COURT OF APPEAL FOR ONTARIO

CITATION: U.S. Steel Canada Inc. (Re), 2016 ONCA 662

DATE: 20160909

DOCKET: C61331

Strathy C.J.O., Lauwers and Benotto JJA.

In
    the Matter of the
Companies Creditors

Arrangement Act
,
    R.S.C. 1985, c. C-36, As Amended

And
    in the Matter of a Proposed Plan of Compromise or

Arrangement with Respect
    to U.S. Steel Canada Inc.

Gordon Capern, Kristian
    Borg-Olivier and Denise Cooney, for the appellant United Steel, Paper and
    Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers
    International Union (the Union), Appellant

Andrew Hatnay and Barbara
    Walancik, for SSPO and non-union retirees and active employees of U.S. Steel
    Canada Inc.

Tamryn Jacobson, for Her
    Majesty the Queen in Right of Ontario and the Superintendent of Financial
    Services (Ontario)

Michael E. Barrack, Jeff
    Galway and John Mather, for United States Steel Corporation, Respondent

Sharon Kour, for U.S. Steel
    Canada Inc.

Heard: March 17, 2016

On appeal from the order of
    Justice H. Wilton-Siegel of the Superior Court of Justice, dated August 13,
    2015.

Strathy C.J.O.:

[1]

U.S. Steel Canada Inc. (USSC) is in
CCAA
[1]
protection. Its former employees claim that its American parent, United States
    Steel Corporation (USS), ran the company into insolvency to further its own
    interests. An issue arose in the court below as to whether the
CCAA
judge could apply an American legal doctrine called equitable subordination
    to subordinate USSs claims to the appellants claims.

[2]

The
CCAA
judge held he had no jurisdiction to do so. For
    reasons different than the ones he gave, I agree, and would dismiss the appeal.

FACTUAL BACKGROUND

[3]

USS is one of the largest steel producers in North America. In 2007, it
    acquired Stelco, which was in
CCAA
protection at the time, and changed
    its name to USSC.

[4]

Seven years later, on September 16, 2014, USSC was again granted
CCAA
protection by order of the Superior Court of Justice (Commercial List).

[5]

The
CCAA
judge made a Claims Process Order on November 13,
    2014, establishing a procedure for filing, reviewing and resolving creditors claims
    against USSC.

[6]

The order set out a separate procedure for resolving claims of
    approximately $2.2 billion by USS against USSC. Most of the claims arose from
    USSs acquisition and reorganization of Stelco and from advances of working
    capital. Those claims were to be determined by the court, rather than by the
    Monitor.

[7]

USS filed its proofs of claims. The Monitor recommended they be approved
    and USS moved for court approval of the claims.

[8]

Notices of Objection were filed by four parties: (a) the Province of
    Ontario and the Superintendent of Financial Services in his capacity as
    administrator of the Pension Benefits Guarantee Fund; (b) the United
    Steelworkers, Locals 8782 and 1005; (c) Representative Counsel to the Non-USW
    Active Salaried Employees and Non-USW Salaried Retirees; and (d) Robert
    Milbourne, a former president of Stelco, and his wife, Sharon Milbourne, both
    of whom are beneficiaries of a pension agreement with USSC.

[9]

These objections overlapped to some extent. The
CCAA
judge had
    to develop a procedure to address the objections. He had to decide whether they
    should be dealt with within the
CCAA
process, outside it, or not at
    all.

[10]

The Province made two allegations. The first was that loans by USS to
    USSC should be characterized as shareholders equity, because of the
    circumstances in which they were made. They should therefore be subordinated to
    all other claims pursuant to s. 6(8) of the
CCAA
[2]

(the Debt/Equity Objection). Second, the Province argued that the
    security for the loans should be invalidated pursuant to provincial and federal
    fraudulent assignment and fraudulent preference legislation (the Security
    Objection). USS disputed both allegations, but was content to have the issues
    determined under the Claims Process Order.

[11]

The Union made objections similar to the Provinces, but it added a
    third based on oppression and breach of fiduciary duty arising out of USSs
    conduct in relation to the Canadian plants, pensioners, pension plan members
    and beneficiaries (the Conduct Objections).

[12]

The
CCAA
judge described the Conduct Objections as allegations
    that USS caused USSC to underperform, thereby requiring it to incur significant
    debt and to be unable to meet its pension obligations. The Union sought, among
    other things, an order subordinating the USS claims in whole or in part to its
    claims.

[13]

The Milbournes objections were based on USSs alleged conduct and
    relied primarily on the doctrine of equitable subordination. They asked that
    the USS claims be dismissed entirely or subordinated to the claims of the other
    unsecured creditors.

[14]

The
CCAA
judge scheduled a motion to establish a litigation
    plan for USSs motion for approval of its claims against USSC. The parties agreed
    that the Security Objection and the Debt/Equity Objection could be determined
    pursuant to the Claims Process Order and within the
CCAA
proceedings.
[3]

[15]

The primary disagreement concerned the procedure and timing for the
    determination of the other objections. The Union argued that the Conduct
    Objections should be resolved as part of the Claims Process Order and that an
    evidentiary record was required to do so. USS and USSC took the position that
    the Conduct Objections should be litigated outside the
CCAA
claims process.

[16]

The
CCAA
judge found that some of the claims of the Union and
    the Milbournes could be approached as third party claims against USS for
    oppression for the purpose of s. 241 of the
Canada Business Corporations
    Act
, R.S.C. 1985, c. C-44, and for breach of fiduciary duty. He found that
    neither the Claims Process Order nor the
CCAA
contemplated that such
    claims would be addressed by or would be relevant to a plan of arrangement or
    compromise under the
CCAA
. The third party claims fell outside the
    claims process unless specifically incorporated into the restructuring plan as
    approved by the parties or otherwise ordered.

