Court File and Parties

Court File No.: CV-22-31327 Date: 2023-10-26 Ontario Superior Court of Justice

BETWEEN:

Xquisite Capital Corp. Applicant – and – Crystal Farms Limited, James Gerald Tatomir, Krystal Martens and Millie Ann Barberio Respondents – and – MNP Ltd., in its capacity as court-appointed receiver of Crystal Farms Limited

Counsel: Millie Anne Barberio, Present in Person Tony Van Klink

HEARD: October 17, 2023 Decision Released: October 19, 2023, with reasons to follow.

Reasons for Decision

Macfarlane J.

Introduction

[1] On October 19, 2023, I released the endorsement attached as Schedule “A” to these reasons, with reasons to follow. These are those reasons.

Factual Background

[2] The relevant facts are set forth in the Third Report to the Court (the “Third Report”) submitted by MNP Ltd. (the “Receiver”) in its capacity as court-appointed receiver of Crystal Farms Limited (the “Debtor”), and can be summarized briefly as follows:

a) The Debtor owned (legally and/or beneficially) several pieces of real property from which it operated its freight, logistics, and farming business managed by its principal, Millie Ann Barberio (“Ms. Barberio”);

b) The Debtor became insolvent, and on November 30, 2022, an order was issued by the court appointing the Receiver (the “Appointment Order”);

c) On March 28, 2023, the court approved a sale process for the real property of the Debtor and certain farm machinery/equipment (the “Sale Process Order”);

d) On May 30, 2023, the court granted an approval and vesting order with respect to the sale of a piece of real property known as “Parcel 5” and a John Deere tractor (the “May 30 Order”);

e) The Receiver completed the sale pursuant to the May 30 Order, and deposited net sale proceeds of $1,502,600 into its trust account;

f) The Receiver undertook various activities in relation to the administration of the Debtor’s estate, including the marketing of two pieces of real property known as “Parcel 3” and “Parcel 4”, pursuant to the sale process that had been approved in the Sale Process Order; and,

g) The Receiver received various offers during the course of the sale process and finally entered into agreements to sell Parcel 3 (agreement dated September 8, 2023) (the “Parcel 3 Transaction”) and Parcel 4 (agreement dated August 4, 2023) (the “Parcel 4 Transaction”) to Byrne Farms Ltd. (“Byrne Farmes”) that were both conditional upon the Receiver applying for and receiving an approval and vesting order to complete each transaction, and were scheduled to close on October 27, 2023.

[3] Prior to entering into the agreements underlying the Parcel 3 Transaction and the Parcel 4 Transaction, the Receiver attempted to solicit offers for those lands from a public body which owns nearby lands. The Receiver was advised by that public body that it was not in a position to make an offer due to not having completed its mandatory procurement processes. Details of this and full details of all offers and negotiations were set out in the Confidential Supplement to the Third Report dated October 11, 2023 (the “Confidential Supplement”), which was provided to me prior to the hearing and which is presently subject to a sealing order.

[4] The Receiver brought its motion returnable October 17, 2023, for approval and vesting orders with respect to the Parcel 3 Transaction and the Parcel 4 Transaction, and an ancillary order providing for approval of the Receiver’s conduct and fees, and the fees of its counsel, as well as for sealing of the Confidential Supplement and distribution of proceeds once the Parcel 3 Transaction and Parcel 4 Transaction had closed. The Receiver had also advised that after the completion of the Parcel 3 Transaction and the Parcel 4 Transaction, the Debtor intended to make a Division 1 Proposal to its unsecured creditors. It was anticipated that after payment of the costs of the receivership, Canada Revenue Agency in respect of its deemed trust claim, and all secured creditors, there would be funds remaining in the hands of the Receiver that could be paid to a proposal trustee.

The Hearing of the Motion and the Second Confidential Supplement

[5] At the hearing on October 17, 2023, Rob Smith from the Receiver and his counsel, Tony Van Klink, were present, along with Ms. Barberio. Mr. Van Klink advised that late the previous afternoon, the third party that had expressed some interest in the properties had made offers to purchase both Parcel 3 and Parcel 4 (the “Third Party Offers”). The Third Party Offers offered prices that were respectively $20,000 and $50,000 more than the Parcel 3 Transaction and the Parcel 4 Transaction.

[6] The Receiver maintained its recommendation that the Parcel 3 Transaction and the Parcel 4 Transaction be approved. Ms. Barberio made submissions that the sale process should be reopened, and that perhaps an auction sale could be conducted.

[7] In light of the new information, I directed the Receiver to file a second confidential supplement (the “Second Confidential Supplement”) as soon as possible to provide copies of the Third Party Offers and the Receiver’s specific comments and recommendations that arose out of those offers, so that I could consider those in light of Ms. Barberio’s submissions.

