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Motion to approve CCAA pre-packaged related party sale dismissed due to flawed and opaque sales process.
The debtor applicants sought court approval for a pre-packaged sale ('quick flip') of their assets to a new company owned by existing management, pursuant to section 36 of the CCAA.
The proposed transaction was supported by the senior secured creditor but opposed by a subordinate secured creditor, BDC Capital Inc., who was excluded from the sales process and given minimal notice.
The Superior Court of Justice dismissed the motion, finding that the debtor failed to meet its burden under sections 36(3) and 36(4) of the CCAA.
The court held that the sales process lacked transparency, failed to make good faith efforts to sell to unrelated parties after the senior debt was purchased at a discount, and did not demonstrate that the proposed consideration was superior to other potential offers.
Substantial indemnity costs of $500,000 awarded against respondents for reprehensible litigation conduct in bankruptcy proceeding.
The applicant Trustee in Bankruptcy sought costs on a substantial indemnity basis after successfully holding the respondents liable for $16 million in transfers at undervalue.
The court found that the respondents engaged in reprehensible litigation conduct by failing to make financial disclosure and swearing to a fiction regarding the transfers.
The court rejected the argument of one respondent that she should pay a smaller portion, finding she acted in concert with her siblings.
The court fixed costs at $500,000 all-inclusive on a substantial indemnity basis, payable jointly and severally by all respondents.
Transfers of $16.2 million to related companies set aside as transfers at undervalue under BIA.
The Trustee in bankruptcy applied to set aside transfers of approximately $16.2 million from bankrupt borrower corporations to related non-borrower corporations under s. 96 of the Bankruptcy and Insolvency Act.
The court found that the transfers were made at undervalue, rendered the bankrupts insolvent, and were made with the intent to defraud, defeat, or delay creditors.
The court rejected the respondents' unsupported claims that the transfers were prepayments of future joint venture profits.
Judgment was granted declaring the transfers void and holding the recipient corporations and the individual controlling siblings jointly and severally liable as privies to the transfers.
