COURT FILE NO.: CV-13-10320-00CL
DATE: 20131127
SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
APPLICATION UNDER SECTION 243 OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c.B-3, AS AMENDED
RE: ELLEWAY ACQUISITIONS LIMITED, Applicant
AND:
THE CRUISE PROFESSIONALS LIMITED, 4358376 CANADA INC. (OPERATING AS ITRAVEL2000.COM) AND 7500106 CANADA INC., Respondents
BEFORE: MORAWETZ J.
COUNSEL: Jay Swartz and Natalie Renner, for the Applicant
John N. Birch, for the Respondents
David Bish and Lee Cassey, for Grant Thornton, Proposed Receiver
HEARD &
ENDORSED: NOVEMBER 4, 2013
REASONS: NOVEMBER 27, 2013
ENDORSEMENT
[1] At the conclusion of argument, the requested relief was granted with reasons to follow. These are the reasons.
[2] Elleway Acquisitions Limited (“Elleway” or the “Applicant”) seeks an order (the “Receivership Order”) appointing Grant Thornton Limited (“GTL”) as receiver (the “Receiver”), without security, of all of the property, assets and undertaking of each of 4358376 Canada Inc., (operating as itravel2000.com (“itravel”)), 7500106 Canada Inc., (“Travelcash”), and The Cruise Professionals (“Cruise”) and together with itravel and Travelcash, “itravel Canada”), pursuant to section 243 of the Bankruptcy and Insolvency Act (Canada) (the “BIA”) and section 101 of the Courts of Justice Act (Ontario) (the “CJA”).
[3] The application was not opposed.
[4] The itravel Group (as defined below) is indebted to Elleway in the aggregate principal amount of £17,171,690 pursuant to a secured credit facility that was purchased by Elleway and a working capital facility that was established by Elleway. The indebtedness is guaranteed by each of itravel, Cruise and Travelcash, among others. The itravel Group is in default of the credit facility and the working capital facility, and Elleway has demanded repayment of the amounts owing thereunder. Elleway has also served each of itravel, Cruise and Travelcash with a notice of intention to enforce its security under section 244(1) of the BIA. Each of itravel, Cruise and Travelcash has acknowledged its inability to pay the indebtedness and consented to early enforcement pursuant to section 244(2) of the BIA.
[5] Counsel to the Applicant submits that the itravel Group is insolvent and suffering from a liquidity crisis that is jeopardizing the itravel Group’s continued operations. Counsel to the Applicant submits that the appointment of a receiver is necessary to protect itravel Canada’s business and the interests of itravel Canada’s employees, customers and suppliers.
[6] Counsel further submits that itravel Canada’s core business is the sale of travel services, including vacation, flight, hotel, car rentals, and insurance packages offered by third parties, to its customers. itravel Canada’s business is largely seasonal and the majority of its revenues are generated in the months of October to March. itravel Canada would have to borrow approximately £3.1 million to fund its operations during this period and it is highly unlikely that another lender would be prepared to advance any funds to itravel Canada at this time given its financial circumstances.
[7] Further, counsel contends that the Canadian travel agent business is an intensely competitive industry with a high profile among consumers, making it very easy for consumers to comparison shop to determine which travel agent can provide services at the lowest possible cost. Given its visibility in the consumer market and the travel industry, counsel submits that it is imperative that itravel Canada maintain existing goodwill and the confidence of its customers. If itravel Canada’s business is to survive, potential customers must be assured that the business will continue uninterrupted and their advance payments for vacations will be protected notwithstanding itravel Canada’s financial circumstances.
[8] Therefore, counsel submits that, if a receiver is not appointed at this critical juncture, there is a substantial risk that itravel Canada will not be able to book trips and cruises during its most profitable period. This will result in a disruption to or, even worse, a complete cessation of itravel Canada’s business. Employees will resign, consumer confidence will be lost and existing goodwill will be irreparably harmed.
[9] It is contemplated that if GTL is appointed as the Receiver, GTL intends to seek the Court’s approval of the sale of substantially all of itravel Canada’s assets to certain affiliates of Elleway, who will operate the business of itravel Canada as a going concern following the consummation of the purchase transactions. Counsel submits that, it is in the best interests of all stakeholders that the Receivership Order be made because it will facilitate a going concern sale of itravel Canada’s business, preserving consumer confidence, existing goodwill and the jobs of over 250 employees.
[10] Elleway is a corporation incorporated under the laws of the British Virgin Islands. Elleway is an indirect wholly owned subsidiary of The Aldenham Grange Trust, a discretionary trust governed under Jersey law.
