Persons of Interest: Alberta Court of Appeal Widens the CCAA Gateway for Equity Investors

The CCA Proceedings

On November 14, 2024, an initial order under the CCAA was granted upon application by investors in the real estate projects respectively known as Windridge, Fossil Creek, and Angus Manor.

The initial order appointed Alvarez & Marsal Canada Inc. as the monitor and identified various entities as debtor companies (debtors), including two Texas corporations (Texas LLCs) and a group of Canadian entities (Canadian WFC entities).

The proceedings were commenced on an urgent, effectively ex parte basis after the investors discovered through a social media post that a sale of Angus Manor land in Ontario was imminent. They had not received notice of the sale, nor had they received contractually required financial reporting or communication from the entities managing the real estate projects. The initial order gave the monitor enhanced powers of management and control over the debtors and related entities, and it stayed proceedings against them.

At the comeback hearing, the debtors submitted a contestation to have the initial order set aside and halt the CCAA proceedings. They argued that, among other things, equity investors had no standing to initiate CCAA proceedings; foreign companies with no business or assets in Canada could not be bound by such an order; and solvent entities should be excluded from its scope.

CCAA supervising judges of first instance dismissed the contestation in two stages: (i) Justice Simard resolved preliminary issues and extended the stay to allow the monitor to gather further information; and (ii) Justice Feasby then confirmed the initial order, found the CCAA proceedings to be appropriate and dismissed the application to set it aside, allowing the proceedings to continue against the debtors. The debtors then applied to obtain leave to appeal.

The Appeal

Although leave to appeal is granted sparingly in CCAA proceedings, on April 28, 2025, the Court of Appeal of Alberta granted leave to appeal both decisions. One of the main issues on appeal was whether equity investors may ever commence CCAA proceedings. Other issues included whether foreign companies (with no business or assets in Canada) and solvent entities may be subject to CCAA proceedings.

Equity investors may commence CCAA proceedings in certain circumstances

While there was no known Canadian precedent for a court granting an initial order upon application by an equity investor, the Court of Appeal of Alberta found, after a contextual and purposive analysis of the CCAA, that equity investors may commence CCAA proceedings if they have a potential share in the funds payable under a successful compromise or arrangement.

In its contextual analysis, the Court of Appeal of Alberta noted that Section 11 of the CCAA confers the court broad discretion to make orders it considers appropriate in the circumstances “on the application of any person interested in the matter.” While the CCAA does not define who qualifies as an “interested person,” the Court of Appeal inferred from the statutory context that equity investors were not excluded. The main contextual cue is that, in CCAA provisions where Parliament intended to limit the rights of equity investors, it did so expressly.

In its purposive analysis, the Court of Appeal indicated that, to further the CCAA’s remedial objectives, the term “interested person” should, at a minimum, refer to someone with a financial interest in the outcome of the proceedings. That may happen when a debtor company is “cash flow” insolvent (i.e., unable to pay its obligations as they become due) at the time of the initial application but has greater total assets than liabilities.

By contrast, where the debtor company is “balance sheet” insolvent (i.e., has more liabilities than assets) at the time of the initial application, its assets are insufficient to satisfy creditors’ claims, and equity investors usually have no financial interest in the outcome of proceedings given their lower priority ranking.

The Court of Appeal acknowledged that a comprehensive account of the debtor company’s assets and liabilities is rarely available at the initial application stage, and little information detailing the appellants’ insolvency was available here. The appropriate threshold requires the equity investor to demonstrate only a reasonable possibility that the assets are of greater value than the non-equity claims.

Other notable issues before the Court of Appeal

The Texas LLCs fell outside the CCAA’s definition of “debtor company,” defined as a company that is either incorporated in Canada or conducts business or has assets in Canada. Among other requirements, it defines “debtor company” as a company that is insolvent, which is why the Canadian WFC entities, not found to be individually insolvent, also escaped its definition. That said, the Court of Appeal held that supervising courts have statutory authority under Section 11 of the CCAA to subject non-debtor companies to initial orders where it is appropriate in the circumstances.

The Court of Appeal held that Section 3(1) of the CCAA, which states that the CCAA applies “in respect of a debtor company or affiliated debtor companies,” merely triggers the application of the CCAA without limiting the court’s authority under Section 11 of the CCAA.

Put differently, once the Section 3(1) of the CCAA threshold is satisfied, meaning at least one debtor company faces claims totalling more than $5 million, the CCAA applies and the supervising court may use its discretion to make orders binding non-debtor companies that are appropriately connected to a debtor company. Discussing foreign incorporated companies, the Court of Appeal noted that, at a minimum, the non-debtor company must be integrally and closely related to the debtor companies’ business such that the order is necessary to achieve the purposes of the proceedings.

There are several cases in which courts have exercised their statutory authority under Section 11 of the CCAA to issue orders extending to non-debtor companies. However, as the Court of Appeal noted, there were no prior cases in which a court granted powers to a “super monitor” to manage a non-debtor company’s business and control its assets.

The Court of Appeal reapplied the same reasoning to the Canadian WFC entities: Once the threshold for the application of the CCAA is satisfied, the authority under Section 11 of the CCAA extends to making orders that bind non-debtor companies, including solvent entities.

The Court of Appeal also held that, in appropriate circumstances, a company may be treated as insolvent where it forms part of a group that is collectively insolvent. The Court of Appeal identified no single determinative principle for when insolvency should be assessed on a collective basis, but concluded that it was appropriate here, as the companies were “part of an intertwined whole.”

Key Takeaways

The decision confirms that equity investors may initiate CCAA proceedings provided they have a financial interest in the outcome, thereby qualifying as “persons interested” within the meaning of Section 11 of the CCAA. This requires a reasonable possibility that the debtor company is cash flow insolvent while its total assets exceed its liabilities.

CCAA proceedings may also extend to foreign companies with no business or assets in Canada where those companies are integrally and closely related to the debtor companies’ business and to non-debtor solvent entities. Moreover, a company may be treated as insolvent when closely intertwined with a group that is collectively insolvent.

For U.S. and Canadian investors in cross-border real estate ventures and structured investments, this decision opens new doors. Where an investment vehicle becomes distressed, equity holders now have a potential path to initiate CCAA proceedings, a tool typically understood to be available only to debtors and creditors. Those proceedings can pull in foreign entities and non-debtor solvent entities where appropriate, giving restructuring efforts a broader reach across borders and corporate structures.