Court File and Parties

COURT FILE NO.: CV-23-00695725-00CL DATE: 20240322 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST

IN THE MATTER OF SECTION 243(1) OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, C. B-3, AS AMENDED, AND SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O 1990 C. C.43, AS AMENDED

RE: Canadian Western Bank, Applicant AND: 2563773 Ontario Inc., Respondent

BEFORE: Peter J. Osborne J.

COUNSEL: Timothy Hogan, Counsel for the Receiver, PricewaterhouseCoopers Inc. Gary Caplan and Derek Ketelaars, Counsel for the Debtor, 2563773 Ont. Inc. Lisa Corne, Counsel for Canadian Western Bank

HEARD: March 22, 2024

Endorsement

[1] PricewaterhouseCoopers Inc. (“PWC”), in its capacity as the Court-appointed Receiver of 2563773 Ontario Inc. (“the Debtor”), seeks the following relief:

a. an approval and vesting order approving Transaction contemplated by the asset purchase agreement (“APA”) as fully described in the Second Report of the Receiver dated March 12, 2024 and the Confidential Third Report, for the sale of the Purchased Assets and vesting all right, title and interest in and to the Purchased Assets of the Debtor, free and clear of any encumbrances; and

b. an Ancillary Order:

i.  approving the Second Report and the Confidential Third Report and the activities of the Receiver described therein;
ii. approving the Receiver’s Interim Statement of Receipts and Disbursements;
iii. sealing the Confidential Third Report until completion of the APA or further order of this Court; and
iv. and approving the fees and disbursements of the Receiver and its counsel and authorizing payment of same.

[2] Defined terms in this Endorsement have the meaning given to them in the motion materials and in particular the Second Report unless otherwise stated.

[3] The Service List has been served with the motion materials. The Affidavit of Service of Ms. Emma Benaway sworn March 12, 2024 confirms that the Service List attached thereto at Schedule “A” was served on March 12, 2024. For greater certainty, I observe that the Service List includes the Debtor, its individual principals who are also guarantors of the indebtedness of the Debtor, the proposed purchaser as further described below, and counsel for 1000788810 Ontario Inc. (“810”), an unsuccessful bidder also further described below.

[4] The relief sought today by the Receiver was proceeding on an unopposed basis, at least until earlier this morning. It is strongly supported by CWB. At the hearing of the motion, counsel for 810 requested an adjournment as further discussed below.

[5] The Applicant, Canadian Western Bank (“CWB”) is a secured creditor of the Debtor owed approximately $11 million, on which outstanding indebtedness interest continues to accrue. The Receiver was appointed by order dated August 18, 2023. The Debtor owns a Property in London, Ontario, which consists of a 10 storey, 109 room hotel.

[6] Since its appointment, and in particular since the activities described in the First Report, the Receiver has carried out the Sales Process, managed the Property and the business of the Debtor and otherwise conducted the Receivership in accordance with its mandate.

[7] I approved the Sales Process on November 15, 2023. It was subsequently completed by the Receiver, resulting in 10 offers being received, the particulars of which are described in the Confidential Third Report.

[8] The Receiver, in consultation with Colliers and CWB, determined that the APA would result in the best recovery for stakeholders of the Debtor’s estate. The details of the APA are fully set out in the Second Report. In summary:

a. the Sales Process was approved by this Court for the reasons set out in my earlier Endorsement; b. the APA was the highest unconditional offer, not subject to financing; c. the APA provides certainty as to realizations, subject to the terms of the APA; d. the APA eliminates any future risk to the Receiver related to market conditions; e. the purchaser under the APA wants to close the Transaction as soon as possible which is beneficial to the stakeholders of the estate of the Debtor; and f. the APA is fully supported by CWB as the senior secured creditor.

[9] The Receiver submits that the APA represents a commercially reasonable transaction which will maximize the recovery and is in the best interests of all stakeholders and it seeks approval today of the APA and the Transaction contemplated therein.

[10] CWB, as the senior secured creditor, supports the approval sought today. In submissions, counsel for CWB noted that the Transaction could very well still represent a shortfall in recovery for CWB, but in all the circumstances, strongly supports approval.

[11] As noted at the outset of this Endorsement, it was expected that this motion would proceed on an unopposed basis today.

[12] No party has filed any responding materials, let alone materials or even a factum opposing the relief sought.

[13] Today, however, counsel for the Debtor appears to seek an adjournment of the motion. Mr. Caplan was fair, objective and he demonstrated candour and transparency as is expected of an officer of the Court. He acknowledged that the Debtor had not filed responding materials in opposition to approval of the APA and the Transaction, and indeed had apparently confirmed in writing to the Receiver that it would not oppose the relief sought.

