Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: Pinnacle Capital Resources Limited in its capacity as general partner of Red Ash Capital Partners II Limited Partnership, Applicant
AND:
Kraus Inc., Kraus Canada Inc., Strudex Fibres Limited and 538626 B.C. Ltd., Respondents
BEFORE: L.A. Pattillo J.
COUNSEL: Linc Rogers and Jenna Willis, for the Receiver
Larry Ellis, for the Applicant
Raymond Slattery and David Ullmann, for Equistar Chemicals, LP
HEARD: November 7, 2012
Endorsement
Introduction
1This matter involves two motions.
2The first is by PricewaterhouseCoopers Inc. (“PwC”) in its capacity as Court-appointed receiver (the “Receiver”) of the respondents Kraus Inc. (“Kraus”), Kraus Canada Inc. (“Kraus Canada”), Strudex Fibres Limited (“Strudex”) and 538626 B.C. Ltd. (collectively, the “Companies”) for, among other things, an order discharging it and releasing it from any and all further obligations as Receiver, upon filing its discharge certificate.
3The second is a motion by Equistar Chemicals, LP (“Equistar”) for a) An order varying paragraph 8 of the Sale and Approval and Vesting Order dated June 11, 2012 by unsealing the confidential appendices; b) An order directing PwC to provide answers to questions posed by Equistar; and c) An order directing PwC to pay Equistar $35,425.25.
Background
4Red Ash Capital Partners II Limited Partnership was a secured creditor of the Companies.
5The applicant Pinnacle Capital Resources Limited, in its capacity as general partner of Red Ash Capital Partners II Limited Partnership (“Red Ash”), obtained an order of the Court dated May 28, 2012 appointing PwC Interim Receiver of Kraus, Kraus Canada and Strudex (collectively the “Operating Companies”) In that capacity, PwC filed two reports, the first dated May 29, 2012 and the second June 10, 2012.
6On June 11, 2012, again on Red Ash’s application, PwC was appointed trustee in bankruptcy of each of the Operating Companies. On the same day, and pursuant to Red Ash’s receivership application, PwC was appointed as Receiver of the Companies.
7Also on June 11, 2010, the Court issued a Sale Approval and Vesting Order approving a going concern sale transaction (the “Sale Transaction”) of substantially all of the assets of the Companies (the “Purchased Assets”) contemplated by an asset purchase agreement between the Receiver and Kraus Brands LP (the “Purchaser”), a party related to Red Ash, dated as of June 11, 2012 (the “Sale Agreement”).
8Paragraph 8 of the Sale Approval and Vesting Order provides that the documents marked as Confidential Appendices A, B and C to the Receiver’s First Report contain confidential information and shall remain confidential and shall not form part of the permanent court record pending further order of the Court.
9The Sale Transaction closed on June 11, 2012.
10The reasons for the interim receivership were set out in the material filed in support of the initial application. The Interim Receiver monitored the receipts and disbursements of the Companies but did not take possession of the assets of the Operating Companies nor did it manage or operate their businesses. The Interim Receivership ended when the Receivership Order became effective on June 11, 2012.
11Pursuant to the Receivership Order, the Receiver had a very narrow mandate. It was appointed specifically to complete the Sale Transaction in accordance with the Sale Agreement and convey the Purchased Assets “without taking possession or control thereof”.
12During the period of the Interim Receivership, and as suppliers received notice of the application to appoint a receiver of the Companies, the Interim Receiver and/or the Companies received claims for the repossession of property pursuant to s. 81.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the “BIA”). As at June 11, 2012, the date of the Sale Approval and Vesting Order became effective, a total of nine claimants, including Equistar, had delivered 81.1 claims totalling $2,248,734.
13Because certain of the Purchased Assets were subject to the s. 81.1 claims (the s. 81.1 Assets), the Sale Approval and Vesting Order provided in paragraph 6 thereof that the s. 81.1 Assets do not vest in the Purchaser until such time as the applicable s. 81.1 claim is determined by agreement of the parties or by further order of the Court. The Sale Approval and Vesting Order further provides that, notwithstanding the foregoing, the Purchaser is entitled to use and consume any s. 81.1 Asset, provided the Purchaser pays to the Receiver, in trust, the invoice amount of any s. 81.1 Asset used and consumed by the Companies or the Purchaser.
