COURT OF APPEAL FOR ONTARIO

CITATION: IceGen Inc. (Re), 2016 ONCA 907

DATE: 20161128

DOCKET: M46524 (C61444)

Gillese, Benotto and Roberts JJ.A.

In the Matter of the Bankruptcy of IceGen Inc. of the City of Markham, in the Province of Ontario

and

In the Matter of the Bankruptcy of 1807983 Ontario Limited of the City of Markham, in the Province of Ontario

Catherine Francis and Timothy Dunn, for the moving party/appellant Dr. Lionel Gerber

Alan Merskey, for the responding parties/respondents Rushlade Investments Limited and Anthony Heller

George Benchetrit, for the responding party/respondent KSV Kofman Inc., in its capacity as Trustee in the Consolidated Bankruptcy of IceGen Inc. and 1807983 Ontario Limited

Heard: November 21, 2016

On motion for leave to appeal and, if leave be granted, on appeal from the order of Justice Michael A. Penny of the Superior Court of Justice, dated December 2, 2015.

Gillese J.A.:

[1] This case is about the sale of the assets of two bankrupt corporations, IceGen Inc. and 1807983 Ontario Limited. The motions before this court are the latest step in a long dispute between two shareholders of IceGen – Lionel Gerber and Philip Heller. The IceGen shareholders have been fighting since 2008.

BACKGROUND IN BRIEF

[2] When IceGen went bankrupt, its estate trustee sought offers for the assets and arranged an auction. The only bidders were Dr. Gerber and Rushlade Investments Ltd., a company run by Anthony Heller, the brother of Philip Heller. The auction process was not successful.

[3] The trustee wished to conduct a second auction. Although court approval was not required for that auction, the trustee sought it nonetheless because the first auction had become so badly derailed. It brought a motion (the “Motion”) for court approval of the auction process that it recommended in the Second Report of the Trustee dated November 23, 2015 (the “Second Report”), and vesting title in the successful bidder.

[4] At the hearing of the Motion on December 2, 2015, Dr. Gerber asked for an adjournment. The motion judge refused the adjournment and by order of the same date (the “Order”), made the order which the trustee sought.

[5] Dr. Gerber did not take part in the second auction and the assets of IceGen were sold to Rushlade.

[6] Dr. Gerber wishes to appeal the Order. In a prior ruling, this court held that while such an appeal lies to this court, under s. 193(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, Dr. Gerber requires leave to appeal: IceGen Inc. (Re), 2016 ONCA 902.

[7] Dr. Gerber brings two motions to the court: a motion for leave to appeal the Order; and a motion for the admission of fresh evidence. If leave is granted, Dr. Gerber will argue, in his substantive appeal, that the motion judge erred in: (1) refusing to grant his adjournment request at the Motion; and (2) approving the trustee’s auction process.

[8] Shortly before the oral hearing of the motions on November 21, 2016, the court received a letter from Rushlade in which it asked the court to dismiss Dr. Gerber’s motions because he had breached the order of LaForme J.A., dated May 27, 2016, which required all factums in this matter to be filed by August 26, 2016. Dr. Gerber did not file his factum for leave to appeal until November 15, 2016. Rushlade says that Dr. Gerber’s breach of the deadline for the filing of factums was part of a pattern of conduct that, if permitted to continue, gives rise to an appearance of unfairness.

[9] The court began by hearing oral submissions from Rushlade on its request that the court dismiss Dr. Gerber’s motions. The court found it unnecessary to call on Dr. Gerber to respond and stated that it would not accede to Rushlade’s request.

[10] Rushlade’s request is tantamount to a motion and should have been brought as such. The absence of a motion record, affidavit evidence and the opportunity to receive responding materials precluded the court from a meaningful review of the allegations it made.

