Court File and Parties

COURT FILE NO.: CV-22-687383-00CL; CV-686556-00CL; BK-22-2859284-0032

DATE: 20220923

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

IN THE MATTER of the Interim Receivership of 2806401 Ontario Inc. o/a Allied Track Services Inc.

RE: PricewaterhouseCoopers Inc. in its capacity as Receiver and manager of Bridging Finance Inc. et al v. 2806401 Ontario Inc.

AND:

IN THE MATTER of the Notice of Intention to make a Proposal of 2806041 Ontario Inc.

BEFORE: Osborne J.

COUNSEL: Chris Burr, Interim Receiver Caitlin McIntyre, Interim Receiver Adam Driedger, Bridging Receiver Mitch Vininsky, KSV Restructuring Inc., Interim Receiver Jordan Wong, KSV Restructuring Inc., Interim Receiver Graham Page, Bridging Receiver Demetrios Yiokaris, LIUNA, Ontario Provincial District Council John Birch, Ontario Northland Transportation Commission

HEARD: September 23, 2022

ENDORSEMENT

[1] On September 23, 2022 I made three orders granting the relief requested, together with a brief Endorsement stating that reasons would follow. These are those reasons.

[2] While the nature of the relief sought is, at least in one sense, relatively straightforward, the path to that relief is somewhat non-linear.

The Proceedings

[3] There are three separate proceedings. They all relate to 2806401 Ontario Inc., o/a Allied Track Services Inc. [“Allied Track” or the “Company”].

[4] First, Allied Track filed a Notice of Intention to file a Proposal [“NOI”] on August 25, 2022 on the basis that it was insolvent and lacked the liquidity to carry on its business. KSV was appointed as Proposal Trustee.

[5] Second, after the NOI filing, the Proposal Trustee of Allied Track [KSV] brought an application pursuant to section 47.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B‑3 [the ‘BIA”] seeking the appointment of KSV as Interim Receiver.

[6] Third, PWC, in its capacity as Receiver and Manager of Bridging Finance Inc., the largest secured creditor and sole shareholder of Allied Track, brought an application pursuant to section 243 of the BIA and section 101 of the Courts of Justice Act, R.S.O. 1990 c. C.43 [CJA] seeking the appointment of KSV as Receiver and Manager of Allied Track. This was contemplated at the return of the application of the Proposal Trustee to appoint KSV as Interim Receiver, which appointment was always intended to be temporary.

The Relief Sought Today

[7] Today, before the Court are two motions and one application, in the above-noted three proceedings. The situation is further complicated by the fact that there are two stays of proceedings in effect.

[8] PWC, in the capacity noted above, seeks the order appointing KSV as a receiver of Allied Track which is the subject of the third proceeding noted above. Allied Track, acting through KSV as its Interim Receiver, seeks an order extending the time for Allied Track to file a proposal. Finally, the Interim Receiver seeks an order approving its activities.

[9] I observe two things. First, there is no opposition to the relief sought. Second, Justice McEwen made an order on September 23 just prior to my hearing of these matters transferring the Allied Track proposal proceedings from the Hamilton Court to the Commercial List, with the result that all three proceedings are properly before me today.

[10] In respect of all of the relief sought, and reflected in each of the three orders, I have considered all of the materials before me, including but not limited to the Second Report of KSV as Proposal Trustee and First Report of KSV as Interim Receiver dated September 16, 2022 including the appendices thereto. Terms not defined in this Endorsement have the meaning given to them in those reports [or more accurately, that joint Report].

Appointment of a Receiver

[11] With respect to the application of PWC for the appointment of a Receiver and Manager of Allied Track, I am satisfied that it is just and convenient to appoint a Receiver pursuant to both section 243 of the BIA and section 101 of the CJA. As noted above, this is precisely what was contemplated when the same firm was appointed Interim Receiver on a temporary basis.

[12] In making a determination about whether it is, in the circumstances of a particular case, just and convenient to appoint a receiver, the Court must have regard to all of the circumstances, but in particular the nature of the property, and the rights and interests of all parties in relation thereto. These include the rights of the secured creditor pursuant to its security. [See Bank of Nova Scotia v. Freure Village on the Clair Creek, 1996 CanLII 8258].