14Paragraph 6 of the Sale Approval and Vesting Order required that the Receiver file a report advising as to the s. 81.1 Assets in the possession of the Companies as at June 11, 2012 and “to the extent ascertainable, as at May 28, 2012.”
15In satisfaction of the requirement in paragraph 6 of the Sale Approval and Vesting Order, the Receiver filed its Third Report dated June 14, 2012. The Third Report contained a list of the s. 81.1 claimants, the steps by the Receiver to determine the s. 81.1 Assets in the possession of the Companies on June 11, 2012, the steps taken to segregate and preserve those assets and the inspections by s. 81.1 claimants. It also detailed the Receiver’s attempts to determine the s. 81.1 Assets in the possession of the Companies on May 28, 2012.
Equistar’s s. 81.1 Claim
16On June 8, 2012, the Receiver received a s. 81.1 claim in the amount of $551,951.00 from Equistar. Equistar supplied poly resin to the Companies.
17On June 12, 2012, a representative of Equistar attended at Strudex’s premises and was shown the silos where Equistar’s goods were normally delivered. The representative did a visual inspection of the goods remaining in the applicable silo and was provided production records for that silo. A digital meter reading of the silo was also taken in the presence of Equistar’s representative.
18Subsequently, the Receiver assessed the s. 81.1 claims using the criteria set out in s. 81.1 of the BIA. The Receiver assessed the eligible value of Equistar’s claim to be $35,425.25. On June 19, 2012, the Receiver advised Equistar of its assessment.
19On July 31. 2012, Equistar’s US attorney sent a letter to the Receiver taking issue with the Receiver’s determination of value. Equistar’s position was that its claim should include all goods Equistar delivered within 30 days prior to May 28, 2012. It took issue with the challenges the Receiver reported it had faced in respect of assessing the status of the s. 81.1 Assets as at May 28, 2012 and requested further analysis.
20The Receiver responded to Equistar’s attorney’s letter on August 7, 2012. It provided further details as to Strudex’s inventory system, records, tracking, etc. as well as specific detail in respect of the use of product supplied by Equistar to Strudex in the period between May 28 and June 11, 2012, according to the records available to the Receiver. The letter further stated that if Equistar wished to conduct further investigation of the matter, the Receiver would attempt to facilitate such investigation with the Purchaser. The Receiver heard nothing further from Equistar.
21In the period since June 11, 2012, the Purchaser used or consumed the s. 81.1 Assets subject to Equistar’s claim that were in the Companies possession on June 11, 2012. In accordance with paragraph 6 of the Sale Approval and Vesting Order, the Purchaser paid to the Receiver, in trust, the invoice amount of the s. 81.1 Assets subject to Equistar’s s. 81.1 claim that it used or consumed subsequent to June 11, 2012 in the amount of $35,425.25. The Receiver continues to hold such funds in trust pending agreement amongst the Purchaser and Equistar or further order of the Court.
Equistar’s Motion
22The Receiver’s discharge motion was originally returnable on October 16, 2012. At the request of counsel for Equistar who were retained on October 9, 2012, the motion was adjourned to November 5, 2012 “to permit further review by creditor”. Equistar had been previously represented in the receivership proceedings.
23On October 24, 2012, Equistar’s counsel sent a letter to the Receiver’s counsel enclosing a list of 114 questions “for response by the Receiver in connection with the Receiver’s impending motion for discharge.”
24The questions cover a very broad range of topics, including:
a. the relationship between the Receiver and Red Ash and the extent of Red Ash’s control over the actions and decisions of the Receiver and the funding of the receivership;
b. information available to proposed purchasers about the existence of s. 81.1 claims and the goods supplied by them;
c. the extent of the relationship between PwC and the Companies and the extent of control exercised by PwC in that capacity prior to its appointment;
d. the extent of PwC’s control over the sale process;
e. any advice given by PwC to the directors and officers of the Companies related to their obligations with respect to trading while insolvent;
f. the decision to sell the cash gleaned from suppliers products as part of the assets on closing;
g. the Liquidation Analysis (Confidential Appendices C) and whether or not the Receiver considered the impact on unsecured creditors in evaluating same;
h. the decision to use the interim receivership structure and its impact on suppliers;
i. forecasts of consumption of supplier goods available to or relied upon by the Receiver; investigations conducted by the Receiver, as described in the Third Report, which relate to the extent of goods supplied by Equistar;
j. specific questions related to the quantities of the goods supplied by Equistar;
k. general questions about how the Receiver perceived the treatment of unsecured creditors and the suppliers, and what steps, if any it took to advise the relevant parties in connection with same.
