Court File and Parties

COURT FILE NOS.: CV-21-00655373-00CL/BK-21-02734090-0031, CV-21-00661386-00CL & CV-21-00661530-00CL DATE: 20210811

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED

AND: IN THE MATTER OF THE NOTICES OF INTENTION TO MAKE A PROPOSAL OF YG LIMITED PARTNERSHIP AND YSL RESIDENCES

APPLICATION UNDER THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED

AND RE: 2504670 CANADA INC., 8451761 CANADA INC. and CHI LONG INC., Applicants and CRESFORD CAPITAL CORPORATION, YSL RESIDENCES INC, 9615334 CANADA INC., YG LIMITED PARTNERSHIP and DANIEL CASEY, Respondents

AND RE: 2583019 ONTARIO INCORPORATED as general partner of YONGESL INVESTMENT LIMITED PARTNERSHIP, 2124093 ONTARIO INC., SIXONE INVESTMENT LTD., E&B INVESTMENT CORPORATION and TAIHE INTERNATIONAL GROUP INC., Applicants and 9615334 CANADA INC. as general partner of YG LIMITED PARTNERSHIP and YSL RESIDENCES INC., Respondents

BEFORE: S.F. Dunphy J.

COUNSEL: Harry Fogul and Miranda Spence, for YG Limited Partnership and YSL Residences Inc. Shaun Laubman and Sapna Thakker, for 2504670 Canada Inc., 8451761 Canada Inc., and Chi Long Inc. Alexander Soutter, for YongeSL Investment Limited Partnership, 2124093 Ontario Inc., SixOne Investment Ltd., E&B Investment Corporation, and TaiHe International Group Inc. David Gruber, Jesse Mighton, and Benjamin Reedijk, for Concord Properties Developments Corp. and its affiliates Jane Dietrich and Michael Wunder, for 2292912 Ontario Inc. and Timbercreek Mortgage Servicing Inc. Robin B. Schwill, for KSV Restructuring Inc. in its capacity as the proposal trustee Roger Gillot and Justin Kanji, for Kohn Pedersen Fox Associates PC Reuben S. Botnick, for Royal Excavating & Grading Limited COB as Michael Bros. Excavation Jamie Gibson, for Sarven Cicekian, Mike Catsiliras, Ryan Millar and Marco Mancuso Brendan Bowles, for GFL Infrastructure Group Inc. Mark Dunn, for Maria Athanasoulis James MacLellan and Jonathan Rosenstein, for Westmount Guarantee Services Inc. Albert Engle, for Priestly Demolition Inc.

REASONS FOR DECISION - COSTS

[1] On July 16, 2021, I signed an order approving “Amended Proposal #3” made by the debtors. Pursuant to paragraph 37 of the reasons for decision delivered that day, I reserved the matter of costs to be addressed by submissions in writing. The two limited partner applicant groups in the civil proceedings (who appeared also in the bankruptcy hearings) delivered outlines of costs and written submissions justifying their requests to be awarded costs. The debtors and the Proposal Sponsor for their part filed written submissions urging me to reject those two requests. No other party has requested costs.

[2] This case presented with a number of unusual features although, to be fair, no two restructuring transactions are ever truly alike and all of them present with wrinkles, warts and their own complexities. The history of this proceeding is summarized in my prior rulings which are available online and I shall not repeat that history here.

[3] The bottom line is that I found the jurisdictional prerequisites to approve the Amended Proposal #3 to be present and I was satisfied that such amended proposal fully satisfied the statutory and common law requirements for approval. There was considerable improvement of the business terms of the proposal from its initial form to the form in which it was finally approved by me on July 16, 2021. The revisions have resulted in a very high level of probability that unsecured creditors will be paid in full instead of being restricted to $0.58 per dollar of claim value. They have also converted a faint hope of some return on their investment to the limited partners into something like a strong probability of a return of substantially all of their capital and possibly even some amount beyond.

[4] One could debate for a very long time whether these improvements came at the expense of the Proposal Sponsor. The Proposal Sponsor ended up with a lower aggregate potential payment but also avoided the risk of having to pay $0.58 per dollar for substantial related party claims by having an earlier ruling on that contingent issue. The plan improved for two stakeholder groups (unsecured creditors and limited partnership unitholders) and was arguably worse for related party claimants depending upon how one examines the question.

[5] It is clear that the interventions of the two limited partner groups have played a very substantial role in securing those improvements – improvements that have benefitted the unsecured creditors generally but also the class of equity investors holding limited partnership units as well. In that business sense the two limited partner groups have certainly had a degree of success. Further, a critical element of the path to securing that business success lay in persuading the court of certain claims advanced in their civil proceedings. They set out to demonstrate that the road leading to the initial proposal was tainted by the attempts of the general partner to advance the interests of related parties at the expense of the limited partner unitholders. They had some success in demonstrating this.

[6] It is also true, as the debtors and the Proposal Sponsor point out, that the limited partner groups have secured relatively few of the tangible goals set forth in their respective civil applications. The general partner was not found to have forfeited that status prior to filing the NOI, the NOI was found to have been validly filed and the debtors were found to be truly insolvent. Neither the declarations sought nor the relief of appointing a receiver was granted. The Proposal was ultimately approved over their opposition.

