1552906 Ontario (Bankruptcy), 2018 ONSC 1731

COURT FILE NO.: 35-2106711

DATE: 2018/04/05

ONTARIO SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY and INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF 1552906 Ontario Limited of the City of Windsor in the Province of Ontario

D. Swift, for the Licensed Insolvency Trustee in Bankruptcy, Price Waterhouse Coopers

R. M. Godard, for Remo Valente, Kenneth Knapp and Melvin Muroff, inspectors and principals of the shareholder companies of the bankrupt

T. Van Klink, for 803102 Ontario Limited, a creditor of the bankrupt

leitch j.

HEARD: March 5, 2018

1Price Waterhouse Coopers Inc. (the “Trustee”), in its capacity as Licensed Insolvency Trustee in Bankruptcy of the bankrupt estate of 1552906 Ontario Limited (“155 Ontario”), has brought a motion seeking:

a) an order approving the proposal lodged by 155 Ontario with the Trustee on October 31, 2017 and approved by the majority in number and two-thirds in value of the creditors of 155 Ontario on November 21, 2017 (the “Proposal”); and

b) an order sealing the confidential first supplement to the second report to the court submitted by the Trustee (the “Confidential Supplement”) until the completion of the sale of the 62 real property lots owned by 155 Ontario, either in the Proposal or in the bankrupt estate, subject to further order of this court.

2The Proposal is opposed by 803102 Ontario Limited (“803 Ontario”), a creditor of 155 Ontario.

Background facts

3155 Ontario is owned by four corporate shareholders. The directors and officers of 155 Ontario are representatives of each of the four corporate shareholders.

4Details of the four equal shareholders of 155 Ontario and their principals are as follows:

Shareholder Principal

1147073 Ontario Limited (“114 Ontario”) Remo Valente

1243494 Ontario Limited (“124 Ontario”) Melvin Muroff

803 Ontario Michael Dunn

Central Vehicle Leasing of Essex Ltd. Kenneth Knapp (“Central Vehicle”)

5The four shareholders of 155 Ontario are parties to an agreement made in February 2006 pursuant to which 803 Ontario acquired the shares of a prior shareholder and all of the shareholders agreed to a number of related party transactions. These related party transactions included the retention of a company associated with Mr. Dunn to service the lots; borrowing from that company or one of its affiliates to finance the servicing costs with interest fixed at 1.5% above the prime rate charged by Royal Bank of Canada; the authorization of a mortgage to secure the financing; the retention of Remo Valente Investments Ltd. (“RVIL”), a company controlled by Mr. Valente to manage the property, its development and sale; and the payment of a management fee to RVIL equal to 6.5% of the sale price of the property less any real estate commissions payable in relation to any sale.

6Prior to the bankruptcy, 803 Ontario had suggested that 155 Ontario service the lots and sell them to a new company without the burden of the management agreement “so as to maximize the return to the creditors”. This suggestion was not agreed to.

7803 Ontario then demanded repayment by 155 Ontario of money owing on a promissory note. The money was not repaid. 803 Ontario brought what the parties refer to as a “collection action”. 155 Ontario defended the collection action and brought a counterclaim against 803 Ontario.

8803 Ontario asserts that 155 Ontario had no viable defence and no viable counterclaim and advancing same created delay which was to the advantage of Messrs. Valente, Knapp and Muroff who were motivated to maintain control over 155 Ontario’s property to avoid competition to protect their investments in another development project.

9803 Ontario brought a motion for summary judgment in the collection action. Just prior to that motion being heard, 155 Ontario filed a Notice of Intention to file a proposal under the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B.3 (the “BIA”). As a result, the collection action was stayed.

10803 Ontario was awarded its costs of the collection action in the amount of $20,000. These costs remain unpaid.

11155 Ontario made a proposal under the BIA in May 2016. 803 Ontario asserts that the first proposal was also filed for the purpose of delay.