[17]

The
CCAA
, he said at para. 65, is directed towards the
    creation, approval and implementation of a plan of arrangement or compromise
    proposed between a debtor company and its secured and unsecured creditors. It
    did not contemplate incorporation of inter-creditor claims into any plan of
    arrangement or compromise or into the voting process in respect of any proposed
    plan.

[18]

He concluded, at para. 84, that under s. 11 the court had authority to
    order the remaining claims of the Union and the Milbournes, except the claim
    for equitable subordination, to be determined by a process within the
CCAA
proceedings, other than the process contemplated by the Claims Process Order,
    if the Court is of the opinion that, on balance, such action is likely to
    further the remedial purpose of the
CCAA
. He held that those claims
    could be determined within the
CCAA
proceedings, rather than in a
    separate action in the Superior Court, but not under the Claims Process Order.
    He noted that the court retained jurisdiction to order that the claims be
    continued outside the
CCAA
if it was determined that pursuing them
    within the process would no longer further the remedial process of the
CCAA.

[19]

He held, however, that he had no jurisdiction under the
CCAA
to
    apply the doctrine of equitable subordination. Before turning to his reasons, I
    will explain the doctrine of equitable subordination.

EQUITABLE SUBORDINATION

[20]

Equitable subordination was developed as an equitable remedy in American
    insolvency law to subordinate a creditors claim based on its inequitable
    conduct. The principles were articulated in
Re Mobile Steel
(1977) 563
    F. (2d) 692 (5th Cir.), which set out a three-part test:

a.

the
    claimant must have engaged in some type of inequitable conduct;

b.

the
    misconduct must have resulted in injury to creditors of the bankrupt or
    conferred an unfair advantage on the claimant; and

c.

equitable
    subordination of the claim must not be inconsistent with the provisions of the
    bankruptcy statute.

[21]

Paragraph 105(a) of the U.S.
Bankruptcy Code
authorizes
    bankruptcy courts to use equitable principles to alter the provisions of Title
    11 or to prevent an abuse of process. One year after
Mobile Steel
, the
Code
was amended to give legislative effect to equitable
    subordination:
Bankruptcy Reform Act
, 11 U.S.C. §510(c)(1).

[22]

The Supreme Court of Canada considered the doctrine on two occasions. In
    both, the court found it unnecessary to determine whether equitable
    subordination should be applied, because the underlying facts did not meet the
    test:
Canada Deposit Insurance Corp. v. Canadian Commercial Bank
,
    [1992] 3 S.C.R. 558, at p. 609
; and
Sun
    Indalex Finance, LLC v. United Steelworkers,
2013 SCC 6,
[2013] 1 S.C.R. 271, at para. 77
.
This
    court also found it unnecessary to decide the issue in
Olympia & York
    Developments Ltd. v. Royal Trust Co.
(1993), 14 O.R. (3d) 1 (C.A.).

[23]

The availability of the doctrine has been considered in various
    Canadian superior courts at the trial level, in various contexts and with
    inconclusive results: see
e.g.

Harbert Distressed Investment Fund,
    L.P. v.

General Chemical Canada Ltd.
,
[2006]
    O.J. No. 3087
(S.C. [Commercial List]), (in the context of the
Bankruptcy and Insolvency Act
, R.S.C., 1985,
    c. B-3);
Christian Brothers of Ireland in Canada (Re)
(2004)
, 69 O.R. (3d) 507,
(
in the context of the
Winding-up and Restructuring Act
, R.S.C. 1985,
C. W-11, as amended
)
.

[24]

In
AEVO Co.
    v. D & A Macleod Co
.

(1991),
    4 O.R. (3d) 368
(Gen.
    Div.), Chadwick J. rejected the application of equitable subordination in
    Canadian law, observing, at p. 372, that to introduce the doctrine would create
    chaos and would lead to challenges to security agreements based on the conduct
    of the secured creditor. In
I. Waxman & Sons Ltd. (Re)

(2008), 89 O.R. (3d) 427
(S.C.)
, Pepall J.
queried, at para. 33, whether
    statutory priorities should be upset by a doctrine divorced from its legal
    home.
This observation was followed, however, with the
    comment that a vibrant legal system must be responsive to new developments in
    the law and the need for reform. Jurisprudence from other jurisdictions often
    provides the impetus or basis for much needed legal developments.

[25]

On the other hand,
the Newfoundland and Labrador Supreme Court (Trial Division) applied
    the doctrine in a bankruptcy case in
Oppenheim v. J.J. Lacey
    Insurance Limited
, 2009 NLTD 148, 291 Nfld. &
    P.E.I.R. 149.

[26]

The Supreme Court of Canadas silence on the issue of equitable
    subordination in
CDIC
and
Indalex
cannot be taken, as the
CCAA
judge appears to have thought, as an outright rejection of the doctrine. In my
    view, the Supreme Court simply left the issue for another day.

[27]

It is unnecessary to decide that issue in order to resolve this appeal.
    The only issue is whether the
CCAA
judge was right in deciding that he
    had no jurisdiction to grant equitable subordination under the
CCAA
,
    assuming the remedy is available in Canadian law.

SUBMISSIONS AND ANALYSIS

A.

Procedural objection

[28]

The appellants first submission is procedural. It claims that it was
    unnecessary for the
CCAA
judge to determine whether he had jurisdiction
    to grant equitable subordination. The Union essentially says it was blindsided.
    It says it made no submissions on the doctrine of equitable subordination and
    the
CCAA
judge did not indicate that he was going to address the issue
    in the context of the scheduling motion. It was inappropriate and unnecessary
    for the court to shut the door on a novel and controversial remedy without a
    full factual record.

