Court of Appeal for Ontario

Date: 20240823 Docket: M55313 (COA-24-CV-0843) Before: Sossin J.A. (Motion Judge)

Application Under: section 243 of the Bankruptcy and Insolvency Act, R.S.C.1985 c. B-3, as amended, and under section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43

Between:

Downing Street Financial Inc. Applicant (Respondent/Responding Party)

And:

1000162497 Ontario Inc. and Maplequest Uptown Developments Inc. Respondents (Appellants/Responding Parties)

Counsel: David Seifer, for the receiver B. Riley Farber Inc. Eric Golden, for the responding party Downing Street Financial Inc. Syed Abid Hussain, for the responding parties 10000162497 Ontario Inc. and Maplequest Uptown Developments Inc.

Heard: August 22, 2024

Endorsement

Background

[1] This motion for directions is brought by B. Riley Farber Inc. (the “Receiver”), the court-appointed receiver in this proceeding. This motion follows from a notice of appeal by the appellants, 1000162497 Ontario Inc. and Maplequest Uptown Developments Inc. on August 12, 2024. This appeal seeks to enjoin the Receiver from completing a $15.5 million sale of real property, known as the “Cedar Properties”, pursuant to an Approval and Vesting Order made on the Commercial List on August 2, 2024 (the “AVO”). This sale transaction was scheduled to close on August 20, 2024, but has been extended to August 26, 2024, in order to accommodate the hearing of this motion.

[2] The Receiver moves for the following relief:

(i) a declaration that the Notice of Appeal is a nullity, as it was not filed in the Court of Appeal within 10 days of the AVO;

(ii) a declaration that the appeal of the AVO is governed by the federal regime under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) rather than the provincial regime under the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”);

(iii) a declaration that there is no automatic right to appeal the AVO under ss. 193(a)-(d) of the BIA and that leave to appeal is required pursuant to s. 193(e);

(iv) a declaration that the AVO is not automatically stayed pursuant to s. 195 of the BIA;

(v) an order that leave to appeal the AVO not be granted; and

(vi) in the alternative, if the AVO is stayed, an order cancelling the stay to enable the transaction to be completed by no later than August 27, 2024.

[3] The relevant period giving rise to this motion begins in December 2023, when Downing Street Financial Inc. (“Downing”), one of the creditor mortgagees for the Cedar Properties listed the properties for sale under power of sale through Colliers Macaulay Nicolls Inc. (“Colliers”). Colliers marketed the Cedar Properties over a two-month period, during which time Downing received two offers: one from Times 1010 Inc. (“Times”) and one from the City of Markham. The Times offer, which was for a purchase price of $16 million and which Downing accepted, was conditional upon Downing applying to court and obtaining the appointment of a receiver to convey the Cedar Properties to Times.

[4] Downing applied to court for approval of the sale, which the appellants opposed, arguing that the purchase price of $16 million did not represent fair value and the power of sale process was carried out improvidently. Downing and the appellants agreed to a resolution of this dispute, under which Downing would withdraw the sale and a receiver would be appointed to conduct a further marketing and sale process for the Cedar Properties (the “Receivership Order”). In this process, Times would serve as a “stalking horse bidder” at a purchase price of $15.5 million. On that basis, the Receivership Order was granted by Steele J., on consent, on April 11, 2024.

[5] On April 24, 2024, Kimmel J. granted an order that approved the Receiver’s proposed stalking horse sale procedure; approved the listing of the Cedar Properties by the Receiver with Colliers and authorized and directed the Receiver and Colliers to carry out the sale procedure. Kimmel J. declined a request from the appellants to guarantee their right to redeem the mortgage until a specific date, without prejudice to their ability to seek to redeem the mortgage at a later date.

[6] On April 29, 2024, Colliers commenced its comprehensive marketing campaign. No other offers were received by the deadline of July 2, 2024. On July 3, 2024, the Receiver notified Times that it was the successful bidder. There was no proceeding brought by the appellants to redeem the mortgage at that point.

[7] On August 2, 2024, the Receiver moved before Steele J. to complete the transaction in accordance with the Agreement of Purchase and Sale. The appellants served responding materials on August 1, 2024, in the form of a brief affidavit sworn by Ali Memon, an officer and director of the appellants, who asserted that an Ontario numbered company had provided a commitment letter to advance $17 million, for a first mortgage on the Cedar Properties, with an advance date of August 20, 2024. The appellants, on the basis of this commitment, sought leave of the court to redeem the mortgage. Steele J. declined this request, as there was no motion to redeem the mortgage before her, nor any evidence regarding the purported commitment before the Court. Steele J., applying the criteria set out in Royal Bank of Canada v. Soundair Corp., 83 D.L.R. (4th) 76, O.J. No. 1137, approved the AVO.

[8] As set out above, on August 12, 2024, the appellants filed their Notice of Appeal with respect to the AVO.

Analysis

(1) Is the Notice of Appeal a nullity?

