Computershare Trust Company of Canada v. Venti Investment Corporation, 2011 ABQB 726

Court of Queen ’ s Bench of Alberta Citation: Computershare Trust Company of Canada v. Venti Investment Corporation, 2011 ABQB 726 Date: 20111125 Docket: 1101 03154 Registry: Calgary Between: Computershare Trust Company of Canada Plaintiff - and - Venti Investments Corporation, Shariff Chandran and Qualia Real Estate Investment Fund VI Limited Partnership Defendants _______________________________________________________ Reasons for Decision of the Honourable Madam Justice B.E.

Romaine _______________________________________________________ [ 1 ] This was an application to approve a sale of property brought by the Receiver of the assets and property of Venti Investment Corporation and Qualia Real Estate Investment Fund VI Limited Partnership.

Venti cross-applied for an order rejecting any agreement of sale, directing that it is entitled to redeem the arrears on a mortgage on the property in question or make such payments as are necessary to bring the mortgage back into good standing, directing a hearing to set the amount of the arrears and discharging the Receiver. [ 2 ] Despite efforts to characterize the application as a sale in foreclosure proceedings, this was a sale within a receivership that resulted from a consent order granted on March 4, 201l. I find that the consent order is correctly characterized as a liquidating order.

This order first appointed MNP Ltd. as a Monitor to oversee the sale of the property under an existing agreement of sale and purchase. When the proposed sale terminated in April, 2011, MNP became the Receiver under the order, authorized by its terms to complete the sale of the property and to enter into a replacement agreement of purchase and sale. It has now done so.

[3] The criteria to be applied when considering the approval of a sale recommended by a receiver were first set out by theOntario Court of Appeal in Royal Bank v. Soundair Corp. (1991), (ON CA), 4 O.R. (3d) 1 (Ont. C.A.) The Soundairprinciples have been applied many times by this Court. [4] When deciding whether a receiver who has sold a property has acted properly, a court is to consider and determine: (

a) whether the receiver has made a sufficient effort to get the best price and has not acted improvidently; (

b) the interests of all parties; (

c) the efficacy and integrity of the process by which offers were obtained; and (

d) whether there has been unfairness in the working out of the process. [5] In considering whether the Receiver has made a sufficient effort to get the best price, I note that there has been a thoroughand extensive process undertaken to sell the property, and the agreement of purchase and sale finally executed by the Receiver representsa sale at or above fair market value. However, Venti submits in essence that the Receiver acted improvidently on the basis ofinformation Mr.

Chandran, the principle of Venti, says was obtained from the sale and leasing agent retained by the Receiver that theReceiver’s report in support of the application failed to include material information. Mr.

Chandran submits through his counsel thatthere have been two undisclosed written offers to lease the property in question that would affect approximately half of the vacant spacein the building and that could dramatically affect its appraised value. [6] Given the nature of the application, its urgency and the allegations made, I took the unusual step of inviting counsel for theReceiver to respond to this allegation by having the Receiver testify and be subject to cross-examination on this limited issue.

I acceptthe Receiver’s testimony, corroborated by that of the Receiver’s leasing agent, that he was informed the morning of the application thatan existing tenant was expressing some unwritten, informal interest in leasing approximately 2,000 to 4,000 additional square feet. Thisis not material information that either should have been disclosed in the report or that would affect fair market value. At any rate, theReceiver’s conduct is to be examined in light of the information the Receiver had at the time it agreed to accept the offer, which wasNovember 8, 2011.

I find that the Receiver made more than a sufficient effort to get the best price for the property and has not actedimprovidently. The sale price is not low in relation to the appraised value, there was plenty of time for bids and adequate notice of thesale process. [7] With respect to the interests of the parties, the sale is supported by the major creditor, Computershare Trust Company ofCanada.

Venti submits that it should not matter to Computershare if a sale of the property is the result of this application or if Venti isable to bring the mortgage into good standing, but Computershare has made it clear that it has lost faith in Venti and that it has areasonable and valid preference for a sale rather than merely allowing Venti to extinguish the arrears.

It points out that the cash flowfrom the property is insufficient to cover the monthly mortgage payments, and Venti has offered no more than to bring the arrears up todate and cover future mortgage payments for an indeterminate period. [8] It is also important and appropriate to note the interests of the proposed purchaser of the property, which tendered its bid ingood faith and presumably at some expense and which opposes Venti’s cross-application: Soundair at para. 40. [9] There is no issue with respect to the efficacy and integrity of the process by which offers were obtained. [10] With respect to the possibility of unfairness in the working out of the process, Venti suggests that the Receiver was deficientin failing to control or intervene with respect to what it characterizes as unfair behaviour by Computershare in communicating to Ventithe amount it would cost to bring the arrears up to date.

[ 11 ] This objection must be viewed in context. This became a receivership on April 12, 2011.