[11] itravel, Cruise and Travelcash are indirect wholly owned subsidiaries of Travelzest plc (“Travelzest”), a publicly traded United Kingdom (“UK”) company that operates a group of companies that includes itravel Canada (the “itravel Group”). The itravel Group’s UK operations were closed in March 2013. Since the cessation of the itravel Group’s UK operations, all of the itravel Group’s remaining operations are based in Canada. itravel Canada currently employs approximately 255 employees. itravel Canada’s employees are not represented by a union and it does not sponsor a pension plan for any of its employees.
[12] The itravel Group’s primary credit facilities (the “Credit Facilities”) were extended by Barclays Bank PLC (“Barclays”) pursuant to a credit agreement (the “Credit Agreement”) and corresponding fee letter (the “Fee Letter” and together with the Credit Agreement, the “Credit Facility Documents”) under which Travelzest is the borrower.
[13] Pursuant to a series of guarantees and security documents (the “Security Documents”), each of Travelzest, Travelzest Canco, Travelzest Holdings, Itravel, Cruise and Travelcash guaranteed the obligations under the Credit Facility Documents and granted a security interest over all of its property to secure such obligations (the “Credit Facility Security”). Travelzest Canco and Travelzest Holdings are direct wholly owned UK subsidiaries of Travelzest. In addition, itravel and Cruise granted a confirmation of security interest in certain intellectual property (the “IP Security Confirmation and together with the Credit Facility Security, the “Security”).
[14] The Security Documents provide the following remedies, among others, to the secured party, upon the occurrence of an event of default under the Credit Facility Documents: (a) the appointment by instrument in writing of a receiver; and (b) the institution of proceedings in any court of competent jurisdiction for the appointment of a receiver. The Security Documents do not require Barclays to look to the property of Travelzest before enforcing its security against the property of itravel Canada upon the occurrence of an event of default.
[15] Commencing on or about April 2012, the itravel Group began to default on its obligations under the Credit Agreement.
[16] Pursuant to a series of letter agreements, Barclays agreed to, among other things, defer the applicable payment instalments due under the Credit Agreement until July 12, 2013 (the “Repayment Date”). Travelzest failed to pay any amounts to Barclays on the Repayment Date. Travelzest’s failure to comply with financial covenants and its default on scheduled payments under the Repayment Plans constitute events of default under the Credit Facility Documents.
[17] Since 2010, Itravel Canada has attempted to refinance its debt through various methods, including the implementation of a global restructuring plan and the search for a potential purchaser through formal and informal sales processes. Two formal sales processes yielded some interest from prospective purchasers. Ultimately, however, neither sales process generated a viable offer for Itravel Canada's assets or the shares of Travelzest.
[18] Counsel submits that GTL has been working to familiarize itself with the business operations of Itravel Canada since August 2013 and that GTL is prepared to act as the Receiver of all of the property, assets and undertaking of itravel Canada.
[19] Counsel further submits that, if appointed as the Receiver, GTL intends to bring a motion (the “Sales Approval Motion”) seeking Court approval of certain purchase transactions wherein Elleway, through certain of its affiliates, 8635919 Canada Inc. (the “itravel Purchaser”), 8635854 Canada Inc. (the “Cruise Purchaser”) and 1775305 Alberta Ltd. (the “Travelcash Purchaser” and together with the itravel Purchaser and the Cruise Purchaser, the “Purchasers”), will acquire substantially all of the assets of itravel Canada (the “Purchase Transactions”).
[20] If the Purchase Transactions are approved, Elleway has agreed to fund the ongoing operations of itravel Canada during the receivership. It is the intention of the parties that the Purchase Transactions will close shortly after approval by the Court and it is not expected that the Receiver will require significant funding.
[21] The purchase price for the Purchase Transactions will be comprised of cash, assumed liabilities and a cancellation of a portion of the Indebtedness. Elleway will supply the cash portion of the purchase price under each Purchase Transaction, which will be sufficient to pay any prior ranking secured claim or priority claim that is not being assumed.
[22] The Purchasers intend to offer substantially all of the employees of itravel and Cruise the opportunity to continue their employment with the Purchasers.
[23] This motion raises the issue as to whether the Court should make an order pursuant to section 243 of the BIA and section 101 of the CJA appointing GTL as the Receiver.
1. The Court Should Make the Receivership Order
a. The Test for Appointing a Receiver under the BIA and the CJA
[24] Section 243(1) of the BIA authorizes a court to appoint a receiver where such appointment is “just or convenient”.