[7] There is a practice in our Commercial Court of not awarding costs in restructuring matters – be they under the CCAA or under the BIA – except in relatively narrow circumstances. There are multiple reasons for that practice.

[8] Restructuring litigation is quintessentially “real-time litigation”. It takes place in tight time-lines often with very large stakes. It relies on the integrity of the professionals involved and on the application by all of them of the “three C’s” of the Commercial List: cooperation, communication and common sense. Diverting scarce court time and resources to side-battles about costs is distracting and seldom productive.

[9] More importantly, the process is not a classic adversarial civil proceeding. The procedure is not primarily aimed at finding who is right and who is wrong. Many if not most of the stakeholders are involuntary participants. They did not ask for their debtor to become insolvent. They and all other stakeholders are ultimately reacting to a restructuring process made available to debtors by Parliament. The process is one whose very existence and proper unfolding is in the public interest. The process benefits from having a forum for stakeholder views to be brought forward, considered and taken into account in moving from the first steps in the process to its conclusion as swiftly and economically as possible. In most cases, the risks of deterioration of value are significant and grow with time. Unlike fine wines, restructuring transactions seldom improve with age. There is a very real risk that the process would suffer from costs being used as a form of sanction to discourage stakeholders from bringing their perspectives to the fore.

[10] The common thread in these cases is usually the common desire to maximize outcomes for as many stakeholder groups as can reasonably be accommodated consistent with the various public policy and statutory requirements that must be considered. Regardless of the outcome on a particular issue, the goal is that as many stakeholders as possible are able to “win” as much as reasonably possible by reason of a fairly conducted process.

[11] This is ultimately what happened here. Various stakeholders brought their divergent perspectives to the fore and these were taken into account as the debtors moved from the initial filing of a Notice of Intention through the filing of an initial Proposal, the holding of a meeting to vote upon that proposal and then hearings to consider whether to approve it in its original form or as subsequently amended in accordance with its terms. The result was a greatly improved Proposal that benefitted secured and unsecured creditors as well as equity holders.

[12] At no point in the process have I questioned the good faith or propriety of the actions of the Proposal Sponsor. The Proposal Sponsor was a third party who was invited to consider a commercial opportunity and did so. It had the institutional stomach for enduring the rough and tumble dynamic of a restructuring process whose uncertain course would deter many less steady hands. The process ultimately benefitted from the involvement of the Proposal Sponsor.

[13] There is nothing in the behaviour of the Proposal Sponsor during the unfolding of this process that warrants sanction or punishment of some kind. While it is true that I disregarded a late-breaking affidavit filed by the Proposal Sponsor at a single hearing, that was a discrete event affecting one part only of the process as it unfolded in real time. The sanction of disregarding the affidavit was adequate and neither called nor calls for anything beyond that. The Proposal Sponsor has itself been successful in obtaining what it wanted in a time frame it was prepared to tolerate and on terms that benefitted the broad classes of stakeholders necessary to secure court approval.

[14] While I have questioned aspects of the behaviour of the general partner in the process leading up to the filing of the NOI and Proposal, there is nothing in the manner in which the bankruptcy process itself unfolded thereafter that attracts special sanction or attention. The process was ultimately successful in that the Proposal was finally approved with the benefits noted for the unsecured creditors.

[15] At the end of the day the system worked. Stakeholder interests were brought forward and accommodated as far as could reasonably be done in a manner that secured Parliament’s ultimate goals.

[16] I referred earlier to the practice of the Commercial Court in relation to costs. I do not wish to be taken as establishing this as a hard and fast rule or creating some sort of de facto onus on a party claiming costs that must be overcome. Costs are a matter of discretion and it would be wrong for me to fetter my discretion in advance. Nevertheless, it is useful to examine particular cases in light both of precedent and a consideration of the reasons underlying those established practices.

[17] In my view, this is not a case where a departure from the common practice in the Commercial List of having each party bear its own costs is appropriate. The common sense policy considerations that have led to the practice I have referred to appear to me to be quite strongly applicable here.

[18] I would not make any order as to costs of the bankruptcy proceeding.

[19] In so ruling, it must be understood that my order applies only to the bankruptcy proceedings notwithstanding the triple style of cause that has been used in the proceedings before me since June. While the two civil proceedings are largely if not completely moot at this point, it remains likely that there will be funds available at the end of the day to flow back to the limited partnership after the Proposal is performed in full.

[20] The costs of the two civil proceedings – including those incurred in June and July under the triple style of cause – may be addressed by negotiation or in those proceedings as and when proceeds are ready to flow back to the partnership following the full implementation of the Proposal.

[21] However, it should be clear that those costs will not be costs of the bankruptcy itself but should be considered as effectively an internal matter going to priority of payments as between parties who were and are equity claimants in the bankruptcy process and solely in relation to the funds flowing back to the partnership following implementation of the Proposal.

[22] I am not seized of the two civil proceedings if they are to be brought back on to deal with their merits as to any matter not already decided. If and only if the parties are unable to come to an agreement on how to deal with the costs of those proceedings in the context of distributing funds flowing back to the partnership under the Proposal, I shall deal with those costs at that time. Should this narrow question arise and require determination, it will be dealt with in writing and arrangements to do so will be made through the Commercial List office.

S.F. Dunphy J.

Date: August 11, 2021