COURT FILE NO. : CV-21-006611458-00CL DATE: 2023-07-17 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ONTARIO SECURITIES COMMISSION Applicant

AND:

BRIDGING FINANCE INC., BRIDGING INCOME FUND LP, BRIDGING MID-MARKET DEBT FUND LP, SB FUND GP INC., BRIDGING FINANCE GP INC., BRIDGING INCOME RSP FUND, BRIDGING MID-MARKET DEBT RSP FUND, BRIDGING PRIVATE DEBT INSTITUTIONAL LP, BRIDGING REAL ESTATE LENDING FUND LP, BRIDGING SMA 1 LP, BRIDGING INFRASTRUCTURE FUND LP, BRIDGING MJ GP INC., BRIDGING INDIGENOUS IMPACT FUND, BRIDGING FERN ALTERNATIVE CREDIT FUND, BRIDGING SMA 2 LP, BRIDGING SMA 2 GP INC., and BRIDGING PRIVATE DEBT INSTITUTIONAL RSP FUND Respondents

BEFORE: Chief Justice Geoffrey B. Morawetz

COUNSEL: John L. Finnigan, Grant Moffat and Adam Driedger , for the Receiver PricewaterhouseCoopers Inc. David Ullman , for Thomas Canning (Maidstone) Limited, William Thomas, Robert Thomas & 2190330 Ontario Ltd. Robert Staley and Mike Shakra , Unitholder Representative Counsel

HEARD: July 17, 2023

Endorsement

[1] The Receiver brings this motion seeking the following orders:

(a) authorizing and directing the Receiver to enter into the AMI SPA and take such steps as are necessary to carry out the AMI Transaction and vesting all of the Receiver’s right, title, and interest in the GFAC Shares held by Bridging in and to the Purchaser thereof on closing of the AMI Transaction free and clear of all encumbrances (the “Approval and Vesting Order”);

(b) authorizing and directing the Receiver, on behalf of BIF, as the sole equity holder of Bottom Line, to enter into the Bottom Line APA and take such steps as are necessary to carry out the Bottom Line Transaction (the “Bottom Line Order”);

(c) sealing from the public record until the closing of the AMI Transaction the unredacted copy of the AMI SPA, to be filed as Confidential Appendix “A” to the Seventeenth Report (the “ AMI Sealing Order ”);

(d) sealing from the public record until closing of the Bottom Line Transaction the unredacted copy of the Bottom Line APA, to be filed as Confidential Appendix “B” to the Seventeenth Report; provided that Schedule 6.3(a) of the Bottom Line APA shall remain sealed until further order of the Court (the “Bottom Line Sealing Order” and together with the AMI Sealing Order, the “Sealing Orders”); and

(e) approving the Sixteenth Report of the Receiver dated April 25, 2023, the Supplement to the Sixteenth Report of the Receiver dated May 4, 2023, and the Seventeenth Report of the Receiver dated July 10, 2023, and the activities, decisions and conduct of the Receiver as set out therein.

[2] The capitalized terms not expressly defined herein are defined, and have the meanings set forth, in the Seventeenth Report of the Receiver dated July 10, 2023 (the “Seventeenth Report”.

[3] There was no opposition to the requested relief. Unitholder Representative Counsel supported the position of the Receiver.

Facts

[4] The facts relevant to this motion are set more fully out at paragraphs 83 to 148 of the Seventeenth Report.

AMI Transaction

[5] AtlantiCann Medical Inc. (“AMI”) is a federally licensed cannabis producer based in Halifax, Nova Scotia. AMI is 100% owned by Growforce AC Holdings Inc. (“GFAC”), a privately held corporation. GFAC is a holding company that was incorporated for the sole purpose of holding the shares of AMI. The issued and outstanding shares of GFAC (collectively, the “GFAC Shares”) are held as follows:

(a) 10.05% by Halef Group Holdings Limited;

(b) 0.5% by Tim Nolan; and

[6] In addition to holding 89.45% of the shares of GFAC, Bridging is a secured creditor of AMI and GFAC. AMI and GFAC have each guaranteed the indebtedness of a Borrower to Bridging and Bridging continues to hold security over all of the assets of AMI and GFAC in respect of such guarantees.

[7] There have been four unsuccessful separate marketing efforts conducted in respect of AMI and GFAC (and/or the interest of Bridging and MJar in AMI and GFAC).

[8] In early 2023, GFAC and the Receiver received various inquiries regarding the opportunity to purchase the AMI business. 15103154 Canada Inc. (the “AMI Purchaser”) submitted a LOI to AMI on March 21, 2023 to purchase 100% of the shares of AMI from GFAC. After preliminary negotiations with AMI and GFAC, the Purchaser submitted a revised LOI on April 27, 2023 and, following further negotiations, it was recommended by the special committee of the board of directors to the shareholders of GFAC and accepted following consultation with the Receiver.