[29]

The respondent acknowledges that equitable subordination was not a
    central issue in the oral submissions before the
CCAA
judge, but
    points out that it was raised in some of the factums and memoranda filed before
    and after the hearing. The
CCAA
judge was required to determine what
    conduct-based inter-creditor claims would be litigated, either under the Claims
    Process Order or under the
CCAA.
He was entitled to determine whether
    he had jurisdiction to grant equitable subordination within the
CCAA
.

[30]

I do not accept the appellants submission. The issue of equitable
    subordination was plainly before the
CCAA
judge in submissions made
    before and after the hearing. The Milbournes factum made extensive submissions
    on equitable subordination and argued that it, along with fiduciary duty and
    oppression, were live issues which should be the subject matter of a robust
    evidentiary record and subject to a fair and thorough due process in this
    court. The Unions factum suggested that some of USSs unsecured claim could
    be subordinated to the claims of other creditors on account of a breach of
    fiduciary duty, a finding of oppression,
or otherwise.

    USSCs factum argued that the Unions claim for equitable subordination should
    be rejected and that suitable remedies were available outside the Claims
    Process. In supplementary written submissions, the Union argued, in response to
    USSCs submissions, that the determination of the issue of equitable
    subordination should await an evidentiary record.

[31]

Moreover, the issue before the
CCAA
judge was not simply
    scheduling. The motion sought directions on the extent and nature of production
    and discovery with respect to the various objections. The Union argued that the
    objections had to be resolved before there could be approval of a plan of
    restructuring, a sale process or a distribution to creditors. The allegations
    that USSs claims should be re-characterized, invalidated, disallowed or
    subordinated had to be resolved and the
CCAA
judge had to determine a
    process for their resolution. Some might be dealt with under the Claims Process
    Order and some might be dealt with outside that Order but nevertheless in the
CCAA
proceedings. Some might not be dealt with under the
CCAA
at all.

[32]

The
CCAA
judge was plainly aware that a determination of the
    inter-creditor claims could have implications for the approval of any
    subsequent reorganization, sale of the business or credit bid. It was
    appropriate for him to consider whether the court had jurisdiction to address
    those claims and, if so, how and when.

[33]

An evidentiary record was unnecessary. The
CCAA
judge was not
    deciding whether equitable subordination applied on the facts of this case. The
    issue was whether he had jurisdiction to grant equitable subordination under
    the
CCAA
.

[34]

I turn now to the question whether the
CCAA
judge correctly
    held that he had no jurisdiction under the
CCAA
to order equitable
    subordination of USSs claims.

B.

Jurisdiction to order equitable subordination

[35]

I will begin by summarizing the
CCAA
judges reasons on this
    issue. I will then set out the submissions of the parties, identify the
    standard of review, describe the methodology I will use and apply that
    methodology to the legislation.

(1)

The
CCAA
judges reasons

[36]

The
CCAA
judge noted that although the
CCAA
gives
    authority to re-characterize debt as equity and to invalidate a preference or
    assignment, there is no express provision conferring jurisdiction to grant
    equitable subordination. He was of the view that any jurisdiction to do so
    would have to be found in s. 11, which provides that the court  may, subject
    to the restrictions set out in this Act  make any order that it considers
    appropriate in the circumstances.

[37]

He observed that there is no Canadian case law supporting that authority
    and, when given the occasion to confirm the existence of equitable
    subordination on two occasions, the Supreme Court of Canada had declined to do
    so:
Canada Deposit Insurance Corp.
; and
Indalex
. He suggested
    that one might infer from this that the Supreme Court had rejected the
    principle of equitable subordination.

[38]

He found, however, that to the extent the issue remained open, the
CCAA
evidenced an intention to exclude equitable subordination. When Parliament
    amended the legislation in 2009, it gave authority under s. 6(8) to subordinate
    debt as being in substance equity, but it did not enact any provision to
    subordinate a claim based on the conduct of the creditor. Nor had it drafted s.
    36.1, which permitted the court to invalidate preferences and assignments,
    broadly enough to permit the court to make an order for equitable
    subordination. These provisions, he said, were restrictions set out in this
    Act, limiting the courts broad discretion under s. 11. Parliaments failure
    to include equitable subordination in the remedies introduced in 2009 must be
    taken as indicative of an intention to exclude the operation of the doctrine
    under the
CCAA
. This, he said, was a policy decision the court must
    respect.

(2)

The submissions
    of the parties

[39]

The appellant submits the
CCAA
judge had jurisdiction to grant
    equitable subordination pursuant to s. 11 of the
CCAA
in the absence
    of express restrictions on that jurisdiction. He erred in implying
    restrictions based on Parliaments failure to amend the legislation.

[40]

The respondent submits that Canadian courts have all the tools they need
    to assess, review and, where necessary, subordinate or invalidate creditors
    claims in a manner consistent with the underlying legislation, without the need
    for equitable subordination. Some of these tools are the result of the 2009
    amendments to the
BIA
and the
CCAA
. Parliament might have
    expanded those amendments to incorporate equitable subordination or some other
    conduct-based remedy, but declined to do so. The court should not invoke a
    controversial doctrine that Parliament declined to adopt when it had the
    opportunity to do so.

(3)

The standard of
    review

[41]

The parties agree that the applicable standard of review is correctness:
Housen v. Nikolaisen
, 2002 SCC 33, at para. 8; and
ATB Financial
    v. Metcalfe & Mansfield Alternative Investments II Corp.)
, 2008 ONCA
    587, 92 O.R. (3d) 513, at para. 40.

