Court File and Parties

Court File No.: CV-24-00717340-00CL
Date: 2025-01-15
Court: Ontario Superior Court of Justice – Commercial List

In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended
And in the Matter of a Plan of Compromise or Arrangement of Pride Group Holdings Inc. and those Applicants listed on Schedule “A” hereto (each, an “Applicant”, and collectively, the “Applicants”)

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

Before: Peter J. Osborne

Appearances

For the Applicants:
Leanne Williams and Puya Fesharaki

For the Lending Syndicate:
Stuart Brotman and Julia Y. Chung

For the Directors and Officers:
Raj Sahni and Aiden Nelms

For Daimler Truck Financial Services Canada Corporation and Daimler Truck Financial Services USA LLC:
Elaine Gray

For Regions Bank, Regions Equipment Finance Corporation and Regions Commercial Equipment Finance LLC:
Caroline Descours and Erik Axell

For Roynat:
Stephen Brown-Okruhlik

For RBC:
Robert Kennedy

For CRO Pride:
Randall Benson

For Bennington Financial Corporation:
Meena Alnajar

For Move Trust:
Lee Nicholson

For Paccar:
Nikita Tanwar

For Versa Bank:
R. Brendan Bissell

For BMO:
Birpal Benipal

A & M as Collateral Manager:
Natalie Levine
Else Allin

For RBC Securitizations:
Ian MacDonald

For National Bank:
Geoff R. Hall

For Mitsubishi HC Capital:
Blair McRadu and Sean Stidwell

The Monitor:
Kelly Bourassa and Xin Yuan (Kevin) Wu
Jenna Willis
Jordan Zhang (Ernst & Young)

Heard: January 15, 2025

Endorsement

Relief Sought

[1] The Applicants move today for the following relief:

a. a Remaining Securitized Assets Order: i. approving the turnover mechanics applicable to a Securitization Party to retrieve a Repossessed Asset (including an MCV Asset) in the possession of the Pride Entities; ii. directing the Pride Entities to turn over possession of any remaining Repossessed Assets in respect of which a Securitization Party has paid the Turn-over Costs by the Final Retrieval Deadline or the MCV final Retrieval Deadline, as applicable; iii. establishing January 29, 2025 as the Final Retrieval Deadline for Securitization Parties to retrieve any remaining Repossessed Assets that are not MCV Assets, and the same date as the deadline to reach a resolution in respect of MCV Assets in the possession of the Pride Entities; iv. authorizing the permanent closure of Pride Entity lots from and after the MCV Final Retrieval Deadline; v. authorizing the Pride Entities, through their agent, Nations Capital, LLC (NCI), to sell any Repossessed Assets that have not been retrieved by the Final Retrieval Deadline or the MCV Final Retrieval Deadline, as applicable, and vesting title thereto in any purchasers free and clear of claims and encumbrances; and vi. authorizing the distribution of net proceeds of sale of a Repossessed Asset to the applicable Securitization Party or in the case of MCV Assets, directing the Monitor to hold such net proceeds in trust pending agreement of the affected parties or further order of the Court;

b. the Dixie Approval and Vesting Order approving the sale of the assets of Dixie Truck Parts Inc. (Ontario) and Dixie Truck Parts Inc. (Delaware) to the Proposed Purchaser and approving a distribution of the net sale proceeds to RBC in its capacity as DIP Agent pursuant to the DIP Facility;

c. an Omnibus Distribution Order approving distributions to RBC in its capacity as Administrative Agent for the Lenders’ Syndicate of the net proceeds of sale of certain real estate transactions previously approved; and

d. a sealing order, in effect until further order of this Court, in respect of the Confidential Appendix to the 20th Report of the Monitor, which includes the Canadian and US Dixie Truck Parts agreements of purchase and sale.

Service and Definitions

[2] The Service List has been served with the motion materials and the Reports of the Monitor, including for greater certainty, the 20th Report, the Supplement to the 20th Report and the Confidential Appendix to the 20th Report. 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.

Unopposed Relief and Mitsubishi’s Position

[3] The relief described above in paragraphs 1(b), (c) and (d) was unopposed, save that, as more particularly discussed below, Mitsubishi submitted that it wished to reserve its rights with respect to the approval of the sale of the assets of Dixie Truck Parts.

[4] The Remaining Securitized Assets Order was initially opposed, but the motion for that relief was stood down in order that the parties could continue discussions. Upon resumption, the Court was advised that the parties had agreed on the form and content of the proposed order, with the result that this relief also, was unopposed.

[5] The motion is granted.

Sale of Dixie Truck Parts and Related Party Transaction

[6] With respect to the proposed sale of the assets of Dixie Truck Parts, both in respect of the Ontario corporation and the Delaware corporation, this Court has jurisdiction to approve such sales pursuant to section 36 of the CCAA. I have considered both the factors set out in subsection 36(3) of the CCAA and the Soundair Principles and I am satisfied that they have been met here.