[9] On June 23, 2023, the Receiver (on behalf of Bridging), the Halef Group, and Tim Nolan and the Purchaser entered into a share purchase agreement (the “SPA”) for the purchase of 100% of the GFAC Shares (the “AMI Transaction”).

[10] The SPA has been redacted to preserve the confidentiality of the Purchase Price payable by the Purchaser and other applicable monetary amounts or percentages that reveal the economic terms of the SPA. The Receiver seeks a sealing order in respect of the unredacted SPA, which is time limited to the period up to and including the Closing Date (after which it is contemplated that the unredacted SPA will no longer be sealed and will form part of the public record).

[11] The SPA sets out the terms and conditions pursuant to which the Purchaser will acquire 100% of the GFAC Shares from the Vendors.

[12] The Receiver is satisfied, in its business judgment, that the AMI Transaction represents the highest and best value in the circumstances for the GFAC Shares and is superior to any alternatives, including a liquidation of the assets of AMI. The Receiver consulted with Unitholder Representative Counsel on the AMI Transaction and potential alternatives. Unitholder Representative Counsel supports the AMI Transaction.

Bottom Line Transaction

[13] Pittsburg Bottom Line, LLC (“Bottom Line”) is a Borrower that provides railroad infrastructure services in the Southwestern and Midwestern United States. Bottom Line is an affiliate of Allied, another Bridging Borrower. BIF is the senior secured creditor and sole equity holder of each of Allied and Bottom Line. There have been two separate marketing efforts conducted by the Receiver in respect of Bottom Line. The first effort proved to be unsuccessful.

[14] The deadline for submission of LOIs was February 28, 2023. The Receiver received multiple offers by the bid deadline. The Receiver ultimately identified Martinus North America, Inc. or an affiliate thereof (the “Martinus”) as the successful bidder. Bottom Line and Martinus executed a non-binding LOI on March 13, 2023 (the “Martinus LOI”), which contemplated the sale by Bottom Line of substantially all of its assets to Martinus (or an affiliate) subject to, among other things, completion of due diligence and negotiation of definitive documentation.

[15] The Receiver is satisfied that the Bottom Line APA represents the highest and best offer for the Bottom Line assets and business at this time.

[16] The assets being sold pursuant to the Bottom Line APA are the property of Bottom Line and not Bridging (and therefore do not constitute “Property” over which the Receiver has been appointed). In that regard, there are two key implications that impact the nature of the relief being sought by the Receiver:

(a) first, the Court does not have jurisdiction to vest title to the Bottom Line assets in and to Martinus; and

(b) second, the Appointment Orders do not require the Receiver to obtain Court approval prior to a wholly-owned subsidiary of Bridging selling its own assets, which do not constitute Property. Paragraph 2(k) of the Appointment Orders only requires the Receiver to obtain Court approval prior to selling Property for an amount greater than $250,000.

[17] However, given that the Bottom Line assets are directly tied to the value of the equity interest in Bottom Line held by BIF and the loans made by BIF to Bottom Line (all of which constitute Property), the Receiver is seeking the Court approval to enter into and carry out the terms of the Bottom Line APA. The Receiver consulted with Unitholder Representative Counsel on the Bottom Line Transaction. Unitholder Representative Counsel supports the Bottom Line Transaction.

Issues

[18] The issues on this motion are whether the Court should:

(a) approve the AMI Transaction and grant the proposed Approval and Vesting Order;

(b) authorize and direct the Receiver, on behalf of BIF, as the sole equity holder of Bottom Line, to enter into the Bottom Line APA and carry out the Bottom Line Transaction; and

Approval and Vesting Order for AMI Transaction

[19] It is well-established that where a Court is asked to approve a transaction and grant a sale approval and vesting order in the context of a receivership, the Court should consider the following principles delineated by the Court of Appeal for Ontario in Royal Bank of Canada v. Soundair Corp. (collectively, the “Soundair Principles”):

(a) whether the party made a sufficient effort to obtain the best price and to not act improvidently;

(b) the interests of all parties;

(d) whether the working out of the process was unfair.

[20] Absent clear evidence that a proposed sale is improvident or that there was unfairness in the process, a Court is to grant deference to the recommendation of the Receiver to sell a respondent’s assets. Only in “exceptional circumstances” will a Court intervene and proceed contrary to the recommendation of its officer, the Receiver.

