COURT OF APPEAL FOR ONTARIO

CITATION: Marchant Realty Partners Inc. v. 2407553 Ontario Inc., 2021 ONCA 375

DATE: 20210531

DOCKET: M52417, M52418 & M52419

Jamal J.A. (Motions Judge)

DOCKET: M52417

BETWEEN

Marchant Realty Partners Inc., as agent

Responding Party

and

2407553 Ontario Inc., 2384648 Ontario Inc., 2384646 Ontario Inc., 24000196 Ontario Inc. and 2396139 Ontario Inc.

Moving Parties

DOCKET: M52418

AND BETWEEN

Marchant Realty Partners Inc., as agent

Responding Party

and

4544 Zimmerman Avenue LP and 4544 Zimmerman Avenue GP Inc.

Moving Parties

DOCKET: M52419

AND BETWEEN

Marchant Realty Partners Inc., as agent

Responding Party

and

4267 River Road LP and 4267 River Road GP Inc.

Moving Parties

Counsel:

Steven L. Graff, Miranda Spence and Stephen Nadler, for the moving parties

Sara-Ann Wilson and Kenneth Kraft, for the responding party Zeifman Partners Inc.

Heard: May 20, 2021 by video conference

REASONS FOR DECISION

[1] The moving parties are debtors (“Debtors”) over whose assets, undertakings, and real property the responding party Zeifman Partners Inc., (“Receiver”) is the court-appointed receiver and manager. The Debtors seek leave to appeal to this court under s. 193(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), from orders of Cavanagh J. (“motion judge”) of the Superior Court of Justice (Commercial List) dated March 25, 2021, approving the Receiver’s proposed sale process and list prices for five commercial properties in downtown Niagara Falls, Ontario (“Properties”).

[2] For the reasons that follow, the motions for leave to appeal are dismissed.

Background

[3] Marchant Realty Partners Inc. (“Agent”), as agent for a group of lenders (“Lenders”), commenced three related receivership proceedings before the Commercial List concerning loans the Lenders made to the Debtors. The loans matured over three years ago, some loans more than four years ago. As of October 2020, the Debtors owed more than $16 million under the loans.

[4] The three receivership applications were originally scheduled for September 2018 but were adjourned five times to give the Debtors more time to refinance the Properties. The refinancing never happened.

[5] With no refinancing or repayment plan on the horizon, the Agent moved forward with the receivership applications. In August 2020, Gilmore J. of the Commercial List appointed the Receiver as receiver and manager over the Debtors’ Properties, although the appointment was stayed for just over two months to give the Debtors one last chance to repay the loans. They could not do so, and the Receiver’s appointment became effective in mid-October 2020.

[6] The Properties are about 4 km from the tourist area of Niagara Falls. The Properties are mixed-use commercial properties (most needing repairs), a seasonal operating motel (closed because of the pandemic), and vacant land.

[7] The Receiver is authorized to market the Properties, including advertising them for sale, soliciting offers to buy them, and negotiating such terms as the Receiver deems appropriate.

The Motion Judge’s Decision

[8] The Receiver recommended list prices for the sale of Properties based on: (1) independent appraisals from two local appraisers, Humphrey Appraisal Services Inc. and Jacob Ellens & Associates Inc.; (2) recommended list prices for the Properties from three real estate brokerages; and (3) discussions with Jones Lang LaSalle Real Estate Services, the proposed listing brokerage, which has expertise selling properties around Niagara Falls. Even with these list prices, the Lenders will lose money on their loans to the Debtors.

[9] The Debtors opposed the proposed list prices and relied on competing appraisals of Colliers, a commercial real estate firm. Colliers’ appraisals — which focussed on the development potential of the Properties — were almost 300% higher than the Receiver’s list prices. The Debtors asked the motion judge to direct the Receiver to list the Properties at Colliers’ proposed prices for 60 days to see what the market will bear.

[10] By order dated March 25, 2021, the motion judge approved the Receiver’s proposed sale process and list prices for the Properties. The motion judge found:

The Receiver is an officer of the court with duties to all stakeholders. In my view, the Receiver has shown that it is acting in good faith and diligently to discharge its duties to deal with the [Properties] in a commercially reasonable manner. The Receiver has reviewed the Colliers appraisals and the information upon which Colliers relies for its appraisals of the [Properties]. The Receiver has explained why it does not agree with the Colliers appraisals, and why it has recommended that the sale process be approved. I have considered the process which the Receiver has followed and the information upon which it relies to support its recommendations. The [Debtors] have not shown that the Receiver followed a flawed procedure. I am not satisfied that this is an exceptional case where it is proper for me to reject the business judgment made by the Receiver.