[14] However, counsel received instructions early this morning to attend and make submissions in support of an adjournment request. I agreed to hear those submissions in the circumstances.

[15] The Debtor requests an adjournment, even for a few days or a week, in order to permit one of the unsuccessful bidders, 810, to attempt to firm up a financing commitment in order that it could improve its offer for consideration by the Receiver.

[16] Mr. Caplan submits that there is no prejudice to the Receiver or the senior secured creditor by the adjournment for such a short period of time.

[17] The Receiver and CWB oppose the adjournment request.

[18] I declined the request for an adjournment, and approved the APA and the Transaction.

[19] Some context is in order, although I am mindful of maintaining the integrity of the Sales Process, which is also the rationale for the proposed sealing order in respect of the Confidential Third Report which contains summaries of all of the offers received by the Receiver and information related thereto.

[20] As stated above, the motion materials were served well in time, 10 days ago. All of the Debtor, its principals (the guarantors under the CWB debt) and 810 are on the Service List and received the materials.

[21] None has filed any responding materials, and 810 has not appeared today in Court even to make submissions in the absence of a responding record.

[22] 810 was, as noted above, an unsuccessful bidder who submitted one of the offers to the Receiver as summarized in the Confidential Third Report. The Receiver, in consultation with Colliers and CWB, preferred the bid of the proposed purchaser in respect of which approval is sought today, over the bid of 810 notwithstanding that the bid of 810 was for a significantly higher purchase price. In the circumstances, I have consciously been no more specific than that.

[23] As set out in the Second Report and in submissions today, the Receiver did not prefer the bid of 810 for a number of reasons, including that while the proposed purchase price was higher than the bid that was ultimately selected as the Successful Bid (and indeed was materially higher than any other offer received by the Receiver), there was significant transactional risk and a lack of certainty as to the necessary financing and therefore closing of the Transaction itself.

[24] Initially, the deposit was not paid by the required date, although it was delivered late. Moreover, while the draft agreement of purchase and sale included a firm closing date comparable to the closing date in other bids, the offer was expressly conditional on financing, and the financing commitment provided did not contain any closing date or firm date on which the financing would be available. To state the obvious, the financing is obviously critical to the closing of the Transaction.

[25] Finally, based on correspondence and communications of which it was aware, the Receiver concluded that there was a relationship between the proposed bidder, 810, and the Debtor and/or its principals.

[26] Given the lack of a firm financing commitment and the various other factors as set out in the Reports, the Receiver, in consultation with Colliers and CWB, exercised its best judgment and concluded that the offer in respect of which approval is sought today represented the best interests of all of the stakeholders. Although the purchase price was lower, the short period before closing (approximately 10 days) combined with the fact that the offer was unconditional, led the Receiver to conclude that it should be recommended for approval.

[27] As noted above, CWB concurred, even though it may still suffer a shortfall itself.

[28] Thereafter, the Debtor requested that it be permitted to see the confidential materials, and in particular, the various offers received. Exercising its judgment in the circumstances, the Receiver agreed to share that information provided that the Debtor sign a non-disclosure agreement (“NDA”), which was subsequently done.

[29] Upon being privy to that confidential information, the Debtor then instructed counsel to appear today to seek the adjournment. The express basis for the adjournment request is to permit the unsuccessful bidder, 810, an opportunity to firm up its financing commitment and provide proof of same to the Receiver, in order that the Sales Process might continue and 810 might be selected as the successful bidder.

[30] As noted above, I denied the adjournment request and approved the Transaction.

[31] I defer to the judgment of the Receiver with respect to its analysis of the various offers received and its recommendation with respect to the relief sought today. This is consistent with the well-established reluctance on the part of courts to second-guess the expertise and considered business decisions of their receivers in arriving at their recommendations: see Regal Constellation Hotel Ltd., Re, 2004 ONCA 206 at para. 23.

[32] While the proposed purchase price of a bid is obviously an important factor, it is by no means the exclusive factor, and it is entirely appropriate for a Receiver to select as a successful bid an offer that does not represent the highest purchase price, if the Receiver is satisfied following its consideration of all of the relevant factors that, on a comprehensive and overall basis, the lower offer is superior and in the best interests of the stakeholders. Lack of transactional risk, certainty of financing and length of time until closing are all important factors.

[33] I am satisfied that the Transaction should be approved in the particular circumstances of this case for all of the reasons considered by the Receiver, including but not limited to the chronology of this proceeding.

