Like several Canadian law firms, Stikeman Elliott LLP holds a variety of seminars on mining law throughout the PDAC convention.
The current state of mining industry is perhaps best summed up using the choice of topic that began Stikeman’s group of rapid-fire presentations on Monday morning: insolvency and restructuring.
This obviously isn’t the happiest of topics. It’s kind of like going to a seminar on retirement planning and having the very first speaker discuss funeral costs.
But the Stikeman presentation included an interesting twist. Elizabeth Pillon, head of the insolvency and restructuring group within the firm’s Toronto office, said Canadian mining companies are a part of a trend that may alter the way you think about corporate reorganizations.
Where once it seemed a formality that the insolvent or beleaguered Canadian mining company would need to seek relief underneath the country’s main corporate restructuring law, the Companies’ Creditors Arrangement Act, Pillon explained that other available choices may be possible for miners, like a reorganization under Canada’s federal incorporation statute, the Canada Business Corporations Act.
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Canadian miners are usually holding companies. It could be that a restructuring is not needed due to income problems associated with a company’s active operations, but instead due to problems with a company’s balance sheet. When the true concern is the later and also the company’s operations are solvent, the company could have to makeover its balance sheet.
That’s in which the CBCA kicks in. The Canadian statute enables companies to create fundamental changes to their operations in a procedure that is ultimately court approved. Examples include asset sales, going private transactions, share swaps, debt-to-equity conversions or pre-packaged restructurings.
There are limits for this. The operation is not a get-out-of-insolvency free card. The company should be solvent, and unsecured or trade creditors must come through the process unaffected. Nor can it be used as a way to get rid of outstanding litigation.
Yet when the issue is the balance sheet and not the operations, reorganizing underneath the CBCA might be the faster and cheaper option.
Financial Post
