Guestlogix Inc. (Re)

CITATION: Guestlogix Inc. (Re), 2016 ONSC 1348

COURT FILE NO.: CV-16-11281-00CL

DATE: 2016-02-24

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GUESTLOGIX INC.

BEFORE: Regional Senior Justice Morawetz

COUNSEL: Rebecca Kennedy for the Applicant Robert Kennedy for Vistara Capital Partners Fund I Limited Partnership, by its General Partner, Vistara Fund I GP Inc. Caitlin Fell for Comerica Bank Virginie Gauthier for PricewaterhouseCoopers Inc. Monitor Sonja Pavic for the Board of Directors

HEARD: February 12, 2016

ENDORSED:

REASONS: February 24, 2016

ENDORSEMENT

[1] On February 12, 2016, the Record was endorsed: “The motion was not opposed. Motion granted and Orders signed in the form presented. Brief reasons will follow”.

[2] These are the reasons.

[3] The Applicant seeks an order adding GuestLogix Ireland Limited (“GuestLogix Ireland”) as an Applicant in these CCAA proceedings.

[4] The Applicant also seeks an Interim Lender’s Charge.

[5] Counsel for the Applicant submits that GuestLogix Ireland is a debtor company to which the CCAA applies. GuestLogix Ireland has a bank account in Canada and counsel submits, GuestLogix Ireland is a company as defined in the CCAA.

[6] Further, counsel submits that GuestLogix Ireland is insolvent as it is a guarantor of both the Comerica Facility and the Second Secured Term Loan. On February 8, 2016, Comerica Bank provided notice to the Applicant and its guarantors that the Applicant’s default was continuing and that all outstanding amounts are under the Comerica Facility were due.

[7] Counsel further submits that the Applicant and the GuestLogix Ireland are highly integrated entities, and the cash management system is operated and managed by employees in Canada and all cash is ultimately consolidated to the Applicant. Accordingly, counsel submits that due to the structure of the cash management system, GuestLogix Ireland is unable to satisfy its obligations under the guarantees they granted in relation to the Comerica Facility and the Second Secured Term Loan.

[8] Counsel further submits that by including GuestLogix Ireland as an Applicant in these CCAA proceedings will allow the Applicant to include all of the assets of GuestLogix Ireland in a potential transaction. Based on the informal sale and investor solicitation process commenced by Canaccord, parties expressed in interest in purchasing the assets of both the Applicant and OpenJaw Technologies Limited (“OpenJaw”). GuestLogix Ireland owns 100% of the outstanding shares of OpenJaw, and the Applicant submits that maximization of the value for the Applicant stakeholders cannot be achieved within these CCAA proceedings unless GuestLogix Ireland is included as an Applicant.

[9] I am satisfied that circumstances exist in this case that make it appropriate to grant GuestLogix Ireland protection under the CCAA and add GuestLogix Ireland as an Applicant in these CCAA proceedings.

[10] The Applicant also requests that the Administration Charge (as defined in the February 9, 2016 endorsement) rank in priority to all security interest of secured creditors, statutory or otherwise, to secure the payment of fees and expenses incurred in connection with this CCAA proceedings in the amount of $250,000.

[11] The authority to provide such a charge is set out in section 11.52 of the CCAA and the non-exhaustive factors that the court may consider when granting an Administration Charge are set out in Canwest Publishing Inc., Re, 2010 ONSC 222.

[12] In Canwest, Pepall J. ( as she then was) set out following non-exhaustive list of factors of the court may consider when granting an Administration Charge:

(a) The size and complexity of the business being restructured;

(b) The proposed role of the beneficiaries of the charge;

(c) Whether there is an unwarranted duplication of roles;

(d) Whether the quantum of the proposed charge appears to be fair and reasonable;

(e) The position of the secured creditors likely to be affected by the charge;

(f) The position of the Monitor.

[13] In this case, the Monitor is of the view that the amount of the Administration Charge is reasonable and the circumstances and notice has been provided to secured creditors.

[14] I am satisfied that it is appropriate to grant priority to the Administration Charge.

