Legal news and trends for Canadian in-house counsel and c-suite executives
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8 www.canadianlawyermag.com/inhouse INSOLVENCY Judicial restraint and lawyers' creativity: Back to the wants and needs Recent decision reminder courts aren't in the business of providing blanket protection to receivers A RECENT INSOLVENCY decision out of the Ontario Superior Court of Justice illustrates a rising trend where judges are questioning the wording and breadth of draft orders that lawyers submit for court approval. Cosa Nova Fashions Ltd. v. The Midas Investment Corporation is "a brief endorse- ment in the context of approval of a trans- action by a receiver where Justice Dunphy refuses to grant a blanket approval of the receiver's activities since the last order," says Sylvain Rigaud, a leading insolvency and restructuring lawyer with Woods LLP. "It's something worth flagging. Judges are increasingly critical about the scope of the orders we submit, based on statute but also based on practice, as illustrated by the Cosa Nova Fashions decision." In the decision, Justice Sean Dunphy states lawyers need to seek the court's approval for a specific act, and it's on that basis the court will decide whether or not to grant the leave which is sought — it's not in the business of simply providing blanket protection to receivers. Although in many instances the orders are rendered by consent, there can be tension with the courts because they want to be practical and pragmatic, but "there is from time-to-time judicial pushback, perhaps when the lawyers are pushing the envelope a bit too much," Rigaud says. Rigaud predicts increasing intervention by the judiciary, as there have been discus- sions about the need to simplify the initial orders in Companies' Creditors Arrangement Act matters, with concerns that some of the draft orders submitted are overly complicated and some portions appear to be redundant. Recent amendments to the CCAA limited the length of the initial order to 10 days from 30, and s. 11.001 states "only the relief reasonably necessary will be provided." "They want to make sure each of the orders we're seeking — for example, at the initial stage — are necessary to be granted at that time," Rigaud says, noting that it's specific to the insolvency regime where most of the orders are crafted by the lawyers, nego- tiated ahead of time with the stakeholders and with the input of the monitor, trustee or receiver and often submitted to the court for approval — "but let's not forget they're signed and approved by judges." It's important to remember that, ulti- mately, the lawyer representing the receiver will ask for the receiver to be discharged, Rigaud notes, and the key at that point is to make sure there's no potential liability lurk- ing around and that the receiver's activities are fully approved by the court in the context of terminating the receivership. His advice "is not only to provide the full overview of what was done to the court, but also specify clearly in the motion the scope of the orders that will be sought in terms of terminating the appointment and also shielding the insol- vency professional from liability." Overall, Cosa Nova Fashions serves as a reminder that it's always necessary to make sure there's support for the orders that lawyers are seeking, Rigaud says. In the meantime, judges will continue to remind law- yers that creativity needs to be balanced by the "wants and needs." "The court will not grant blanket orders without sufficient justification or evidence — that's the practical takeaway from the decision." Woods LLP is the foremost litigation, arbitration and insolvency firm in Canada, recognized nationally and internationally for its expertise and success. The firm acts in all manner of disputes where the stakes are high and the outcome is of vital importance to its clients and their businesses. Its team of formidable attorneys — multilingual, trained in the civil law and common law, dedicated to understanding its clients' interests and devoted to successful advocacy — is known for its winning strategies and concrete results in high-stakes disputes. "It's something worth flagging. Judges are increasingly critical about the scope of the orders we submit." Sylvain Rigaud, Woods LLP