[13] Factors considered by courts when determining whether it is just or convenient to appoint a receiver include: the existence of a debt and a default, the quality of the security in issue, the fact that the creditor has a right to appoint a receiver under the loan documentation, the likelihood of maximizing the return to the parties, and the risk to the security holder, among others. See, for example: Central 1 Credit Union v. UM Financial Inc. and UM Capital Inc., [2011 ONSC 5612](https://www.canlii.org/en/on/onsc/doc/2011/2011onsc5612/2011onsc5612.html) (Commercial List) at para [22](https://www.canlii.org/en/on/onsc/doc/2011/2011onsc5612/2011onsc5612.html); RMB Australia Holdings Limited v. Seafield Resources Ltd., [2014 ONSC 5205](https://www.minicounsel.ca/scj/2014/5205) (Commercial List) at para [28](https://www.minicounsel.ca/scj/2014/5205); Bank of Montreal v. Carnival National Leasing Limited and Carnival Automobiles Limited, [2011 ONSC 1007](https://www.canlii.org/en/on/onsc/doc/2011/2011onsc1007/2011onsc1007.html) (Commercial List) at paras [24 and 27](https://www.canlii.org/en/on/onsc/doc/2011/2011onsc1007/2011onsc1007.html) [Carnival Leasing]; and Maple Trade Finance Inc. v. CY Oriental Holdings Ltd., [2009 BCSC 1527](https://www.canlii.org/en/bc/bcsc/doc/2009/2009bcsc1527/2009bcsc1527.html) at para [25]].

[14] Where the rights of the secured creditor include, pursuant to the terms of its security, the right to seek the appointment of a receiver, the burden on the applicant is lessened: while the appointment of a receiver is generally an extraordinary equitable remedy, the courts do not so regard the nature of the remedy where the relevant security permits the appointment and as a result, the applicant is merely seeking to enforce a term of an agreement already made by both parties. See Elleway Acquisitions Ltd. v. Cruise Professionals Ltd., [2013 ONSC 6866](https://www.canlii.org/en/on/onsc/doc/2013/2013onsc6866/2013onsc6866.html) at para. [27]].

[15] It is not necessary for a creditor whose security documentation provides for the appointment of a receiver to demonstrate that it will suffer irreparable harm if the receiver is not appointed. See Carnival Leasing, supra, at paras. [24-28]].

[16] Allied Track is in default of its obligations to Bridging Finance, which is in turn entitled as a term of the credit and security agreements to seek the appointment of a receiver.

[17] The appointment will make the terminated employees of Allied Track eligible for the Wage Earner Protection Program, not available to them in an interim receivership.

[18] On the whole, I am satisfied that the appointment of a receiver would provide for the most efficient and expeditious route to a beneficial resolution or determination of all of the overlapping and related issues.

[19] The proposed receivership terms largely follow the terms of the Model Order adopted by the Commercial List. While not determinative of the matter, this is of assistance. I am satisfied that the terms sought, including but not limited to a charge in favour of the Receiver and borrowing authority, are appropriate. All registered secured parties were served with the motion materials on September 16,2022, and as noted there is no opposition today.

Requirement to Lift Two Stays of Proceedings

[20] However, before a receiver can be appointed in this case, I must address two stays of proceedings in place.

[21] The Interim Receivership Order imposed a stay of proceedings as against Allied Track [see para 9]. A second, separate, stay of proceedings is in place as a result of the NOI proceeding pursuant to section 69(1) of the BIA, effective on the filing of an NOI. It follows that each of these two stays must be lifted, if appropriate, to permit the application for the appointment of a receiver to proceed.

[22] KSV as Interim Receiver consents to the lifting of the stay imposed by the Interim Receivership Order.

[23] KSV in its capacity as Proposal Trustee, however, does not have the ability under the BIA to consent to the lifting of the stay in the proposal proceeding, although it does not object to the lifting of that stay. PWC in its capacity as Receiver of Bridging Finance takes the same position. Moreover, the Proposal Trustee submits that it is just and appropriate for this Court to exercise its discretion under section 69.4 of the BIA to lift the applicable stays of proceedings, to the extent necessary.

[24] Section 69.4 of the BIA provides that a creditor who is affected by the [operation of the stay] may apply to the Court for relief, and the Court may make such a declaration, subject to any qualifications that the Court considers proper, if it is satisfied that the creditor is likely to be materially prejudiced by the continued operation of those sections, or that it is equitable on other grounds to make such a declaration. Accordingly, the lifting of the stay is discretionary.