(4)

Framework for
    analysis

[42]

In
Century Services v. Canada (Attorney General)
, 2010 SCC 60,
    [2010] 3 S.C.R. 379, at paras. 65ff., the Supreme Court of Canada gave guidance
    on the approach to the scope of statutory remedies under the
CCAA,
and,
    if need be, under related sources of judicial authority. The court adopted the
    analysis proposed by Justice Georgina R. Jackson of the Court of Appeal for
    Saskatchewan and Professor Janis Sarra in an article entitled, Selecting the
    Judicial Tool to get the Job Done: An Examination of Statutory Interpretation,
    Discretionary Power and Inherent Jurisdiction in Insolvency Matters in Sarra,
    ed.,
Annual Review of Insolvency Law, 2007
(Toronto: Thomson Carswell,
    2007), at p. 41. Blair J.A. also approved of this approach in
Metcalfe
    & Mansfield
, at paras. 48-49.

[43]

Jackson and Sarra note that the
CCAA
is skeletal legislation
    and advocate a transparent and consistent methodology as judges define the
    scope of their jurisdiction under the statute. They propose that the courts
    should take a hierarchical view of the powers at their disposal, adopting a
    broad, liberal and purposive interpretation of the statute and applying the principles
    of statutory interpretation before turning to other tools such as the common
    law or the exercise of inherent jurisdiction.

[44]

At para. 66 of
Century Services
, the Supreme Court held that in
    most cases, the search for jurisdiction under the
CCAA
should be an exercise
    in statutory interpretation. The starting point is the big picture principles
    of statutory interpretation.

[45]

Driedgers modern principle is the crucial tool for construing skeletal
    legislation such as the
CCAA
. A court must go beyond an examination of
    the wording of the statute and consider the scheme of the Act, its object or
    the intention of the legislature and the context of the words in issue:

Today there is only
    one principle or approach, namely, the words of an Act are to be read in their
    entire context and in their grammatical and ordinary sense harmoniously with
    the scheme of the Act, the object of the Act, and the intention of Parliament.

See: Jackson and Sarra, at p. 47; Elmer A. Driedger,
The
    Construction of Statutes
, 2d ed (Toronto: Butterworths, 1983) at p. 87,
    cited in
Bell ExpressVu Limited
    Partnership v. Rex
, 2002 SCC 42, [2002] 2 S.C.R. 559, at para.
    26. See also:
Rizzo & Rizzo Shoes Ltd
.
(Re)
, [1998] 1
    S.C.R. 27, at paras. 23, 40.

[46]

With this in mind, I will apply the framework in
Century Services
to
    the search for jurisdiction. I turn first to a consideration of the purpose and
    scheme of the
CCAA
, before considering the language of the statute.

(5)

Application of
    the framework

(i)
The
    purpose of the CCAA

[47]

There is no dispute about the purpose of the
CCAA
. It describes
    itself as An Act to facilitate compromises and arrangements between companies
    and their creditors. Its purpose is to avoid the devastating social and
    economic effects of commercial bankruptcies. It permits the debtor to continue
    to carry on business and allows the court to preserve the status quo while
    attempts are made to find common ground amongst stakeholders for a reorganization
    that is fair to all:
Century Services
,

at para. 77.

[48]

The
CCAA
has proven to be a flexible and successful tool to
    enable businesses to avoid bankruptcy. As Professor Sarra notes, [i]t has been
    the statute of choice for debtor corporations in every major Canadian restructuring
    in the past quarter century, including national airlines, major steel and
    forestry companies, telecommunications companies, major retail chains, real
    estate and development groups, and the national blood delivery system: Janis
    P. Sarra,
Rescue! The Companies Creditors Arrangement Act
, 2d ed.
    (Toronto: Carswell, 2013), at p. 1.

[49]

The
CCAA
achieves its goals through a summary procedure
    for the compromise or arrangement of creditors claims against the company. It
    was described in
Stelco Inc. (Re)
(2005), 75 O.R. (3d) 5 (C.A.), at
    para. 36, as:

a statutory framework to extend protection to a company while
    it holds its creditors at bay and attempts to negotiate a compromised plan of
    arrangement that will enable it to emerge and continue as a viable economic
    entity, thus benefiting society and the company in the long run, along with the
    companys creditors, shareholders, employees and other stakeholders.

[50]

The process has been effective because it is summary, it is practical,
    it is supervised by an independent expert monitor and it is managed in real time
    by an experienced commercial judge.

[51]

Century Services
is a good example of how the purpose of the
CCAA
informs the exercise of the courts authority. At issue in that case were
    the reconciliation of another federal statute with the
CCAA
and the
    scope of a
CCAA
judges discretion. At para. 70, the orders of the
CCAA
judge were considered squarely within the context of the purpose of the Act:

The general language of the
CCAA
should not be read as
    being restricted by the availability of more specific orders. However, the
    requirements of appropriateness, good faith, and due diligence are baseline
    considerations that a court should always bear in mind when exercising
CCAA
authority.
Appropriateness under the
CCAA
is assessed by
    inquiring whether the order sought advances the policy objectives underlying
    the
CCAA
.
    The question is whether the order will usefully further efforts to achieve the
    remedial purpose of the
CCAA
 avoiding the social and economic losses resulting from
    liquidation of an insolvent company.
I would add that appropriateness
    extends not only to the purpose of the order, but also to the means it employs.
    Courts should be mindful that chances for successful reorganizations are
    enhanced where participants achieve common ground and all stakeholders are
    treated as advantageously and fairly as the circumstances permit. [emphasis
    added]

[52]

The Supreme Court concluded, at para. 75, that the order advanced the
    underlying purpose of the
CCAA.