[9] The requested declaration by the Receiver could be interpreted as having the effect of quashing the appellants’ appeal. This is a remedy reserved for a panel of the Court of Appeal on a motion to quash, and lies outside the jurisdiction of a single judge of the Court of Appeal on a motion for directions or declaratory relief: see RREF II BHB IV Portofino, LLC v. Portofino Corporation, 2015 ONCA 906, 33 C.B.R. (6th) 9, at paras 5-6. I would decline to deal with this aspect of the requested relief, though I observe that it appears on its face that the appellants filed their notice of appeal within the 10-day period set out in the BIA.

(2) Is the appeal governed by the BIA?

[10] The Receiver argues that since the AVO was granted in a receivership proceeding initiated and governed by the BIA, the time limits, stay and leave provisions of the BIA govern this appeal. Despite citing the CJA in their notice of appeal, the appellants agreed in oral argument that the BIA governs. They rely on the provisions of the BIA to argue they are not beyond the time period allotted for appeals (and seek an extension of time contemplated under the BIA if necessary), that they are entitled to an automatic appeal by virtue of s. 193 of the BIA and an automatic stay pursuant to s. 195 of the BIA.

(3) Does this appeal fall within the categories of an automatic right of appeal to the Court of Appeal?

[11] The crux of the dispute between the parties is whether the appellants may appeal the AVO as of right under the BIA. Section 193 of the BIA provides:

193 Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:

(a) if the point at issue involves future rights;

(b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;

(c) if the property involved in the appeal exceeds in value ten thousand dollars;

(d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and

(e) in any other case by leave of a judge of the Court of Appeal.

[12] Section 195 of the BIA provides that an order subject to an appeal as of right under s.193 is automatically stayed on the filing of a notice of appeal.

[13] With respect to s. 193 (a), the dispute in this appeal does not appear to involve future rights of the appellants. In 2403177 Ontario Inc. v. Bending Lake Iron Group Limited, 2016 ONCA 225, 396 D.L.R. (4th) 635, at para. 23, Brown J.A. affirmed that “future rights” are future legal rights, not procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal. They do not include rights that presently exist but that may be exercised in the future by those with an interest in the property (e.g., creditors, shareholders, and so forth). Subsections 193 (b) and (d) do not appear to apply to the circumstances of this appeal.

[14] The parties focused their submissions on the application of s. 193(c), and whether the appellants’ assertion – that the property is worth far more than the offer accepted by the Receiver – meets the threshold of the case law interpreting the phrase “property involved in the appeal exceeds in value ten thousand dollars.”

[15] In Business Development Bank of Canada v. Pine Tree Resorts, Inc., 2013 ONCA 282, 115 O.R. (3d) 617, at para. 17, this court held that to allow an appeal as of right under s. 193 (c) of the BIA every time property value exceeds $10,000 would be to permit an appeal as of right in almost every case. Later, in Bending Lake, this court held that this provision must focus rather on the value of the “loss” that results from or is put in jeopardy by the impugned order: see para. 64.

[16] In Bending Lake, this court considered whether s. 193 (c) applied to an approval and vesting order where the debtor argued that the sale price achieved by the Receiver was less than what it should have been, resulting in a significant loss for the debtor’s shareholders. In determining that s. 193 (c) did not apply, Brown J.A. noted that the allegations of improvident sale were procedural – it was a challenge to the method by which assets were sold and did not call into play the value of the debtor’s property. Brown J.A. considered that sufficient evidence needed to be adduced to call into play the value of the debtor’s property. Moreover, the mere fact that a stakeholder stood to suffer a loss, was not a sufficient basis for concluding that the sale would result in a loss exceeding $10,000.

[17] In Peakhill Capital Inc. v. 1000093910 Ontario Inc., 2024 ONCA 584, by contrast, this court upheld the dismissal of a receiver’s motion for an approval and vesting order, and instead approved the debtor’s motion to redeem the mortgages on the property. The Court found that the order under appeal resulted in proceeds of $23.788 million, while dismissing the Receiver’s AVO motion which, had it been approved, would have resulted in proceeds of $24.255 million. Accordingly, the impugned order in Peakhill brought “into play” a difference in the realized value of the debtor’s property in excess of $10,000 that entitled the debtor to appeal as of right under s.193 (c) of the BIA: see para. 8. This court based its decision on the fact that the debtor in that case had a firm “cheque in hand” and clear evidence of the potential loss as a result of the impugned order.

[18] Similar principles appear applicable in this case. To trigger the automatic right of appeal under s. 193 (c) of the BIA, the appeal must relate to a clear difference in value between the order under appeal and evidence in the record that a debtor could have obtained a higher value. On the whole, it is clear that the jurisprudence of this court has interpreted the scope of s. 193 (c) narrowly, given the broad right to an automatic stay under s. 195 where the threshold of s. 193 is met: see Enroute Imports Inc. (Re), 2016 ONCA 247, 35 C.B.R. (6th) 1, at para. 5.