12803 Ontario opposed the first proposal. The first trustee was instructed not to proceed with the motion to approve the first proposal. The first proposal was therefore refused and 155 Ontario was deemed to have made an assignment in bankruptcy on February 22, 2017.

13803 Ontario was awarded its costs in relation to the first proposal in the amount of $15,000 plus HST payable out of the bankruptcy estate (the “2017 costs”). The 2017 costs remain unpaid.

14The fees of the first trustee and its legal counsel in relation to the first proposal (the “first trustee’s costs”) also remain unpaid.

15The Trustee was appointed following the February 22, 2017 order.

16As at the date of its bankruptcy, 155 Ontario’s primary assets are 62 un-serviced residential building lots in Essex, Ontario, which are now vested in the Trustee pursuant to the bankruptcy.

17114 Ontario, 124 Ontario, Central Vehicle, and 803 Ontario are the only unsecured creditors of 155 Ontario.

18All four creditors appointed the three inspectors of the bankruptcy estate. Mr. Dunn, the principal of 803 Ontario is not an inspector. The principals of 114 Ontario, 124 Ontario and Central Vehicle are Inspectors - Messrs. Valente, Muroff and Knapp (the “Inspectors”).

19The Inspectors requested the Trustee to complete the servicing of the lots owned by 155 Ontario but the Trustee declined to do so.

20While the initial decision of the Inspectors was to market the un-serviced lots, they changed their position. As a result, the Inspectors called a further meeting of creditors to consider the Proposal, which I will describe below. The four creditors met with the Trustee and voted three to one to proceed with the Proposal. Thereafter Mr. Valente filed the Proposal on behalf of 155 Ontario with the Trustee on October 27, 2017. Mr. Valente signed the Proposal as “designated representative” of 155 Ontario.

21No meeting of the shareholders or directors of 155 Ontario has been held to consider or approve the Proposal and no resolution has been passed by the shareholders or directors of 155 Ontario to authorize the making of the Proposal.

22As noted by Mr. Swift, counsel for the Trustee, no shareholder or director requested any such meetings.

23A meeting of the Inspectors was held on October 31, 2017. The Inspectors unanimously approved the Proposal and directed the Trustee to file the Proposal and the Statement of Affairs with the Official Receiver.

24On November 6, 2017, the Trustee gave notice to all necessary parties and called a meeting of creditors for November 21, 2017 to consider the Proposal.

25The meeting of creditors was held on November 21, 2017. The majority of the creditors in number and two-thirds in value approved the Proposal.

26The Proposal, if approved, would annul the bankruptcy pursuant to s. 61(1) of the BIA, return the lots to 155 Ontario and require 155 Ontario to complete the servicing of the lots for sale in accordance with the terms of the Proposal.

27803 Ontario opposes the Proposal, preferring instead to have 155 Ontario’s assets realized upon by the Trustee.

28On November 24, 2017, the Trustee applied to this court for a hearing to obtain approval of the Proposal and this hearing date was set.

29On December 20, 2017, Mr. Van Klink raised the issue of the appropriate authorization to make the Proposal, which the parties described as the threshold issue.

30At this hearing, the Trustee filed the Confidential Supplement containing information regarding the value of 155 Ontario’s property.

The statutory provisions respecting proposals

31Section 50(1) of the BIA provides that a proposal may be made by certain enumerated parties including “a bankrupt”.

32Pursuant to s. 58 of the BIA, the trustee shall, within five days after a proposal is accepted by the creditors, apply to the court for an appointment for a hearing of the application for the court’s approval of the proposal. This section also sets out the requirements of notice and obliges the trustee to provide a report on the proposal. The Trustee has complied with all of these statutory requirements.

33Section 59 of the BIA states that before approving a proposal, the court shall hear a report of the trustee and shall hear the trustee; the debtor; the person making the proposal; any opposing, objecting, or dissenting creditors; and such further evidence as the court may require.