25On October 31, 2012, the Receiver replied to the October 24, 2012 letter and advised that it had reviewed and considered Equistar’s questions and in the Receiver’s view, the questions were inappropriate, irrelevant to Equistar’s s. 81.1 claim, had been dealt with in the Receiver’s prior communications with Equistar and/or related to activities already approved by the Court. Accordingly, it advised that it would not be answering any of the questions.
26On November 5, 2012, the Receiver’s discharge motion was put over to November 7, 2012 to enable Equistar to bring its motion to obtain the answers to the questions and unseal the Confidential Appendices. It further amended its notice of motion to also seek payment of $35,425.25
Law and Analysis
(a) The Questions
27A court-appointed receiver is an officer of the court and is in a fiduciary capacity to all stakeholders: Nash v. C.I.B.C. Trust Corp., 1996 CarswellOnt 2185 (O.C.J. Gen Div.) at para. 6. The fact that the receiver owes fiduciary duties to stakeholders does not, however, entitle a stakeholder to go on a fishing expedition for information: Turbo Logistics Canada Inc. v. HSBC Bank Canada (2009), 81 C.B.R. (5th) 169 (Ont. S.C.J.) at para. 18.
28A court-appointed receiver is required to respond to reasonable requests for information from parties with an interest in the receivership: Battery Plus Inc., Re (2002), 31 C.B.R. (4th) 196 (Ont. S.C.J. [Commercial List]). What is reasonable must be determined, in my view, having regard to the interest of the requesting party and the relevance of the information sought based on the issue or issues. In addition, and as noted by Farley J. in Bell Canada International Inc., Re 2003 CanLII 22640 (ON SC), [2003] O.J. No. 4738 (S.C.J. [Commercial List]} at para. 9, the objectivity and neutrality of the officer of the court is also a factor to consider.
29Equistar submits that it is entitled to the answers to its questions in order to determine the correct amount of its s. 81.1 claim; who the directing minds were that caused the claim to arise; and whether or not any claim exists against any of the parties, including the Receiver for their actions in creating an unpaid debt owing to Equistar.
30The vast majority of the 114 questions relate to the Receiver’s relationship with Red Ash and the Companies prior to and during the receivership as well as various steps during the receivership. Those questions have nothing to do with Equistar’s s. 81.1 claim. Those questions are nothing more, in my view, than a fishing expedition to see if Equistar can uncover some sort of impropriety which it suspects may have occurred but of which it has no proof. In that regard, it is instructive that Equistar has provided no evidence of impropriety before or during the receivership. All it has are suspicions of impropriety which is not sufficient to elevate its questions into the reasonable category.
31Questions 12 and 13 and 75 to 97 relate for the most part to Equistar’s s. 81.1 claim. The problem is that the Receiver has already answered Equistar’s questions concerning its claim and provided it with all of its information. The Receiver duly and thoroughly investigated and provided all relevant facts it was able to obtain to Equistar. I would have thought that if Equistar had any follow up questions, it would have contacted the Receiver directly with them. Equistar provided no evidence that it requires further information or that to its knowledge, the information is available and the Receiver has failed to provide it. In fact, it is a reasonable inference from a number of the questions that Equistar already knows the answer.
32The Receiver has no further information or documents relating to Equistar’s claim. In my view, in responding as it has to Equistar’s questions relating to its s. 81.1 claim, the Receiver has acted reasonably and in accordance with its duty. In the circumstances, it is not required, in my view, to answer Equistar’s further questions which in the circumstances, are either irrelevant or unreasonable and in most cases, both.
33Equistar’s motion in respect of the 114 questions is therefore dismissed.
(b) Unsealing the Confidential Appendices
34Equistar also seeks an order unsealing the Confidential Appendices as provided in paragraph 8 of the Sale Approval and Vesting Order.
35The First Report describes the three Appendices. Appendix A is a Confidential Information Memorandum prepared by PricewaterhouseCooper Corporate Finance with the assistance of the Companies management for the sale process in the fall of 2011. It describes the Companies business in significant detail. Appendix B is a detailed summary of the four highest offers received in December 2011 and the three revised offers received in January 2012 in respect of the sale of the Operating Companies. Appendix C is a Liquidation Analysis of assets and business of the Companies based on net book values as of March 31, 2012.
