Executive Summary: Key Legal and Evidentiary Issues

• Newline challenged whether s. 11 of the Companies' Creditors Arrangement Act (CCAA) gave the supervising judge authority to decide coverage disputes under its directors' and officers' liability policy.
   
• A coverage dispute under the D&O Policy was found to be a matter between Newline and the insured directors and officers, not between the debtor company and its creditors.
   
• Eckler's own court brief effectively acknowledged that its action against the directors and officers did not further the objectives of the CCAA.
   
• Section 28(1) of Nova Scotia's Insurance Act was held to provide the proper route for a third party to claim against a liability insurer, only after obtaining judgment against the insured.
   
• Coverage was being sought before any liability had been established against the directors and officers, which the Court of Appeal treated as premature.
   
• Questions about the policy's insuring clause and Exclusions E and L were left undecided, with the court noting it had no more authority than the lower court to interpret the policy.
   

Facts of the case

The Halifax Herald Limited (the Herald) was a media and publishing company in Atlantic Canada and a wholly-owned subsidiary of Brace Holdings Limited. Mark Lever, Ian Scott and Sarah Dennis were its directors and officers at all material times. As sponsor and administrator of the Herald Retirement Plan, the Herald failed to make required pension contributions in 2018 and 2019.

On March 13, 2024, the Herald sought protection under the CCAA, and an Initial Order issued the same day. Eckler Admin Corp. Ltd. (Eckler) was appointed interim administrator of the Plan on March 20, 2024. A Second Amended and Restated Initial Order followed on March 26, 2024, staying proceedings against the companies' former, current or future directors and officers. On August 8, 2024, the court issued a Sale Approval and Vesting Order containing a broad release of the directors and officers, but carving out any claim that is an insured claim under an insurance policy maintained by the sellers or their advisors.

Eckler sued the Herald on October 21, 2024. It then moved to lift the stay so it could also sue the directors and officers. That motion was adjourned without a date, but an order issued November 27, 2024 granted leave to commence the action in order to seek recourse under any available insurance policies, while barring further steps without leave of the court. Eckler commenced its action against the directors and officers on November 28, 2024. Both actions alleged that, while in a conflict of interest, the defendants diverted funds to the Herald's digital strategy instead of making Plan contributions, directed that legal expenses for litigation over the unpaid contributions be paid out of the Fund, breached Nova Scotia's pension legislation, and breached their fiduciary duties.

By motion filed March 31, 2025, Eckler sought declarations on the coverage obligations of two insurers. In a decision dated January 30, 2026 (reported as 2026 NSSC 35) and an order dated April 10, 2026, the supervising CCAA judge found that AIG Insurance Company of Canada (AIG) had a duty to defend both actions and that Newline Canada Insurance Limited (Newline) had a duty to advance defence costs to the directors and officers. Eckler's request for a declaration that both insurers had a duty to indemnify was dismissed, and its claims were found to fall outside the Vesting Order's release. By agreement, costs of the motions were fixed at $25,000.00, payable by Newline to Eckler. AIG did not appeal, and Eckler was the only respondent to participate in Newline's appeal.

Policy and legislative provisions at issue

AIG issued a Fiduciary Liability Policy to Brace Holdings Limited covering October 22, 2023 to October 22, 2024, under which the Herald is an insured. Newline issued a Directors and Officers Liability Policy to Brace Holdings Limited, in force from November 30, 2023 to November 30, 2024. Subject to its terms, that policy agrees to pay, on behalf of the directors and officers, loss resulting from any claim. Newline's grounds of appeal also put in issue whether the insuring clause was engaged and how Exclusions E and L applied, although the decision does not set out the wording of those exclusions.

