Two Decisions Dealing with the Fallout of OpenHydro

Two decisions have been released in the last week relating to the insolvency of OpenHydro, one of the key players in Nova Scotia’s in-stream tidal energy industry.

Background: OpenHydro is an insolvent tidal energy company. In August 2018 a number of its unpaid creditors commenced proceedings in the Federal Court of Canada against the “Scotia Tide”, a vessel owned by the company. The Scotia Tide was arrested on August 2, 2018.

On August 14 2018, another creditor of OpenHydro, BBC Chartering Carriers GmbH & Co. K.G. (“BBC”), began in rem proceedings in the Federal Court asserting a claim against one of the company’s submerged turbines.

Meanwhile, OpenHydro filed for creditor protection under the Bankruptcy and Insolvency Act (“BIA”) in September, 2018. That legislation includes a stay of proceedings in section 69(1), however, the stay does not apply to "secured creditors".

On October 23, 2018 OpenHydro filed a motion requesting that its BIA proceeding be converted to an application pursuant to the Companies’ Creditors Arrangement Act in order to take advantage of a more comprehensive stay provision which also applies to secured claims.

The BBC Case: In BBC Chartering Carriers GMBH & CO. KG v. Openhydro Technology Canada Limited, 2018 FC 1098 the central issue was whether BBC was entitled to default judgement in its in rem claim against the turbine owned OpenHydro. Openhydro did not defend BBC’s claim against it but had written to the court prior to the default judgement motion requesting that BBC’s claim be dismissed because of the stay of proceedings clause in the BIA.

The Federal Court concluded that the stay of proceedings in the BIA did not apply because BBC’s in rem claim made it a "secured creditor" - defined in the BIA to include lien holders. Notably, the Federal Court was satisfied that a contractual lien clause in the Charterparty was sufficient to bring BBC within the ambit of “secured creditor”. This case is significant because it marks one of the few instances where the Federal Court has recognized a contractual lien.

The OpenHydro Reference Case: In OpenHydro Technology Canada Ltd. (Re), 2018 NSSC 283 the central question was whether OpenHydro’s application to convert its insolvency proceedings from the BIA to the Companies’ Creditors Arrangement Act could operate to stay all claims (including those in rem before the Federal Court). The Nova Scotia Supreme Court rejected this claim concluding that the Nova Scotia Courts should not interfere with matters in the Federal Court citing comity concerns.

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