Chesswood: the investor class action comes back for the bankruptcy stay

The statement of claim was issued on October 11, 2024, eighteen days before Chesswood Group Limited's lenders put it under the CCAA. It was brought by a shareholder, Shane McCormick, for two proposed classes of people who bought Chesswood's common shares, which traded on the Toronto Stock Exchange as CHW, and it named three defendants: the company; Ryan Marr, its president and chief executive officer; and Tobias Rajchel, its chief financial officer. The claim alleges that from May 2023 Chesswood told the market it was in compliance with the covenants on its syndicated revolving credit facility and that its financial statements could be relied on, and that three announcements in the summer of 2024 publicly corrected those statements. After the first, on June 14, 2024, when Chesswood said it was in breach of the facility's minimum borrowing-base covenant, the claim pleads that the share price fell from $7.49 to $3.75, per the Statement of Claim, Oct. 11, 2024 (Motion Record, Sept. 18, 2026, Tab 2, Ex. "A"), paras. 1, 6, 8, 18, 21–24.

None of the allegations has been tested, and the action is still at the pleadings stage. The plaintiff served a draft motion record for leave under s. 138.8 of the Ontario Securities Act and for certification under the Class Proceedings Act, 1992 on March 27, 2026, and says he cannot file it, per the Affidavit of Mark Sebastian, Sept. 18, 2026, paras. 12–14. Since the autumn of 2024 the action has been held by a CCAA stay, and since February 2026 by a bankruptcy stay as well. On July 16, 2026, Justice J. Dietrich lifted the first. On September 18, the plaintiff's counsel, Berger Montague (Canada) PC, filed a motion record in Chesswood's bankruptcy, court file BK-26-03332011-0031, asking Justice Black to lift the second, returnable October 1, 2026 at 11:00 a.m. by videoconference, per the Notice of Motion, Sept. 18, 2026, p. 14 and paras. 1, 12–13.

What the CCAA left behind

The CCAA proceeding, CV-24-00730212-00CL, was the lenders' application. Royal Bank of Canada, as administrative and collateral agent to a syndicate of six banks, put the amounts outstanding at US$66,254,723.30 and C$92,797,926.72 as at October 24, 2024, plus letters of credit of US$4,000,000 and C$6,600,000, per its Notice of Application, Oct. 29, 2024, para. 15. Justice Kimmel granted the initial order on October 29, 2024, per the Initial Order, Oct. 29, 2024, p. 1. It appointed FTI Consulting Canada Inc. as monitor with enhanced powers to manage the group and the sale of its assets, and the amended and restated initial order of November 7 extended the stay to any claim against Chesswood's former, current or future directors or officers, which is how the class action's two individual defendants came within it, per the Endorsement of Justice Cavanagh, Nov. 20, 2025, paras. 3–4.

The monitor then sold the business in pieces: certain of Rifco's assets to Vault Auto Finance Corporation; the shares of Pawnee Leasing and Tandem Finance, by reverse vesting order, to North Mill Equipment Finance, LLC; the shares of Waypoint Investment Partners; the Bishop equity interests and a related contract, also to North Mill; and the Easy Legal assets. By its Ninth Report of January 18, 2026, those five transactions had produced realizations "in excess of $130 million," the interim facility had been repaid in full from the Pawnee proceeds, and the CCAA parties had "no material assets or operating businesses remaining." The wind-down reserve stood at approximately US$1.57 million on January 2, 2026, any balance to go to the lenders, whose outstanding obligations still exceeded $83 million and who "will not be repaid in full," per the Ninth Report of the Monitor, Jan. 18, 2026, paras. 7–11, 33–34, 40, 46 and n. 2.