34The test for approval of the proposal is set out in s. 59(2) as follows:

Where the court is of the opinion that the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors, the court shall refuse to approve the proposal, and the court may refuse to approve the proposal whenever it is established that the debtor has committed any one of offences mentioned in s. 198–200.

35Pursuant to s. 59(3), a proposal must be refused if a proposal does not provide reasonable security for the payment of not less than 50 cents on the dollar on all provable unsecured claims or such percentage thereof as the court may direct and any of the facts mentioned in s. 173 of the BIA are proved against the debtor.

36Further, pursuant to s. 60(1), a proposal must be refused if it does not provide for the payment in priority to other claims of all claims directed to be so paid in the distribution of the property of the debtor and for the payment of all proper fees and expenses of the trustee on and incidental to the proceedings arising out of the proposal or in the bankruptcy.

The approval issues

37Mr. Van Klink, counsel for 803 Ontario, asserted in para. 64 of 803 Ontario’s factum that this motion reveals circumstances which mandate a refusal of the Proposal:

a) the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors [the “reasonableness issue”];

b) the Proposal does not provide reasonable security for the payment of not less than 50 cents on the dollar on all provable unsecured claims and facts mentioned in s. 173 of the BIA are proved against 155 Ontario [the “s. 173 issue”]; and

c) the Proposal does not provide for the payment in priority to other claims of all claims directed to be so paid in the distribution of the property of 155 Ontario [the “s. 60(1) issue”].

38Before I discuss the threshold issue and the approval issues described above, I will briefly summarize the Proposal in issue.

The Proposal

39Mr. Valente provided the Trustee with information, and he formulated the Proposal. As Mr. Valente deposed in the affidavit sworn January 30, 2018, “as the Inspector with the most experience in the sector, I took the initiative, with the assistance of [the Trustee], in the development of the Proposal”. Mr. Valente deposed that the Proposal is “creditor driven with a view to maximizing the value of [155 Ontario’s] assets for the benefit of all creditors”.

40The Proposal reiterated the fact that the assets of 155 Ontario are 62 residential lots. The Trustee’s report on the Proposal indicated that the estimated realizable value of those lots was provided by Mr. Valente, who is referred to as “the designated representative of the debtor”.

41The Proposal contemplates that 155 Ontario shall service and sell the 62 lots in 3 phases over a 5-year period, resulting in a net recovery of approximately $1,812,873 based on information provided by Mr. Valente.

42The Proposal outlines the anticipated costs as including the servicing costs, the management fee to RVIL, the carrying costs for the loans to Messrs. Valente and Knapp, and the Trustee’s administration costs.

43The servicing costs presented by Mr. Valente were verified by an opinion of an engineer retained by the Trustee.

44Messrs. Valente and Knapp are obliged to provide the necessary funds to finance the initial servicing of the lots.

45Messrs. Valente and Knapp will receive 5% interest on the funds advanced. They seek to secure their advances by a charge under s. 50.6 of the BIA in priority position behind an existing mortgage and the administrative fees and expenses.

46Net funds generated from the sale of lots will be used to fund the servicing costs, repay the loans to Messrs. Valente and Knapp and to pay ongoing administration costs.

47The management agreement with RVIL will continue and its 6.5% management fee is estimated at $313,000.

48After the last lot is sold the net proceeds will be distributed to the creditors.

49Pursuant to clause 3.2(d)(2) of the Proposal, creditors who vote against the Proposal have the option to elect an immediate payout based on that creditor’s proportionate share of the net proceeds of sale en bloc through bankruptcy. This payout would be made by Messrs. Valente and Knapp or their corporations and is subject to the condition that the electing creditor must assign its shares in 155 Ontario to Messrs. Valente and Knapp upon receipt of the payout.