[21] Having reviewed the record and hearing submissions, I am satisfied that the Soundair Principles have been adhered to and that the Approval and Vesting Order should be granted for the following reasons:

(a) In my view, sufficient effort was made to obtain the best price. As noted above, four separate marketing processes were conducted. The consideration that will be received by Bridging under the AMI Transaction is superior to any other offers received as well as the liquidation value of AMI’s assets. The Receiver is of the view that conducting a fresh marketing process for AMI would not be a productive use of Bridging’s resources. Further, closing the AMI Transaction eliminates the risk that Bridging’s investment in AMI, as well as its security position as a secured creditor of AMI, may deteriorate in value.

(b) Further, the interests of all parties have been served. The AMI Transaction represents the best possible outcome in the circumstances for all parties with an economic interest in AMI. The AMI Transaction also provides for the continuation of the AMI business, thus preserving jobs for a number of employees in Nova Scotia as well as value for customers, suppliers, and other parties with whom AMI transacts.

(c) In my view, the sale processes were run with integrity and there was no unfairness. The Receiver is satisfied, in its business judgment, that each sale process described above in respect of GFAC and AMI was conducted in a fair and transparent manner.

Approval Regarding Bottom Line Transaction

[22] The Receiver seeks an order authorizing and directing the Receiver, on behalf of BIF, as the sole equity holder of Bottom Line, to enter into the Bottom Line APA and carry out the Bottom Line Transaction. On that basis, the Receiver has considered the application of the Soundair Principles to the Bottom Line Transaction.

[23] I am satisfied that the Soundair Principles have been adhered to and therefore the Bottom Line Order should be granted for the following reasons:

(a) In my view, sufficient effort was made to obtain the best price. The Receiver is satisfied, in its business judgment, that the Bottom Line Transaction represents the highest and best value for the assets of Bottom Line in the circumstances. It will also eliminate the ongoing requirement of Bridging to fund the Bottom Line business. The consideration that will be received by Bridging under the Bottom Line Transaction is superior to the liquidation value of Bottom Line’s assets. The Receiver is of the view that conducting a fresh marketing process for Bottom Line would not be a productive use of Bridging’s resources.

(b) Further, the interests of all parties have been served. The Bottom Line Transaction maximizes value for all parties with an economic interest in Bottom Line.

(c) In my view, the sale processes were run with integrity and there was no unfairness. The Receiver is satisfied, in its business judgment, that each sale process described above in respect of Bottom Line was conducted in a fair and transparent manner.

(d) There are no exceptional circumstances that would lead this Court to proceed contrary to the recommendation of the Receiver. The Receiver consulted with Representative Counsel on the Bottom Line Transaction and potential alternatives. Representative Counsel supports the Bottom Line Transaction.

Sealing Orders

[24] The Receiver seeks a sealing order in respect of Confidential Appendix “A” and Confidential Appendix “B” to the Seventeenth Report.

[25] Confidential Appendix “A” contains the unredacted AMI SPA. The redacted version of the AMI SPA redacted the purchase price and other applicable monetary amounts or percentages that reveal the economic terms of the AMI Transaction (the “AMI Economic Terms”). The Receiver only seeks to seal the AMI Economic Terms until the closing of the AMI Transaction.

[26] Confidential Appendix “B” contains the unredacted Bottom Line APA. The redacted version of the Bottom Line APA redacted the monetary components of the purchase price (the “Bottom Line Economic Terms”), the list of customer and/or supplier contracts to be assumed by Martinus contained at Schedule 1.5 thereto (the “Third Party Contracts”), and the names and salaries of the employees of Bottom Line to be assumed by Martinus contained at Schedule 6.3(a) thereto (the “Employee Information”). The Receiver only seeks to seal the Bottom Line Economic Terms and the Third Party Contracts until the closing of the Bottom Line Transaction. The Receiver seeks to seal the Employee Information until further order of the Court.

[27] The applicable test for granting a sealing order, as set out by the Supreme Court in Sherman Estate v. Donovan, 2021 SCC 25 at para. 28, is that the person asking a court to exercise discretion in a way that limits the open court presumption must establish that:

(a) court openness poses a serious risk to an important public interest;

(b) the order sought is necessary to prevent this serious risk to the identified interest because reasonably alternative measures will not prevent this risk; and

[28] The Receiver submits that the request for a sealing order in respect of the AMI Economic Terms, the Bottom Line Economic Terms, the Third Party Contracts, and the Employee Information satisfies the Sherman Estate test for the reasons set out below.