(ii)
The
    scheme of the CCAA

[53]

The
CCAA
has been described as skeletal or under-inclusive
    legislation, (Jackson and Sarra at p. 48) which grants broad powers to the
    courts in general terms.

[54]

The Act has five parts. Part I, entitled Compromises and Arrangements
    permits the court to sanction a compromise or arrangement between a company and
    its secured or unsecured creditors, or both.

[55]

The powers of the court are found in Part II, entitled Jurisdiction of
    Courts. The statute gives the court jurisdiction to receive applications,
    order stays, approve debtor-in-possession financing and appoint a monitor,
    among other things. Proceedings are commenced by an application to the Superior
    Court. The court generally grants an initial stay, appoints a monitor with
    authority to repudiate leases and other agreements and authorizes debtor in
    possession financing. A process is established for the identification and
    review of creditors claims by the monitor and to deal with disputed claims,
    with the ultimate purpose of establishing classes of creditors who will vote,
    by class, on the compromise or arrangement.

[56]

One possible outcome is the preparation of a plan of arrangement.
    Creditors vote by class on the plan at a meeting called for that purpose. A
    majority by number of creditors in each class, together with two-thirds of the
    creditors in that class by dollar value, must approve the plan. If a class of
    creditors approves the plan, it is binding on all creditors within the class,
    subject to the courts approval of the plan. If all classes of creditors
    approve the plan, the court must then approve the plan as a final step.

[57]

Part III, entitled General, deals with such issues as the
    determination of the amount of creditors claims, classes of creditors, the
    duties of monitors, the disclaimer of agreements between the company and third
    parties and preferences and transfers at undervalue.

[58]

Section 19 identifies claims that may be dealt with in a compromise or
    arrangement. Those are claims provable in bankruptcy that relate to debts or
    liabilities, present or future, to which the
debtor company
is subject or may become subject before
    the compromise or arrangement is sanctioned.
[4]

[59]

The significance of this definition is that the
    focus of the plan of arrangement is claims against the
debtor
company
that are provable in bankruptcy. The
CCAA
judge identified this significance at para. 59 of his reasons, where
    he noted that s. 19(1) of the
CCAA
provides,
    effectively, that a plan of compromise or arrangement may only deal with
    claims that relate to debts or liabilities to which a debtor company is subject
    at the time of commencement of proceedings under the
CCAA
. At para. 61, he noted that neither the Claims Process Order nor the
CCAA
contemplated that inter-creditor claims would be addressed by or be
    relevant to a plan of arrangement.

[60]

Section 20 sets out the method for determining the amount of the claim
    of any secured or unsecured creditors. In most cases, it will be the amount determined
    by the court on summary application by the company or by the creditor.

[61]

Section 22 provides for the establishment of classes of creditors for
    the purpose of voting on a compromise or arrangement, based on, among other
    things, the nature of their claims, the nature of the security in respect of
    their claims and the remedies available to them in relation to their claims.
    Creditors may be included in the same class if their interests or rights are
    sufficiently similar to give them a commonality of interest.

[62]

Part IV deals with Cross-Border Insolvencies. Its stated purposes are to
    give mechanisms to provide for the fair and efficient administration of such
    insolvencies, to promote cooperation with courts of other jurisdictions, to
    promote the rescue of financially troubled businesses to protect investment
    and preserve employment and to protect the interests of creditors, of other
    interested persons and of the debtor company. Part V deals with Administration.

[63]

The
CCAA
was
    amended in 2009. The amendments were the product of extensive discussion of the
BIA
and the
CCAA
in the Standing Senate Committee on Banking, Trade and Commerce.
    The Committee recommended amendments to the legislation, including an expanded
    power to review, invalidate or subordinate creditors claims under the
CCAA
.

[64]

These recommendations were reflected in the 2009
    amendments in two respects. First, s. 6(8) provides that a compromise or
    arrangement will not be approved unless it provides that all other claims are
    to be paid in full before an equity claim is paid.

[65]

This provision, coupled with the definition of
    equity interest
[5]
and equity claim
[6]
in s. 2(1), permits the court to determine whether a creditors claim is in
    substance a share, warrant or option. This is the underpinning of the
    Debt/Equity Objection, an objection based on a disagreement as to the proper
    characterization of the disputed claims.

[66]

Section 22.1, also added in 2009, provides that all creditors with
    equity claims are to be in the same class unless the court otherwise orders,
    and may not, as members of that class, vote at any meeting unless the court
    otherwise orders.

[67]

Second, the 2009 amendments harmonized the rules
    of reviewable transactions under the
BIA
and
    the
CCAA
. Creditors in a
CCAA
proceeding are now entitled to invoke the provisions of the
BIA
to invalidate security granted by a debtor corporation to a
    creditor where a fraudulent preference or transfer at undervalue is
    established. Section 36.1 of the
CCAA
provides
    that ss. 38 and 95 to 101 of the
BIA
apply,
    with any required modifications, in respect of a compromise or arrangement,
    unless the compromise or arrangement provides otherwise.

[68]

USS says that the 2009 amendments reflected Parliaments
    decision concerning the extent of the courts jurisdiction over reviewable
    transactions in
CCAA
proceedings and the
    extent to which a creditors claim can be subordinated to other claims as a
    result of its conduct. It says Parliament might have included jurisdiction to
    rearrange priorities between creditors, for example through equitable
    subordination, but it declined to do so.

