Like several Canadian law firms, 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 choice of topic that kicked off Stikeman’s set of rapid-fire presentations at the 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 first speaker discuss funeral costs.
But the Stikeman presentation came with an interesting twist. Elizabeth Pillon, head of the insolvency and restructuring group in the firm’s Toronto office, said Canadian mining companies are part of a trend that could change the way you think about corporate reorganizations.
Where once it seemed a foregone conclusion that an insolvent or beleaguered Canadian mining company would need to seek relief under 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.
Canadian miners tend to be holding companies. It could be that a restructuring is not needed due to cash flow problems associated with a company’s active operations, but rather due to problems with a company’s balance sheet. If the true issue is the later and the company’s operations are solvent, the company might just need to makeover its balance sheet.
That’s where the CBCA kicks in. The Canadian statute enables companies to make fundamental changes to their operations in a process 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 to this. The process is not a get-out-of-insolvency free card. The company must be solvent, and unsecured or trade creditors must come through the process unaffected. Nor can it be used as a means to purge outstanding litigation.
Yet if the problem is the balance sheet and not the operations, reorganizing under the CBCA might be the faster and cheaper option.