[11] Furthermore, the court was pointed to no authority for the requested relief. On the assumption that Rushlade was relying on the dissenting judgment of Laskin J.A. in Dickie v. Dickie, (2006), 2006 576 (ON CA), 78 O.R. (3d) 1 (C.A.), at para. 87, affirmed by the Supreme Court of Canada: [2007] 1 S.C.R. 346, 2007 SCC 8, at para. 6, the test set down in that authority had not been met. According to Dickie, the court has a discretion to refuse to hear a litigant, who has wilfully breached a court order, until the litigant has cured the breach. Even if Dr. Gerber’s breach of the LaForme J.A. order was wilful, he cured it by filing his factum (albeit past the specified deadline).

[12] After dealing with the Rushlade request, the court heard oral argument on the leave motion. It advised the parties that the leave motion was dismissed and that written reasons would follow. These are the promised reasons.

THE LEAVE MOTION

(1) The Test

[13] In deciding whether to grant leave under s. 193(e) of the Bankruptcy and Insolvency Act, the court will look to whether the appeal: (a) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole; (b) is prima facie meritorious; and (c) would unduly hinder the progress of the bankruptcy/insolvency proceedings: Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617, at para. 29.

(2) Analysis

[14] For the following reasons, Dr. Gerber’s proposed appeal does not satisfy the test for leave.

(a) Would the proposed appeal raise an issue of general importance?

[15] Neither issue that Dr. Gerber seeks to raise is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole. Both the motion judge’s decision not to adjourn the proceeding and his decision to approve the trustee’s auction process are highly fact-specific determinations. Extracts from the motion judge’s reasons set out below, in relation to the second requirement of the leave test, demonstrate the highly fact-dependent nature of his decision to approve the trustee’s proposed process. The fact-dependent nature of an adjournment request is self-evident.

[16] Moreover, both decisions were the exercise of the motion judge’s discretion.

(b) Is the proposed appeal prima facie meritorious?

[17] Neither ground of appeal is prima facie meritorious.

[18] In exercising his discretion and approving the trustee’s auction process, the motion judge said this in his reasons:

This time, the Trustee proposes to ‘lock down’ all issues, terms and conditions other than price before the bidding is conducted. That way, everyone will know exactly what they are dealing with before they bid. I agree with the Trustee that this approach is warranted because the history of this matter shows both sides in the shareholder dispute will use any loophole or ambiguity to seek advantage or leverage. [Emphasis in original.]

[19] The motion judge concluded:

In my view, only a proposal like the Trustee is seeking to have approved will have any chance of breaking the Gordian Knot, and achieving material value for the assets of the debtors. […] The Trustee’s approach provides transparency, certainty and expedition. Everyone knows what they are getting.

[20] There is nothing in the reasons or the record to suggest that the motion judge erred in principle or exercised his discretion improperly in approving the trustee’s auction process, a decision to which deference is owed: Canrock Ventures LLC v. Ambercore Software Inc., 2011 ONCA 414, 78 C.B.R. (5th) 97, at para. 4.

[21] Similarly, I see nothing in the adjournment issue which Dr. Gerber seeks to argue, should leave be granted.

[22] Dr. Gerber did not file any material on the Motion, which was heard on December 2, 2015, despite having been served with the trustee’s motion record on November 23, 2015, and having attended the inspectors’ meeting on November 30, 2015 (the “Inspectors’ Meeting”). At the oral hearing of the Motion, Dr. Gerber sought an adjournment for the purpose of dealing with Rushlade’s responding materials, which were delivered on November 30, 2015. In response to the adjournment motion, Rushlade withdrew these materials at the Motion hearing and did not rely on them. The motion judge did not rely on the Rushlade materials either. Consequently, regardless of whether Rushlade’s materials concerned the Inspectors’ Meeting, the reason for the requested adjournment no longer existed and, accordingly, the adjournment was denied.

[23] In oral argument, counsel for Dr. Gerber suggested that the trustee changed its position, during the hearing of the Motion, to Dr. Gerber’s detriment – another reason for arguing that the motions judge improperly refused to adjourn the Motion. The purported change in position related to the return of deposits from the first auction.