50In its report on the Proposal, the Trustee stated in para. 11(a) that “with respect to the reasonableness of the Proposal, the timing and prices of the lots is dependent on demand for residential homes in the Windsor area continuing at present levels during the five-year Proposal period. The Trustee is not in a position to comment on the probability of any change in economic conditions that would impair the assumed demand”.

The threshold issue

51On behalf of 803 Ontario, Mr. Van Klink asserts that the filing of the Proposal was not authorized by 155 Ontario, emphasizing that no meeting of the shareholders or directors was called, and no shareholders’ or directors’ resolution has been passed, to authorize the filing of the Proposal.

52803 Ontario contests Mr. Valente’s authority to submit the Proposal as the “designated representative” of 155 Ontario. He emphasizes that Mr. Valente was clear that the Proposal is “creditor driven”.

53Mr. Van Klink’s position on behalf of 803 Ontario is that if the directors or shareholders of a bankrupt corporation wish to exercise their powers to cause a bankrupt corporation to make a proposal, they must do so in accordance with the charter and bylaws of the bankrupt corporation (see Re Canadian Cereal and Flour Mills Co., 1921 CanLII 494 at paras. 12 and 13 (Ont. Sup. Ct.)).

54Mr. Van Klink also points out that the BIA is not a corporate governance statute and whether or not an action taken by a corporation has been properly authorized must be determined in accordance with the charter and bylaws of the corporation.

55The bylaws of 155 Ontario provide the following:

(i) Section 2.01: Subject to any unanimous shareholders’ agreement, the business and affairs of the Corporation shall be managed or supervised by a board of directors.

(ii) Section 3.11: Every director or officer of the Corporation who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation, or is a director or officer of or has a material interest in any person who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation, shall disclose in writing to the Corporation or request to have entered in the minutes of the meeting of directors the nature and extent of his interest at the time and in the manner required by the Act. Any such contract or proposed contract shall be referred to the board or shareholders for approval even if such contract is one that in the ordinary course of the Corporation’s business would not require approval by the board or the shareholders, and a director interested in the contract so referred to the board shall not vote on any resolution to approve the same except as provided by the Act.

(iii) Section 5.13: An officer shall disclose his interest in any material contract or transaction or proposed material contract or transaction with the Corporation in accordance with Section 3.11 herein.

56Mr. Van Klink points out that the three directors who approved this proposal were the directors who caused 155 Ontario to file the notice of intention, abandon the first proposal, and become bankrupt and that the last corporate act of 155 Ontario was to bring about its bankruptcy. Mr. Van Klink submits that these directors now want to “reverse all that” and there is no evidence that 155 Ontario, the corporate entity, wants this proposal to be undertaken.

57Mr. Van Klink further submits that if a directors’ meeting was called Messrs. Valente and Knapp would be precluded under the bylaws of 155 Ontario from voting on any resolution related to the Proposal given their interests as lenders once the Proposal is approved and in relation to Mr. Valente given his interest in the management fee. Therefore, according to Mr. Van Klink, without the support of Mr. Dunn, the principal of 803 Ontario, a resolution authorizing the Proposal would not pass. He asserts that the fact that there has been no attempt to hold a directors’ meeting to ratify or approve the Proposal leads to the inference that the Proposal would not have been ratified or approved.

58Mr. Godard, counsel for Messrs. Valente, Knapp, and Muroff, asserts that the agreement signed by all the shareholders of 155 Ontario when 803 Ontario became a shareholder is a unanimous shareholders’ agreement as that term is defined in s. 108(2) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, in that it is a “written agreement among all the shareholders of a corporation” and it “restricts in whole or in part the powers of the directors to manage and supervise the management of the business and affairs of the corporation”.

59Mr. Godard points out that pursuant to this agreement, 155 Ontario retained RVIL to manage its property and oversee its development and sale and specifically set out the manager’s specific duties and its authority to retain professionals and technical advisors as manager “in its sole and absolute discretion it considers appropriate”.