On August 31, 2011, Venti enquired of the Receiver through counsel as to amount necessary to bring the mortgage back into good standing, and “ in theory ” discharge the Receiver. [ 12 ] On September 2, 2011, the Receiver’s counsel advised of a figure of about $850,000, subject to adjustment, additional interest, additional legal and other expenses, implementation of a realty tax reserve and payment of all receivership costs. [ 13 ] On September 29, 2011, in anticipation of a meeting requested by Venti to discuss a possible reorganization, Computershare notified Venti that the amount required to bring the mortgage into good standing would be $1.07 million, plus certain processing and assumption fees, plus additional costs with respect to the receivership, the listing of the property, the property manager and the lender’s counsel and subject to additional interest, the implementation of a monthly tax escrow amount and payment of the Silvercrest lease obligation. [ 14 ] It was only on October 24, 2011, having received the September 29, 2011 estimate (which was clearly characterized as an estimate) and advice from the Receiver on that date that the Receiver was dealing with interested parties and expected a binding agreement of sale shortly, that Venti’s counsel expressed the intention of bringing the mortgage up to date “this week”.

This email from Venti’s counsel repeats the September 29, 2011 estimate, with its references to additional costs. [ 15 ] On October 26, 2011, Computershare provided its revised estimate, which incorporated the items that had previously been referenced, including the costs of the receivership, the Silvercrest lease obligation, the costs of the listing and leasing agent, the immediate amount of tax escrow and updated payments due. [ 16 ] Computershare advised that Venti should confirm that it would pay these amounts that week. Instead, on October 27, 2011, Venti disputed the amount payable.

On November 3, 2011, Computershare provided its explanation of the amounts owing, and reduced the previous amount said to be immediately owing by $65,000. [ 17 ] On November 7, 2011, the Receiver received a reorganization proposal from a third party which included the concept of bringing the mortgage into good standing, and considered this proposal together with the two other proposals it had received.

On November 8, 2011, the Receiver executed a purchase and sale agreement with the proposed Purchaser. [ 18 ] It was not until November 10, 2011 that Venti sent Computershare’s counsel $1 million towards the arrears, and then only under unacceptable trust conditions. While another $700,000 was promised to be available during the course of the hearing, it did not materialize. [ 19 ] There is nothing in this history that casts doubt on the fairness of the process or the role of the Receiver.

The first estimate of payout cost was clearly subject to upward adjustment, and subsequent estimates identified why the payout figure increased over time.

Venti had the opportunity to payout the mortgage prior to the Receiver entering into a binding offer subject only to court approval on November 8, 2011, and plenty of warning that the sales process was unfolding and nearing completion. [ 20 ] At page 19 of Soundair , McKinlay J.A. emphasized the importance of protecting the integrity of the procedures followed by a court-appointed receiver “in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers”.

That concern for the integrity of the process has been expressed in many cases in Alberta, including by our Court of Appeal: River Rentals Group Ltd. v. Hutterian Brethren Church of Codesa , [210] A.J. No. 12 at para. 18. [ 21 ] While the concern for the integrity of the process is often expressed in terms of whether it is appropriate to consider a last- minute higher offer to purchase, it is equally important here, where the debtor is not offering a higher amount for the property, nor even to redeem the entire debt, but only to bring the arrears up to date.

Venti does not even accept the amount of arrears set by the mortgagee, but asks that there be a subsequent hearing to establish that amount. To accept Venti’s proposal would be unfair to the parties who participated in the bidding process in good faith, and the Proposed Purchaser who entered bona fide into an agreement with the Receiver. It would lead to the kind of chaos referred to in Soundair at para. 30 and would be an unwarranted interference with a properly-run process conducted by the Receiver. Venti had plenty of time in the last 21 months to bring the arrears up to date and avoid the sale, and

what it offers now is too little and too late. [ 22 ] Venti submits that there is no urgency about this application. I must disagree.

As I indicated when I refused an adjournment, I agree with Computershare that there is no reason to delay the application, and considerable prejudice in terms of mounting arrears, a limited recourse loan and little or no equity. [ 23 ] Given the decision I have reached, it is not necessary that I consider whether Venti is in effect seeking relief from forfeiture, and if so, whether it is entitled to such relief. [ 24 ] The Receiver’s application is granted and Venti’s cross-application is dismissed. [ 25 ] This decision was originally scheduled to be delivered orally the day after the application was heard.

At that time, counsel for Venti indicated that his client had changed his position and was prepared to consent to the application. I advised the parties that I would grant an order of sale and would issue subsequent written reasons. [ 26 ] If the parties are unable to agree on costs, they may make submissions on that issue. Dated at the City of Calgary, Alberta this 25th day of November, 2011. B.E. Romaine J.C.Q.B.A. Appearances: Kevin E. Barr of Macleod Dixon LLP for MNP Ltd. in its capacity as Court-appointed Receiver Ryan P.

Pelletier and Richard Billingston, Q.C. of Billington Barristers for Venti Investment Corporation David Wood and Jared Spindel of Stikeman Elliott LLP for Computershare Trust Company of Canada Terry L. Czechowskyj of Miles Davison LLP

for the Proposed Purchaser Michael B. Niven, Q.C. of Carscallen LLP for Durum Real Estate Holdings Inc.