Crate Marine, 2015 ONSC 1062

Court File and Parties

COURT FILE NO.: CV-14-00010798-00CL

DATE: 20150218

SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

IN THE MATTER OF THE RECEIVERSHIP OF Crate Marine Sales Limited, F. S. Crate & Sons Limited, 1330732 Ontario Limited, 1328559 Ontario Limited, 128648 Ontario Limited, 1382415 Ontario Ltd., and 1382416 Ontario Ltd.

RE: Crate Marine Sales Limited et al.

BEFORE: L. A. Pattillo J.

Counsel

M. B. Rotsztain and R. B. Bissell, for the Receiver and Trustee

H. Chaiton and M. Poliak, for Crawmet, and 2450902 Ontario Ltd.

E. Bisceglia, for Cesaroni Management Ltd.

C. Prophet and H. Murray, for Romith Investments Limited and Uplands Charitable Foundation

J. D. Marshall, for Marquis Yachts

J. McReynolds, for 2124915 Ontario Inc.

HEARD: February 13, 2015

Endorsement

Introduction

[1] On December 8, 2014, A. Farber & Partners was appointed as Receiver (“Receiver”) and as Trustee in Bankruptcy (“Trustee”) of Crate Marine Sales Limited, F.S. Crate & Sons Limited, 1330732 Ontario Limited, 1328559 Ontario Limited, 1282648 Ontario Limited, 1382415 Ontario Ltd., and 1382416 Ontario Ltd. (collectively the “Companies”).

[2] The Receiver brings this motion for various orders including approval of an agreement of purchase and sale dated February 8, 2015 (the “Stalking Horse Offer”) and a sales process which includes an auction for all of the assets of the Companies save and except for certain excluded assets. Subsidiary issues are approval of the Receiver’s first three Reports and its conduct as set out in the Reports and a sealing order of Confidential Appendices “A” and “B”.

Background

[3] The Companies are related companies that operate marinas at multiple locations including a large marina in Keswick, Ontario, on Lake Simcoe. Crate Marine Sales Limited (“Crate Marine”) is the sole operating entity. The remainder of the Companies either own land used in the marina operations (primarily at Keswick) or own other of the Companies.

[4] In addition to land, the assets of the Companies consist primarily of cash, accounts receivable, boats, parts and equipment as well as interests in other businesses or ventures involving members of the Crate family. The Receiver has obtained and filed certificates of pending litigation against certain properties in the vicinity of the Keswick marina location (the “Adjacent Properties”) and against a property in Belleville, Ontario.

[5] After review of the assets available for sale, the Receiver has determined that the best realizations are likely to be obtained from a sale of the business as an operating marina. Furthermore, the sooner a sale takes place, the more likely the value of the customer base to a new owner/operator will be maintained as the 2015 boating season is not far off. The Receiver also recognizes that the Companies’ real estate in the Keswick area as well as the possible interest in the Adjacent Properties will also likely be of interest to real estate developers.

The Stalking Horse Offer

[6] The negotiations to obtain the Stalking Horse Offer involved considerable time and were complicated due to a number of factors including (i) the Companies have different real estate holdings and multiple cross-collateralized mortgages; (ii) the uncertainty of potential claims on the Crate Marine owned boats; (iii) the state of the books and records; and (iv) the issues identified by the Receiver related to the Adjacent Properties and other business activities of the Companies.

[7] The Stalking Horse Offer is in large part comprised of a credit bid through assumed debt. The purchaser under the Stalking Horse Offer is 2450902 Ontario Limited (the “Purchaser”) whose principals, Benn-Jay Spiegel and Dwight Powell are the respective principals of Crawmet Corp (“Crawmet”) and Dwight Powell Investments Inc. (“DPII”) who in turn are secured creditors of the Companies.

[8] The Stalking Horse Offer is for substantially all of the assets of the Companies. The three main exclusions are cash on hand at closing; boats in possession of the Companies where there are or were boat slip leases or other bailment arrangements; and anything the Purchaser may choose to exclude from the purchased assets without any adjustment of the purchase price. The assets to be sold also include the claims of the Companies and the Receiver and Trustee in respect of the Adjacent Lands, the Bellville property and other claims.

[9] The Receiver estimates that the purchase price under the Stalking Horse Offer at the time of the anticipated closing date will be approximately $25,951,784.00 made up of assumed secured debt of Crawmet, DPII and Dwight Powell in the amount of $22,973,033.00; cash for all amounts secured by the Receiver’s Charge and the Receiver’s Borrowing Charge at Closing (approximately $2,000,000.00); cash for the estimated Receiver/Trustee fees and counsel fees from Closing to discharge (approximately $300,000); cash for realty tax arrears, utility arrears and source deductions ($389,000.00); and cash amounts for two properties in Keswick known municipally as 7 and 8 Mac Ave ($550,000) and 210 Wynhurst Ave. ($710,000) (collectively the “Properties”).

[10] The Stalking Horse Offer contains no break fee or payment for the Purchaser’s expenses.

[11] The Receiver considered the value being offered in the Stalking Horse Offer and concluded, for the reasons noted in the Third Report, that it is appropriate value for the assets being purchased. Having regard to the consideration being offered in the Stalking Horse Offer and the benefit of a mechanism to coherently market the assets being conveyed, the Receiver concluded that the interests of the creditors and stakeholders of the Companies were, on the whole, best served by accepting the Stalking Horse Offer.

The Proposed Sale Process

[12] The Receiver has proposed a sales process that involves notice to identified potential purchasers as well as more generally; a time period of approximately one month for submission of bids and if there are one or more superior bids to the Stalking Horse Offer, an auction at the Receiver’s office involving the Purchaser and the superior bidders followed by a motion to the court for approval and a vesting order. The entire process is scheduled to take less than two months to complete.