60However, I agree with Mr. Van Klink’s submission that this agreement cannot be considered a unanimous shareholders’ agreement because it does not confer authority to govern the affairs of 155 Ontario “at large” and simply deals only with the management of corporate assets (albeit the only assets of 155 Ontario).

61I also agree with Mr. Van Klink’s submission (in response to the fact no meeting of directors or shareholders was requested when the Proposal was considered by the Inspectors) that failure to advise the Trustee or the supporting creditors what had to be done from a corporate governance perspective cannot confer authority on the supporting creditors if authority does not otherwise exist.

62However, I do not accept his submission that corporate structures are being ignored and power is being conferred on individuals “as convenient”.

63Mr. Swift on behalf of the Trustee pointed out that s. 187(9) of the BIA provides that a formal defect or other irregularity will not invalidate proceedings “unless the court before which an objection is made to the proceeding is of the opinion that substantial injustice has been caused by the defect or irregularity and that such injustice cannot be remedied by any order of that court”.

64As the Trustee stated in para. 34 of its factum “if there is any technical defect or irregularity with respect to the process of bringing the Proposal to the court, no substantial injustice has been caused to any party and, therefore, the motion for approval should proceed. Mr. Swift’s position is that it would be an injustice to not approve this Proposal on the technicality advanced by Mr. Van Klink on behalf of 803 Ontario.

65In resolving this threshold issue it is significant that:

(i) the Inspectors were appointed by the four creditors through the votes of each of their four principals;

(ii) the Inspectors instructed the Trustee to accept the Proposal;

(iii) the Trustee called a meeting of creditors;

(iv) the same four principals participated in the creditors’ meeting called by the Trustee to consider the Proposal;

(v) while there was not a separate directors’ meeting, the four principals who represent each of the creditor shareholders are the officers and directors of 155 Ontario, they participated in the consideration of the Proposal and voted three to one in favour of it;

(vi) while the technical requirement of a directors’ resolution is not met, in substance it was the directors of 155 Ontario who directed the Trustee to act;

(vii) the Proposal is not a material contract or transaction of 155 Ontario within the meaning of s. 3.11 of the bylaws of 155 Ontario;

(viii) the Proposal contemplates that RVIL will receive its management fee for performing management services in accordance with the agreement previously entered into by all shareholders (with the same parties being directors);

(ix) Mr. Knapp and Mr. Valente are obliged to fund the initial servicing costs relieving Mr. Dunn or his company from that obligation under the previous agreement; the interest rate is equivalent to the rate Mr. Dunn or his company would have been paid;

(x) there is no term of the Proposal which provides an unfair advantage or an unexpected or unreasonable benefit to any Inspector, director or shareholder or any corporation related to an Inspector, director or shareholder;

(xi) there was no objection made at the various meetings and the threshold issue was not raised until December, well after the May meeting where the Proposal was approved by the Inspectors;

(xii) Mr. Dunn, as the principal of 803 Ontario, was involved from the outset and aware of the instructions to the Trustee; and,

(xiii) there is no injustice in applying s. 187(d) of the BIA.

66I accept the Trustee’s position as set forth in para. 31 of its factum as follows:

The BIA does not provide who may or shall put forward a proposal on behalf of a bankrupt. In the present case, the proposal was presented to PWC [the Trustee] by the appointed designated representative of the bankrupt, who is also a director and shareholder of the bankrupt, and the representative of one of its four unsecured creditors. In addition, the proposal is supported by two of the three other directors and officers of the bankrupt, who also are representatives of two of the three other unsecured creditors of the bankrupt.

67The Proposal is before the court for approval with the authority and approval of three of four of its directors, officers, and shareholders.

68There is adequate evidence that 155 Ontario wishes the Proposal to be implemented. I am satisfied 155 Ontario has ratified and agreed to the terms of the Proposal.