[25] I am satisfied here for the reasons stated above that the creditors are likely to be materially prejudiced if the stays are not lifted and in addition, it is equitable to lift the stays in these circumstances. This is not the more typical situation where one creditor is seeking to improve its position or priority or otherwise obtain an advantage in terms of recovery over other creditors of an insolvent debtor.

[26] The NOI stay is sought to be lifted only for the purpose of bringing the application to seek the appointment of a Receiver, an independent court officer who is required to carry out its duties for the benefit of all stakeholders. In my view, no party will be prejudiced, as is perhaps reflected at least in part by the fact that there is no opposition to that relief sought today.

[27] The stay imposed by paragraph 9 of the Interim Receivership Order provides that no proceeding against or in respect of Allied Track shall be commenced or continued except with the written consent of the Interim Receiver or leave of the Court. As stated above, the Interim Receiver has confirmed its consent to the lifting of that stay.

Extension of Time to File a Proposal

[28] With respect to the requested extension of the deadline to file a proposal, the Interim Receiver seeks a 45 day extension to November 8, 2022.

[29] The Interim Receiver relies on section 183(1) of the BIA as a basis for the extension sought, as an exercise of jurisdiction in a proposal proceeding, wherever commenced. I pause to observe that, as noted above, the proposal proceeding was originally commenced in Hamilton and has now been transferred to the Commercial List.

[30] Section 183(1) invests this Court with such jurisdiction at law and in equity as will enable it to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by the BIA.

[31] More particularly, section 50.4(9) of the BIA provides that the Court may grant an extension or further extension not exceeding 45 days for any individual extension or five months in the aggregate following the expiry of the original 30 day period, where the Court is satisfied that the insolvent person has acted, and is acting, in good faith and with due diligence, would likely be able to make a viable proposal if the extension being applied for was granted, and no creditor would be materially prejudiced if the extension being applied for was granted.

[32] I am satisfied that Allied Track has been acting in good faith and with due diligence.

[33] It is unclear today whether a viable proposal will emerge if the extension is granted. What is clear is that if the extension is not granted, the bankruptcy of Allied Track will be automatic as a result of its having failed to file a proposal by the current deadline of September 24, 2022, with the result that the possibility of a viable proposal will have been eliminated entirely.

[34] Moreover, in this particular case, the creditors in the aggregate would not be prejudiced by the extension. There is in fact a risk that the creditors could be prejudiced if the deadline were not extended. The Interim Receiver is projected, according to the cash flow statements, to have sufficient funding to pay for post-filing services and supplies through the extension period. The Superintendent was served with the motion materials and does not oppose the relief sought.

[35] It will allow the company the additional time it requires to advance the restructuring process and complete the work under the Close Out Agreement, which is in the interest of all stakeholders.

[36] The Close Out Agreement is discussed at section 4.0 of the First Report of the Interim Receiver. It is designed to allow Allied Track to recover on outstanding accounts receivable and WIP owing by Canadian Pacific, from which a significant proportion of the Company’s revenue is derived.

[37] More generally, the extension will provide stability and the avoidance of disruption and the consequent deemed bankruptcy with all of the steps and events that a deemed bankruptcy would trigger.

[38] On the whole, section 50.4(9) is intended to permit the insolvent person to continue efforts as part of an overall attempt to maximize the chances of a viable proposal for the benefit of all stakeholders. The provision includes the express dual requirements of good faith and due diligence. The conditions required to be satisfied are directed towards ensuring that an insolvent person cannot delay the inevitable and/or otherwise prejudice the creditors, by simply extending the time for filing a proposal.

[39] The burden of proof is on the debtor to show on a balance of probabilities that an extension is justified and that it meets this test.

[40] Here, I am satisfied as stated above that potential prejudice to the creditors would in fact be more likely if the extension were not granted, and no creditor opposes the extension.

[41] I am satisfied that the extension should be granted pursuant to section 50.4(9).

Approval of Activities

[42] Finally, the Interim Receiver seeks approval of its activities as set out in the First Report for the period from September 6 to September 16, 2022. The activities are largely set out at section 6.0 of the First Report of the Interim Receiver.

[43] Approval of the activities is not opposed. The activities undertaken were appropriate and are approved for the period between September 6 and September 16, 2022, provided, however, that only the Interim Receiver, in its personal capacity and only with respect to its own personal liability, shall be entitled to rely upon or utilize in any way such approval.

Orders

[44] For the reasons set out above, orders to go in the form signed by me on September 23, 2022. The orders are effective immediately without the necessity of issuing and entering.

Osborne, J.

Date: September 23, 2022