Lexpert US Guides

www.lexpert.ca | LEXPERT • December 2014 | 39 COURT-APPOINTED MONITORS tion, the multiple hats that a monitor wears during a restructuring and the fact that debtor-in-possession ("DIP") restructuring is less com- mon outside North America. is commentary will address the myriad roles of the monitor. 1. THE STATUTORY ROLES OF THE MONITOR Section 11.7 (1) of the CCAA states that the court, when issuing an initial order under the CCAA, must appoint a licensed bankruptcy trustee to monitor the business and the fi nancial aff airs of the debtor company. is order will grant the court's protection to a debtor com- pany. e main function of the monitor is to report to the court on the debtor company's ongoing fi nancial situation and on its eff orts to develop a plan of arrangement. is traditional role has, however, evolved, and it has been expanded and tailored by the initial (and subsequent) orders to meet the specifi c needs of the situation of the debtor company. In order to adequately assess the business and fi nancial aff airs of the debtor company, the monitor is given wide access to the debtor company's property, including the premises, books, records, data and other fi nancial documents of a debtor company. 2 e monitor can also investigate the state of the company's business and fi nancial aff airs, as well as the cause of its fi nancial diffi culties. 3 It is the monitor's duty to undertake such an investigation for the benefi t of the court and the creditors. e debtor company must assist the monitor and provide the requested information. 4 e process of gathering information related to the fi nancial situation of the debtor company can present certain challenges for the monitor. For example, the information may be unreported or disorganized, and key employees may have le the debtor company. With respect to the monitor's obligation to report to the court, the CCAA states that the monitor must "fi le a report […] on the state of the company's business and fi nancial aff airs." 5 Such reports must be fi led by the monitor in the following circumstances: (i) shortly a er its appointment, (ii) within 45 days of the end of the company's fi nancial quarter, (iii) before a meeting of the creditors, (iv) before an extension of the court's protection and (v) as directed by the court. 6 A similar report must be fi led with the court a er any assertion by the monitor of an adverse material change in the debtor company's projected cash fl ow or fi nancial circumstances. 7 e CCAA does not exhaustively defi ne the information that must be disclosed in a monitor's report. e monitor retains a certain discretion regarding the level of detail or information it must provide in the report, knowing that the court and the creditors must have a complete picture of the fi nancial situation and aff airs of the debtor company, including the eff orts and likelihood of the fi ling of a plan of arrangement. Ultimately, the monitor must present a report that refl ects the information that was made available to it or discovered. Court-appointed monitors play a very signifi cant and important role in CCAA proceedings. e 2009 amendments to the CCAA and the use of the inherent jurisdiction of the court allow for the granting of ini- tial orders that include wider duties granted to the monitor than those suggested by s. 11.7 (1) of the CCAA. 8 For instance, courts will consider the opinion of the monitor in the following situations: (A) establishment of a super-priority for interim fi nancing (s. 11.2 (4)(g ) CCAA); (B) assignment of contracts (s. 11.3 (3)(a) CCAA); (C) disclaimer of contracts (s. 32 (4)(a) CCAA); (D) disposition of the totality or parts of the company's assets outside the ordinary course of business (s. 36 (3) (b)(c) CCAA) (the equivalent of a 363 sale under Chapter 11); (E) the reasonableness and fairness of any plan or arrangement proposed by the debtor company (s. 23 (1)(i) CCAA). As well, the monitor must inform the court when it is of the opin- ion that it would be more benefi cial to the debtor company's creditors if proceedings were continued under the BIA. 9 Lastly, the monitor is also responsible for analyzing potential pref- erences or undervalued transactions that have occurred during the suspect period. 10 We believe that if monitors were more proactive with such power, it could have an important impact on cross-border restructurings. Indeed, historically, it has generally been the Unse- cured Creditors' Committee (the "UCC") named in accordance with Chapter 11 that has initiated avoidance actions, but monitors might be better suited to play this role in their capacity as court offi cers and representatives of all creditors. is bring us to the question: Who is the monitor representing? 2. IS THE MONITOR A JACK OF ALL TRADES? WHOM DOES IT REPRESENT? As evidenced by the foregoing, the powers of the monitor extend beyond the mere examination of the company's fi nancial aff airs and its monitoring. As the monitor takes on the larger role of overseeing the restructuring process, the following question arises: Whom is the monitor representing? In a nutshell, during a restructuring process under the CCAA the monitor wears three diff erent hats. First and foremost, the monitor is an offi cer of the court. In addition it will be an advisor to the debtor company and a representative of the creditors. 11 As an advisor to the debtor company, the monitor accompanies the latter in its restructuring process. For instance, the monitor helps the debtor company in its establishment of a plan of arrangement, the organization of the creditors' meeting, the review and analysis of the proof of claims and its communications with various stakeholders. e appointment of monitors probably explains why appointments of a Chief Restructuring Offi cer ("CRO") have been more frequent under Chapter 11 than in restructurings pursued in accordance with the CCAA. Even if the roles of CROs and monitors share certain simi- larities, they should not be confused. A CRO is a senior offi cer of the debtor company and as such will not be as impartial as a monitor since its client will be the debtor company and its estate. e role of the monitor, as a representative of the creditors, is most- ly to protect and inform the various categories of creditors. e courts have concluded that monitors have a fi duciary duty to all the credi- tors. It serves as a "watchdog." 12 Although there are certain similarities to the UCC, the monitor should not be compared here to the UCC. Indeed, the UCC owes fi duciary duties only to the unsecured credi- tors, while the monitor must take into account the interests of all the participants in the restructuring process. e role played by the moni- tor usually has the eff ect of considerably confi ning the role played by the UCC in a CCAA process. e UCC will then play a role that is closer to that of an ad hoc committee than to a statutory committee. at being said, the UCC does still have two major advantages over the monitor in a cross-border restructuring because (i) it is less reluc- tant than the monitor to initiate avoidance actions and (ii) it can com- mence adverse proceedings on behalf of the debtor company. Lastly, the monitors are primarily offi cers of the court and as such have been described as the "eyes and ears" of the court. In this role, the monitor is an independent offi cer of the court that essentially imple- ments the court's commercial oversight of the restructuring proceed- ings. In this regard, the monitor is not an adversary in the restructuring proceedings and generally avoids taking adversarial positions directly

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