The s. 173 issue

69As Mr. Van Klink points out, s. 59(3) of the BIA provides that the court shall refuse to approve a proposal when any of the facts mentioned in s. 173 are proved against the debtor unless a proposal provides reasonable security for the payment of not less than 50 cents on the dollar on all of the unsecured claims or such other percentage as the court may direct.

70The Proposal does not provide any security for payment of any percentage of the claims of the unsecured creditors and thus s. 59(3) is potentially applicable if any facts mentioned in s.173 of the BIA can be proved against 155 Ontario.

71Mr. Van Klink submits that 155 Ontario has put 803 Ontario, one of its creditors, to unnecessary expense by a frivolous or vexatious defence to the collection action which was properly brought against the bankrupt and thus, one of the facts in s. 173 is established. As a result, the court must refuse to approve the Proposal pursuant to s. 59(3) of the BIA.

72As Mr. Van Klink points out, ultimately the validity of the claim by 803 Ontario in the collection action was accepted without dispute. He submits that by defending the collection action and issuing a counterclaim, 155 Ontario put 803 Ontario to unnecessary expense and he points to the fact that costs were awarded to 803 Ontario in the amount of $20,000.

73However, on this evidentiary record, I cannot conclude that 155 Ontario advanced a frivolous or vexatious defence and counterclaim in relation to the collection action brought by 803 Ontario. The fact that costs were awarded to 803 Ontario cannot lead to the conclusion Mr. Van Klink asks me to reach. I am not prepared to find that facts mentioned in s. 173 of the BIA have been proven against 155 Ontario.

74I note also that the Trustee provided his opinion that there were no facts mentioned in s. 173 of the BIA that may be proved against the debtor.

75I am satisfied there is no impediment to approval of the Proposal pursuant to s. 59(3) of the BIA.

The s. 60(1) issue

76Section 60(1) of the BIA provides that the court shall not approve a proposal that does not provide for the payment in priority to other claims of all claims directed to be so paid in the distribution of the property of a debtor and for the payment of all proper fees and expenses of the trustee on and incidental to the proceedings arising out of the proposal or in the bankruptcy.

77Mr. Van Klink asserts that the Proposal does not given effect to the priority given to the 2017 costs and the first trustee’s costs and pursuant to s. 60(1) of the BIA, the court shall not approve the Proposal.

78The Trustee’s position is that the Proposal does not contemplate any violation of s. 60(1) of the BIA.

79The Trustee points out that as a “substituted trustee”, it is obliged pursuant to s. 36(2)(e) “as soon as funds are available” to “pay to the former trustee his remuneration and disbursements as approved by the court”. Pursuant to this provision, the trustee intends to pay the first trustee’s costs “as soon as funds are available”.

80As the Trustee set out in para. 41 of its factum as follows:

The costs of the former trustee and its legal counsel are payable by PWC, the substituted trustee, as soon as funds are available and will form costs of administration that are payable in priority to the unsecured creditors. It is therefore respectfully submitted that the Proposal does not improperly reorder the priorities from what they would be in a bankruptcy.

81Mr. Swift also acknowledges that the 2017 costs will also attract priority.

82Mr. Godard confirmed that the intent of the Proposal is to pay priority creditors ahead of the ordinary creditors and it was open for me to amend the Proposal if I felt necessary to add 803 Ontario as a category of priority creditor in relation to the 2017 costs.

83Mr. Swift submitted that the Trustee’s position is that the Proposal honours these priorities and references clause 3.2 of the Proposal which provides that payments will be made first to secured creditors, then to pay administrative fees and expenses, and then to priority creditors.

84Mr. Swift submitted that while the Trustee did not identify priority creditors, priority creditors are to be paid and it was unnecessary to make the proposed amendment.

85I agree with the Trustee’s position and am satisfied that the provisions of s. 60(1) create no impediment to the approval of the Proposal.