[25] Similarly, section 101(1) of the CJA provides for the appointment of a receiver by interlocutory order where the appointment is “just or convenient”.
[26] In determining whether it is just and convenient to appoint a receiver under both statutes, a court must have regard to all of the circumstances of the case, particularly the nature of the property and the rights and interests of all parties in relation to the property. See Bank of Nova Scotia v. Freure Village on Clair Creek, 1996 CanLII 8258 (ON SC), [1996] O.J. 5088 at para. 10 (Gen. Div.)
[27] Counsel to the Applicant submits that where the security instrument governing the relationship between the debtor and the secured creditor provides for a right to appoint a receiver upon default, this has the effect of relaxing the burden on the applicant seeking to have the receiver appointed. Further, while the appointment of a receiver is generally regarded as an extraordinary equitable remedy, courts do not regard the nature of the remedy as extraordinary or equitable where the relevant security document permits the appointment of a receiver. This is because the applicant is merely seeking to enforce a term of an agreement that was assented to by both parties. See Textron Financial Canada Ltd. v. Chetwynd Motels Ltd., 2010 BCSC 477, [2010] B.C.J. No. 635 at paras. 50 and 75 (B.C. S.C. [In Chambers]); Freure Village, supra, at para. 12; Canadian Tire Corp. v. Healy, 2011 ONSC 4616, [2011] O.J. No. 3498 at para. 18 (S.C.J. [Commercial List]); Bank of Montreal v. Carnival National Leasing Limited and Carnival Automobiles Limited, 2011 ONSC 1007, [2011] O.J. No. 671 at para. 27 (S.C.J. [Commercial List]. I accept this submission.
[28] Counsel further submits that in such circumstances, the “just or convenient” inquiry requires the court to determine whether it is in the interests of all concerned to have the receiver appointed by the court. The court should consider the following factors, among others, in making such a determination:
(a) the potential costs of the receiver;
(a) the relationship between the debtor and the creditors;
(b) the likelihood of preserving and maximizing the return on the subject property; and
(c) the best way of facilitating the work and duties of the receiver.
See Freure Village, supra, at paras. 10-12; Canada Tire, supra, at para. 18; Carnival National Leasing, supra, at paras 26-29; Anderson v. Hunking, 2010 ONSC 4008, [2010] O.J. No. 3042 at para. 15 (S.C.J.).
[29] Counsel to the Applicant submits that it is just and convenient to appoint GTL as the Receiver in the circumstances of this case. As described above, the itravel Group has defaulted on its obligations under the Credit Agreement and the Fee Letter. Such defaults are continuing and have not been remedied as of the date of this Application. This has given rise to Elleway’s rights under the Security Documents to appoint a receiver by instrument in writing and to institute court proceedings for the appointment of a receiver.
[30] It is submitted that it is just and convenient, or in the interests of all concerned, for the Court to appoint GTL as the Receiver for five main reasons:
(a) the potential costs of the receivership will be borne by Elleway;
(a) the relationships between itravel Canada and its creditors, including Elleway, militate in favour of appointing GTL as the Receiver;
(b) appointing GTL as the Receiver is the best way to preserve itravel Canada’s business and maximize value for all stakeholders;
(c) appointing GTL as the Receiver is the best way to facilitate the work and duties of the Receiver; and
(d) all other attempts to refinance itravel Canada’s debt or sell its assets have failed.
[31] It is noted that Elleway has also served a notice of intention to enforce security under section 244(1) of the BIA. itravel Canada has acknowledged its inability to pay the Indebtedness and consented to early enforcement pursuant to section 244(2) of the BIA.
[32] Further, if GTL is appointed as the Receiver and the Purchase Transactions are approved, the Purchasers will assume some of itravel Canada’s liabilities and cancel a portion of the Indebtedness. Therefore, counsel submits that the appointment of GTL as the Receiver is beneficial to both itravel Canada and Elleway.
[33] Counsel also points out that if GTL is appointed as the Receiver and the Purchase Transactions are approved by the Court, the business of itravel Canada will continue as a going concern and the jobs of substantially all of itravel Canada’s employees will be saved.
[34] Having considered the foregoing, I am of the view that the Applicant has demonstrated that it is both just and convenient to appoint GTL as Receiver of itravel Canada under both section 243 of the BIA and section 101 of the CJA. The Application is granted and the order has been signed in the form presented.
Morawetz J.
Date: November 27, 2013