[69]

The scheme of the
CCAA
focuses on the determination of the
    validity of claims of creditors against the company and the determination of
    classes of claims for the purpose of voting on a compromise or arrangement.
    Except as contemplated by ss. 2(1), 6(8), 22.1 and 36.1, the statute does not
    address either conflicts between creditors or the order of priorities of
    creditors. Priorities are, however, part of the background against which the
    plan of compromise or arrangement is negotiated.

[70]

There is nothing in the record before us to indicate that the
    issue of equitable subordination was given serious consideration at the time of
    the 2009 amendments or that those amendments were intended to import other
    remedies.

(iii)
Interpreting the particular provisions before the court

[71]

I now turn to the words of the statute itself, considered in context and
    having regard to the scheme of the
CCAA
, the object of the act and the
    intentions of Parliament.

[72]

As Blair J.A. put it when deciding whether the
CCAA
granted the
    court the power to sanction the disputed order in
Metcalfe & Mansfield
,
    at para. 58, [w]here in the words of the statute is the court clothed with
    authority to approve a plan incorporating a requirement for third-party
    releases? The question before us is where (if at all) in the words of the
    statute is the court (implicitly or explicitly) clothed with authority to make
    an order for equitable subordination of the USS claims?

(a)

Section
    11: The engine that drives the statutory scheme

[73]

The parties focussed their arguments on whether the powers
    granted by s. 11 include the power to grant the remedy of equitable
    subordination. In order to inform the scope of s. 11, they urge us to consider
    the treatment of equity claims in s. 6(8) of the
CCAA
and the
    remedies available under s. 36.1.

[74]

In
Stelco
, at para. 36, Blair J.A. described s. 11
    as

the engine that drives this broad and flexible statutory scheme.

Section 11 states, in full:

Despite anything in the
Bankruptcy and Insolvency Act
or the
Winding-up and
    Restructuring Act
, if an application is made under
    this Act in respect of a debtor company, the court, on the application of any
    person interested in the matter, may,
subject to the restrictions set out in
    this Act
, on notice to any other person or without notice as it may see
    fit, make any order that it considers appropriate in the circumstances.
    [Emphasis added.]

[75]

Prior to amendment in 2005 (S.C. 2005, c. 47, s. 128), the underlined
    portion above had read subject to this Act. In
Century Services
, the
    Supreme Court, at paras. 67-68, interpreted this amendment as being an
    endorsement of the broad reading of
CCAA
jurisdiction that had been
    developed in the jurisprudence.

[76]

The jurisdiction under s. 11 has two express limitations. First, the
    court must find that the order is appropriate in the circumstances. Second,
    even if the court considers the order appropriate in the circumstances, it must
    consider whether there are restrictions set out in the
CCAA
that preclude
    it.

[77]

As I have noted, the
CCAA
judge held that s. 11 did not confer
    jurisdiction to apply the doctrine of equitable subordination. The statute
    could have provided the authority to subordinate claims on this basis, as it
    did with equity claims, but it did not. He also held that the definition of
    equity claim and the option to bring proceedings under s. 36.1 were
    restrictions within the meaning of s. 11.

[78]

In my view, the interpretative process should start with the scope of s.
    11 before the restrictions are considered in the analysis. The broad powers
    exercised by
CCAA
judges evolved in the jurisprudence before the
    concept of restrictions was legislated.

[79]

Moreover, it is inconsistent with the anatomy and history of the
CCAA
to maintain that if Parliament had intended that a
CCAA
judge would
    have the authority to make a certain type of order, it would have said so. The
    Supreme Court has made it clear that [t]he general language of the
CCAA
should
    not be read as being restricted by the availability of more specific orders:
Century
    Services
, at para. 70.

[80]

What is apparent from the many creative orders that have been made, before
    and since the 2009 amendments, is that such orders are made squarely in
    furtherance of the legislatures objectives. In
Century Services
, at
    para. 59, the Supreme Court observed that [j]udicial discretion must of course
    be exercised in furtherance of the
CCAA
s purposes, to avoid the
    devastating social and economic effects of bankruptcy while an attempt is made
    to organize the affairs of the debtor under court supervision.

[81]

The words may  make any order it considers appropriate in the
    circumstances in s. 11 must, in my view, be read as may
in furtherance of the purposes of this act
, make any
    order it considers appropriate in the circumstances.

[82]

There is no support for the concept that the phrase any order in s. 11
    provides an at-large equitable jurisdiction to reorder priorities or to grant
    remedies as between creditors. The orders reflected in the case law have
    addressed the business at hand: the compromise or arrangement.

[83]

I turn to the second limit on the courts jurisdiction under s. 11, the
    restrictions set out in this Act. The first question is whether such restrictions
    must be express or can be implied.

[84]

It bears noting that there are numerous express
    restrictions on the courts jurisdiction contained within the
CCAA
itself.
    Some are contained in Part II (Jurisdiction of Courts) and some are actually
    preceded by the heading Restriction. In
North American Tungsten Corp. v.
    Global Tungsten and Powders Corp
.,
2015 BCCA 426
, 81
    B.C.L.R. (5th) 102, at para. 34, the British Columbia Court of Appeal observed
    that where other provisions of the statute are intended to restrict the powers
    under ss. 11 and 11.02 of the statute, they do so in unequivocal terms.

[85]

The
CCAA
judge found that there were restrictions set out in the
CCAA
that prevented the court from applying equitable subordination,
    namely the definition of equity claim in s. 2(1) and the provisions of s.
    36.1. Essentially, he found that Parliament could have introduced equitable
    subordination into the
CCAA
when it amended the legislation in 2009, but
    declined to do so. The court must respect that policy decision, he said at
    para. 53. The respondent supports this interpretation.