[7] The process leading up to the Proposed Transactions was reasonable. The process is fully described in the 20th Report. It was carried out by NCI, an experienced agent appointed by this Court. NCI contacted over 1500 potential purchasers for these assets. The sale is supported by the Chief Restructuring Officer and recommended by the Monitor on the basis, in part, that NCI conducted a fulsome marketing process and selected the offer that was not only the highest bid, but also the only binding offer.

[8] The sole director and officer of the Proposed Purchaser is a directly related family member to one of the principles of the Pride Entities, with the result that the Proposed Transactions are related party transactions for the purposes of the CCAA. It follows that in addition to the factors set out in section 36(3), the criteria set out in section 36(4) must also be satisfied.

[9] I am satisfied that those additional factors are met here. Good faith efforts were made to sell or otherwise dispose of the assets to persons not related to the company, and the consideration to be received is superior to the consideration that would be received under any other offer made. Moreover, I am satisfied that sufficient safeguards were adopted in the sale process to ensure that any related party transaction is in the best interests of all stakeholders, and that the risks associated with a related party transaction have been mitigated: Target Canada Co., Re, 2015 ONSC 2066 at para. 15.

[10] That has been done here. The sale process was carried out by the Monitor and neither the Pride Entities nor their principals had any involvement whatsoever in the conduct of the sale process or the review and analysis of any bids. NCI undertook extensive efforts to sell the Dixie Assets to non-related parties through the extensive marketing process summarized above and described fully in the 20th Report.

[11] Accordingly, I am satisfied that the Proposed Transactions provide the highest price available for the Dixie Assets for the benefit of all stakeholders, and as a result, I am further satisfied that the Proposed Transactions are fair and reasonable in the circumstances.

Mitsubishi’s Reservation of Rights

[12] As noted above, Mitsubishi sought to reserve its rights with respect to the Proposed Transactions. I am not able to accept any such reservation. Motion materials were properly served. No responding materials have been delivered, no adjournment is requested, and Mitsubishi makes no submissions today as to the basis upon which I ought to conclude other than that the Proposed Transactions are in the best interests of stakeholders.

[13] I observe that the most directly economically affected stakeholders, being the Lending Syndicate and its members, do not oppose the relief sought.

[14] Moreover, an undefined and non-specified reservation of rights is unworkable in circumstances where approval is sought in respect of a proposed sale of assets, following on a sale process, and where the relief requested includes a vesting order that would extinguish all claims and encumbrances on the assets being sold. In addition, the relief requested today includes a distribution of net proceeds following on the completion of the Proposed Transactions to those parties entitled in priority to such proceeds. I pause again to observe that the distribution (as distinct from sale approval) is not opposed by any party, including Mitsubishi.

[15] In my view, one of the challenges about any reservation of rights in these circumstances is that it would be impossible to later “unscramble the egg”, reverse a sale and vesting of title in assets, and, in effect, claw back a distribution of the proceeds resulting from that sale. In short, all parties have an opportunity to oppose relief sought, but that opportunity arises at the hearing of the motion for approval, and does not continue indefinitely thereafter. For these reasons, I am not prepared to allow a reservation of rights.

Cross-Border Issues and Comity

[16] Given that the assets of Dixie Truck Parts include, as noted above, assets in Canada (the Ontario corporation) and assets in the United States (the Delaware corporation), the assets have been divided and there is a separate asset purchase agreement for each of the two. Corresponding approval will be sought from the US Court in respect of the Dixie Truck Parts US assets.

[17] While approval of asset sales and the United States may involve more than simply a recognition of the Canadian order notwithstanding that this is the plenary proceeding and the US proceeding is the ancillary proceeding, I was disappointed to be advised by the Court-appointed Monitor that, in respect of an earlier approval of an asset sale (a property in Sweetwater, Florida), Mitsubishi had opposed the sale approval in the US Court notwithstanding that this Court had approved the sale, on notice to Mitsubishi, and where Mitsubishi had been present at the hearing, but did not oppose the relief sought in this Court, including the issuance of an approval and vesting order.

[18] This Court strives to maximize efficiency and respect the principles of comity in cross-border proceedings. Those objectives are not advanced where, absent good reason or extraordinary circumstances, a party is on notice of proposed relief to be sought in the plenary jurisdiction court, elects not to oppose it there, but then seeks to oppose recognition in the ancillary jurisdiction court.

Distribution and Sealing Orders

[19] The proposed distribution order is also approved. It addresses proceeds arising from previously approved real estate transactions. It is not opposed and makes good practical sense. Those parties beneficially entitled to proceeds of sale from assets disposed of, are entitled to have the distribution authorized so that they may receive those proceeds.

[20] The proposed sealing order is also not opposed. The Confidential Supplement includes the unredacted asset purchase agreements in respect of the Proposed Transactions. Such sealing relief is appropriate since those transactions have not closed and there is the possibility that they may have to be re-marketed and sold. If that were to occur, the subsequent sales process would be undermined, and its integrity would be compromised, by the disclosure of this commercially sensitive information.

