Summary

Keywords

Bankruptcy and insolvency - Compensation - Order issued to effect that companies are subject to proceedings under Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”) - Claim of public body arising from agreement entered into before initial order under voluntary reimbursement program set up under Act to ensure mainly the recovery of amounts improperly paid as a result of fraud or fraudulent tactics in connection with public contracts, CQLR, c. R-2.2.0.0.3 (“Bill 26”) - Amounts owed to companies by public body for work carried out after initial order - Whether claims of public bodies arising from voluntary reimbursement program set up under Bill 26 are claims resulting from fraud for purposes of s. 19(2)(d) CCAA or s. 178(1)(e) of Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), from which debtor cannot be released - Whether, where claim for fraud cannot be subject of compromise in accordance with s. 19(2) CCAA, victim of that fraud may effect compensation under s. 21 CCAA with debt incurred after initial order was issued - Whether creditor in restructuring may obtain judicial compensation where certainty, liquidity and exigibility of claim is to be determined in proceeding other than that of restructuring case - Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, ss. 19, 21.

Summary

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In August 2018, the Superior Court made an order to the effect that Groupe SMI inc., Groupe SM inc., Claulac inc., SMI Construction inc., Enerpro inc. and Groupe SM international (construction) inc. (collectively, “Groupe SM”) were subject to proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”), and that also stayed any claims and proceedings against them and contemplated the filing of a plan of arrangement (“initial order”). The Superior Court appointed Deloitte Restructuring Inc. (“Deloitte”) as monitor. In November 2018, the Superior Court approved the sale of some of Groupe SM’s assets to Thornhill Investments Inc. Between August and November 2018, Groupe SM did work for Ville de Montréal (“city”) worth an estimated $825,892.20, for which it was not paid. The city argued that it could effect compensation between, on the one hand, two claims that had arisen before the August 2018 order and allegedly resulted from fraud by Groupe SM in the awarding of public contracts and, on the other hand, what it owed to Groupe SM for the work. The first claim the city argued it had against Groupe SM resulted from a settlement agreement entered into between the Minister of Justice, acting on behalf of the city, and Groupe SM in November 2017 within the framework of the voluntary reimbursement program (“VRP”) set up under the Act to ensure mainly the recovery of amounts improperly paid as a result of fraud or fraudulent tactics in connection with public contracts, CQLR, c. R-2.2.0.0.3 (“Bill 26”), in which Groupe SM undertook to make certain reimbursements. The second claim was based on a proceeding brought by the city in September 2018 in which it claimed money from Groupe SM for, in particular, having participated in collusion in relation to a call for tenders for a water meter contract. The monitor, Deloitte, then applied for a declaratory judgment to the effect that the amounts owed by the city to Groupe SM for work that had been done for it could not be extinguished by compensation. It also requested that the city pay the invoices for that work.

The Superior Court granted the application for a declaratory judgment and ordered Ville de Montréal to pay the monitor, Deloitte, $825,892.20 plus interest at the legal rate and the additional indemnity since the application for a declaratory judgment, with costs. In the judge’s view, the debt resulting from the VRP was linked to an unrefuted allegation of fraud, whereas the debt resulting from the suit was not liquid and exigible. In accordance with the principles from Arrangement relatif à Métaux Kitco Inc., 2017 QCCA 268, compensation cannot be effected between amounts owing before the order was made and a debt incurred after it was made. A majority of the Court of Appeal allowed Ville de Montréal’s appeal, with costs against Ville de Montréal, solely to replace para. 76 of the judgment (order that Ville de Montréal pay $825,892.20). Ruel J.A. would have allowed the appeal and declared that compensation had been effected by operation of law, after the order was made, between the city’s debt for services rendered by Groupe SM and Groupe SM’s debt resulting from the agreement under the VRP.

Lower Court Rulings