Aquadis Case Comment: Extending the Reach of the Super Monitor

  • 30 juin 2021
  • Alexander Overton, Western University Faculty of Law, recipient of the Michael MacNaughton Student Writing Award for Insolvency Law

Introduction

The role played by the CCAA monitor in assisting the court as it shepherds along a corporate restructuring has evolved significantly over time. While still acting as the eyes of the court and standing apart from any particular stakeholder,[1] recent developments in insolvency law have seen the monitor take on an increasingly active part in proceedings. The decision of the Québec Court of Appeal in Aquadis affirmed another such expansion of the monitor’s powers, as the Court approved a plan of arrangement that authorized the monitor to pursue the claims of the debtor’s creditors against third parties within the CCAA proceedings.[2] Although the appellate court cautioned that exercising judicial discretion to grant such a power to the monitor is not to be done lightly,[3] ultimately this decision puts another tool into the insolvency practitioner’s toolbox under the right conditions.

Background

Aquadis International Inc. (“Aquadis”) was a bathroom products importer and distributor, including for the sale of faucets. It acquired faucets from a Chinese distributor, Gearex, which had itself purchased them from the manufacturer, JYIC. Aquadis sold the faucets to various Québec retailers (the “Retailers”) where they were purchased by consumers. The faucets were defective, resulting in many cases of water damage. Affected consumers made claims on their insurance policies and were subrogated by their insurers after payment.

The insurers constituted the majority of the creditor group. The aggregate value of the claims brought by the insurers against Aquadis exceeded its own insurance coverage, leading it to file for CCAA protection. Raymond Chabot Inc. was appointed as monitor and granted the powers of the board of directors, who had resigned en masse. The monitor began negotiating with JYIC, Gearex, and the Retailers in an attempt to reach settlements involving full releases from liability in return for contributions to a litigation pool intended to satisfy the claims of the creditors. After concluding settlement discussions with several of Gearex and JYIC’s insurers, the monitor filed a plan of arrangement (the “Plan”) establishing the litigation pool and requesting the Québec Superior Court authorize the monitor to sue the Retailers on behalf of the creditors.[4] The Plan received unanimous approval from the creditors.