The reasonableness issue

86803 Ontario filed an extensive affidavit setting out its opposition to the Proposal. It vehemently asserts that Mr. Valente, in making the Proposal (and in other corporate activities which is the subject of an oppression action I understand), has acted to retain and protect the management fee of RVIL.

87Mr. Van Klink points out, that in assessing whether the terms of a proposal are not reasonable or are not calculated to benefit the general body of creditors, the court must consider:

a) the interests of the debtor in making a settlement with the creditors;

b) the interests of the creditors in procuring a settlement which is reasonable and which does not prejudice their rights; and

c) the interests of the public in the fashioning of a settlement which preserves the integrity of the bankruptcy process and complies with the requirements of commercial reality (see Milan in Bankruptcy, 2012 ONSC 2899 at para. 27).

88With respect to the interests of 155 Ontario, Mr. Van Klink notes the Proposal serves no purpose in that there is no business or ongoing operation which will be salvaged for 155 Ontario once the Proposal is completed. I agree with Mr. Van Klink that the Proposal contemplates a liquidation of the assets of 155 Ontario.

89With respect to the interests of creditors, Mr. Van Klink asserts that:

a) the potential return to the creditors under the Proposal is uncertain and speculative;

b) the creditors will not receive any distribution before five years, whereas under a bankruptcy with the sale of the un-serviced land en bloc there will be a distribution to creditors much more quickly (within eight to ten months according to the appraisal filed by the Trustee or within a year according to Mr. Valente);

c) the Proposal was calculated to benefit the financial interests and Messrs. Valente, Knapp, and Muroff and not the interests of the creditors providing no advantages to the creditors over a bankruptcy; and

d) the funding required to implement the Proposal has not been authorized.

90803 Ontario asserts in para. 89 of its factum that the Proposal is “an abuse of the bankruptcy process”. Mr. Van Klink accuses Mr. Valente of putting his interests ahead of all the creditors as the Proposal allows Mr. Valente’s company to collect a 6.5% management fee on the sale of the property, which would not be recoverable if the property was sold en bloc.

91On the other hand, Mr. Godard asserts that 803 Ontario has improperly initiated the sequence of events that led to the bankruptcy pointing out that 803 Ontario made a demand for payment within three days when it was obvious that such a demand could not be met for the express purpose of resiling from the management agreement with RVIL. While Mr. Godard also asserts that 803 Ontario had no right to demand repayment and this is important as contextual background in relation to this motion, I agree with Mr. Van Klink that the issue of 803 Ontario’s right to make demand is an issue in the collection action and should have been pursued in that action.

92More significantly, Mr. Godard submits that this Proposal, pursuant to which RVIL would continue to manage and oversee the sale of the property on behalf of 155 Ontario, is simply giving effect to the terms of the agreement which the four shareholders/creditors originally entered into.

93Mr. Godard’s position is succinctly set out in paras. 22–24 of the factum filed on behalf of Mr. Valente and Mr. Knapp as follows:

…who better to deal with 155 Ontario’s trustee, in whom the lands have now vested, to propose on behalf of 155 Ontario a scheme for the development and sale of those lands, in a manner that is not only in the best interests of 155 Ontario’s shareholders, but also in the best interests of unsecured creditors?

Additionally, the current proposal has the salutary effect in the public interest of preserving the integrity of the bankruptcy process and complying with the requirements of commercial morality in giving effect to the terms of the purchase agreement.

94In essence, Mr. Godard’s position is that 803’s objection is based on its desire to avoid its obligations under the agreement the shareholders/creditors previously entered into and more specifically, to avoid the agreed upon payment of the management fee to RVIL.

95Furthermore, Mr. Godard points out that 803 Ontario, which he described as a “persistent naysayer”, is entitled to have its interest bought out now pursuant to para. 3.2 of the Proposal. Mr. Godard questions what more could be done to accommodate an objecting creditor other than an offer to pay it out under the most likely result from what the objecting creditor is asking for.