The Test for Leave to Appeal Under s. 193(e) of the BIA

[11] The moving parties seek leave to appeal from the motion judge’s orders under s. 193(e) of the BIA. This provision provides that, unless an appeal lies as of right or as otherwise expressly provided, an appeal lies to the Court of Appeal “from any order or decision of a judge of the court … by leave of a judge of the Court of Appeal”.

[12] In deciding whether to grant leave under s. 193(e) of the BIA, this court considers the following principles:

• Granting leave is “discretionary and must be exercised in a flexible and contextual way”: Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617, at para. 29.
• In exercising its discretion, the court should examine whether the proposed appeal: (1) raises an issue of general importance to bankruptcy/insolvency practice or the administration of justice, and is one this court should address; (2) is prima facie meritorious; and (3) would not unduly hinder the progress of the bankruptcy/insolvency proceedings: Pine Tree Resorts, at para. 29; McEwen (Re), 2020 ONCA 511, 452 D.L.R. (4th) 248, at para. 76.

Should this Court Grant Leave to Appeal?

(1) Does the proposed appeal raise an issue of general importance to bankruptcy/insolvency practice or the administration of justice?

[13] The Debtors assert that the proposed appeal raises an issue of general important to bankruptcy/insolvency practice. They frame the issue on the proposed appeal as “the extent of the deference that the Court owes to a receiver’s business judgment when approving a sale process.” They claim the appeal “will provide guidance to receivers as they consider the level of scrutiny they may expect from the Court, and to other stakeholders as they consider whether to challenge the actions taken by any given receiver.”

[14] The Receiver frames the issue on appeal much more narrowly. It claims the appeal “is highly fact-specific and concerns, in essence, the appropriate list prices” of the Properties. It says no legal principles are in dispute and the appeal will have “no bearing or importance for the practice of insolvency and the administration of receivership proceedings.”

[15] I agree with the Receiver. Although on any appeal the court would consider and apply the principles of deference applicable to a receiver’s business judgment, those principles are not in dispute. They were correctly stated by the motion judge, who cited this court’s decision in Regal Constellation Hotel Ltd. (Re) (2004), 2004 CanLII 206 (ON CA), 71 O.R. (3d) 355 (C.A.), at para. 23:

Underlying these considerations are the principles the courts apply when reviewing a sale by a court-appointed receiver. They exercise considerable caution when doing so, and will interfere only in special circumstances — particularly when the receiver has been dealing with an unusual or difficult asset. Although the courts will carefully scrutinize the procedure followed by a receiver, they rely upon the expertise of their appointed receivers, and are reluctant to second-guess the considered business decisions made by the receiver in arriving at its recommendations. The court will assume that the receiver is acting properly unless the contrary is clearly shown. See Royal Bank of Canada v. Soundair Corp. (1991), 1991 CanLII 2727 (ON CA), 4 O.R. (3d) 1, 83 D.L.R. (4th) 76 (C.A.).

[16] On the Debtors’ argument, the appeal would involve the application of these settled principles. However, applying settled principles of deference to the Receiver’s business decisions here would not raise an issue of general importance to bankruptcy/insolvency practice or the administration of justice.

[17] The Debtors also say the motion judge failed to apply the correct legal test for evaluating whether a receiver has acted properly in selling a property, as stated in Royal Bank of Canada v. Soundair Corp. (1991), 1991 CanLII 2727 (ON CA), 4 O.R. (3d) 1 (C.A.). This issue relates to the deference issue because the Debtors claim the motion judge failed to cite or apply the Soundair test and instead was unduly deferential to the Receiver. I will consider this argument below in evaluating whether the proposed appeal is prima facie meritorious.

(2) Is the proposed appeal prima facie meritorious?

[18] In evaluating whether the proposed appeal has prima facie merit, I begin by noting that this court gives substantial deference to the discretion of commercial court judges supervising insolvency and restructuring proceedings and does not intervene absent demonstrable error: Ravelston Corp. Ltd. (Re), 2007 ONCA 135, 85 O.R. (3d) 175, at para. 3.

[19] As already noted, commercial court judges also give substantial deference to the decisions and recommendations of a receiver as an officer of the court. If the receiver’s decisions are within the broad bounds of reasonableness and the receiver proceeded fairly, after considering the interests of all stakeholders, the court will not intervene: Ravelston, at para. 3; Regal Constellation Hotel, at para. 23. A court “will assume that the receiver is acting properly unless the contrary is clearly shown”: Regal Constellation Hotel, at para. 23.