[15] Similar priority is also sought for the Directors’ Charge. I am satisfied that priority should also be afforded to the Directors’ Charge.

[16] Section 11.51 of the CCAA provides the statutory jurisdiction to grant the Directors’ Charge.

[17] In Jaguar Mining Inc., Re, 2014 ONSC 494, the court stated that in order to grant a Directors’ Charge, the court must be satisfied of the following factors:

(a) Notice has been given to the secured creditors likely to be affected by the charge;

(b) The amount is appropriate;

(c) The Applicant could not obtain adequate indemnification insurance for the directors at a reasonable cost;

(d) The charge does not apply in respect of any obligation incurred by directors as a result of directors’ gross negligence or willful misconduct.

[18] The Applicant submits that the above factors are satisfied in this case, and that the amount requested is reasonable in the circumstances having regard to the potential liabilities.

[19] I note that the amount requested was confirmed as being reasonable in my endorsement of February 9, 2016.

[20] Further, the benefit of the Directors’ Charge will only be available to the extent that liability is not covered by the directors’ and officers’ liability insurance, which provides coverage up to $10,000,000.

[21] I am satisfied that this is an appropriate case to grant a Directors’ Charge and to provide it with the priority set out in the order.

[22] With respect to the Interim Lender’s Charge, Vistara Capital Partners Fund I Limited Partnership (“Vistara Capital”) by its general partner Vistara Fund I GP Inc. (“Vistara GP”), and such other lenders among Beedie Capital Partners Fund I Limited Partnership (“Beedie Capital”), by its general partner, Beedie Capital Partners Inc. ( collectively, the “Vistara Lenders”) and Comerica Bank (“Comerica”), and collectively with the Vistara Lenders (the “Interim Lender”) has agreed to provide interim financing to the Applicant to a maximum principal of US $3,000,00, pursuant to commitment letter between the Applicant and the Interim Lender dated February 11, 2016 (“Interim Facility”).

[23] The proposed Amended and Restated Initial Order contemplates granting the Interim Lender a Charge (“Interim Lender’s Charge) on all of the Applicant’s current and future assets (“Property”).

[24] The proposed restated initial order contemplates that the Interim Lender’s Charge will have priority over all other interests in the property, saved for the Administration Charge and the Directors’ Charge.

[25] Section 11.2 of the CCAA provides that, on notice to the secured lenders who are likely to be affected by the charge, the court has jurisdiction to grant the Interim Lender’s Charge.

[26] In this case, the secured creditors that will be affected by the Interim Lender’s Charge are the interim lender’s pre-filing interest in the Applicant’s property.

[27] Section 11.2(4) provides that in deciding whether to grant the Interim Lender’s Charge, the court is to consider the following factors:

(a) The period during which the company is expected to be subject to proceedings under the CCAA;

(b) How the company’s business and financial affairs are to be managed during the proceedings;

(c) Whether the company’s management has the confidence of its major creditors;

(d) Whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company;

(e) The nature and value of the company’s property;

(f) Whether any creditor would be materially prejudiced as a result of the security or charge;

(g) The monitor’s report referred to in section 23(1)(b) of the CCAA.

[28] In this case, the Applicants anticipate continuing in the ordinary course under the CCAA and using the interim financing to fund cash flow requirements. It is also noted that the Applicants will manage their own affairs during these CCAA proceedings. Further, the Applicants secured lenders support the CCAA proceeding. I am also satisfied that the Interim Facility will provide stability to the process and allow the sale and investor solicitation process to be completed.

[29] I am also satisfied that no creditor will be materially prejudiced and they will have the benefit from the enhanced value to the enterprise through continued operations.

[30] It is also noted that the propose Monitor supports the granting of the Interim Lenders’ Charge.

[31] Accordingly, I am satisfied that the Interim Financing Facility should be approved and that the granting of the Interim Lender’s Charge is appropriate.

[32] Orders have been signed to give effect to the foregoing.

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Regional Senior Justice G.B. Morawetz

Date: February 24, 2016