MOL Prosecution Continues Amidst CCAA Proceedings

The Ontario Superior Court of Justice has ruled that a Ministry of Labour prosecution for violations of the Occupational Health and Safety Act (“OHSA”) is not akin to a regulator seeking to enforce its rights as a creditor.

Terrace Bay Pulp Inc., a pulp and paper mill, filed for protection from its creditors in March 2009 under the Companies’ Creditors Arrangements Act (“CCAA”) and implemented a Plan of Compromise under that legislation in September 2010.  Then, in January 2011 an employee was injured on the job and in October 2011 an explosion at the mill blew part of the roof off.  The Ministry of Labour charged the company in respect of each incident almost exactly one year to the day after each respective incident occurred (consistent with the one year limitation period for laying charges under the OHSA).  Following those incidents the mill was sold to a third party, such that Terrace Bay was no longer operating.

Terrace Bay applied to the Court for a stay of those prosecutions.

The CCAA contains provisions to permit the courts to stay enforcement proceedings in certain circumstances.  Ordinarily, the CCAA does not permit the courts to interfere with a regulator’s investigation and enforcement activities unless a viable compromise under the CCAA proceedings could not be made otherwise, and then only if the stay of proceedings were found to be in the public interest (the “Public Interest Compromise Exemption”).  The CCAA does provide that the courts can stay regulatory proceedings brought to enforce rights as a creditor or to enforce an order for payment.

Terrace Bay asserted that the only result the Ministry may obtain upon any conviction would be an order to pay a fine.  As such, it argued the Ministry was effectively seeking to enforce its rights as a creditor.  Terrace Bay also emphasized that it had a duty to its creditors to avoid incurring likely significant legal expenses to defend the charges.

The Ministry responded that it was not seeking enforcement of any order that yet existed, and more to the point, courts can order more than fines but also probation with non-monetary terms against defendants found guilty of offences under the OHSA.

The Ministry also pointed out that Terrace Bay had not applied for the Public Interest Compromise Exemption, and suggested to the Court that Terrace Bay could not meet the standard to apply under the exemption.

Ultimately, the Court agreed with the Ministry and refused to grant the stay.  The Court also noted that the company had a “unenviable” choice whether to expend funds to defend against the charges.  That is unlikely to give comfort to the other creditors.

In our view, this decision is not surprising.  It is difficult to see how it would be in the public interest for the courts to stay prosecutions when companies that continue to operate while under CCAA protection fail to maintain due diligence standards.  The CCAA is not a license to break the law or to put workers in jeopardy.

Parenthetically, charges against individuals under the Criminal Code for criminal negligence (not brought in this case) are not subject to any limitation period nor can they be stayed under the CCAA.  So reckless disregard, even during a period of corporate reorganization, certainly has severe potential consequences.

On the upside, though, assuming the Ministry continues the prosecutions and Terrace Bay were found guilty and fines imposed, the Ministry would then become nothing more than an unsecured creditor cued behind claims with greater priority.

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