[8] I received and considered the Second Confidential Supplement dated October 17, 2023, and granted the approval and vesting orders (for the Parcel 3 Transaction and the Parcel 4 Transaction) and the ancillary order, subject only to a delay of the closing of the transactions to October 31, 2023.

[9] From the Third Report, it is obvious without consideration of the specific terms of the Parcel 3 Transaction and the Parcel 4 Transaction that the proceeds of the two sales amount to several million dollars. Based upon the funds held by the Receiver as set out in the Third Report ($1,757,067), and the payment of fees of the Receiver and its counsel and distributions to creditors sought to be approved (about $5 million), the net proceeds of the two sales must be in excess of $3 million. This can all be gleaned from the non-sealed documents filed by the Receiver.

[10] The Third Party Offers might amount to $70,000 more in sale proceeds (which is only 2.3% of $3 million), but the offers are also subject to many conditions that might never be fulfilled. Although the details of the Third Party Offers are subject to a sealing order for the time being, I have reviewed them and find that notwithstanding the slightly higher price in the Third Party Offers, the other conditions contained in them are significant, and the Parcel 3 Transaction and the Parcel 4 Transaction are in fact superior to the Third Party Offers.

[11] In the Third Report, the Receiver stated its opinion, from which it has not wavered:

Parcel 3 and Parcel 4 were marketed in accordance with the Sale Process Order. It is the Receiver’s view that both parcels have been properly exposed to the market and completing the Parcel 3 Transaction and the Parcel 4 Transaction will optimize the recovery from each parcel. [1]

Law and Analysis

[12] In two separate 2012 decisions of this court, Justices Morawetz [2] and D.M. Brown [3] (as they then were) had occasion to consider the sale approval recommendations of court officers in receivership proceedings when a late-delivered, potentially more favourable, offer had been received. Both of those decisions made extensive reference to the well-known principles arising from the Ontario Court of Appeal’s decision in Royal Bank of Canada v. Soundair Corp. [4], which has long established the duties of a court when considering a receiver’s request to approve the sale of an asset:

A court must consider and determine (a) whether the receiver has made a sufficient effort to get the best price and has not acted improvidently, (b) the interests of the parties, (c) the efficacy and integrity of the process by which offers were obtained, and (d) whether there had been unfairness in the working out of the process. [5]

[13] In Terrace Bay [6], the court was faced with an offer presented after a deadline for offers had passed, that appeared to be some $8 million more favourable than the offer for which the company and monitor were seeking approval. The court in Bridlewood [7] later summarized the approach taken by Morawetz J. as follows:

[32] The approach this Court takes to the consideration of post-bid deadline offers was reviewed by Morawetz J. in Re Terrace Bay Pulp Inc. Although in that case the offers arose in the context of a sale in a Companies’ Creditors Arrangements Act proceeding, the principles apply equally to a receiver’s sale. In Terrace Bay Pulp the applicant corporation, with the concurrence of the Monitor, sought approval of an asset sale at an effective price of $27 million. After the expiry of the bid deadline, the company received an offer from another party for an effective price of $35 million.

[33] In approving the recommended pre-deadline transaction, Morawetz J. re-iterated three basic points found in the jurisprudence. First, when determining the providence of a receiver’s sale conduct, the court should examine the receiver’s acts in light of the information it possessed when it agreed to accept an offer.

[34] Second, under Soundair, prices in post-deadline offers are relevant only to the extent they show that the price contained in the recommended offer “was so unreasonably low as to demonstrate that the receiver was improvident in accepting it”.

[35] Third, if they do not tend to show that the receiver was improvident, then the post-deadline offers “should not be considered upon a motion to confirm a sale recommended by a court-appointed receiver”. As Galligan J.A. stated in Soundair:

If they were, the process would be changed from a sale by a receiver, subject to court approval, into an auction conducted by the court at the time approval is sought. In my opinion, the latter course is unfair to the person who has entered bona fide into an agreement with the receiver, can only lead to chaos, and must be discouraged.

If, however, the subsequent offer is so substantially higher than the sale recommended by the receiver, then it may be that the receiver has not conducted the sale properly. In such circumstances, the court would be justified itself in entering into the sale process by considering competitive bids. However, I think that that process should be entered into only if the court is satisfied that the receiver has not properly conducted the sale which it has recommended to the court.

[36] Notwithstanding the $8 million difference in effective prices between the two bids in Terrace Bay Pulp, Morawetz J. concluded:

In my view, based on the information available at the time the Purchaser’s offer was accepted, including the risks associated with a Tangshan non-binding offer at that point in time, the consideration in the Transaction is not so unreasonably low so as to warrant the court entering into the Sales Process by considering competitive bids. I have considered the situation facing the Monitor at the time that it accepted the offer of the Purchaser and I have also taken into account the terms of the Late Offer. Although it is higher than the Purchaser’s offer, the increase is not such that I would consider the accepted Transaction to be improvident in the circumstances. [8] [Emphasis added]

[14] In both Terrace Bay [9] and Bridlewood [10], the court found that the transaction propounded by the court officer should be approved.