[86]

I agree with the appellant that equity claim is not a restriction at
    all, but a definition. Together with s. 6(8), it codifies what was essentially
    the law before the 2009 amendments. The purpose of this involvement in the
    priority of claims is to remove shareholders from the process of arriving at a
    compromise or arrangement, absent permission of the court. It has nothing to do
    with any wrongdoing by the person with the equity interest. The only
    restriction, if any, would be the lack of flexibility to reverse this
    statutory subordination, as Pepall J. pointed out in
Nelson Financial Group
    Ltd. (Re)
, 2010 ONSC 6229, 75 B.L.R. (4th) 302, at para. 34. However, this
    has to do only with subordination flowing from the characterization of a claim
    and not equitable subordination.

[87]

I also agree that the plain meaning of the words subject to the
    restrictions
set out
in this Act refers to
    express restrictions, of which there are a number.

(b)

Subsection
    6(8): Subordination of equity claims

[88]

In the court below, and in the appellants submissions in this court,
    there was a blurring of the distinction between the separate concepts of
    equity claim and the doctrine of equitable subordination. The
CCAA
judges reasons referred at times to the subordination claims of the Union
    and the Milbournes as including the equitable subordination claims and the
    claims for oppression and breach of fiduciary duty.

[89]

As explained earlier, s. 6(8) of the
CCAA
effectively
    subordinates equity claims, as defined, to the claims of all other creditors.
    No compromise or arrangement can be approved unless it provides for other
    claims to be paid, in full, before equity claims are paid.

[90]

With the exception of environmental claims, ss. 6(8) and 22.1 are the
    only provisions of the
CCAA
to deal expressly with priorities between
    creditors.
[7]
There is a clear rationale for these provisions. In E. Patrick Shea
, BIA, CCAA
    & WEPPA: A Guide to the New Bankruptcy & Insolvency Regime
(Markham: LexisNexis Group, 2009), at p. 89, the author explains that [t]he
    intention of these amendments is to remove the shareholder/creditor from the
    reorganization process, unless the court orders that they have a seat at the
    table.

[91]

Equitable subordination, on the other hand, refers to the doctrine at
    issue here: a form of equitable relief to subordinate the claim of a creditor
    who has engaged in inequitable conduct. Such a claim is not an equity claim,
    as defined. If it were, it would be subordinated without the need for
    intervention by the court.

[92]

Pepall J. dealt with these different principles and distinguished them
    clearly in
I. Waxman & Sons Ltd.
, a Commercial List decision that
    predated the 2009 amendments. There, a trustee in bankruptcy brought a motion
    for advice and directions as to whether a judgment creditors claim should be
    allowed. Other creditors argued that his claim was rooted in equity and was not
    a debt claim. In the alternative, they argued that even if it was a debt claim,
    it should be subordinated to their claims pursuant to the doctrine of equitable
    subordination.

[93]

Pepall J. addressed the argument that the judgment creditors claim was
    an equity claim under the heading Characterization (paras. 18-26), because
    the issue was whether his claim was properly characterized as one of equity or
    debt, with the attendant priority consequences. Next she considered whether,
    even though she had found that the claim was a debt claim, it should be
    subordinated pursuant to the doctrine of equitable subordination (paras.
    27-35). She noted, at para. 27, that [a]s its name suggests, the basis for
    development of the doctrine is the equitable jurisdiction of the court. She
    held that even if it applied in Canada, which was not established, there was no
    evidence on which to apply it in that case.

[94]

By contrast, the
CCAA
judge in this case disposed of these issues
    under one heading, The Authority of the Court to Adjudicate Claims for Debt
    Re-Characterization and for Equitable Subordination, at paras. 38-53. He
    found, at para. 51, that the absence of any provision in the
CCAA
that
    would permit the application of equitable subordination was indicative of an
    intention to exclude the operation of the doctrine.

[95]

The
CCAA
judge appears to have treated equitable subordination
    as akin to equity claims as defined in s. 2(1), the subordination of equity
    claims in s. 6(8) and the remedies under s. 36.1. He found that because
    equitable subordination is not mentioned in the context of these remedies,
    Parliament must have intended to exclude it.

[96]

The distinction between these terms undermines the argument that
    equitable subordination does not exist because it was not included as part of
    the definition of (or together with the subordination of) equity claims. Equity
    claims are subordinated in order to keep shareholders away from the table while
    the claims of other creditors are being sorted out. Even prior to being
    explicitly subordinated by statute in 2009, they generally ranked lower than
    general creditors:
Sino-Forest Corp. (Re)
, 2012 ONCA 816,
114 O.R. (3d) 304, at para. 30. The purpose of the 2009 amendments
    appears to have been to confirm and clarify the law: see
The Report of
    the Standing Senate Committee on Banking, Trade and Commerce,
Debtors and
    Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and
    the Companies Creditors Arrangement Act
(Ottawa, November 2003), at p.
    158-59.

(c)

Section
    36.1: Preferences and Assignments

[97]

Section 36.1, which was part of the 2009 amendments, incorporates
    by reference provisions of the
BIA
permitting the court to invalidate
    prior fraudulent preferences or fraudulent assignments.

36.1

(1)
Sections
    38 and 95 to 101 of the
Bankruptcy and Insolvency Act
apply, with any modifications that the circumstances require, in
    respect of a compromise or arrangement unless the compromise or arrangement
    provides otherwise.

