When a company restructures under financial distress, can its directors still be shielded from liability, even when tax authorities object? That’s one of the questions addressed in a significant ruling where the Court of King’s Bench of Alberta approved the Delta 9 restructuring Plan under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”), including contested director releases, despite a late-stage objection from the Canada Revenue Agency (CRA). The ruling illustrates how courts may weigh regulatory concerns against broader restructuring goals.

Background: How Delta 9 entered restructuring

Delta 9, a vertically integrated cannabis company, encountered significant headwinds in 2024. Like many others in the sector, it struggled with market oversupply, regulatory burdens, and rising interest rates. By mid-2024, the company had breached its loan covenants and sought protection under the CCAA.

The Court granted Delta 9 a stay of proceedings and approved interim financing from Fika Herbal Goods (“Fika”), who also acted as the Plan Sponsor of the proceeding.

Over the following months, the Court issued several key orders to support the restructuring process. These included a Sale and Investment Solicitation Process for its subsidiary, Bio-Tech. In December 2024, creditors approved Fika’s proposed Plan of Arrangement (the “Plan”), which included broad third-party releases. These covered Delta 9 entities, employees, advisors, directors, officers, and the Court-appointed Monitor.

Two key transactions were presented for Court approval under the Plan:

  1. The sale of Delta 9’s large cultivation facility to 6599362 Canada Ltd. (“659 Transaction”); and
  2. The sale of Bio-Tech shares to Simply Solventless Concentrates Ltd. (SSCL) via a Reverse Vesting Order (RVO).

CRA pushes back on director releases — but the Court disagrees

A key point of contention in the Delta 9 restructuring was the CRA’s objection to the Plan’s release provisions, particularly its inclusion of the company’s CEO.

The CRA argued that more than $9 million in unpaid excise duties had been diverted for other uses, and that the CEO, as a director of Bio-Tech, should remain liable pursuant to section 323 of the Excise Tax Act (Canada). According to the CRA, excusing that liability through a Court-approved release was both unfair and contrary to public interest.

The Court disagreed. In rejecting the CRA’s arguments, it pointed to:

  • Established legal precedent permitting such releases in CCAA proceedings; and
  • The practical risk of undermining the restructuring process if the deal were delayed or derailed.

The Court also noted that the CRA failed to submit formal evidence or an application to substantiate its claims, which weakened the credibility and timing of its objections.

Court’s analysis: Were the releases fair and justified?

Justice Marion laid out a detailed, multi-part analysis to assess whether the proposed releases were fair and reasonable within the scope of CCAA proceedings and the specific RVO transaction.

1. Rational connection to the Plan

The Court found a strong rational connection between the releases and the restructuring’s success. The company’s CEO holds a Health Canada security clearance essential for Bio-Tech’s licensing and operations. His ongoing involvement was vital to implementing the SSCL transaction and the broader Plan. Without the releases, the transaction could collapse, jeopardizing the entire restructuring.

2. Necessity for the Plan’s success

The CRA argued that releasing the CEO was not necessary for the Plan’s success. The Court disagreed, relying on evidence, including affidavits from the CEO himself and the Monitor’s reports, that the releases were a precondition for SSCL’s acquisition. SSCL’s willingness to proceed depended on these protections due to the risk of indemnifying directors otherwise. Thus, the releases were deemed integral, not optional.

3. Contribution of releases

The CEO and other directors played key roles in crafting and executing the restructuring for the benefit of all shareholders. The Court noted that the contributions of employees during difficult circumstances, especially the CEO’s ongoing leadership, were instrumental in preserving the value of the business.

4. Benefit to creditors and debtors

The Court found that approving the releases ultimately benefited Delta 9, its creditors, employees, landlords, and other shareholders. Without the SSCL transaction, which depended on the releases, the Bio-Tech business could have been forced into liquidation, resulting in far lower recoveries. The broader restructuring, including the 659 Transaction and Plan, would have also unraveled.

5. Creditor awareness

The releases were fully disclosed in the Plan’s materials. The creditors, including CRA, were aware of their scope and effects. The CRA’s claim that it lacked information was dismissed, given that relevant documents and claims were filed as early as August 2024.

6. Fairness and scope of the releases

Although the releases were broad, the Court noted several important carve-outs. They did not:

  • Release claims for fraud, willful misconduct, or gross negligence;
  • Affect CRA’s set-off rights;
  • Prevent actions under insurance policies;
  • Apply to obligations under the Plan.

These carve-outs demonstrated a balance between finality and creditor protection, ensuring the releases are not overly expansive.

Why the Court approved the releases

Ultimately, the Court sided with pragmatism over speculation. While CRA’s frustration over unpaid taxes was understandable, its objections lacked evidentiary foundation and timely engagement. Approving the releases provided:

  • Transaction certainty;
  • Avoidance of litigation or director indemnity disputes;
  • Continuity in regulatory compliance (via the CEO’s license clearance);
  • Fulfillment of key restructuring conditions.

Blocking the releases, by contrast, risked collapsing the SSCL transaction, unraveling the 659 sale, and potentially causing a total restructuring Plan failure, thereby diminishing value to many shareholders, including CRA, whom the agency purported to protect.

Key takeaways

  • Director releases are not automatic: Courts require a clear, rational connection between the release and the success of a CCAA Plan or transaction. Releases must not be overly broad and must include appropriate exceptions.
  • Evidentiary burden lies with objectors: Regulators and creditors who object to releases must provide timely, formal evidence. Mere assertions or speculation are insufficient.
  • Timing matters: Courts are increasingly critical of stakeholders who delay raising objections until late in the CCAA process, especially when doing so could derail a restructuring supported by multiple parties.
  • Public companies and fiduciary duties: Allegations of misconduct tied to executive compensation or claim assignments must be backed by evidence of bad faith or legal impropriety—not just the appearance of unfairness.
  • Restructuring finality is paramount: Courts value the completion of a fair and reasonable restructuring over speculative attempts to extract further concessions, particularly when the alternative is liquidation or collapse.

Miller Thomson represented Plan Sponsor Fika Herbal Goods in the successful CCAA restructuring of Delta 9. Our Restructuring and Insolvency Group provides strategic, results-driven counsel to stakeholders in complex court-supervised proceedings.