




CITATION:
Return On Innovation Capital
          Ltd. v. Gandi Innovations Limited, 2012 ONCA 10



DATE: 20120109



DOCKET: M40553



COURT OF APPEAL FOR ONTARIO



Sharpe, Blair and Rouleau JJ.A.



BETWEEN:



Return
          on Innovation Capital Ltd. as agent for ROI Fund Inc., ROI Sceptre

Canadian
          Retirement Fund, ROI Global Retirement Fund and ROI high Yield

Private Placement Fund and Any
          Other Fund Managed by ROI from time to time



Applicants/Respondents



and



Gandi
          Innovations Limited, Gandi Innovations Holdings LLC

and Gandi Innovations LLC



Respondents/Appellants



Christopher J. Cosgriffe and
          Natasha S. Danson, for James Gandy, Hary Gandy and Trent Garmoe



Matthew J. Halpin and Evan Cobb, for TA Associates Inc.

Harvey Chaiton and Maya Poliak, for the Monitor



Heard: In writing January 3, 2012



ENDORSEMENT



Overview

[1]

The moving parties (James Gandy, Hary Gandy and Trent Garmoe) are
    officers, directors and shareholders in the Gandi Group, a series of related
    companies currently under CCAA protection.  In those proceedings they assert
    indemnity claims in the range of $75  80 million against each of the companies
    in the Gandi Group.  The indemnity claims arise out of arbitration proceedings
    brought against them individually, as officers and directors, by TA Associates,
    a disgruntled investor in the Gandi Group.  TA Associates is the major
    unsecured creditor in the CCAA proceedings.

[2]

The assets of the Gandi Group have been sold and what remains to be done
    in the CCAA process is the finalization of a plan of compromise and arrangement
    for the distribution of the proceeds among the various creditors.  Before
    settling on the most effective type of plan for such a distribution  a
    consolidated plan, a partial consolidation plan, or individual corporate plans 
    the Monitor and the creditors sought to have two preliminary issues determined
    by the Court:

a)

whether the moving parties (the Claimants) are entitled to indemnity
    from all of the entities which comprise the Gandi Group, and, if so,

b)

whether those indemnification claims are equity or non-equity claims
    for purposes of the CCAA (non-equity claims have priority).

[3]

On August 25, 2011, Justice Newbould, sitting on the Commercial List,
    ruled :

a)

that the Claimants were only entitled to indemnity from the direct and
    indirect parent company, Gandi Holdings (except that the Claimant, James Gandy
    only was also entitled to indemnification from a second entity in the Group,
    Gandi Canada);

b)

that any claim of James Gandy was subordinated to the claim of TA
    Associates because of an earlier existing Subordination Agreement; and

c)

that the claims for indemnification in respect of the TA Associates
    claim in the arbitration were equity claims for purposes of the CCAA and
    therefore subsequent in priority to the claims of unsecured creditors.

[4]

The Claimants seek leave to appeal from that order.

[5]

We deny the request.

Analysis

The Test

[6]

Leave to appeal is granted sparingly in CCAA proceedings and only when
    there are serious and arguable grounds that are of real and significant
    interest to the parties.  The Court considers four factors:

(1)

Whether the point on the proposed appeal is of significance to the
    practice;

(2)

Whether the point is of significance to the action;

(3)

Whether the appeal is prima facie meritorious or frivolous; and

(4)

Whether the appeal will unduly hinder the progress of the action.

See
Re Stelco (Re)
, (2005) O.R. (3d) 5, at para.
    24 (C.A.).

[7]

The Claimants do not meet this stringent test here.

The Indemnification Issue

[8]

Whether the Claimants are entitled to indemnification from all or just
    one or some of the entities in the Gandi Group was essentially a factual
    determination by the motion judge, is of no significance to the practice as a
    whole, and the proposed appeal on that issue is of doubtful merit in our view. 
    We would not grant leave to appeal on that issue.

The Subordination Issue

[9]

The same may be said for the Subordination Agreement issue.  The
    Claimants argue that by declaring that the indemnity claim of James Gandy is
    subordinate to the CCAA claim of TA Associates, the motion judge usurped the
    role of the pending arbitration.  We do not agree.  The subordination issue
    needed to be clarified for purposes of the CCAA proceedings.  None of the
    criteria respecting the granting of leave is met in relation to this proposed
    ground.

The Equity Claim Issue

[10]

Nor do we see any basis for granting leave to appeal on the
    equity/non-equity claim issue.

[11]

Equity claims are subsequent in priority to non-equity claims by
    virtue of s. 6(8) of the CCAA.  What constitutes an equity claim is defined
    in s. 2(1) and would appear to encompass the indemnity claims asserted by the
    Claimants here.  Those provisions of the Act did not come into force until
    shortly after the Gandi Group CCAA proceedings commenced, however, and
    therefore do not apply in this situation.  Newbould J. relied upon previous
    case law suggesting that the new provisions simply incorporated the historical
    treatment of equity claims in such proceedings: see, for example,
Re Nelson
    Financial Group Ltd
., 2010 ONSC 6229 (CanLII), (2010), 75 B.L.R. (4
th
)
    302, at para. 27 (Pepall J.).  He therefore concluded that TA Associates was in
    substance attempting to reclaim its equity investment in the Gandi Group
    through the arbitration proceedings and that the Claimants indemnity claims
    arising from that claim must be equity claims for CCAA purposes as well.

[12]

This issue in the proposed appeal is not of significance to the practice
    since all insolvency proceedings commenced after the new provisions of the CCAA
    came into effect in September 2009 will be governed by those provisions, not by
    the prior jurisprudence.  The interpretation of sections 6(8) and 2(1) does not
    come into play on this appeal.  To the extent that existing case law continues
    to govern whatever pre-September 2009 insolvency proceedings are still in the
    system, those cases will fall to be decided on their own facts.  We see no
    error in the motion judges analysis of the jurisprudence or in his application
    of it to the facts of this case, and therefore see no basis for granting leave
    to appeal from his disposition of the equity issue in these circumstances.

Disposition

[13]

The motion for leave to appeal is therefore dismissed.  Costs to the
    Monitor and to TA Associates fixed in the amount of $5,000 each, inclusive of
    disbursements and all applicable taxes.

Robert J. Sharpe J.A.

R.A.
    Blair J.A.

Paul
    Rouleau J.A.


