Bloom Lake General Partner Limited, Wabush Resources Inc. and related entities (Bloom Lake) received Court protection under the Companies’ Creditors Arrangement Act (CCAA) in 2015 and subsequently virtually all of its assets were liquidated. The remaining assets included preference claims valued at approximately $173 million. In 2018, there was a proposed settlement reached of the preference claims that would result in between $62 and $100 million available for distribution to the third party unsecured creditors. Based on this proposed settlement, Bloom Lake sought an order allowing a meeting of creditors to be called to vote on a proposed plan of compromise and arrangement (the “Plan”) that would distribute the proceeds to creditors. However, it was also anticipated that further negotiations on the form of the Plan would occur right up until the vote.
Employees and retirees held a significant claim of approximately $103.8 million for post-employment benefits and the main issue in this decision was how the 2,400 employees and retirees would vote their claims. The non-unionized employees and retirees were represented by several appointed employees (Representative Employees) and the unionized employees and retirees were represented by their Union. Bloom Lake proposed that each individual would vote their own claim, but the Representative Employees and the Union sought a discretionary deemed proxy which would apply unless the employee or retiree opted out of it by advising the Monitor that he or she will attend the meeting in person or appointed a different person to act as proxy. In addition, the Union also asserted that it was the only party entitled to vote the claims because it had the right of exclusive representation of its union members. In their opposition to the proxy, Bloom Lake, the Monitor and the largest unsecured creditor argued that a deemed proxy would give the Representative Employees and Union too much leverage in the voting to take place.
The Court had no concerns in authorizing a vote on the Plan. On the issue of the discretionary deemed proxy requested by the Representative Employees and the Union, the Court engaged in a three part analysis to determine the appropriateness of a discretionary deemed proxy.
First, the Court examined whether it was appropriate to give a discretionary deemed proxy at all. On this issue, the Court was not satisfied that the Union was entitled to vote its members’ claims based on the principle that a union has exclusive representation of its union members. This principle relates to claims under the collective agreement and the Court found that it does not give a union the right to vote for the employees and retirees in all circumstances. Examples cited by the Court included the fact that employees retain the right to vote individually on important issues such as the acceptance of a collective agreement or the decision to strike. The Court found that the vote on a plan under the CCAA is not the same as a claim arising under the collective agreement and so the union did not have the presumptive right to vote. However, without a deemed proxy a number of employees and retirees votes would be lost and the Court stressed the importance of each member having the right to vote. It agreed with the Representative Employees and Union that a deemed proxy would ensure all members had the opportunity to vote and exercise the leverage that they should have, based on their numbers and the value of their claims.
Secondly, the Court agreed with the Representative Employees and the Union that their counsel was the appropriate persons to exercise the deemed proxy.
Lastly, the Court assessed whether the deemed proxy should be discretionary. The Representative Employees and the Union had not yet taken a position on whether they will vote for or against the Plan and asked that the proxy holder be allowed to vote the claims in his or her discretion depending on the result of further discussions and negotiations that would take place right up until the vote.
The Court held that a discretionary deemed proxy is “fundamentally undemocratic.” By making the deemed proxy discretionary it would prevent the employees and retirees from knowing how their claims would be voted while simultaneously taking away their right to vote and giving it to someone else. The Court would not authorize a discretionary deemed proxy — it must either be a deemed proxy to vote for the Plan or a vote against it. Accordingly, the Court gave more time for the stakeholders to finalize the Plan to ensure that the employees and retirees knew whether the Union and Representative Employees would vote in favour or against the Plan. Once the final position of the proxy was taken the Plan could not be amended without further authorization from the court. That way, the employees and retirees would have the opportunity to make a real choice, based on the final version of the Plan and in full knowledge of how their claim will be voted if they did not opt out of the deemed proxy.