[15] In the present case, there is no suggestion that the Receiver has acted improvidently, and applying the Soundair [11] principles, I find specifically that:

1. The Receiver has made a sufficient effort to get the best price and has not acted improvidently;
2. The Parcel 3 Transaction and the Parcel 4 Transaction are in the best interests of all of the stakeholders;
3. The Receiver acted with efficiency and integrity in following the court-approved sale process to obtain the offers it received for both Parcel 3 and Parcel 4; and,
4. There has been no unfairness in the working out of the process.

[16] Ms. Barberio did not file any material in response to the Receiver’s motion but did attend at the hearing and suggest that the fact that a Third Party Offer had been received indicated that a further competitive bid process, such as an auction, would be appropriate. This is specifically what Galligan J.A. warned against in Soundair [12], when he stated:

What those cases show is that the prices in other offers have relevance only if they show that the price contained in the offer accepted by the receiver was so unreasonably low as to demonstrate that the receiver was improvident in accepting it. I am of the opinion, therefore, that if they do not tend to show that the receiver was improvident, they should not be considered upon a motion to confirm a sale recommended by a court-appointed receiver. If they were, the process would be changed from a sale by a receiver, subject to court approval, into an auction conducted by the court at the time approval is sought. In my opinion, the latter course is unfair to the person who has entered bona fide into an agreement with the receiver, can only lead to chaos, and must be discouraged.

If, however, the subsequent offer is so substantially higher than the sale recommended by the receiver, then it may be that the receiver has not conducted the sale properly. In such circumstances, the court would be justified itself in entering into the sale process by considering competitive bids. However, I think that that process should be entered into only if the court is satisfied that the receiver has not properly conducted the sale which it has recommended to the court. [12]

[17] As may be seen from all of the case cited, this court places heavy reliance on appointed officers of the court, such as monitors and receivers, to use their judgment and expertise to make recommendations in the context of insolvency processes. It is only in the clearest of cases and on the basis of sound evidence that the court should even consider diverging from the course recommended by a receiver, and in this case, the Third Party Offers do not amount to such evidence.

Motion granted.

Original Signed by “Justice J.R. Macfarlane” J. Ross Macfarlane Justice

Released: October 26, 2023

Schedule 'A' - Endorsement Sheet

Court File Number: CV-22-31327

SUPERIOR COURT OF JUSTICE 245 WINDSOR AVENUE WINDSOR, ONTARIO N9A 1J2

Date: 2023-10-19 Judge: Justice J. Ross Macfarlane

Applicant/Plaintiff: XQUISITE CAPITAL CORP. Present Counsel: Present

Respondent/Defendant: X Present Counsel: Present

Other Parties: MNP LIMITED, COURT-APPOINTED RECEIVER OF CRYSTAL FARMS LIMITED (the “Receiver”) X Present Counsel: Tony Van Klink X Present

□ Order to go in accordance with the consent filed. □ The order is granted as requested or as modified below. X Order to go as follows:

[1] This motion by the Receiver was heard on October 17, 2023. The Receiver was seeking, inter alia, orders approving the sale of two of the Debtor’s real properties, which had been sold following a court-approved sale process.

[2] Literally on the eve of the hearing, a third party made conditional offers to purchase the real properties at a slightly higher price than the prices set out in the agreements for which approval was being sought. Ms. Barberio attended at the hearing on behalf of the Debtor, and sought to re-open the sale process, suggesting that there could be an auction.

[3] Notwithstanding the new conditional offers received, the Receiver continues to seek approval of the agreements already in place. At the hearing, I reserved my decision and directed the Receiver to complete a new confidential supplement to its third report (the “Second Supplement”), to include copies of the new offers and the Receiver’s comments and recommendations to the court in connection herewith. The Second Supplement is dated October 17, 2023, and I have received and reviewed it. The transactions are scheduled to close on October 27, 2023.

[4] For reasons to follow, I grant the orders sought by the Receiver, and direct that the transactions be completed no earlier than October 31, 2023, to allow for the appeal period in section 31(1) of the Bankruptcy and Insolvency General Rules, C.R.C., c. 368 as am., to pass. Counsel for the Receiver shall revise the three (3) draft orders to contain the date of this endorsement; to include the direction with respect to completion of the transactions in each of the approval and vesting orders; and to make reference to the Second Supplement, both in the recitals and in the sealing order sought. Approval of the form of the orders is dispensed with. Counsel for the Receiver shall provide a copy of this endorsement to the service list upon receipt, and forward the revised draft orders to the court to my attention for review and signature.

[5] I will provide reasons in due course, but should further directions be required, counsel may schedule a case conference with me through the Trial Coordinator’s office.

Original Signed by “Justice J.R. Macfarlane” J. Ross Macfarlane Justice