SCC disposes of recapitalization case in favour of oilfield services provider

Plan of arrangement found to comply with Canada Business Corporations Act’s requirements

SCC disposes of recapitalization case in favour of oilfield services provider
Company’s plan of arrangement aimed to reduce its outstanding indebtedness

The Supreme Court of Canada’s dismissal with costs of Wilks Brothers LLC’s leave application means that the final order under which Calfrac Well Services Ltd. implemented its recapitalization transaction remains in full force and effect, Calfrac has said in a news release.

The decision in Wilks Brothers LLC v. 12178711 Canada Inc., et al., 2021 CanLII 44589 (SCC) shows that the order approving Calfrac’s plan of arrangement, which was consummated in December 2020, is no longer subject to further Canadian appeal rights, Calfrac said.

Calfrac had put forward the plan of arrangement, intended to reduce its outstanding indebtedness and annual cash interest payments, in order to improve its liquidity to provide the sustainable capital structure that it needed, and to enable it to maintain its business operations.

In October 2020, the Court of Queen’s Bench of Alberta granted the final order approving the plan pursuant to s. 192 of the Canada Business Corporations Act, RSC 1985, c C-44. Wilks Brothers -- which is Calfrac’s competitor and a shareholder holding approximately 20 per cent of Calfrac’s shares, as well as Calfrac’s creditor that had acquired over half of Calfrac’s second lien notes -- contended that the order was erroneously granted.

In 12178711 Canada Inc v Wilks Brothers, LLC, 2020 ABCA 430, Alberta’s Court of Appeal upheld the lower court’s order on Dec. 1, 2020, seeing no reviewable error in the chambers judge findings, analysis and conclusions on the issues. The appellate court said that the chambers judge heard every application relating to the arrangement, carefully reviewed the record and determined that the statutory prerequisites under s. 192 were met, that the reason for the arrangement which was to ensure Calfrac’s economic viability for the benefit of all stakeholders was a valid business purpose and that the impacted stakeholders had been fairly treated.

Wilks Brothers has applied to the Ontario Securities Commission to request a hearing and review of the decision of the Toronto Stock Exchange, which had granted a relief regarding the rescission of the purchase of Calfrac’s 1.5 lien notes acquired by an institutional shareholder, Calfrac noted. Calfrac said that it would oppose this application, which is expected to be heard in July, on the basis that the Toronto Stock Exchange had acted appropriately within its jurisdiction.

In a later news release, Calfrac announced that Wilks Brothers and its affiliated funds had filed an appeal on June 1 to the U.S. Court of Appeals for the Fifth Circuit.

In the U.S. proceedings, the U.S. Bankruptcy Court for the Southern District of Texas issued an order granting recognition and enforcement of Calfrac’s plan of arrangement under Canadian legislation in the U.S. The U.S. District Court for the Southern District of Texas then released a decision affirming the bankruptcy court’s order. The latter decision is now the subject of Wilks Brothers’ appeal.

Calfrac announced it will give further updates in this litigation, given that the timeframe for the U.S. appeal proceedings has not yet been decided. The company said it is well-positioned to oppose the appeal and eager to deal with the appeal on the merits.

Calfrac is a provider of oilfield services for exploration and production companies, aiming to improve the production of hydrocarbons from wells drilled across Western Canada, the United States, Argentina and Russia.

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