[21] The scope of the material sought to be sealed is limited, as is the temporal effect of the order, in that it is in effect only until further order of this Court. I am satisfied that the factors set out by the Supreme Court of Canada in Sierra Club and refined in Sherman Estate have been met here, such that the sealing order is justified under section 137(2) of the Courts of Justice Act.

Remaining Securitized Assets Order

[22] Finally, and given the resolution of all outstanding issues between and among the parties with respect to the proposed Remaining Securitized Assets Order, I am satisfied that it also should be approved.

[23] The background to, and basis for, this relief is fully set out in the two affidavits on which the Applicants rely from Mr. Randall Benson, the Chief Restructuring Officer, and in the 20th Report and the Supplement thereto.

[24] In short, the practical reality is that there remain in the possession of the Pride Entities approximately 650 vehicles, of which approximately 360 are to be returned to Securitization Parties and the balance represent multiple collateral vehicles (MCVs) in respect of which entitlement issues remain unresolved or undetermined.

[25] These vehicles need to be dealt with. In the main, the relief sought today provides that they are to be retrieved by the Securitization Parties (or their agents, or third parties to whom the Securitization Parties entitled to the assets have sold the vehicles) by a fixed date, failing which they are to be sold by NCI. This needs to occur so that this proceeding can continue to be advanced. There is also a physical challenge in that the Pride Entity lots on which these vehicles are being stored are themselves to be sold as soon as possible. The Applicants are in a precarious cash flow position for the reasons set out in Mr. Benson’s affidavits and the Reports, and lack the financial resources to continue to maintain and store these vehicles.

[26] I recognize that there are significant challenges for the Monitor and Chief Restructuring Officer in providing every piece of information in respect of every vehicle, given the state of the books and records of the Pride Entities, the fact that vehicles are constantly moving between and among jurisdictions and the fact that other vehicles are being returned and effectively abandoned at Pride Entity lots by leasing parties who are simply surrendering the vehicles, often without any accompanying records.

[27] In short, the documentation in respect of the vehicles is not perfect. The challenge is that if vehicles are not removed until every piece of documentation is obtained, and then verified, the vehicles will never be removed and certainly not before the point at which there are no funds remaining whatsoever to provide for their continued storage.

[28] The draft order sought today, as revised, provides in the main that the vehicles will be removed, failing which they will be sold, but that parties reserve their rights with respect to certain costs which will be resolved or determined at a later date. In my view, this strikes an appropriate balance between and among the competing objectives.

Retrieval Deadlines and Precedent

[29] The Retrieval Deadlines can and should be approved pursuant to the discretion of the Court provided in section 11 of the CCAA, the exercise of which is appropriate in these very unusual circumstances. Those Deadlines are consistent with the policy objectives underlying the CCAA, including the timely, efficient and impartial resolution of the debtor’s insolvency as well as maximizing creditor recoveries: see 9354-9186 Québec Inc. v. Callidus Capital Corp., 2020 SCC 10 at para. 40.

[30] This Court has previously approved in other cases deadlines for removing property from premises of the debtor to facilitate lease disclaimers and other objectives in proceedings: Order of Justice Black dated May 3, 2024, Ted Baker Canada Inc., Court File No. CV-24-00718993-00CL at Schedule “A”, para. 9; Order of Chief Justice Morawetz dated March 20, 2023, Nordstrom Canada Retail, Inc., Court File No. CV-23-00695619-00CL at Schedule “A”, para. 9; Order of Justice Steele dated November 30, 2023, Mastermind GP Inc., Court File No. CV-23-00710259-00CL at Schedule “A”, para. 9; and 2668602 Ontario Inc. v. GWL Realty Advisors Inc., 2024 ONSC 6913 at paras. 14, 47-48.

[31] Such relief is an appropriate, incremental exercise of the discretion of this Court under section 11 of the CCAA, adapting this Court’s approach to the situation before it: Nortel Networks Corporation (Re), 2015 ONSC 2987 at paras. 206-207, leave to appeal ref’d, 2016 ONCA 332.

[32] I am also satisfied that NCI should be authorized, pursuant to the exercise of my discretion under section 11 of the CCAA, to sell the remaining Repossessed Assets that are not retrieved by the applicable Retrieval Deadlines, for the reasons set out above. This provides an appropriate, practical means of closing Pride Lots while minimizing prejudice to those Securitization Parties who have declined to retrieve their assets. In practical terms, there needs to be an imposed method of removing unretrieved Repossessed Assets if the Pride Entities are to be in a position to deliver vacant possession of owned and leased properties to applicable purchasers and landlords upon closing the Pride Lots and the completion of sale or lease transactions.

[33] The proposed Remaining Securitized Assets Order minimizes prejudice to the Securitization Parties and contemplates that proceeds from any Repossessed Assets sold will stand in the place of those assets with the same priority and validity as applicable to the asset prior to the sale.

Conclusion

[34] For all of these reasons, the proposed relief, as amended, is granted. I have signed both orders and they are effective immediately and without the necessity of issuing and entering.

Peter J. Osborne