Court File and Parties

COURT FILE NO.: CV-24-00717340-00CL DATE: 20240716 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST

IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-3, AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF PRIDE GROUP HOLDINGS INC. and those entities listed in Schedule "A" hereto

RE: Pride Group Holdings Inc., et al., Applicants

BEFORE: Peter J. Osborne J.

COUNSEL: Steve Graff and Shaun Parsons, Counsel for TD Equipment Finance Canada Leanne Williams, Rachel Nicholson, Puya Fesharaki and Ines Ferreira, Counsel for the Applicants Raj Sahni and Joshua Foster, Counsel for the Directors and Officers of the Applicants Elaine Gray, Counsel for Daimler Truck Financial Services Canada Corporation and Daimler Truck Financial Services USA LLC Daniel Richer and Stuart Brotman, Counsel for Syndicate/DIP Lenders Graham Phoenix, Counsel for Finloc 2000 Inc. Craig Colraine, Counsel for PACCAR Financial et al. Harvey Chaiton, Counsel for Mitsubishi HC Capital Canada Inc. John Salmas, Counsel for Bank of Montreal and BMO Bank NA Blair McRadu and Marc Wasserman, Counsel for Mitsubishi Capital Jeffrey Levine and Anthony Labib, Counsel for Bank of Nova Scotia Ben Muller, Counsel for Royal Bank of Canada, in its capacity as Financial Services Agent Matthew Cressatti, Counsel for CWB Maximum Financial Inc. Chris Burr, Kelly Bourassa and Chris Keliher, Counsel for the Monitor, Ernst & Young Inc. Kevin Wu and Daniel Loberto, Observers Thomas Gertner, Counsel for VFS Canada Inc. and VFS U.S. LLC Joseph Bellissimo, Counsel for JD Factors, Purchaser Rania Hammad, Counsel for Move Trust and Boat Capital LP Caroline Descours and Erik Axell, Counsel for Regions Bank and Regions Equipment Finance Corporation Caitlin Fell, Counsel for Versabank and Aviator Finance

HEARD: July 16, 2024

Endorsement

[1] The Applicants seek three orders: a. an order approving the JD Factors Purchase Agreement and granting sealing relief in respect of commercially sensitive terms thereof; b. an order approving the distribution of proceeds from the sale of the Chehalis, Washington property; and c. an order permitting Regions Equipment Finance Corporation (“Regions”) to sell certain vehicles.

[2] The order approving the distribution of proceeds from the sale of the Chehalis, Washington property is unopposed, is supported by Roynat and the DIP Agent, and recommended by the Monitor.

[3] As further described below, Mitsubishi seeks an adjournment of the motion for approval of the JD Factors Purchase Agreement and related relief.

[4] No party opposes the Regions order although the Applicants and Regions disagree on two terms of the proposed order, also as further described below.

[5] The Applicants rely on the Affidavit of Randall Benson, the CRO, sworn July 13, 2024, together with exhibits thereto (re: Regions), the Affidavit of Mr. Benson sworn July 9, 2024, together with exhibits thereto (re: the Factoring Transaction), and the Ninth Report of the Monitor dated July 13, 2024 and the Supplement to the Ninth Report dated July 15, 2024. Regions relies on the Affidavits of Robert Korte sworn May 21, 2024 and July 15, 2024, respectively.

[6] Defined terms in this Endorsement have the meaning given to them in the motion materials and/or the Reports of the Monitor, unless otherwise stated.

Chehalis Property Proceeds

[7] The basis for the order approving the distribution of proceeds from the sale of the property in Chehalis, Washington is fully set out in the motion materials. One of the Pride Entities, Bishop Road Holding Corp., entered into an agreement on April 9, 2024 to sell the property to Tyler Collins or his designee. I granted an approval and vesting order with respect to that transaction on May 15, 2024, and the transaction subsequently closed.

