Stewart McKelvey

ings. The secured parties objected to the extent of these charges and brought an application before Justice LaVigne to have these charges signifi- cantly reduced. They argued that the legal charges were so high that a workable plan could not be developed. The secured parties also complained that counsel for the debtors had brought unnecessary proceedings during this period. Finally, it was argued that some of the amounts expended by counsel for the debtors were not related to the CCAA proceedings. The court was alerted to the fact that the initial cash flow statement provided on behalf of the debtors had estimated much lower legal fees and disburse- ments for the debtors' counsel and counsel for the monitor (in the range of $130,000). There was no evidence before the court that counsel for the debt- ors had advised the court at any point that the cash flow statement was no longer correct. The court started its inquiry by determining it had the jurisdiction to review the legal accounts of counsel for the debtors as part of its general super- vision of CCAA proceedings and must consider what is "just, fair and reasonable" (at para. 52 of 2011 NBQB 311) in the circumstances. The court also concluded that the onus was on counsel for the debtors to satisfy the court that its legal accounts were appropriate in the circumstances. The court considered the various factors to be considered in deciding whether to reduce the legal accounts. The court was concerned about the discrepancy between the provision for legal fees set out in the initial cash flow statement and the lack of disclo- sure by counsel to the debtors of such discrepancy. Also, the court concluded that counsel for the debt- ors had brought at least three unnecessary motions. Further, the court found unwarranted duplication of effort on the part of the legal firm representing the debtors. Finally, it concluded that approxi- mately half of the legal accounts under review had been expended for purposes not directly related to the CCAA proceedings. In the end, the court concluded that the legal fees charged to the debtor companies were so high that they might prevent a viable proposal from being presented. In the result, the court ordered that the legal fees (including disbursements and taxes) be reduced to $150,000 (a reduction in excess of two thirds). In a subsequent application in the same proceedings, the court or- dered that the legal firm repre- senting the debtors personally pay the costs of the secured parties and the monitor for the proceedings to date – an amount in excess of $100,000. The court concluded that the ac- tions of counsel for the debtors were such that the relations between the various parties had been severely compromised. In the end, the secured creditors insisted that the debtors replace their counsel as a condition of their continued support for the CCAA proceedings. This decision illustrates that counsel for the appli- cants in a CCAA proceeding have a responsibility to provide full disclosure to the court of all applicable legislative requirements, particularly recent amend- ments. The failure of counsel during the initial hear- ing to provide notice to the secured parties in the face of an application for DIP financing and the related failure to bring this deficiency to the attention of the court did not assist counsel when such failures were ultimately brought to the court's attention. Further, counsel must ensure that all materials placed before the court are accurate in all material respects. Issues surrounding the cash flow statement played a critical role in the court's decision. CCAA proceedings are by their very nature time-sensitive, time-intensive and complicated pro- ceedings. This decision reminds everyone that such factors cannot insulate counsel from complying with their ethical responsibilities to the court. The court places great reliance on counsel in such mat- ters to live up to their duties to the court and the other parties. Failure to do so can have dramatic consequences. [Note – In the interests of full disclosure, Stewart McKelvey is acting as counsel to the monitor in these proceedings.] Maurice Chiasson, Q.C. Halifax, N.S. 902.420.3300 mchiasson@stewartmckelvey.com DOING BUSINESS IN ATLANTIC CANADA SPRING 2012 3

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