[20] The Debtors assert, however, that this court would overcome the deference shielding the receiver’s business judgments and the motion judge’s review of those judgments because the motion judge made an extricable error of law. The Debtors say the motion judge erred in law by failing to state or apply the Soundair test for evaluating whether a receiver has acted properly in recommending list prices for the Properties.

[21] The Soundair test in the context of a sale involves consideration of:

• Whether the receiver made sufficient effort to obtain the best price and did not act improvidently;
• The interests of the parties;
• The efficacy and integrity of the process by which offers were obtained; and
• Whether there has been unfairness in the working out of the process: Soundair, at p. 6; Regal Constellation Hotel, at para. 24.

[22] The Debtors claim that the motion judge did not cite or apply the Soundair test but instead applied a new, two-part test: (1) the respondent on a motion to approve a sale process must show the receiver followed a flawed process in developing its sale process; and (2) only if that hurdle is cleared may the respondent challenge the sale process itself.

[23] I do not accept the Debtors’ submission. Although I agree the motion judge did not expressly set out the Soundair test, he cited Soundair elsewhere in his reasons. As an experienced commercial judge, he was familiar with the Soundair test and applied it in his reasons:

• Whether the receiver made sufficient effort to obtain the best price and did not act improvidently — The motion judge found that the Receiver made sufficient effort to obtain the best and most realistic list price and did not act improvidently. He noted that the Receiver “reviewed the Colliers appraisals and the information upon which Colliers relies for its appraisals of the [Properties]. The Receiver has explained why it does not agree with the Colliers appraisals, and why it has recommended that the sale process be approved.” The motion judge also noted that the Receiver explained why listing the Properties for 60 days at Colliers’ proposed list prices could “result in little to no interest in the sale process, with the result that properties languish on the market and ultimately require drastic price reductions to generate interest.” This could lead to “lower recoveries than what would have been possible had the property [been] listed for sale at an appropriate price at the outset.”
• The interests of the parties — The motion judge found that the Receiver considered the interests of all parties in proposing the suggested list prices. He noted that “[t]he Receiver is an officer of the court with duties to all stakeholders”, which included the interests of the Debtors. He found that “the Receiver has shown that it is acting in good faith and diligently to discharge its duty to deal with the [Properties] in a commercially reasonable manner.”
• The efficacy and integrity of the process by which offers were obtained — The motion judge considered the integrity of the process by which the list prices were recommended. He “considered the process which the Receiver has followed and the information upon which it relies to support its recommendations.” He found that “[t]he [Debtors] have not shown that the Receiver followed a flawed procedure”.
• Whether there has been unfairness in the working out of the process — The motion judge found no unfairness in the process that the Receiver followed. He found the Receiver properly considered and responded to Colliers’ appraisals. The proposed list prices did not result from any unfairness.

[24] I thus conclude the motion judge applied the Soundair test. I see no extricable error of law or any basis to interfere with his decision.

[25] The proposed appeal therefore lacks prima facie merit.

(3) Would the proposed appeal unduly hinder the progress of the receivership proceedings?

[26] Lastly, the Debtors assert that the proposed appeal would not unduly hinder the progress of the receivership proceedings. They say the Debtors have no other assets, so all the Receiver has left to do is list and sell the Properties. The Debtors agree to expedite the appeal and claim that any minor delay in the sale process is not enough to deny leave to appeal.

[27] I disagree. All the loans in issue matured at least three years ago, some four years ago. Over two years have passed since the original return date of the receivership applications. There have been further delays to allow the Debtors to refinance the Properties, which they could not do. Substantial property taxes are accruing on the Properties and the Receiver is responsible for their ongoing carrying costs, which rank ahead of the Lenders’ mortgages and are thus eroding their potential recovery. Further delay in the Receiver’s ability to sell the Properties will only further degrade the Lenders’ security position and should not be permitted.

[28] I thus conclude the proposed appeal would unduly hinder the progress of the receivership proceedings.

Disposition

[29] The motions for leave to appeal are dismissed. As agreed by the parties, there shall be no order as to costs.

[30] As jointly requested by the parties, pending further order the unredacted versions of the Debtors’ factums shall remain under seal and will not be publicly available because they contain commercially sensitive and confidential information about the Receiver’s and Debtors’ proposed list prices for the Properties.

“M. Jamal J.A.”