RVO transaction approved in CCAA proceedings of Blackrock Metals

On July 8, the Superior Court of Québec (the Court) released its reasons for a decision granting a reverse vesting order (RVO) in the restructuring proceedings of Blackrock Metals Inc. and certain related entities (collectively, Blackrock) under the Companies’ Creditors Arrangement Act (CCAA). 

Background

Blackrock is the developer of a mining project in Quebec geared towards producing vanadium, high-purity pig iron and titanium products (Project Volt). Blackrock’s principal secured creditors were Investissement Québec (IQ) and OMF Fund II H Ltd. (Orion), which granted a bridge credit facility to the company in 2019 for the purpose of, inter alia, allowing it to continue its operations while it sought to obtain the over $1 billion of financing required to proceed with the construction of Project Volt. At the time Blackrock obtained CCAA protection, IQ and Orion, which were also shareholders of the company, had senior secured claims of approximately $100 million. 

On December 23, 2021, Blackrock obtained an initial order under the CCAA and Deloitte Restructuring Inc. was appointed as monitor. At the comeback hearing on January 7, 2022, the Court approved a sale and investment solicitation process (the SISP) and governing procedures (the Bidding Procedures) based on a “stalking horse” credit bid submitted by IQ and Orion (the Stalking Horse Bid). At the request of certain shareholders of Blackrock (the Shareholders), the Court extended the SISP deadlines by 30 days.

Pursuant to the Bidding Procedures, prospective bidders were required to submit a qualified letter of intent by March 9, 2022. The only LOI received during the SISP’s first phase was from a newly incorporated entity backed by certain of the Shareholders (the Shareholder Bidder). In order to proceed to the next phase of the SISP, the Shareholder Bidder was required to submit a binding qualified bid by May 11, 2022. After certain requests to extend the bid deadline were refused, the Shareholder Bidder applied to the Court to obtain a further 30-day extension (the Bid Extension Application). 

In parallel, Blackrock sought an order approving the transaction contemplated in the Stalking Horse Bid (the Proposed Transaction). The Proposed Transaction was to be implemented using an RVO structure and was contested by the Shareholder Bidder as well as the Shareholders, which argued the Court had no authority to issue an RVO and that, in any event, the applicable criteria were not satisfied. After a two-day hearing, the Court issued an order dismissing the Bid Extension Application and approving the Proposed Transaction on the terms proposed by Blackrock, the whole with reasons to follow.  

The judgment 

In assessing the Bid Extension Application, the Court highlighted the importance of maintaining the integrity of the Bidding Procedures and considered, in particular, that no other bids were received and the Shareholder Bidder had been unable to obtain the necessary financing to submit a qualified bid and had refused to finance the costs of the proposed extension. The Court also determined that it was advantageous to stakeholders generally that Blackrock complete its restructuring as soon as possible such that the CCAA’s remedial objectives were better served by refusing the extension.¹ 

With respect to approving the Proposed Transaction, the Court reviewed the legislative provisions and recent Canadian jurisprudence on RVOs,² and concluded that it was empowered to render such an order, noting however that “an RVO structure should remain the exception and not the rule.”³ Applying the applicable criteria and guiding principles, the Court approved the Proposed Transaction as: 

• the market had been adequately canvassed through a full, fair and transparent SISP, which was also preceded by a global search for financing prior to the CCAA proceedings; 
• the monitor approved the SISP, had primary carriage of the process and viewed the transaction as beneficial for stakeholders as compared with a bankruptcy; 
• IQ and Orion, Blackrock’s secured creditors, were consulted and supported the transaction, along with certain First Nations groups, while nothing indicated any other creditors were opposed;  
• the Stalking Horse Bid was the best available alternative for Blackrock and should allow it to emerge as a rehabilitated business and move forward with Project Volt, for the benefit of stakeholders;
• the consideration provided under the Stalking Horse Bid, which was in excess of $100 million, was reasonable given the results of the SISP and previous efforts to raise financing for Project Volt; and  
• the RVO structure was appropriate as it would minimize the risks, costs and delays associated with the transfer of Blackrock’s agreements, intangible assets and regulatory approvals, would allow for certain pre-filing obligations to be assumed by the purchasers and would not put other affected stakeholders in a worse position than under a traditional vesting order structure.⁴   

The Court also rejected the Shareholders’ contention that Blackrock was worth more than the amount of its secured debt, noting the SISP had demonstrated there was no equity for unsecured creditors, let alone shareholders. In the Court’s view, the Shareholders had “little or no say” in the CCAA proceedings, given that their shares had no value, and no legal basis to contest the Proposed Transaction.⁵ 

Regarding the third-party releases included as part of the Proposed Transaction, which benefited IQ and Orion, among others, the Court confirmed that it is now commonplace for such releases to be approved in the context of a transaction, although they should not be granted “blindly or systematically.” In considering the applicable criteria, being those developed under a CCAA plan, the releases were justified given, in particular, the instrumental participation of IQ and Orion in the restructuring as well as the absence of any apparent merit to the Shareholders’ alleged claims.⁶  

Takeaways

The judgment provides useful guidance for Quebec courts that will be tasked with considering RVO transactions going forward and confirms that this structure remains available as a means of reducing costs, risks and uncertainties when transferring an insolvent business. It also reaffirms that shareholders should be precluded from contesting RVOs where they have no valid economic interest in the transaction and that various parties, including purchasers, can benefit from third-party releases under an RVO. 

On June 13, 2022, the Shareholders sought leave to appeal the order before the Court of Appeal of Québec. Leave was denied on August 5, 2022.

Norton Rose Fulbright Canada acted for IQ in this matter.