Crystallex: 180 shareholder claims and the equity question

On July 21, counsel for Crystallex's independent director sent the same letter to every claimant whose claim rested on one document, a "Statement in Support of Proof of Claim" that, the letter says, "was originally drafted by a shareholder named Adelso Adrianza." Some claimants had filed several claims on it, for different people, from a single email address. The letter put 33 questions, allowed two weeks for answers and offered an alternative to writing them: a claimant who sent nothing would be taken to rely on Mr. Adrianza's answers, which he had agreed to provide, per the Forty-Ninth Report of the Monitor, Aug. 17, 2026, App. K, pp. 110–111.

The supplemental claims process that invited Crystallex's shareholders to file, reported here on July 1, closed on July 13, and Ernst & Young Inc., the monitor, has now counted what it drew. It lists 190 claims as of August 17: 180 from shareholders, asserting equity ownership and unliquidated damages of up to US$1.5 billion; six from directors and officers seeking indemnity; one from the indenture trustee, for US$516,792,589.91; and three from individual noteholders, since withdrawn. Of the shareholder claimants, 123 appended and rely on Mr. Adrianza's statement, per the Forty-Ninth Report, paras. 53, 62, and p. 13.

One statement, 123 claimants

Thirty-two of the shareholder claims arrived after the bar date and were accepted for review anyway; new ones were still arriving on August 17, per the Forty-Ninth Report, para. 55. The monitor first set aside claims asking only to be recognized as shareholders, which no one has to file. On July 27 it emailed the 70 claimants who had filed only that by the bar date to say the claim was deemed withdrawn, "without any prejudice to the review and adjudication of any other proper claims you may have submitted," including claims against directors and officers. Since then, the report says, "numerous" of them have filed again, adding allegations of wrongdoing, per the Forty-Ninth Report, paras. 57–59, and App. I, p. 99.

The report counts 139 shareholder claims that go beyond ownership. They advance four causes of action — bad faith, breach of fiduciary duty, fraud and oppression — and, in the monitor's summary, allege improper solvency determinations, the exclusion of shareholders from meaningful participation in the CCAA proceedings, the abandonment of valuable assets including the Nomura Notes restraining order, and conflicts of interest among board members. Against the directors and officers the claims allege, among other things, the improper selection of Tenor Capital Management as DIP lender, management compensation arrangements approved during the proceedings, "false affidavits filed during the proceedings," and a self-enrichment scheme through the DIP financing. The monitor's table lists every shareholder claim as under review, per the Forty-Ninth Report, paras. 56, 60–61, and p. 13.

The statement itself, attached to the report as a scan, opens with arithmetic, using "the DIP" as its defined term for Crystallex. "While Crystallex International Corporation (the 'DIP') is the owner of an arbitration award in the amount of approximately $1.4 billion dollars, the liquidation track will result in no waterfall distribution to the shareholders. The DIP lender advanced only $76 million to the DIP, yet is being awarded a claim of approximately $800 million USD to date." It estimates total adjusted net arbitration proceeds of US$2,095,810,000.00 and a waterfall distribution to the shareholder class of US$1,560,890,000.00, per the Forty-Ninth Report, App. J, pp. 102, 107.

Thirty-three questions

The independent director, Sergio Marchi, reviews these claims on Crystallex's behalf, and his counsel's letter describes Mr. Adrianza as "an activist shareholder who has sought to advance a variety of claims against Crystallex in the Canadian and US proceedings." The documents the claims cite, it says, are "largely comprised of allegations, and do not themselves constitute evidence." Question 6 turns to Justice Hainey's dismissal on May 22, 2018 of a motion by the Ad Hoc Committee of Shareholders, 2018 ONSC 2443, leave to appeal refused, 2018 ONCA 778, a motion the letter says "included many of the same core allegations," and asks why the claims are not barred as res judicata or by issue estoppel, per the Forty-Ninth Report, App. K, pp. 111–112.

Others ask where a fiduciary duty to shareholders comes from when, the letter says, directors owe theirs to the corporation; how each court-approved increase in the DIP lender's share of net arbitration proceeds amounts to self-enrichment; and how payments made under court order can be fraud "having regard to s. 142 of the Courts of Justice Act." On the Las Cristinas mining data the claim says was transferred to Venezuela for no value, the letter asks the claimants to account for a settlement under which Crystallex was to receive US$425 million, and for "the fact that Crystallex did not own such data and was in fact obligated to provide it to Venezuela." The last question asks how the claimants answer the argument that the Venezuelan government, and not Crystallex's directors and officers, caused the losses, per the Forty-Ninth Report, App. K, pp. 113–116.

Mr. Adrianza answered on August 3, for himself and everyone relying on the statement: a 72-page submission covering all 33 questions, with an inventory of supporting documents, per the Forty-Ninth Report, para. 64. Its opening objections say the number of questions, "33 detailed Questions, many with multiple subparts," and fourteen days to answer them are "patently unfair." He says he was never served with the order that set the bar date, per the Forty-Ninth Report, App. L, p. 125. The monitor reports that it heard a claim that several shareholders did not receive the notice materials, and that each who told it so was sent a link to the claim forms, per the Forty-Ninth Report, para. 26.

On the 2018 decision, the response argues that Justice Hainey disposed of the committee's motion on three threshold grounds — his discretion not to vary final orders, the immunity in s. 142 of the Courts of Justice Act, and the Limitations Act — without applying the oppression test; that Mr. Adrianza was not a party; and that much of what he now alleges happened after May 2018, per the Forty-Ninth Report, App. L, pp. 136–138. The response also revises the statement's arithmetic. The components it quantifies include US$398.3 million of "Disallowed Unsecured Noteholder Interest," which it calculates as the difference between the notes' 9.375% contractual rate and a 5% statutory cap over the post-filing period; US$300.0 million for the Las Cristinas data; and US$260.3 million for a tax-loss carryforward benefit it says was improperly allocated to the DIP lender. It puts the distribution due to the shareholder class at US$1,284.7 million, and Mr. Adrianza's own minimum at US$8.6 million, or 0.67% of that, per the Forty-Ninth Report, App. L, pp. 131–132. The first of those components is a position on the noteholders' post-filing interest, the issue Justice Conway has named as the primary one for October.

Equity, and the indemnities that follow it

On August 11 the independent director's counsel asked one more question. Mr. Adrianza had placed every component of his claim at the eighth and last level of the waterfall, the residue that goes to Crystallex, and the letter asked whether he accepted that his claim is an equity claim as defined by s. 2(1) of the CCAA or was asserting an unsecured claim, per the Forty-Ninth Report, App. M, p. 191. The answer decides rank: under s. 6(8) of the CCAA, a plan that pays an equity claim cannot be sanctioned unless every claim that is not an equity claim is to be paid in full first.