36In the First Report, the Receiver requested the sealing of the three Appendices from the public record until after closing of the Sale Transaction or further order of the court. As noted, paragraph 9 of the Sale Approval and Vesting Order provides that the Appendices contain confidential information and shall remain confidential and shall not form part of the permanent record pending further order of the court.
37Equistar submits that because the Sale Transaction is complete, there is no reason to continue with the sealing order and the documents should be unsealed. It submitted that the two circumstances justifying a sealing order as set out in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522 (S.C.C.) are no longer present here.
38Counsel for Red Ash opposed Equistar’s request to unseal the documents. It submits that given the Court determined, as part of the Sale Approval and Vesting Order, that the Appendices were confidential, Equistar’s motion for unsealing should fail as it has not established that the documents are no longer confidential. In the alternative, it submits that the documents remain confidential. In respect of that submission, because it was only served with Equistar’s motion material on the eve of the motion, Red Ash requests an adjournment in order that it can file material to establish that the documents in question still remain confidential.
39As Newbould J. pointed out in Look Communications Inc. v. Look Mobile Corp., 2009 CarswellOnt 7952 at para. 17, it is often the case that on the Commercial List sensitive documents concerning an asset sale are sealed in order to protect the sale process. Once that process has been completed, it follows that the information in the documents is no longer confidential.
40I am mindful of the importance of public disclosure in the courts as discussed in Sierra Club. I therefore think, given the circumstances in which the Appendices were sealed, that Red Ash should be required to establish that the documents in issue still remain confidential. Accordingly, I intend to adjourn that portion of Equistar’s motion, to be brought back on with proper notice to Red Ash in order to allow it to properly respond.
(c) The $35,425.25
41The final relief requested by Equistar is the payment by the Receiver of the $35,425.25 it is holding in trust in respect of its s. 81.1 claim.
42The Sale Approval and Vesting Order provide in paragraph 6(b) that a s. 81.1 claim is to be determined “by court order or by agreement amongst the Receiver, the applicable claimant to the s. 81.1 Asset and the Purchaser”. Paragraph 6 (e) provides that where the Purchaser pays the Receiver in trust for the s. 81.1 assets its used or consumed, the cash payment “shall stand in place and stead of the s. 81.1 Asset, with such cash to be disposed of in accordance with” the determination as provided in paragraph 6(b).
43There has been no court order or agreement with respect to Equistar’s s. 81.1 claim. Equistar has not yet sought such determination. Accordingly, pursuant to paragraph 6 of the Sale Approval and Vesting Order, the $35,425.25 being held by the Receiver in trust cannot be disposed of until such determination.
44Equistar’s request for payment of $35,425.25 is therefore dismissed.
The Receiver’s Motion
45The Receiver’s appointment was for the narrow purposes of completing the sale of the assets of the Companies and certain miscellaneous post-closing matters and reporting on the s. 81.1 assets in possession of the Companies at the time of its appointment and if possible, on May 28, 2012. Those purposes have been completed.
46All s. 81.1 claims except for Equistar’s have been resolved. The Receiver proposes that it pay the $35,425.25 it is holding in trust on account of Equistar’s s. 81.1 claim to be paid to the Trustee in Bankruptcy of the Operating Companies to permit Equistar’s claim to be settled or resolved by court order in the bankruptcy. In my view, given that PwC is also the Trustee, this is a reasonable solution.
47The Receiver seeks a release and discharge from any and all claims arising out of its actions as Receiver save and except for gross negligence or wilful misconduct on its part. It is that request which prompted Equistar’s list of questions. The release is a standard term in the Commercial List model order of discharge. In my view, in the absence of any evidence of improper or negligent conduct on the part of the Receiver, the release should issue. A receiver is entitled to close its file once and for all. There is no such evidence here.
Conclusion
48Based on the material filed, the discharge order as requested by the Receiver should issue.
49Equistar’s motion is dismissed except for the portion relating to the unsealing of the Confidential Appendices which shall be adjourned to be brought back on, if so desired, on proper notice to Red Ash and the Receiver.
50There will be no order of costs in respect of the Receiver’s discharge motion. The Receiver is entitled, however, to costs in respect of Equistar’s motion. In the absence of agreement, brief submissions of no more than two pages along with a cost outline shall be made by the Receiver within ten days. Equistar shall respond within ten days of receipt of the Receiver’s submissions.
L. A. Pattillo J.
Released: November 9, 2012