96Mr. Godard emphasizes that the Proposal is clearly made in good faith and the fact that 803 Ontario continues to object speaks to its objection not being in good faith.

97As Mr. Godard points out, under the Proposal according to the cash flows, there is two times the return to creditors and 803 Ontario does not have to fulfil its obligations to provide financing to service the lots (an obligation imposed on 803 Ontario pursuant to the earlier agreement as previously noted).

98As Mr. Godard put it, the proposers will take the risk, put up the initial funds required for servicing, and enhance the potential returns to creditors, as I will more fully elaborate on.

99As the Trustee reported, the Proposal contained an estimated realizable value of the 62 unserviced lots and an estimated realizable value of selling the lots after servicing them in accordance with the Proposal. As Mr. Swift points out, the Proposal forecasts that it would produce twice as much for distribution to creditors than a realization in bankruptcy.

100The Trustee obtained an independent appraisal of the property in both an un-serviced and serviced state and provided a copy of that appraisal as part of its Confidential Supplement.

101The Trustee noted that the purpose of its Confidential Report contained in the Confidential Supplement was to include a comparison of the market value of the 62 unserviced lots with the estimated realization in bankruptcy and the prospective market value of the 62 lots in a serviced state with the estimated realization according to the cash flow schedule submitted with the Proposal.

102As explained in the Confidential Supplement, in order to compare the prospective market value according to the appraisal with the estimated realization set out in the cash flow schedule submitted with the Proposal, the prospective market value according to the appraisal was discounted for the time value of funds generated from sales of the serviced lots during the five year period (the estimated realization in the cash flow schedule to the Proposal did not consider the present value of future net cash flows).

103Considering all of the information provided on this motion, I cannot accept Mr. Van Klink’s assertion that Mr. Valente is putting his interests ahead of all creditors.

104It is true that if the Proposal is refused, RVIL will be paid no management fee and the creditors will receive some payment more quickly than under the Proposal.

105However, if the Proposal is approved, while RVIL will then be paid the management fee, the Proposal forecasts that it would produce twice as much for distribution to creditors than a realization in bankruptcy.

106I have taken into account Mr. Van Klink’s submission on behalf of 803 Ontario that the result of the Proposal depends on the validity of the forecasts and that, under a bankruptcy, monies will be returned to the creditors more quickly.

107In considering the reasonableness issue I have relied on the following:

(i) the independent appraiser reported that the level of demand for the subject land en bloc, and as individual lots is stable and slightly higher than the available supply;

(ii) the independent appraiser reported that the increased demand for residential homes in the Windsor area has been prevalent during 2017;

(iii) the demand for residential homes in the Windsor area is described as strong;

(iv) the independent appraiser opined that “it is my opinion that the supply and demand factors influencing the subject add to its market position. These trends are expected to continue well into 2018”;

(v) the above must be balanced with the fact that within the relevant five-year time frame of the Proposal, economic change could negatively impact that market; however economic change or instability are speculative;

(vi) according to the Proposal the creditors will receive a much higher recovery than what is estimated from a sale of un-serviced lots en bloc;

(vii) an independent appraiser provided validity to the values utilized in the Proposal;

(viii) the Confidential Report of the Trustee compared the net cash generated according to the values provided in the appraisal with the cash flow schedules submitted with the Proposal making appropriate adjustments as described above; and

(ix) the Trustee verified the servicing costs presented in the Proposal with an independent engineer.

108I accept Mr. Swift’s assertion that it is reasonable that 155 Ontario be given a chance to develop the property to create more recovery for creditors over the next five years.

109I am satisfied that the terms of the Proposal are reasonable and are calculated to benefit the general body of creditors. I approve the Proposal.

110I am also satisfied that the Confidential Supplement should be sealed until completion of the sale of the 62 lots in accordance with the Proposal.

111Orders may issue in accordance with these reasons.

“Justice L. C. Leitch” Justice L. C. Leitch