Section 11 of the CCAA allows the court, on the application of any interested person and subject to the Act's restrictions, to make any order it considers appropriate in the circumstances. Section 28(1) of Nova Scotia's Insurance Act provides that where an insured person fails to satisfy a judgment for damages and execution is returned unsatisfied, the person entitled to the damages may sue the insurer for the amount of the judgment, up to the policy's face value and subject to the same equities the insurer would have had if the judgment had been satisfied.

Reasoning and analysis

Leave to appeal was granted at the outset of the hearing. Whether the CCAA court had authority under the Act was reviewed on a correctness standard, and the Court of Appeal found it necessary to address only that question, reframed as whether the supervising judge exceeded the authority granted by s. 11.

Relying on 9354-9186 Québec inc. v. Callidus Capital Corp. and Century Services Inc. v. Canada (Attorney General), the court stressed that s. 11 powers, though broad, are not boundless and must be exercised in furtherance of the CCAA's remedial purpose of assisting the debtor company's reorganization. Defence costs and coverage under the D&O Policy were described as a matter between Newline and its insured directors and officers, not Eckler. In its earlier brief supporting the lifting of the stay, Eckler had effectively acknowledged that the transaction for the Herald's assets was complete, there was no continuing business, and its proposed claim had no impact on the debtors' ability to restructure. Any possible proceeds under the D&O Policy were not assets of Brace Holdings Limited or the Herald, and the "single proceeding model" in Century Services concerns actions against the debtor, whereas Eckler's action targeted the directors and officers.

According to the Court of Appeal, Just Energy (2024 ONSC 5220), on which the supervising judge relied, did not support the result. In that case, the CCAA court's authority was not contested because both the representative plaintiff and the insurers implicitly agreed to have coverage decided. No other authority was cited allowing a CCAA court to determine coverage without the insurer's consent.

Allowing Eckler to pursue coverage on behalf of the directors and officers through the CCAA proceedings was also found inconsistent with s. 28(1) of the Insurance Act. Contrary to the supervising judge's view that the provision "admits of gaps," the court held that it fills one by creating a right of action that privity of contract would otherwise deny. Under Hemeon v. West Hants (District), a claimant must first prove its case and obtain judgment, and only then is coverage determined. Carey Canada Inc., Re, which the court described as identical to Eckler's situation, follows the same sequence: judgment against the insured first, then an action against the insurers, where they can argue why the claims are not covered. Treating s. 28(1) as merely "permissive" because it uses the word "may" was an error; the provision is optional only in the sense that a plaintiff need not pursue the insurer at all.

With no finding that Eckler was entitled to damages from the directors and officers, and no facts found that would trigger Newline's duty to indemnify, the court held the motions were premature. It characterized Eckler's motion as a pre-emptive strike. At the outset of the motion, Eckler's counsel made clear it wanted coverage determined so it could decide whether to proceed with the actions, framing the question as "is the gate closed or is the gate open?" That purpose concerned the practical and financial viability of the litigation and had nothing to do with the CCAA proceeding.

Grounds 2 and 3, concerning the insuring clause and Exclusions E and L, were not addressed. Having found the CCAA gave the lower court no authority to interpret the D&O Policy, the Court of Appeal held it had no greater authority itself. It expressly declined to endorse the supervising judge's findings on those points, stating that if Eckler proceeds and the directors and officers seek a ruling on defence costs and coverage, that should happen in that proceeding, with a proper record, submissions and a proper motion before a Supreme Court judge. Deciding those questions at the appellate level, where the directors and officers were not participants, would have precluded appellate review.

Ruling and overall outcome

Newline succeeded. The Nova Scotia Court of Appeal granted leave, allowed the appeal, and set aside the April 10, 2026 order insofar as it related to Newline's D&O Liability Policy. Eckler was ordered to repay Newline the $25,000.00 in costs agreed to in the proceeding below and to pay Newline $10,000.00 in costs of the appeal, inclusive of disbursements, payable forthwith and in any event of the cause. No combined total was stated by the court. The supervising judge's findings regarding AIG, which did not appeal, were left unaffected.