{"id":34047,"date":"2025-06-11T16:03:06","date_gmt":"2025-06-11T20:03:06","guid":{"rendered":"https:\/\/www.millerthomson.com\/?p=34047"},"modified":"2025-06-19T18:32:23","modified_gmt":"2025-06-19T22:32:23","slug":"alberta-court-affirms-director-releases-in-delta-9-ccaa-plan-despite-cra-objections","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/restructuring-and-insolvency\/alberta-court-affirms-director-releases-in-delta-9-ccaa-plan-despite-cra-objections\/","title":{"rendered":"Alberta Court affirms director releases in Delta 9 CCAA Plan despite CRA objections"},"content":{"rendered":"\n

When a company restructures under financial distress, can its directors still be shielded from liability, even when tax authorities object? That\u2019s one of the questions addressed in a significant ruling where the Court of King\u2019s Bench of Alberta approved the Delta 9 restructuring Plan under the Companies\u2019 Creditors Arrangement Act<\/em> (Canada) (\u201cCCAA\u201d<\/strong>), including contested director releases, despite a late-stage objection from the Canada Revenue Agency (CRA<\/strong>). The ruling illustrates how courts may weigh regulatory concerns against broader restructuring goals.<\/p>\n\n\n\n

Background: How Delta 9 entered restructuring<\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

The Court granted Delta 9 a stay of proceedings and approved interim financing from Fika Herbal Goods (\u201cFika<\/strong>\u201d), who also acted as the Plan Sponsor of the proceeding.<\/p>\n\n\n\n

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\u2019s proposed Plan of Arrangement (the \u201cPlan<\/strong>\u201d), which included broad third-party releases. These covered Delta 9 entities, employees, advisors, directors, officers, and the Court-appointed Monitor.<\/p>\n\n\n\n

Two key transactions were presented for Court approval under the Plan:<\/p>\n\n\n\n

    \n
  1. The sale of Delta 9\u2019s large cultivation facility to 6599362 Canada Ltd. (\u201c659 Transaction\u201d); and<\/li>\n\n\n\n
  2. The sale of Bio-Tech shares to Simply Solventless Concentrates Ltd. (SSCL) via a Reverse Vesting Order (RVO).<\/li>\n<\/ol>\n\n\n\n

    CRA pushes back on director releases \u2014 but the Court disagrees<\/h2>\n\n\n\n

    A key point of contention in the Delta 9 restructuring was the CRA\u2019s objection to the Plan\u2019s release provisions, particularly its inclusion of the company\u2019s CEO.<\/p>\n\n\n\n

    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 <\/em>(Canada). According to the CRA, excusing that liability through a Court-approved release was both unfair and contrary to public interest.<\/p>\n\n\n\n

    The Court disagreed. In rejecting the CRA\u2019s arguments, it pointed to:<\/p>\n\n\n\n