Superior Court of Justice - Ontario

Re: In the Matter of the Bankruptcy of Aleafia Health Inc.

Before: Associate Justice Rappos

Counsel: Paul Guy and Garth Myers, for the Ad Hoc Committee of Aleafia Health Inc. Debentureholders Shawn Irving, for KSV Restructuring Inc.

Heard: June 14, 2024 (via videoconference)

Endorsement

[1] The Ad Hoc Committee of Aleafia Health Inc. (“Aleafia”) Debentureholders (the “Debentureholders”) bring a motion for an order lifting the stay of proceeding contained in section 69.3(1) of the Bankruptcy and Insolvency Act (the “BIA”) for the sole and limited purpose of permitting the Debentureholders to issue and file a Statement of Claim against Aleafia to obtain any recovery that may be available under Aleafia’s insurance policies.

[2] The Debentureholders have brought the motion on an urgent basis, as the limitation period may expire on or about June 28, 2024.

[3] The Debentureholders indicated that the proposed claim will seek damages for negligent misrepresentation against Aleafia and a number of directors and officers. If successful, the Debentureholders believe they may be entitled to redress under a number of insurance policies.

[4] The Debentureholders served the affected insurers by e-mail on June 11, 2024, and have not received a response to date.

[5] KSV Restructuring Inc., the Trustee in Bankruptcy, does not oppose the relief sought by the Debentureholders.

[6] Section 69.4 of the BIA permits a creditor to apply to the Court for a declaration that the stay should be lifted as the creditor is likely to be materially prejudiced by the continued operation of the stay, or that it is equitable on other grounds to lift the stay.

[7] A creditor is required to establish that there are sound reasons for the lifting of the stay, which are consistent with the scheme of the BIA to relieve against the automatic stay. Re Ma.

[8] As noted by Justice Osborne in Pillar Capital Corp. v 3 Sixty Secure Corp et al., 2023 ONSC 4067, para. 3, the Court has recognized permitting a plaintiff to seek recovery on a contract of insurance as a sound reason to lift the stay. It will be left to the court hearing the underlying civil action to determine whether or not the policy applies. Ibid., para. 4.

[9] I am satisfied that that there is no prejudice to the creditors or Aleafia to lift the stay to allow the Debentureholders to seek recovery under the applicable insurance proceeds that would likely not be available to Aleafia’s other creditors.

[10] Counsel to the Debentureholders confirmed that the Office of the Superintendent of Bankruptcy (“OSB”) was not served with the motion materials.

[11] As I indicated in Re Hour Media Group Inc., 2023 ONSC 6039, it is the expectation that all motions in the Bankruptcy Court are served on the OSB.

[12] I believe it is necessary and appropriate to grant the relief sought by the Debentureholders. However, due to the lack of service on the OSB, the Order I have signed provides that it will come into effect at 5:00 pm on Wednesday June 19, 2024 provided that the Debentureholders have not received any opposition to the motion from the OSB by that time. If any opposition is received, counsel to the Debentureholders shall immediately contact the Bankruptcy Court Office to schedule an urgent case conference before me.

[13] The Debentureholders shall forthwith serve their motion record, along with a copy of this Endorsement and the Order, on the OSB by email at osbservice-bsfservice@ised-isde.gc.ca.

[14] Order to go as electronically amended and signed by me.

Associate Justice Rappos Date: June 14, 2024