June 17, 2021
Partner David Bish shared his insights with Financial Post on new insolvency rules for RVOs to benefit energy companies. By vesting out liabilities, companies are given the opportunity to restore solvency and share value. Vesting orders have been sought previously in Canada; however, this is the first time its use is being opposed.
“Without that cleansing, no one wants to own the shares of a company whose liabilities exceed its assets,” David said.
He explained that RVOs have displayed several advantages to asset sales, including minimized execution risks. “In theory, the benefits of a share transaction should in at least some cases be of more value to purchasers than a comparable asset deal.”
Alternatively, the impact of RVOs may pose substantial environmental challenges and liabilities for the energy sector.
“Attempts to ‘vest out’ environmental liabilities may trigger significant pushback from governmental entities,” David said.
“So the success of a contextualized RVO structure in the energy sector may turn on the aggressiveness of the structure.
“Whoever will pay the most money for the business can usually specify the form of the transaction.
“If purchasers want an RVO structure because of the benefits it affords and—very, very importantly—if they will pay more for that approach than they would for an asset purchase transaction, then it is worth the complexity and extra effort to implement the deal as an RVO.”
David described that what is considered a successful restructuring has changed. “Much more often, we see businesses sold, and those sales have traditionally been structured as assets sales for a variety of reasons, including the inability to sell shares owned by shareholders, which are not the property of the insolvent company.”