[19] The appellants do not take issue with this jurisprudence per se, although they see the case law as mixed on this question; relying, for example, on the reference in Trimor Mortgage Investment Corporation v. Fox, 2015 ABCA 44, 26 Alta. L.R. (6th) 291, at para. 10, that s.193 (c) of the BIA refers to the amount of money “at stake” in an appeal. Rather, the appellants point to earlier assertions of the higher value of the properties at issue in this appeal, and an appraisal submitted during the receivership proceedings that the proper valuation of the properties is closer to $27 million.

[20] In light of this jurisprudence, and in particular the requirement of evidence of the purported loss, I conclude that the appeal does not meet the threshold in s. 193 (c) of the BIA. The reference to the earlier letter of commitment (which Steele J. did not accept) or parts of the earlier record of the receivership proceedings, do not constitute sufficient evidence of a potential loss greater than $10,000 for purposes of the s.193 (c) analysis. For example, in Hillmount Capital Inc. v. Pizale, 2021 ONCA 364, 462 D.L.R. (4th) 228, at para. 57, Brown J.A. upheld the motion judge’s determination that two appraisals proffered by the party seeking to show a loss of over $10,000 pursuant to s. 193(c) of the BIA, were insufficient to prove the loss. In that case the appraisals referred only to the value of the property “as is” and not the value of the property in a finished state. In this case, there was no credible evidence before Steele J. which could establish that the transaction approved in the AVO represented a loss for the appellants.

[21] The appellants argue previous counsel may have failed to take advantage of earlier opportunities to proffer evidence of the higher value of the properties, but even if the case, this should not result in the deprivation of the appellants’ right to see the properties garner more value. While the situation the appellants find themselves in may not be the result of the actions of their current counsel, this is no basis for interfering with the transaction approved in the AVO moving forward.

(4) Should leave to appeal be addressed?

[22] The appellants have not sought leave to appeal, and as such, I am not inclined to address the issue of whether they would obtain leave, nor is it necessary to do so: see First National Financial GP Corporation v. Golden Dragon HO 10 Inc., 2019 ONCA 873, 74 C.B.R. (6th) 1, at paras. 35-36.

(5) Should a stay, if it were in place, be lifted to permit the transaction to be closed?

[23] Even if the appellants had a right of appeal pursuant to s. 193 of the BIA or were to be granted leave to appeal, I would lift the associated stay to permit the transaction approved by the AVO to go forward.

[24] The test for a stay of proceedings is well settled, based on the Supreme Court’s framework in RJR‑MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385. The test for lifting a stay pursuant to s. 195 of the BIA is adapted from this framework and was summarized by Brown J.A. in Grillone (Re), 2023 ONCA 844, 10 C.B.R. (7th) 209, at para. 35:

[35] An applicant that seeks to cancel a BIA s. 195 stay bears the burden of establishing compelling reasons to support a cancellation: After Eight Interiors Inc. v. Glenwood Homes Inc., 2006 ABCA 121, 391 A.R. 202, at para. 5. The BIA s. 195 jurisprudence identifies several factors courts should consider when dealing with a request to lift an automatic stay:

• The appellant’s litigation conduct, including whether the appellant is diligently prosecuting the appeal;

• The merits of the appeal;

• The relative prejudice to the parties of cancelling the stay. This typically involves applying a variation of the tripartite test in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 applied on stay applications, specifically whether: (i) there is a serious issue to be appealed; (ii) the applicants would suffer irreparable harm if the stay is not lifted; and (iii) the applicants would suffer greater harm than the respondents if the stay is not lifted;

• However, while all or part of the tripartite test may be relevant, the discretion granted by BIA s. 195 is broader. Accordingly, a contextual approach is appropriate that considers all the facts of the case, not merely those that engage the tripartite test, and the interests of justice generally.

[25] In this case, the stay should be lifted primarily because the appeal, as framed, lacks merit. The impugned sale process was one the appellants did not oppose, and no credible basis to take issue with it is raised in the Notice of Appeal, beyond the gap between the outcome (i.e., the stalking horse bid of $15.5 million, also agreed to by the appellants as part of the sale process), and what the appellants believe to be the value of the properties.

[26] Additionally, given the approaching deadline for the Times offer, the balance of convenience favours the Receiver. To the extent the appellants claim they will “lose everything” if the transaction goes forward, this is a loss rooted in the sale process which they did not oppose, not in the AVO which represented the result of that process.

Disposition

[27] In light of the analysis above, I conclude that the appeal of the AVO is not subject to an automatic right of appeal under s. 193 of the BIA, and as such, no automatic stay under s. 195 of the BIA is applicable. I decline to address the question of whether leave to appeal the AVO would be granted, but if it were granted, and if a stay did apply in these circumstances, I would lift the stay so that the transaction approved in the AVO could be completed.

Costs

[28] The parties agree that the costs of this motion should be dealt with in a further proceeding involving costs and fees before a judge of the Commercial List. Accordingly, I make no order as to the costs of this motion.

“L. Sossin J.A.”