CITATION: HSBC Bank Canada v. Mahvash Lechcier-Kimel, 2013 ONSC 7241
COURT FILE NO.: CV-13-9989-00CL
DATE: 20131121

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: HSBC Bank Canada, Applicant

AND:

Mahvash Lechcier-Kimel, Respondent

BEFORE: D. M. Brown J.

COUNSEL: J. Wigley, for the Moving Party, Receiver

M. McQuade, for the Second Mortgagee, Dr. Morris Goldfinger

HEARD: November 21, 2013

REASONS FOR DECISION

I. Receiver’s motion to discontinue an auction sale process and approve an offer to purchase real property

[1] By Reasons dated October 2, 2013 (2013 ONSC 6185), I granted the order sought by Zeifman Partners Inc., the court-appointed receiver of a residential property located at 40 Park Lane Circle, Toronto, approving an auction sales process for the Property, including the Reserve Bid proposed by the Receiver (the “Auction Approval Order”). Dr. Morris Goldfinger, the second mortgagee of the Property, had opposed the level of the Reserve Bid proposed by the Receiver.

[2] The auction is scheduled to take place next week, on November 26, 2013.

[3] The Receiver now moves for approval of an agreement of purchase and sale dated November 7, 2013 in lieu of conducting the auction. In the event the Transaction did not close, the Receiver would revive the auction process.

II. Evidence

[4] Following the Auction Approval Order the Receiver entered into an Auction Services Agreement with Concierge Auctions, LLC. Concierge set up a website for the auction. The URL was disclosed in the Receiver’s Second Report; I went to the website and reviewed the materials posted by Concierge. As one of the listing specs, Concierge posted that the Property was “previously offered for $23,000,000”.

[5] A letter dated November 13, 2013 from Concierge, attached to the Supplement to the Receiver’s Second Report, advised that as a result of its marketing process, Concierge had receive 975 inquiries for the Property and had conducted 131 property tours.

[6] The Concierge website enables a person to register to bid at the auction. As of today, no one had registered to bid, but there is no evidence before me explaining how far in advance of an auction bidders usually register.

[7] On October 11 or 28, 2013 (the Receiver’s evidence was not clear on this point), the Receiver was presented with an offer for the Property from a set of purchasers. Unfortunately the Receiver’s report did not explain how the offer came about, specifically whether the offerors were aware of the court-approved auction process at the time they made the offer. The Receiver met with the offerors, as a result of which on October 25, 2013 the Receiver was sent an enhanced offer, which the Receiver signed back on October 30. Discussions ensued resulting in the November 7, 2013 agreement of purchase of sale for which the Receiver now seeks court approval.

[8] Counsel appeared before me yesterday afternoon to schedule today’s hearing. Receiver’s counsel today advised that following yesterday’s attendance a second purchase offer was sent to the Receiver, but it was not recommending that offer for consideration. No evidence was filed about the specifics of that offer.

[9] The Receiver recommends approval of the Transaction for several reasons: (i) the offer price lies at the high-end of the range of valuations placed before the Court on October 2; (ii) the offer is unconditional and not subject to financing; (iii) a significant deposit accompanied the offer; and (iv) Concierge stated, in its letter: “While a higher price is possible at ‘live’ auction, it is not a likely outcome”. The Receiver concluded that “in a very real sense this offer represents the ‘bird in the hand’ as opposed to what might happen at an auction”. The proposed Transaction would result in a full recovery for the first mortgagee and construction lien claimants, but the remaining creditors, including the Canada Revenue Agency, the second mortgagee, Dr. Goldfinger, and Community Trust Company would suffer significant shortfalls.

[10] Dr. Goldfinger opposed the Receiver’s request on two grounds. First, Dr. Goldfinger submitted that the Receiver should continue with the sales auction process which it previously had recommended and which the Court approved. Second, Dr. Goldfinger argued that under the proposed Transaction he was unlikely, as the second mortgagee, to recover much, if anything, on his security and fairness dictated that as a creditor he be given the opportunity for a greater “upside” through the auction process.

III. Analysis

[11] As the Court of Appeal point out in Royal Bank of Canada v. Soundair Corp., while the primary concern of a receiver is the protection of the interests of creditors, a secondary and “very important consideration” is the integrity of the process by which the sale is effected.[^1] In the present case the Receiver sought and obtained approval to conduct a sales auction process because of the inability to attract adequate offers for the Property through a listing process. The auctioneer has put in place the infrastructure necessary to conduct an auction and to date has conducted 131 tours of the Property. The auction now is only four business days away.

[12] While the inclination of the Receiver to take “the bird in the hand” is understandable, to a degree, given the poor marketing history for this Property, I conclude that deviating from the court-approved auction process at this stage would damage the integrity of the sales process. I regard the proposed Transaction as a form of pre-bid, and the Receiver candidly reported that the offerors had been prepared to enhance their offer in order to avoid going through the auction. Given the nature of this type of auction process, one cannot know in advance of the auction day how much interest will be expressed in the Property. But, according to Concierge’s letter, a significant number of people have toured the Property as part of its efforts to market the auction. It therefore is reasonable to assume that some bids may be made for the Property. I can only infer from the evidence filed that it is open to bidders to register up until the day of the auction. Consequently, were I to approve the proposed Transaction and halt the auction, there might well be interested bidders who would think that the auction process had not been conducted fairly, and they would be right.

[13] Whether the auction results in a better bid than that contained in the proposed Transaction is a matter for the market to decide. It may well be that the successful bid at the auction falls short of the proposed Transaction. One simply cannot ascertain in advance whether or not that will be the case. That risk naturally attaches to any auction process. But, an auction process was recommended by the Receiver to the Court no more than two months ago as the most appropriate way by which to sell the Property and this Court accepted that recommendation. The integrity of the sales process requires that the auction proceed.

[14] For those reasons, I do not approve the proposed Transaction. Given the commercially sensitive nature of some of the evidence filed, I order sealed until the completion of any sale of the Property the Confidential Exhibits “C” and “D” to the Receiver’s Second Report, as well as the Responding Motion Record.

[15] There shall be no costs of this motion.

D. M. Brown J.

Date: November 21, 2013

[^1]: (1991), 1991 CanLII 2727 (ON CA), 4 O.R. (3d) 1 (C.A.), p. 12.