[34] First, and as noted above, the unsuccessful bidder, 810, has not even appeared today or filed any responding materials. Query, then, how or why the Debtor seeks the adjournment today.

[35] While there is no evidence to this effect in the Record, counsel for the Debtor was candid in his submissions that, as the Receiver indicated, there is a relationship between that bidder, 810, and the principals of the Debtor. Indeed, counsel for the Debtor advised that there were negotiations between the Debtor and 810 with a view to reaching an agreement to submit an offer as part of the Sales Process.

[36] In fact, the deposit submitted with the offer of 810 was, counsel advises, funded by the principals of the Debtor. I pause to observe that it was apparently not funded by the Debtor itself, as such would obviously have required approval of the Receiver.

[37] It is also common ground between the Debtor and the Receiver, although this too is not in the record before me, that there were discussions and negotiations between 810 and the Receiver. While not specifically described in the Reports, this is consistent with the conduct of the Sales Process conducted by the Receiver in that it evaluated each offer received, and clarified terms where necessary.

[38] In short, I need go no further than to observe that based on the representations of counsel, there is a relationship between 810 and the Debtor together with its principals.

[39] Throughout this proceeding, the Debtor has sought extensions, adjournments and indulgences, usually at the last moment. These are summarized in my Endorsement made in this proceeding on November 15, 2023 when I approved the Sales Process. In short:

a. the Debtor has been in default of the credit facilities to CWB since October, 2022. When CWB delivered a formal notice of default in October, 2022, the Debtor requested an extension of time to pay off the loan as well as priority payables (including HST arrears and property taxes which were also in default); b. demands and section 244 BIA Notices were delivered in January, 2023; c. CWB commenced this Application on March 3, 2023; d. the Debtor requested a further indulgence from CWB, and CWB agreed to a forbearance agreement that was entered into in March, 2023. That forbearance agreement contemplated, among other things, that the Debtor would pay the priority payables. They have still not been paid; e. the Application was then made returnable months later on July 4, 2023 when it came on before Steele, J. The Debtor sought another adjournment for an additional 30 days which the Applicants opposed. The basis for the adjournment request was that the Debtor had apparently just entered into an agreement of purchase and sale the day before (July 3) which, if completed, would pay out the Applicant. Steele, J. granted the adjournment for 30 days to give the Debtor that opportunity; f. the matter then returned 30 days later in August, before me. The Debtor’s proposed transaction had not come to pass. Yet again, however, the Debtor requested an adjournment at the last moment. The Debtor filed an affidavit from its principal stating that the proposed purchaser under the pending agreement had just waived a condition with the result that the sale was then scheduled to close in November, and on that basis the Debtor requested a further adjournment. For the reasons set out in my Endorsement of that date, I was not persuaded that the proposed sale agreement was unconditional and did not unequivocally demonstrate with certainty that it would close, with the result that I appointed the Receiver; g. the Receiver then sought approval of a sales process on October 16, 2023. The Debtor yet again asked for more time, and yet again was given more time, with the result that the motion for approval of the sales process was adjourned until November 15, 2023; h. on November 15, 2023, the matter was returnable before me. The Debtor’s proposed sale transaction never came to pass. Yet again, the day before that motion however, the Debtor delivered an affidavit of the principal stating that the Debtor had a commitment letter from a new lender for financing, and it attached a commitment letter. The Debtor therefore requested an adjournment. Ultimately, I declined the adjournment and approved the Sales Process in part on the basis that the Debtor could not offer any evidence that the proposed lender was in fact prepared to advance funds, or that the commitment to do so was unconditional. I therefore approved the Sales Process; i. none of the above orders was appealed; j. 810 submitted an offer as part of the Sales Process, as discussed above; k. the Debtor never advised the Receiver that any of its proposed transactions (either sale or financing) had become firm, and it never submitted an offer as part of the Sales Process; and l. on February 21, 2024, the matter returned before Wilton-Siegel, J. of this Court who scheduled today’s date for the sale approval motion. I pause to observe that counsel for the Debtor was present on that date so has been aware of today’s motion for over a month.

[40] Today, as noted above, the Debtor seeks another adjournment on the basis of the discussions with 810 also referred to above. I pause to observe that the terms of the NDA signed by the Debtor pursuant to which it was permitted to see the offers submitted to the Receiver is not before me, so I make no determination about the terms of that NDA in the context of discussions as acknowledged by counsel to have occurred between the Debtor and 810. Nor is there anything in the record from which I can conclude whether 810 similarly signed an NDA, although such would be unusual since it was one of the bidders.

