Court of Appeal for Ontario

Cosgrove-Moore Bindery Services Ltd. (Re)

Date: 2000-03-31

Docket: Toronto 31-372219

Harvey G. Chaiton, for Applicant.

Endorsement. Lane J.:

[1] The Trustee of the Proposal money to extend the time for filing the Proposal for 45 days. There is a commitment for part of the financing required and time is asked to enable a letter of intent from another financier to the firmed up to a commitment. There is also some evidence that problems with certain new equipment which contributed to the Company's problems have been overcome and the Company is able to produce at a better rate. It is clear that the Company is still in financial trouble but the picture is not as bleak as some months ago. Several creditors oppose. The Bank is the holder of security over receivables and argues it will be prejudiced by erosion of the security. On the other hand, new production is generating new receivables. The Bank's position in effect requires a company seeking such an extension to have a positive cash flow so that there is no erosion of security. With respect, that cannot be regarded as a practical definition of material prejudice as referred to in s. 50.4(9). It is rare indeed that debtors in this situation present with positive cash flow. It is the prejudice caused by the extension itself that is to be measured and I do not find that any of the creditors is materially prejudiced. The objections of the landlord as to the rent on an occupation basis from March 4th can be brought forward by motion to resolve the legal issue. There seems to be no doubt it is entitled to rent for April and onwards. The problem about March exists; it will not be made worse by the extension. Similarly, Westcoast's position will not be worsened by the extension.

[2] So far as the good faith of the debtor is concerned, think the primary focus is on whether it is proceeding in good faith towards developing a proposal and not on whether it acted in good faith during its pre-notice dealings. There is evidence, in the form of the commitment and the letter of intent that there is progress. I can see no lack of good faith or of diligence since the Notice. I am also satisfied that, given the resolution of the production problems, the commitment and letter of intent and the long history of profitable operation, it is likely that a viable proposal can be made.

[3] There is one matter raised that I should address. It was submitted that the Company's refusal to consent to the receivership even though it has agreed to consent, was an act of bad faith. No doubt it was a breach of contract, but in my view it is not such an act as ought to disqualify the Company from taking advantage of the BIA provisions for Proposals. They are remedial in nature and often have the beneficial effect of keeping a business alive for the benefit not only of creditors, but of employees, shareholders and the community generally. Given the prevalence in security documents of consent to receivership clauses, it would gut the BIA proposal provisions to hold that refusal to consent was an act of such bad faith as to prevent any extension of time.

[4] The motion to extend for 45 days is allowed.

[5] No costs are sought.

Motion granted.