[8] Gross sale proceeds were USD $3,218,160.63. The property was subject to a mortgage in favour of Roynat. Washington State counsel retained by the Monitor provided a security opinion supporting the priority of that mortgage as a first ranking interest in favour of Roynat over the proceeds.

[9] The total secured indebtedness is USD $2,525,892.33 as of July 9, 2024, with the result that the Pride Entities seek an order directing that that amount be distributed to Roynat in full satisfaction of the indebtedness. That is appropriate in the circumstances and for the above-noted reasons. It is unopposed and recommended by the Monitor and supported by the DIP Agent. The distribution to Roynat is approved.

[10] That leaves surplus proceeds of USD $692,268.30 in respect of which no relief is sought at this time, and those funds will remain held in trust by the Monitor pending further order of this Court.

Regions Vehicles

[11] As noted in earlier Endorsements of this Court, Regions sought a lift stay in respect of the sale of Surrendered Collateral and later, a lift stay in respect of the Regions Additional Collateral (both as defined in the motion materials). The first lift stay motion was resolved and captured in my order (the Regions Surrendered Vehicles Order), made June 27, 2024.

[12] The order sought today would facilitate the return of the Regions Additional Collateral not captured by the earlier order. The order sought today is supported by the DIP Agent and recommended by the Monitor. The principal terms of the proposed order are consistent with the vehicle surrender orders already granted by this Court.

[13] Generally, the order sought today would lift the stay of proceedings and authorize Regions to take possession of the Regions Additional Collateral in respect of which there is no issue, and provide that Multiple Collateral Vehicles shall be governed by the Entitlement Claims Process Order already granted in this proceeding.

[14] I am satisfied for the reasons fully set out in the motion materials and in the Ninth Report and summarized briefly above, that the relief is appropriate and is consistent with earlier orders made in this proceeding to address issues relating to similarly situated vehicles and equipment.

[15] As noted above, and while the relief in principle is agreed by and among the affected parties, two issues, however, remain which separate the Applicants and the Monitor on the one hand and Regions on the other.

[16] First, the draft order provides that Regions is to retrieve and remove the Initial Surrendered Vehicles within a fixed number of days from the Retrieval Deadline. The issue is whether that period should be 14 days as the Applicants and the Monitor submit is appropriate, or whether the period should be 30 days, as Regions submits.

[17] Having heard from the parties, and in all the circumstances, it is my view that the 30 days requested by Regions is appropriate. Regions is getting the information just now as to the location of the vehicles which are in multiple jurisdictions. I accept that there are practical and mechanical challenges in dealing with a large number of vehicles across various jurisdictions in multiple locations such that 30 days is appropriate.

[18] Second, the Applicants and the Monitor submit that Regions should pay to the Pride Entities storage costs in the amount of $35 per day per Surrendered Vehicle for storage costs in respect of any Surrendered Vehicle that is not retrieved or removed by Regions by that Retrieval Deadline. Regions objects to those storage costs and submits that the Pride Entities are already being compensated in the ordinary course of business for the services they provide, including but not limited to storage costs.

[19] The storage costs proposed of $35 per day are relatively modest. The rate is consistent with the rate applied to other vehicles that are the subject of previous orders made in this proceeding. The rate is reasonable and will, in an equally modest way, incentivize Regions to make its election as quickly as reasonably possible. The storage costs are approved.

JD Factors Purchase Agreement

[20] The Applicants seek an approval and vesting order in respect of the transaction contemplated by a factoring portfolio purchase agreement dated June 6, 2024 between the Applicant Tpine Financial as vendor and JD Factors Corporation as purchaser, in respect of the Purchased Receivables.

[21] Tpine Financial relies on other Pride Entities for financial support and is a non-core asset. Prior to the filing date in this proceeding, two third-party purchasers in the business of trade-factoring receivables were consulted about purchasing the receivables that are the subject of this agreement. One of those was the proposed purchaser.

