LFAs given green light as interim financing under CCAA

Canada Publication May 19, 2020

In Bluberi Gaming Technologies, the Supreme Court of Canada confirmed that under the Companies’ Creditors Arrangement Act (CCAA), a supervising judge has the discretion to approve a third-party litigation funding agreement (LFA) as interim financing.1 In so doing, the court endorsed the practice in lower courts of approving LFAs in similar circumstances, most notably by the Ontario Court of Appeal in Re Crystallex.2


Bluberi was a group of technology companies specialized in the manufacturing, distribution, installation and servicing of casino electronic gaming machines. In 2015, Bluberi sought protection under the CCAA. Bluberi sold most of its assets to Callidus, its secured lender, save for a group of potential claims, the largest being a claim for approximately $200 million against Callidus for misrepresentation, unilateral changes to deal terms, deliberately poor vendor management, and provoking continuous defaults. Bluberi alleged that Callidus engaged in this conduct to deplete the corporation’s equity value with a view to owning Bluberi and, ultimately, to selling it.3

Former Bluberi filed an application with the Quebec Superior Court for approval of an LFA to bring its claims forward. Callidus took the position that the application should be dismissed and sought an order authorizing the holding of a further creditors’ meeting. Before the Supreme Court, Callidus argued the LFA did not constitute interim financing and thus could not be approved by the supervising judge. 

Approving an LFA as interim financing is within the supervising judge’s discretion 

The court held that LFAs, insofar as they are not per se illegal, can be approved as interim financing under section 11.2 of the CCAA, on a case-by-case basis. In cases such as the one at hand, where a litigation asset can be monetized for the benefit of creditors, the objective of maximizing potential recovery takes “center stage.” Third-party litigation funding thus “furthers the basic purpose of interim financing: allowing the debtor to realize on the value of its assets.”4

In considering whether to approve interim financing in the form of an LFA, supervising judges are required to consider what is fair and appropriate, having regard to the non-exhaustive factors listed under subsection 11.2(4) of the CCAA.5 The court emphasized the broad discretion afforded to these judges, given their unique knowledge of the cases over which they preside, and stated they may also draw guidance from other areas in which LFAs have been approved, consistent with recent practice in lower courts.6

Finally, the court rejected Callidus’ argument that third-party litigation funding is akin to a plan of arrangement, which must be put to a creditors’ vote. LFAs assist a debtor to realize on the value of a litigation asset and thus do not, on their face, constitute plans of arrangement: they do not purport to determine how any recovered funds (e.g., a damages award) would be distributed amongst creditors. The court also dismissed the argument that the “super-priority litigation financing charge” converted the LFA into a plan of arrangement by subordinating creditors’ rights to that of IMF Bentham (the funder). This determination is for the supervising judge, based on the particular terms of the LFA.7

No general pronouncement on the conditions for approval of LFAs generally

The Supreme Court observed that jurisprudence on the approval of LFAs in the class action context and the parameters of their legality generally is still evolving. The court referred in particular to the controversy that approval of LFAs has posed in light of the common law doctrines of champerty and maintenance. The court went on to note, however, that courts have increasingly come to recognize that LFAs are not per se champertous, just as contingency fee arrangements are not champertous when not motivated by an improper purpose.  

As no party to the appeal invited the court to weigh in on this debate, the court stopped short of providing general guidance on the limits of the legality of LFAs or conditions for their approval. The court appears to accept that LFAs are not per se illegal. However, whether or not an LFA can be approved in a particular matter remains a case-specific, fact-based determination.8

Key take-aways

Although the court elected not to provide any definitive guidance for lower courts and parties on the conditions for approval of an LFA in Canada outside of the bankruptcy context, it has all but cemented the use of LFAs as interim financing in the context of insolvency proceedings under the CCAA, and likely bankruptcy proceedings under the Bankruptcy and Insolvency Act

That said, without any guidance from the Supreme Court on conditions for approval of LFAs generally, supervising judges may still be expected to take into consideration local jurisprudence on the approval of LFAs when considering their use as interim financing in a CCAA proceeding. 


1   9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10. Reinstating the Quebec Superior Court’s decision in Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.) -and- Ernst & Young Inc., 2018 QCCS 1040 (“Bluberi QCCS”). For an analysis of this decision, and anticipated requirements when drafting an LFA, see Litigation funding in Canadian Insolvencies: a new tool in the toolbox? Alexander Schmitt (Toronto) October 23, 2018. 

2   2012 ONCA 404.

3   At para. 7.

4   At para. 96.

5   At para. 97.

6   At paras. 97-98. 

7   At paras. 102, 111, 114.

8   At paras. 95-96. 

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