[98]

The respondent argues that the inclusion of these express provisions
    implies that no other form of equitable remedy was contemplated. Its argument
    is that, had Parliament wished to invalidate or subordinate claims of creditors
    who had engaged in inequitable conduct in relation to other creditors, it could
    have expressly included that remedy.

[99]

I would not read anything into s. 36.1, one way or the other. Nor would
    I regard it as a restriction set out in the Act within the meaning of s. 11.

(6)

Summary

[100]

The appellant
    requested a declaration that the
CCAA
contains no restrictions within
    the meaning of s. 11 on the courts ability to apply the doctrine of equitable
    subordination. In my view, this is the wrong inquiry and this is why I reach
    the same result as the
CCAA
judge, but for different reasons.

[101]

I would not grant
    the relief sought because, applying the principles of statutory interpretation,
    nowhere in the words of the
CCAA
is there authority, express or
    implied, to apply the doctrine of equitable subordination. Nor does it fall
    within the scheme of the statute, which focuses on the implementation of a plan
    of arrangement or compromise. The
CCAA
does not legislate a scheme of
    priorities or distribution, because these are to be worked out in each plan of
    compromise or arrangement. The subordination of equity claims is directed
    towards a specific group, shareholders, or those with similar claims. It also
    has a specific function, consistent with the purpose of the
CCAA
: to
    facilitate the arrangement or compromise without shareholders involvement.

[102]

The success of the
CCAA
in fulfilling its statutory purpose has been in large measure due
    to the ability of judges to fashion creative solutions, for which there is no
    express authority, through the exercise of their jurisdiction under s. 11. As
    Blair J.A. noted in
Metcalfe and Mansfield
, however, the courts
    powers are not limitless. They are shaped by the purpose and scheme of the
CCAA.
The appellant has not identified how equitable subordination would further
    the remedial purpose of the
CCAA
.

[103]

At this stage of
    the analysis, I am mindful of the Supreme Courts observation in
Century
    Services
that in most cases the courts jurisdiction in
CCAA
matters
    will be found through statutory interpretation. I am also mindful of its
    observation in
Indalex
,

at para. 82, that courts should not
    use an equitable remedy to do what they wish Parliament had done through
    legislation. In my view, there is no gap in the legislative scheme to be
    filled by equitable subordination through the exercise of discretion, the
    common law, the courts inherent jurisdiction or by equitable principles.

[104]

There is no
    provision in the
CCAA
equivalent to s. 183 of the
BIA
or

§105(a)
    of the U.S.
Bankruptcy Code.
Section 183 invests the bankruptcy court
    with such jurisdiction at law and in equity as will enable it to exercise its
    bankruptcy jurisdiction. This is significant, because if equitable
    subordination is to become a part of Canadian law, it would appear that the
BIA
gives the bankruptcy court explicit jurisdiction as a court of equity to
    ground such a remedy and a legislative purpose that is more relevant to the
    potential reordering of priorities.

CONCLUSION

[105]

For these
    reasons, I would dismiss the appeal. I would order that counsel may make
    written submissions as to costs, not to exceed five pages in length, excluding
    costs outlines. I would assume counsel can agree on a timetable for delivery of
    all costs submissions within 30 days of the release of these reasons.

George R. Strathy
    C.J.O.

I agree P. Lauwers
    J.A.

I agree M.L. Benotto
    J.A.

Released: GRS September 09, 2016

[1]

Companies Creditors Arrangement Act
, R.S.C. 1985, c. C-36.

[2]
6(8)
No compromise or arrangement that
    provides for the payment of an equity claim is to be sanctioned by the court
    unless it provides that all claims that are not equity claims are to be paid in
    full before the equity claim is to be paid.

[3]
In a subsequent ruling,
U.S. Steel Canada Inc.,
    (Re)
, 2016 ONSC 569, the
CCAA
judge dismissed the Debt/Equity
    objection, finding that approximately $2 billion of USSCs unsecured claims and
    $73 million in secured claims were properly characterized as debt rather than
    equity. He also dismissed the objection that approximately $118 million in
    secured claims should be invalidated due to lack of consideration or as a
    fraudulent preference.

[4]

CCAA
,
    s. 2(1):
claim
means any indebtedness, liability or obligation of any
    kind that would be a claim provable within the meaning of section 2 of the
Bankruptcy
    and Insolvency Act
. Section 121 of the
BIA
states that claims
    provable in bankruptcy are those to which the bankrupt is subject: 121(1) All
    debts and liabilities, present or future, to which the bankrupt is subject on
    the day on which the bankrupt becomes bankrupt or to which the bankrupt may
    become subject before the bankrupt's discharge by reason of any obligation
    incurred before the day on which the bankrupt becomes bankrupt shall be deemed
    to be claims provable in proceedings under this Act.

[5]

E
quity interest
means
(a)

in
    the case of a company other than an income trust, a share in the company  or a
    warrant or option or another right to acquire a share in the company  other
    than one that is derived from a convertible debt, and
(b)

in
    the case of an income trust, a unit in the income trust  or a warrant or
    option or another right to acquire a unit in the income trust  other than one
    that is derived from a convertible debt.

[6]

E
quity claim
means a claim
    that is in respect of an equity interest, including a claim for, among others,
(a)
a
    dividend or similar payment,
(
b)
a return of
    capital,
(c)
a
    redemption or retraction obligation,
(d)
a monetary
    loss resulting from the ownership, purchase or sale of an equity interest or
    from the rescission, or, in Quebec, the annulment, of a purchase or sale of an
    equity interest, or
(e)
contribution or indemnity in respect
    of a claim referred to in any of paragraphs (a) to (d).

[7]

Subsection 11.8(8) gives the federal and provincial Crowns
    priorities for environmental claims against the debtor.