[22] The only other affected party is Mitsubishi HC Canada Inc. Tpine Financial has not drawn on its principal secured credit facility provided by Mitsubishi but has relied on the proceeds of existing factoring receivables to continue to finance new factoring receivables, thereby preserving the status quo. As a result, the book value of its factoring portfolio has remained largely static since the Filing Date.

[23] The Pride Entities submit that the only means to preserve book value, the employment and customer relationships, and maximize recovery is to sell the business as a going concern, as the proposed relief would authorize and approve that outcome.

[24] The purchase price under the proposed agreement is a formula that represents 100% of the realizable value of the Purchased Receivables, in addition to a premium subject to a 90-day holdback to account for uncollectible purchased receivables. The Pride Entities submit that the purchase price is expected to be sufficient to repay all or nearly all of the amounts owing to Mitsubishi, even if the full amount of the holdback is returned to the Purchaser.

[25] However, there are competing priority claims to the proceeds. Mitsubishi asserts interests in the accounts receivable of Tpine Financial. At the same time, the DIP Agent asserts a first priority claim to the proceeds pursuant to the DIP Charge and opposes any distribution of proceeds to any party other than the DIP Agent.

[26] As a result of the dispute about proceeds, the Pride Entities seek approval of the transaction today, subject to a term requiring that the proceeds be held in trust by the Monitor pending further order of the Court, thereby preserving the relative rights and entitlements of Mitsubishi and the DIP Agent to such funds, which issue can be resolved or determined at a later date. The Pride Entities submit that the value of the portfolio is decreasing, and while I accept that that would appear to be logical, there is no evidence in the record of the quantum or rate of such decrease.

[27] As noted at the outset of this Endorsement, Mitsubishi seeks an adjournment of the motion, notwithstanding (as I explored at length with counsel at the hearing of this motion), the fact that the proceeds would be held in trust and all rights to make submissions with respect to the relative priority of different parties to those proceeds, would be maintained. Mitsubishi submits that it was just served with the materials and requires an opportunity to consider its position and instruct counsel.

[28] After hearing from all parties, I granted the adjournment as requested, albeit for a short period of time and directed that the motion would be returnable on August 7, 2024.

[29] I did so for the fundamental reason that Mitsubishi submits that it owns the receivables, as opposed to having a security interest in receivables owned by Tpine Financial, and it objects to an order approving a sale by Tpine Financial as vendor of an asset that Mitsubishi claims it owns, in circumstances where that issue is not yet determined. Mitsubishi would not concede that there is no practical difference in outcome whether it owns the asset or has a security interest in the asset, provided that (as is proposed) all parties reserve their rights to claim a priority interest in the proceeds, and particularly since it does not advance, at least today, any objection to the value represented by, and consideration proposed to be received pursuant to, the proposed transaction.

[30] Moreover, counsel have confirmed that the purchaser has agreed to extend the outside date of the proposed transaction to August 9, 2024 so that there is no prejudice or risk to the stakeholders that the short adjournment will result in the loss of the transaction.

[31] Accordingly, I will give Mitsubishi an opportunity, albeit a brief one, to advance its position and demonstrate why it is prejudiced by the approval sought. The motion is therefore adjourned.

Scheduling Matters

[32] The Applicants drew to my attention the fact that there has been some confusion among stakeholders with respect to the scheduling of next steps in this matter, in part arising out of the language of my endorsement released earlier this week.

[33] Accordingly, and as clarified during the hearings of these motions, I will address on August 7, 2024: a. relief related to the transitioning of the servicing of the SPV assets and the return of those assets owned by the SPV financiers; b. the factoring portfolio sale approval motion referred to above and adjourned today; and c. the motions relating to the PGL business and equipment.

[34] On September 3, I will hear the motions to lift the stay of proceedings to take possession of collateral over which parties claim a first registered security interest.

Disposition

[35] The Chehalis, Washington property proceeds motion is granted. The Regions motion is granted. I have signed orders in respect of each of these two motions, and those orders are effective immediately and without the necessity of issuing and entering.

[36] The JD Factoring sale approval motion is adjourned to August 7, 2024.

Osborne J.