Justice Cavanagh's CCAA Termination Order of January 23, 2026 ends the proceeding, discharges FTI and terminates the court-ordered charges when the monitor serves a termination certificate on the service list. It also directs that any tax refunds received by a CCAA party, before or after a bankruptcy, stay out of the bankruptcy estate and go to the lenders' agent, per the CCAA Termination Order, Jan. 23, 2026, paras. 3–8. The plaintiff's affidavit says that as of September 18, 2026 the certificate had not been served and the CCAA proceeding had not terminated. Chesswood made its assignment in bankruptcy on February 11, 2026, under authority granted in October 2025, and FTI was appointed trustee, per the Affidavit of Mark Sebastian, Sept. 18, 2026, paras. 18, 21, 24–25.

The statement of affairs, sworn on February 10 by Jeffrey Rosenberg of FTI in its capacity as monitor, lists no asset of realizable value and liabilities of $84,222,005.13, all but $0.01 of it unsecured. RBC's claim is listed at $83,205,528.39. Line 16 is headed "Securities Class Action," at the Bay Street address of the plaintiff's counsel, in the amount of $0.00, per the Form 78 Statement of Affairs, Feb. 10, 2026, pp. 1–2, 4–5.

The lenders went first

The class action was not the first claim against Chesswood's former management to get past the stay. On November 20, 2025, Justice Cavanagh lifted it "solely for the purpose" of letting RBC, for the lenders, sue Chesswood and "certain former directors and officers or senior management figures," per the Lift Stay Order, Nov. 20, 2025, para. 2. The lenders were then owed approximately C$83.2 million as at October 24, 2025. RBC's stated reason for moving before the stay ran out was the court-approved records protocol, under which the monitor could destroy the books and records after December 31, 2025: an issued claim would give the defendants the chance to ask for particular records to be kept. One proposed defendant opposed, arguing the claim disclosed no tenable cause of action against him. Justice Cavanagh applied the three Timminco factors (relative prejudice, balance of convenience and, where relevant, the merits), found no prejudice to the individuals in facing the claim "approximately two months sooner," and granted the order because "the underlying purpose of the CCAA proceeding has been accomplished," per the Endorsement of Justice Cavanagh, Nov. 20, 2025, paras. 7–15.

RBC's claim, issued November 28, 2025 in court file CL-25-00753601-0000, names Chesswood, the two individual defendants in the class action, a former executive vice-president and a former director. It seeks at least C$83,000,000 from Chesswood for breach of the credit agreement, and the same from the four individuals for negligent supervision and oversight of the borrowing-base calculation and for negligent misrepresentation in the borrowing-base certificates, with a declaration of oppression under s. 248 of the Business Corporations Act, per the Statement of Claim, CL-25-00753601-0000 (Motion Record, July 7, 2026, Ex. "K"), paras. 1, 6–9. On April 27, 2026, Justice Myers struck the claim against one of the four individuals with leave to amend and dismissed the other three's motions to strike, per the Order of Justice Myers (Motion to Strike), Apr. 27, 2026 (Motion Record, July 7, 2026, Ex. "L"), paras. 1–2.

Two motion records

The plaintiff had filed a notice of appearance in the CCAA on November 7, 2024, the day the amended and restated initial order was made, per the Notice of Appearance, Nov. 7, 2024, p. 1. His first lift-stay motion came in July 2026, in the CCAA file, and its argument ran through the lenders' action. Its grounds are headed "The CCAA Stay has been lifted for a competing action" and "The Stay now effects an unfair result on the Investor Class Action." The two actions, the plaintiff said, seek damages from Chesswood and certain of its former directors and officers, and because Chesswood has no material assets or businesses remaining, recovery in both "is limited to the amount of Chesswood's applicable insurance policies." Continuing the stays against the class action alone, while "another creditor is permitted to pursue substantially similar relief from the same applicable insurance policies," would materially prejudice the proposed class, per the Notice of Motion, July 7, 2026, paras. 7–14. The supporting affidavit, sworn by a Berger Montague paralegal, adds that the monitor had made copies of Chesswood's insurance policies available and that the insurance "may be applicable to both" actions, per the Affidavit of Daniel Pallag, July 6, 2026, paras. 24–27.

