SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF a Plan of Compromise or Arrangement of The Futura Loyalty Group Inc., Applicant

BEFORE: D. M. Brown J.

COUNSEL:
S. Reid and R. Thornton, for the Applicant
G. Azeff and A. Iqbal, for the proposed Monitor, Harris & Partners Limited
I. Aversa, for Directcash Payments Inc.
D. Pearlman, for Aeroplan Limited Partnership

HEARD: October 16, 2012

REASONS FOR DECISION

I. Overview: CCAA Initial Order

[ 1 ] On October 16, 2012, I granted an Initial Order under the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36, in respect of the Applicant, The Futura Loyalty Group Inc. These are my Reasons for that decision.

II. The applicant corporation

[ 2 ] The Applicant, The Futura Loyalty Group, is a CBCA corporation listed on the TSX Venture Exchange and carries on business as a provider of loyalty products and services. The company has five employees.

III. Availability of the CCAA

A. The material events leading to this application

[ 3 ] Various parties have provided debt financing to Futura since its inception. Currently the debt holders are owed in excess of $7 million. Directcash Payments Inc. holds first ranking secured debt of about $300,000. The book value of Futura’s assets is approximately $1.35 million. Futura has tax loss pools totaling approximately $31 million of non-capital losses.

[ 4 ] Present liabilities to all creditors total $11,231,729. As of August 31, 2012 Futura had a working capital deficit of about $7.12 million.

[ 5 ] Under an agreement with Aeroplan the applicant can sell Aeroplan miles to specified merchants in the Canadian market. According to David Campbell, Futura’s CEO, over 75% of the company’s revenues are generated by the resale of Aeroplan miles pursuant to the Agreement. On October 5, 2012 Aeroplan issued a notice of default to Futura under the Agreement claiming payment of $432,904.20. Futura was not in a position to make the payment. Aeroplan could have terminated the Agreement yesterday if a stay of proceedings under the CCAA was not granted. In Mr. Campbell’s view, the loss of the Aeroplan Agreement would impair significantly any prospects for a successful restructuring of the company.

[ 6 ] In light of the financial pressures it faced, Futura decided to seek the protection of the CCAA in order to pursue restructuring options. Futura plans to return to Court “in the very near term” to establish a comprehensive investor or purchaser solicitation process for all or part of its assets and operations.

B. Findings

[ 7 ] I was satisfied that (i) Futura was a “company” within the meaning of the CCAA ; (ii) the total claims against it were greater than $5 million; and, (iii) Futura was insolvent. I therefore concluded that the CCAA was available to the Applicant in the circumstances.

[ 8 ] Futura complied substantively with the filing requirements contained in section 10(2) of the CCAA .

[ 9 ] Futura filed proof of service of its Application Record on all secured creditors. Applicant’s counsel advised that Mr. Campbell had contacted other creditors by telephone to inform them about the filing.

[ 10 ] No interested party objected to the order sought by Futura.

[ 11 ] In light of the evidence filed regarding the financial circumstances of the Applicant and the need for a stay of proceedings to afford it time to propose a restructuring, I granted the requested initial stay of 30 days.

[ 12 ] Harris consented to its appointment as Monitor, and I so ordered.

IV. Administration, Directors’ and DIP Lenders’ Charges and their priorities

A. Charges sought

[ 13 ] Futura sought approval, pursuant to section 11.52 of the CCAA , of an Administrative Charge in the amount of $50,000 to secure amounts owed to the Professionals – the Monitor, Monitor’s counsel and the company’s legal counsel.

[ 14 ] Futura also sought an order indemnifying its directors and officers against any post-filing liabilities, together with approval, pursuant to section 11.51 of the CCAA , of a Directors’ Charge in the amount of $20,000 as security for such an indemnity.

[ 15 ] Based on the evidence filed, and in light of the notice given to affected secured creditors, I concluded that it was necessary to grant the charges sought in order to secure the services of the Professionals and to ensure the continuation of the directors in their offices and that the amounts of the charges were reasonable in the circumstances.

[ 16 ] Futura sought approval of DIP Financing offered by four individuals, three of whom are directors of the company, on the terms set out in a term sheet filed with its application. Under the DIP Term Sheet, the DIP Lenders agreed to provide sufficient funding to enable Futura to pay for liabilities arising during the initial 30 day stay period provided a DIP Lenders’ Charge of not less than $175,000 was approved.

[ 17 ] Proper notice was given to affected secured creditors. No secured creditor opposed the proposed DIP Financing and DIP Lenders’ Charge. Accordingly, pursuant to CCAA ss. 11.2, I approved the DIP Financing and DIP Lenders’ Charge.

B. Priority of charges

[ 18 ] As requested, I approved the following priorities amongst the Charges: (i) Administrative Charge; (ii) DIP Lenders’ Charge; (iii) Directors’ Charge.

V. Summary

[ 19 ] For the foregoing reasons I was satisfied that it was appropriate to grant the CCAA Initial Order in the form requested. I signed the Initial Order slightly after 5:00 p.m. EST on Tuesday, October 16, 2012.

_______ (original signed by) ____________

D. M. Brown J.

Date : October 17, 2012