[41] The Receiver, exercising its best judgment, has made its recommendations. They are supported by the senior secured creditor. Aside from the general reluctance of the Court to interfere with the business judgment of its Court-appointed officer, I accept the recommendation in this case given the chronology and all of the facts referred to above.

[42] In my view, the Debtor has had ample and repeated opportunities to put forward any offer or proposal and has been unable to do so. An adjournment of the sale approval today would be unfair to the successful bidder whose Transaction is the subject of the approval sought today, it would be unfair to other unsuccessful bidders, and also unfair to other parties who may have considered the opportunity and declined to submit a bid. It would also compromise the integrity of the sales process itself. The successful bidder might seek another opportunity to improve its own bid. Other bidders might do the same. The process would be never-ending.

[43] The Sales Process was conducted in accordance with the Sales Process Order as well as the Soundair Principles: Royal Bank of Canada v. Soundair Corp., 1991 ONCA 2727 at para. 16; and Regal Constellation Hotel Ltd., Re, 2004 ONCA 206.

[44] The Debtor has been fully aware of the process, and indeed participated in it (usually to request an adjournment) on multiple occasions as discussed above. It is not remotely taken by surprise.

[45] The proposed bidder, 810, with which the Debtor has some sort of relationship, has also been fully aware and indeed participated in the Sales Process by submitting a bid. There has been no unfairness to any party, and certainly not to either of the Debtor or 810. On the other hand, in my view a significant unfairness would be imposed upon the successful bidder and other bidders if the adjournment were granted.

[46] The sales process was robust, transparent and fair. The Receiver engaged Colliers to assist in the Sales Process as the listing agent. Non-disclosure agreements were prepared to facilitate access to a virtual data room which was established. A confidential information memorandum was prepared and distributed. Property tours were conducted and the various offers received (10 in total) were reviewed and analysed before the Purchaser was selected.

[47] Adequate exposure to the market is illustrated in part by the fact that 64 interested parties executed an NDA and 10 offers were received. For the reasons set out in the Second Report and summarized above, I agree with the position of the Receiver supported by the senior secured creditor.

[48] The Receiver has made a sufficient effort to get the best price and has not acted improvidently. The market was fully canvassed. I am satisfied that the Transaction contemplated by the APA is in the interests of all parties, and it is supported by CWB as the senior secured creditor. The Sales Process was conducted with efficacy and integrity, all in accordance with the Sales Process Order I granted earlier. There has been no unfairness in the working out of the process.

[49] For all of these reasons, the APA and the Transaction contemplated therein are approved.

[50] I am also satisfied that the sealing order sought is appropriate. It is limited, both in time and scope. It is proposed to have effect only until the Transaction closes or further order of the court.

[51] The material that is to be subject to the sealing order contains particulars of the other offers received. The information is obviously commercially sensitive, and disclosure now would materially and negatively impact on the Transaction and the Sales Process. Moreover, if for whatever reason the Transaction does not close, disclosure now of the other offers will likely irreparably impair a subsequent sale of the Property as could be necessary.

[52] Jurisdiction to grant such a sealing order is found in s.137(2) of the Courts of Justice Act, and in the inherent jurisdiction of this court: Fairview Donut Inc. v. TDL Group Corp., 2010 ONSC 789 at para. 34.

[53] The test for such a discretionary order to seal all or part of a court file has been articulated by the Supreme Court of Canada in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 SCR 522 at paras. 53-57, and refined in Sherman Estate v. Donovan, 2021 SCC 25 at para. 38.

[54] I am satisfied that the test is met here for the reasons set out above. The Receiver shall, in order that the record is complete, file a hard copy of the sealed materials with the Commercial List office in a sealed envelope marked: “Confidential, sealed by Court order. Not to form part of the public record until further order of the Court”.

[55] The activities of the Receiver are fully set out in the Second Report. They are consistent with the mandate of the Receiver in the original appointment order and in the Sales Process Order and are appropriate particularly in the circumstances of this case. They are approved.

[56] In the same way, I am satisfied that the Interim Statement of Receipts and Disbursements as at February 29, 2024 and appended to the Second Report is reasonable as are the receipts and disbursements reflected therein. The Statement is approved.

[57] I have reviewed the fee affidavits of the Receiver and its counsel as detailed in the Second Report and the appendices thereto. I am satisfied that the fees of both are fair and reasonable and take into consideration the factors set out as a useful guideline, although not an exhaustive one, by the Court of Appeal. See: Bank of Nova Scotia v. Diemer, 2014 ONCA 851 at paras. 33 and 45. The fees and disbursements are approved.

[58] Order to go in the form signed by me today which is effective immediately and without the necessity of issuing and entering.

Osborne J.