pallinghurst Group (Pallinghurst), and made an offer to acquire the Nemaska Entities with a view to relaunching Nemaska’s Whabouchi project and creating a vertically integrated producer of spodumene and high-purity lithium hydroxide in Quebec.
Following the implementation of a lengthy and thorough sale or investment solicitation process (SISP) conducted under the auspices of the CCAA, Nemaska accepted the sale proposal submitted by IQ, Orion and Pallinghurst on August 24, 2020. The transactions contemplated under the sale proposal were conditional on the issuance by the Superior Court of Québec of a Reverse Vesting Order (RVO) providing for a reorganization of the Nemaska Entities involving the transfer of certain excluded assets and liabilities to a newly-formed company (Residual Nemaska), and the exchange of the common shares of Nemaska for common shares of Residual Nemaska, resulting in Residual Nemaska becoming a successor reporting issuer.
The end result of the RVO process is to expunge the debtor entities of assets and liabilities that the bid group does not wish to retain while maintaining the existing corporate structure of such entities, thus preserving key licenses and permits and, if available, historical tax attributes. Upon completion of the transactions approved pursuant to the RVO, the debtor entities emerge from the CCAA proceedings while the residual entity, in this case Residual Nemaska, remains subject to the CCAA.
A creditor of Nemaska as well as certain of its shareholders filed motions opposing the issuance of the RVO on multiple grounds. After reviewing the SISP process that led to the submission by IQ and its partners of the sale proposal, the absence of credible alternative transactions, and the potentially catastrophic consequences to Nemaska’s stakeholders, including its employees, creditors, suppliers, the Cree community and the affected local economies, of putting the restructuring process on hold in order to re-initiate a SISP at a future point in time in an uncertain market that had already been thoroughly canvassed or, alternatively, putting the Nemaska Entities into bankruptcy, the Superior Court of Québec, Justice Gouin presiding, approved the RVO on October 15, 2020.
Plaintiffs appealed the decision of the Superior Court of Québec to the Quebec Court of Appeal, alleging essentially the same grounds. In a judgment issued on November 11, 2020, the Court of Appeal dismissed the appeal and upheld the ruling of Justice Gouin approving the RVO, making this transaction the first of its kind in Canada to withstand judicial scrutiny.
Our team was led by Steve Malas and Luc Morin and included Elliot Shapiro, Vincent Filiatrault, Pierre-François Tétreault, Caroline Comeau, Sophie D’Entremont, William Provencher-Campeau and Samuel Francisque (corporate, M&A and securities); Guillaume Michaud and Arad Mojtahedi (insolvency and restructuring); Derek Chiasson (tax); Martin Thériault and Thomas Nichols (banking and finance); Miguel Manzano and Mélissa Devost (real estate and environment).