That motion asked for both stays, the CCAA's and the BIA's, to be lifted so the plaintiff could pursue the action "substantially in the form of" a fresh as amended claim, with a direction to the registrar to issue it, per the Draft Order (Motion Record, July 7, 2026, Tab 3), paras. 2–3. The order Justice J. Dietrich signed on July 16, in the CCAA file, lifts "the CCAA Stay" and that stay only, "solely for the purpose of permitting the Class Action Plaintiff, for and on behalf of a proposed class of investors, to pursue the Investor Class Action," with no costs, per the Order (Lifting the Stay of Proceedings), July 16, 2026 (Motion Record, Sept. 18, 2026, Tab 2, Ex. "I"), paras. 2–3.

The September record is the plaintiff's motion for the rest, made in the bankruptcy under ss. 49, 69.3 and 69.4 of the BIA. Its grounds are that Chesswood has no material assets or businesses, its shares have no value, "the recovery sought is limited to the amount of Chesswood's applicable insurance policies," and the continued BIA stay "materially prejudices" putative class members "who are precluded from advancing their claims to pursue recovery under the applicable insurance policies," per the Notice of Motion, Sept. 18, 2026, paras. 14–17. The affidavit, sworn the same day by another paralegal at the firm, says the plaintiff's counsel has been advised that FTI "will provide a summary of the status of the Bankruptcy Proceeding to the Court on this motion," per the Affidavit of Mark Sebastian, Sept. 18, 2026, paras. 25–27. The order Justice Black is asked to sign follows Justice J. Dietrich's, with the BIA stay in place of the CCAA stay: lifted "solely for the purpose" of pursuing the Investor Class Action, and no costs, per the Draft Order (Motion Record, Sept. 18, 2026, Tab 3), paras. 2–3.

What the amended pleading would add

The fresh as amended claim, exhibited in draft, would run the class period from May 9, 2023 through August 7, 2024, the date of the third of the pleaded corrective disclosures, where the issued claim stops at July 22. It pleads the credit facility in more detail: a revolving facility of up to US$300 million, whose availability turned on a borrowing base calculated from eligible receivables and reported to the lenders by certificate. It pleads that in May 2024 the lenders found a deficiency in the base reported in the certificate dated March 31, 2024, "initially calculated to be approximately US$50 million and subsequently increased to approximately US$92 million," and that RBC has alleged in its own claim that errors in the calculation began in at least December 2022. No figure is claimed for the class. The draft seeks damages "in a sum to be determined" and would let the common-law class elect a rescissionary measure, per the Draft Fresh as Amended Statement of Claim (Motion Record, Sept. 18, 2026, Tab 2, Ex. "C"), paras. 1(d), 3(c)–(d), 28–31, 46. The leave and certification motion served in March is addressed to Justice Leiper, per the Proposed Notice of Motion for Leave to Proceed and Certification, Mar. 27, 2026 (Motion Record, Sept. 18, 2026, Tab 2, Ex. "B"), p. 50.

The draft is addressed to Adair Goldblatt Bieber LLP for Chesswood and Mr. Rajchel and to Ross Nasseri LLP for Mr. Marr, per the Draft Fresh as Amended Statement of Claim (Motion Record, Sept. 18, 2026, Tab 2, Ex. "C"), p. 70. The first of those firms was retained, the monitor reported in January, by Chesswood "through its directors' and officers' insurer" and by a former director and officer, to act for them in both the class action and RBC's action. Before the protocol's November 28, 2025 deadline, that firm asked for all of Chesswood's books and records, confirmed that the insurer would bear the cost of keeping them, and undertook to make production in the ordinary course to the parties in both suits. Plaintiff's counsel in each action had made records requests of their own, and no one had objected to the arrangement by the date of the report, per the Ninth Report of the Monitor, Jan. 18, 2026, paras. 25–29. The termination order approved the transfer and extended to Chesswood and its litigation counsel the monitor's information rights under the purchase agreements, per the CCAA Termination Order, Jan. 23, 2026, paras. 12–13. The motion to lift the bankruptcy stay comes before Justice Black on October 1, 2026.