[24] The trustee denied that it changed its position on this matter at the Motion. The trustee acknowledged that, in the Second Report, it stated that it would recommend to the inspectors that the deposits, paid by each of Dr. Gerber and Rushlade as part of the first auction process, should be refunded.

[25] The trustee did, in fact, recommend to the inspectors that the deposits in question be refunded. At the Inspectors’ Meeting, the trustee proposed a draft resolution that would authorize it to: (a) terminate the first auction process; (b) release the bidders of their obligations under that process and return their deposits; and (c) conduct a new auction, based on court-approved documents, with a closing to take place immediately following the auction.

[26] However, at the Inspectors’ Meeting, the inspectors unanimously rejected this draft resolution at a meeting held prior to the hearing of the Motion. Of the four inspectors, three objected to the trustee returning the deposits. Dr. Gerber was the fourth inspector and he supported the trustee’s recommendation that the deposits be returned. However, Dr. Gerber (alone) objected to the trustee bringing a motion to preapprove a new auction process.

[27] After the trustee’s draft resolution was rejected, at the request of a majority of the inspectors, the trustee tabled a vote to approve an amended resolution that would neither release the bidders of their obligations, nor return their deposits.

[28] I agree with the trustee that this did not amount to a change of its position on the return of the deposits from the first auction. The fact that a majority of the inspectors did not accept the trustee’s recommendation to refund the deposits does not amount to a change in position by the trustee.

[29] Furthermore, it is not open to this court to consider the alternative relief that Dr. Gerber would seek on appeal, namely, the return of his deposit from the first auction. The issue of the deposits from the first auction was not dealt with below and cannot be raised before this court on an appeal from the Order, even if leave were to be granted. Dr. Gerber has not discharged his burden of persuading the court that “all the facts necessary to address the point are before the court as fully as if the issue had been raised” below: Buik v. Canasia Power Corp., 2015 ONCA 352, 73 C.P.C. (7th) 235, at para. 10; and Kaiman v. Graham, 2009 ONCA 77, 245 O.A.C. 130, at para. 18. Indeed, the record is to the contrary. It indicates that the issue of the return of the deposits from the first auction is highly contentious, on both factual and legal grounds.

[30] The requirement for new deposits was addressed at the motion below. That requirement in the proposed second auction was contained in the draft asset purchase agreement, auction participation agreement and auction rules and procedures, circulated by the trustee as appendices to its report dated November 23, 2015. Dr. Gerber had the option to provide comments on these documents, but chose not to.

[31] The motion judge said this about the new deposits:

I do not think it has been shown that the deposit requirement will render the process inaccessible or unfair. Both parties paid deposits previously. Without in any way prejudicing the outcome, both parties arguably defaulted on their obligations during the first auction. […] The deposit requirement shall remain, as a discipline to the process and a sign of commitment.…

(c) Would the proposed appeal unduly hinder the progress of the bankruptcy proceedings?

[32] The answer to this question is “yes”.

[33] The sale of the IceGen assets to Rushlade was completed in December of 2015. Should Dr. Gerber be granted leave and succeed on his appeal, the court would have to unwind that sale – which took place almost a year ago – and yet another auction would probably be required. That would indeed hinder the progress of the bankruptcy proceedings. In this regard, it is worthy of note that Dr. Gerber did not seek a stay of the Order prior to the completion of the sale.

DISPOSITION

[34] Accordingly, the motion for leave to appeal is dismissed and the appeal quashed. As a consequence, it is unnecessary to consider the fresh evidence motion. Costs are ordered in favour of the trustee and Rushlade fixed in the all-inclusive amounts of $24,000 and $17,500 respectively.

Released: November 28, 2016 (EEG)

“E.E. Gillese J.A."

“I agree M.L. Benotto J.A."

“I agree L.B. Roberts J.A."