Shire International Real Estate Investments Ltd. (Re), 2011 ABQB 552

Court of Queen ’ s Bench of Alberta Citation: Shire International Real Estate Investments Ltd. (Re), 2011 ABQB 552 Date: 20110908 Docket: 0901 11866 Registry: Calgary In the Matter of Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 , as amended, the Judicature Act, R.S.A 2000, c. J-2, as amended and the Business Corporations Act, R.S.A. 2000, C.

B-9 , as amended AND In The Matter of a plan of compromise or arrangement of Shire International Real Estate Investments Ltd., Shire Capital Ltd., Halama Gardens LLC, Shire Asset Management Ltd., Winn River Resort Ltd., Fort McMoney Properties II Ltd., Halama Gardens Ltd., Maples and White Sands Investment Ltd., Fort McMoney Properties Ltd., Chemainus Properties Ltd., Skaha Lake Development Ltd., Tsehum Harvour Ltd., Bearspaw at 144 th Avenue Ltd., Bearspaw at 144 th Equities, Bearspaw at 144 th Bonds Inc., Tsehum Harbour Equities Ltd., Tsehum Harbour Bonds Ltd., Orilla Investments Ltd., 0726028 B.C.

Ltd., 0675816 B.C. Ltd. and Bosun’s Holding Ltd. Corrected judgment: A corrigendum was issued on September 13, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice C.A. Kent _______________________________________________________ [ 1 ] These proceedings originated as a CCAA application. DIP financing was granted during the currency of the CCAA

proceedings. When it became apparent that Shire would not be able to put together a plan that would be agreeable to the secured lenders, I lifted the stay. I directed that the DIP loan be paid first from the equity in Shire’s land as the land was sold off. Some of the land has been sold and the DIP loan paid down. As of July 28, the balance of the DIP loan was $1,750,692.91 with interest accruing at the rate of $847.11 per day. The DIP lender, Romspen, estimates that there is not sufficient equity to pay off the loan. [ 2 ] This application deals with one of the properties, the Sorrento Inn.

Individual investors paid into a Shire company called Maples and White Sands Investment Ltd. (MAWSIL).

Counsel for some of the investors in MAWSIL applies to be appointed representative counsel on behalf of all MAWSIL investors and applies for a charge on the remaining equity in the Sorrento Inn to a maximum of $75,000.00 for fees and disbursements relative to an outstanding issue amongst the MAWSIL investors, the DIP lenders, other secured lenders and other unsecured investors who are represented by another firm. [ 3 ] The issue which is outstanding with respect to the Sorrento Inn involves the mortgage that was registered against the Sorrento Inn by Olympia Trust Company. The mortgage is properly registered.

The question is whether the mortgage secures the administration costs of Olympia Trust Company or whether it secures both the administration costs plus the amount contributed by the MAWSIL investors. There are other unsecured creditors who thought they were investing in other properties. However, in these proceedings and in Securities Commission proceedings, there was evidence that funds of investors were commingled so, they argue, the equity in Sorrento Inn belongs to all of the investors. The non-MAWSIL investors are represented by another law firm.

They too seek a charge against the property for legal costs. [ 4 ] During previous proceedings in this action, counsel for the parties identified this issue as one that needed to be decided. Counsel for the DIP lender and other secured creditors do not oppose the appointment of representative counsel but do oppose the granting of a charge. [ 5 ] Essentially this is a question of risk. If the MAWSIL investors are successful, they will likely receive their costs even if there is no charge against the property, although that will ultimately be at the discretion of the judge hearing the application.

If they are not successful and if I grant the charge, their risk has been reduced. The DIP lender took a risk when it originally agreed to grant the DIP loan. In balancing those two competing interests, I must choose the DIP lender. I acknowledge that if the mortgage does indeed secure the investors’ investments, then they should be entitled to recover their investment (or as much as the equity in the property allows).

However, granting them a charge that gives them priority over the DIP lender interferes with the integrity of the CCAA process, a component of which is to permit a debtor to obtain financing during a reorganization. If I change the priorities as would happen if I grant the investors’ charge, lenders in the future will be less likely to provide loans. [ 6 ] The same reasoning applies to the other investors. However, I will say that had I been disposed to granting the MAWSIL investors’ application, I would not have granted the same to the other investors.

The return to all if all investors participated would have been minuscule relative to what would be required to prove entitlement for those investors to share. [ 7 ] Counsel for the MAWSIL investors said that if I was not prepared to grant the charge, it was not certain that his firm would continue to act. Accordingly, if prepared to act, I will grant an order appointing them representative counsel. However, if they do not act, but another firm is so prepared, it seems to me that an order should go in that firm’s favour. Heard on the 24 th day of August, 2011.

Dated at the City of Calgary, Alberta this 8 th day of September, 2011.

C.A. Kent J.C.Q.B.A. Appearances: Dean Hutchison MacPherson Leslie & Tyerman LLP for the Applicants Cory Ryan Borden Ladner Gervais LLP for Jennifer Lofgren et al. Scott Stevens Owen Bird for Romspen Paul Messner Witten LLP for Charles and Marylene Graves Walker Macleod McCarthy Tetrault LLP for the Receiver C.A. Kent J.C.Q.B.A.

_______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Madam Justice C.A. Kent _______________________________________________________ Please note that the counsel’s name for Romspen should have read “Scott Stephens” rather than “Scott Stevens”.