[29] The key economic terms of a transaction are routinely sealed until closing on the basis that there is a broader public interest in maintaining the confidentiality of such information. See, for example, U.S. Steel Canada Inc. et al. v. The United Steel Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union et al., 2023 ONSC 2579 at para 54; and American General Life Insurance Company et al. v. Victoria Avenue North Holdings Inc. et al., 2023 ONSC 3322 at para 30.

[30] In the Receiver’s view, disclosure of the AMI Economic Terms and the Bottom Line Economic Terms (together, the “Economic Terms”) would prejudice recoveries for Bridging’s stakeholders in the event that the applicable transactions do not close because the disclosure of such terms would effectively create a ceiling on the amount that a new purchaser would be prepared to pay for the applicable assets or shares.

[31] The Receiver submits that there are no alternatives to sealing the Economic Terms. In terms of proportionality, given that the Sealing Orders in respect of the Economic Terms are time limited to the pre-closing period, the Receiver submits that the limitation on the open court principle is both minimal and justified. The broader public interest in maintaining the confidentiality of economic terms pre-closing and maximizing recoveries for the Bridging stakeholders outweighs the minimal limitation on the open court principle in these circumstances.

[32] The Third Party Contracts are the contracts between Bottom Line and third parties that will be assumed by Martinus on closing. The redacted Schedule 1.5 in the Bottom Line APA, which contains the Third Party Contracts, sets out the name of each contract and the parties thereto. None of the parties involved in the Third Party Contracts are parties to this proceeding.

[33] Disclosing the Third Party Contracts could facilitate efforts by Bottom Line’s competitors to market goods or services to those customers or suppliers, to the detriment of Bottom Line. Similar to the Economic Terms, disclosure of the Third Party Contracts could therefore prejudice recoveries for Bridging’s stakeholders in the event that the Bottom Line Transaction does not close.

[34] Counsel to the Receiver submits that there are no alternatives to sealing the Third Party Contracts. In terms of proportionality, similar to the Economic Terms, given that the Sealing Order in respect of the Third Party Contracts is time limited to the pre-closing period, the Receiver submits that the limitation on the open court principle is minimal in these circumstances and is outweighed by the broader public interest in maximizing recoveries for the Bridging stakeholders.

[35] The Employee Information contains the specific names and salaries (or hourly wages) of each employee of Bottom Line that is to be assumed by Martinus on closing. None of the applicable employees are parties to this proceeding.

[36] Employee names and salaries have been sealed in similar circumstances by the Court in this proceeding Ontario Securities Commission v. Bridging Finance Inc., 2021 ONSC 4347 [Bridging] at paras 25-27, as well as other cases that were also decided after the Supreme Court released its decision in Sherman Estate. (See: Just Energy Group Inc. et al., 2021 ONSC 7630 [Just Energy] at paras 26-29; and PricewaterhouseCoopers Inc. v. MJardin Group, Inc., 2022 ONSC 3603 [MJardin] at paras 13-21.) The overarching principle from these cases is that there is an important public interest in protecting sensitive and personal compensation information of non-party employees that justifies a sealing order in certain circumstances. See for example: Canwest Global Communications Corp., Re, [2009] OJ No 4286 (QL) at para 52; Bridging; Just Energy; and MJardin.

[37] The Receiver submits that the foregoing principles should apply equally to the Employee Information in this case. The Receiver is of the view that the named employees have a reasonable expectation that their names and salaries (or hourly wages for the non-salaried employees) will be kept private, particularly in a proceeding that is entirely unrelated to their employment. Disclosure of the Employee Information may offend applicable privacy legislation or may otherwise give rise to claims against Bottom Line or Bridging by the employees.

[38] The Receiver is of the view that no party will be prejudiced in sealing the Employee Information and the benefits of granting the sealing order outweigh any limited impact on the open court principle. There are no reasonable alternatives in the circumstances.

[39] In the other cases referenced herein in which similar employee information was sealed, the applicable sealing order was to remain in effect pending further order of the Court. The Receiver similarly requests that the Employee Information remain sealed in this case until further order of the Court.

[40] Having reviewed the submissions of the Receiver, and having considered the test set out in Sherman Estate, I am satisfied that, in these circumstances, it is appropriate to grant the sealing orders requested by the Receiver.

Approval of Reports and Activities

[41] Finally, the Receiver requests approval of its Sixteenth Report, the Supplement to the Sixteenth Report and the Seventeenth Report.

[42] The Receiver reports that no adverse comments have been received in respect of the reports.

[43] I am satisfied that these Reports should be approved.

Disposition

[44] The motion is granted and the Orders reflecting the foregoing have been signed.

Chief Justice Geoffrey B. Morawetz Date: July 17, 2023

Ontario Securities Commission v. Bridging Finance Inc., 2023 ONSC 4203

Case Summary