PDAC 2016: Stikeman lawyer offers miners alternative to insolvency proceedings

Like several Canadian lawyers, Stikeman Elliott LLP holds a variety of seminars on mining law during the PDAC convention.

The current state of mining industry is perhaps best summed up with the selection of topic that began Stikeman’s set of rapid-fire presentations on Monday morning: insolvency and restructuring.

This obviously isn’t the happiest of topics. It’s sort of like going to a seminar on retirement planning and having the very first speaker discuss funeral costs.

But the Stikeman presentation came with a fascinating twist. Elizabeth Pillon, head of the insolvency and restructuring group in the firm’s Toronto office, said Canadian mining companies are a part of a trend that may alter the way you consider corporate reorganizations.

Where once it seemed a foregone conclusion that an 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 options may be possible for miners, such as a reorganization under Canada’s federal incorporation statute, the Canada Business Corporations Act.

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Canadian miners are usually holding companies. Maybe a restructuring isn’t needed because of cash flow problems associated with a company’s active operations, but instead due to problems with a company’s balance sheet. If the true concern is the later and also the company’s operations are solvent, the company might just need to makeover its balance sheet.

That’s in which the CBCA takes over. The Canadian statute enables companies to create fundamental changes for their operations inside a procedure that is ultimately court approved. These 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 must be solvent, and unsecured or trade creditors must come with the process unaffected. Nor could it be used as a means to purge outstanding litigation.

Yet when the issue is the balance sheet and never the operations, reorganizing underneath the CBCA may be the faster and cheaper option.

Financial Post