Analysis

[13] A stalking horse offer combined with a court-approved bidding procedure is commonly used in insolvency situations to facilitate the sale of businesses and assets.

[14] In Brainhunter Inc., Re: (2009), 62 C.B.R. (5th) 41 (Ont. S. C. J.) at para. 13, Morawetz J. sets out four factors that the court should consider in exercising its discretion to determine whether to authorize a stalking horse process. The case involved a stalking horse sales process under the Companies Creditors Arrangement Act but in my view, the same considerations are applicable here. The factors are: is the sale transaction warranted at this time; will the sale benefit the “economic community”; do any of the creditors have a bona fide reason to object to the sale of the business; and is there a better viable alternative.

[15] The Receiver’s Third Report makes it clear, in my view, that the sale is warranted at this time. I accept the Receiver’s determination that the best realization of the assets will be achieved by the sale of the business as an operating marina. In order to accomplish that, the sale must take place as soon as possible to enable a purchaser to maintain the continuity of the business going forward into the 2015 boating season.

[16] Further, in my view, the proposed sale will benefit the “economic community”. In addition to maximizing value, which is of benefit to all the creditors and stakeholders of the Companies, the continuation of the operation of the marina will also be of benefit to the greater Keswick community by way of preservation of jobs, contracts and business relationships.

[17] On the motion, the only creditors who objected to the Stalking Horse Offer were Cesaroni Management Limited (“Cesaroni”), Romith Investments Limited (“Romith”) and Uplands Charitable Foundation (“Uplands”) (collectively the “Objecting Creditors”). Cesaroni and Romith are mortgagees of 210 Wynhurst Ave. and Uplands is a mortgagee of 7 & 8 Mac Ave.

[18] The Objecting Creditors submit that the purchase price allocated in the Stalking Horse Offer for the Properties is not reflective of the fair market value for either of the Properties. Further, the allocated price will provide for less value than the respective charges registered against the Properties by the Objecting Creditors. In support of its position, Cesaroni has filed real estate appraisal indicating a value for 210 Wynhurst Ave. well in excess of the allocated purchase price. Uplands submits that it attempted to get an appraisal of 7&8 Mac Ave. but was unable to arrange it in the short notice given.

[19] The Objecting Creditors submit that 7&8 Mac Ave. and 210 Wynhurst Ave. should be removed from the Stalking Horse Offer and the proposed sales process. To support their position, they seek a brief adjournment in order to provide better evidence of value. In Cesaroni’s case, it submits it will provide a bona fide offer for 210 Wynhurst Ave.

[20] The Objecting Creditors are not objecting to the sale of the business in general. They are objecting to the Properties that they have an interest in being included in the Stalking Horse Offer for the consideration proposed. But the Properties form part of or are adjacent to the properties that comprise the Companies marina operation in Keswick. For that reason, in my view, they should be included in the proposed sale and therefore remain part of the Stalking Horse Offer at this stage.

[21] In reaching its conclusion that the interests of the creditors and stakeholders of the Companies on the whole are best served by accepting the Stalking Horse Offer, the Receiver considered the fact that the allocated purchase price for the Properties would likely provide for less value than the charges registered against them by the Objecting Creditors. The Receiver also considered information from the Purchaser that its investigations indicated that the market value for the Properties is considerably less than the amounts owing under the charges held by the Objecting Creditors as well as its understanding that the amounts owing by the Companies to Cesaroni and Romith were secured against other lands held by a principal of the Companies.

[22] During the hearing, I was advised by counsel for the Receiver and the Purchaser that the Purchaser agreed that if its Stalking Horse Offer was the successful bid, it would still be bound by and complete the agreement of purchase and sale if one or either of the Properties were excluded from the sale subject to a price reduction based on the allocated amount.

[23] The real issue raised by the Objecting Creditors is the fairness to them of including the Properties in the Stalking Horse Offer for the consideration provided. In my view, that issue cannot and should not be decided in advance of approval of the relief sought by the Receiver on this motion. The interests of all of the creditors and stakeholders of the Companies in a sale of the business as an operating marina override the concerns of the Objecting Creditors at this stage.

[24] Accordingly, I am not prepared to adjourn the approval of the Stalking Horse Offer or the sale process at this stage or remove the Properties from the Stalking Horse Offer.

[25] In my view, the issue of whether the Properties should be included as part of the final sale or not should be determined at the time approval of a proposed sale is sought and having regard to the factors set out in Royal Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1 (Ont. C.A.).

[26] Accordingly, for the above reasons, I approve the Stalking Horse Offer and authorize the Receiver to enter into the agreement of purchase and sale in that regard. I also approve the proposed sales process. In my view, the process is transparent and the proposed timeline is fair and reasonable given the circumstances.

[27] Confidential Appendices “A” and “B” contain appraisals obtained by the Companies prior to the litigation as well as the Receiver’s analysis of the value of the assets being sold as compared to the purchase price under the Stalking Horse Offer and a detailed discussion of potential claims by the Companies. It is commercially sensitive information which would seriously interfere with the sales process, causing harm to the Companies and the stakeholders if made public. I conclude therefore that the test set out in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522 (S.C.C.) at para. 53 has been met. The Appendices will be sealed until final completion of the sales process or further order of the Court.

[28] Finally, I approve the First, Second and Third Reports of the Receiver and the activities as set out therein.

[29] To the extent that the time lines for the sales process as proposed by the Receiver at the hearing need to be altered given the delay in the release of these reasons, I may be spoken to.

L. A. Pattillo J.

Released: February 18, 2015