Castle Rock Research Corporation (Re), 2012 ABQB 208

Court of Queen ’ s Bench of Alberta Citation: Castle Rock Research Corporation (Re), 2012 ABQB 208 Date: 20120329 Docket: BK03 115587 Registry: Edmonton In the Matter of the Notice of Intention to make a proposal filed by Castle Rock Research Corporation Under the provisions of the Bankruptcy and Insolvency Act , R.S.C. 1985 c. B-3 as amended

Between: Castle Rock Research Corporation Applicant - and - A.G.C. Investments Ltd. And Osman Auction Inc. Respondents And Between: A.G.C. Investments Ltd. Applicants (Cross-Application) - and- Castle Rock Research Corporations and BDO Canada Limited in its capacity as Trustee under the Notice of Intention to make a proposal Respondents (Cross-Application) _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R. Paul Belzil _______________________________________________________ The Applications

[ 1 ] Castle Rock Research Corporation seeks an order for extending the time within which it must file a Proposal to Creditors. Its main creditor A.G.C. Investments Ltd. has filed a cross-application seeking an order declaring that the time for Castle Rock to file a Proposal to Creditors has expired. Factual Background [ 2 ] Castle Rock filed a Notice of Intention (NOI) to make a proposal to its creditors on February 15, 2012 pursuant to

section 50.4(1) of the Bankruptcy and Insolvency Act , R.S.C. 1985 c. B-3 as amended ( BIA ). [ 3 ] On February 28, 2012 Burrows, J. issued an order naming BDO Canada Ltd. as the Interim Receiver of Castle Rock. [ 4 ] Pursuant to

section 50.4(8) Castle Rock is required to file a proposal to its creditors within 30 days of the filing of a Notice of Intention to make a proposal unless this time is extended pursuant to

section 50.4(9). On March 16, 2012 Veit, J. issued a Consent Order extending the deadline for filing of the proposal to March 23, 2012. [ 5 ] On March 20, 2012 the Interim Receiver filed a Second Report. Paragraphs 6 to 10 of which read as follows: 6. That since filing the Trustee’s Report of March 9, 2012, the Trustee has been provided weekly Monitoring Reports in adherence with the Monitoring Program initiated by the Trustee; 7. That the Debtor and management have been co-operative in addressing queries in relation to the Monitoring Reports which have satisfied the Trustee; 8.

That while the Trustee has expressed to the Debtor concerns over the financial reporting system utilized by the Debtor, management indicates that they are prepared to take the necessary steps to implement a suitable financial reporting system; 9. That since filing of the Trustee’s Report on March 9, 2012, the Trustee is in receipt of a Business Plan dated March 6, 2012 which provides detailed information about the Company Plan including Profile, Products and Services, Marketing Plan and the Future Direction of the Company. The Trustee has not had an opportunity to review and assess that Business Plan; and 10.

That it is the Trustee’s opinion that the Debtor is acting in good faith and with due diligence and that the Debtor will be able to make a viable Proposal if an additional extension were granted. [ 6 ] The application and cross-application were heard by me on March 22, 2012. Counsel for BDO confirmed that its opinion contained in the Second Report remains unchanged. Counsel for Osman Auction Inc. supports the Castle Rock Application. [ 7 ] I undertook to render a decision on March 28 and with the consent of all parties, extended the deadline for filing of the proposal to 4:30 p.m. that day. Discussion

[ 8 ] It is common ground that the Court may grant an extension for the filing of a Proposal to Creditors not exceeding 45 days if three requirements outlined in

section 50.4(9) are satisfied: a. The insolvent person has acted, and is acting, in good faith and with due diligence; b. The insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and c.

No creditor would be materially prejudice if the extension being applied for were granted. [ 9 ] It is also common ground that Castle Rock bears the burden of establishing its entitlement to an extension. [ 10 ] As part of its Application, Gautam Rao, President and CEO of Castle Rock swore an affidavit on March 9, 2012 in which he deposed that since the filing of Castle Rock’s NOI, it has continued to operate in the ordinary course of business without the necessity for debtor in possession financing. [ 11 ] He further deposed that Castle Rock does not anticipate the need for further financing in the course of the proposal proceedings. [ 12 ] In the course of argument, counsel for Castle Rock provided two License Agreements both dated February 24, 2012.

The first provides for payments to Castle Rock of $600,000.00 together with royalty payments and the second 1.5 million dollars together with royalty payments. [ 13 ] In his affidavit Rao also deposed to other pending business opportunities which were not specified and that senior staff within the company are supportive. [ 14 ] Finally, he deposed that the company is proceeding in good faith, with due diligence and that no creditor will be prejudiced if an extension were granted. [ 15 ] Andrew Clark, the President of A.G.C., deposed in an affidavit that Castle Rock is being mismanaged and that funds are being transferred to a related company in India.

He also deposed that no proposal would be acceptable to A.G.C. [ 16 ] Clark was questioned on his affidavit and acknowledged that the existence of the related company in India was known to him and indeed the India company is referred to in Castle Rock’s financial statements. [ 17 ] It is highly significant that the Trustee supports this request for the extension.

BDO was appointed by Court Order and as such is acting as an Officer of the Court. [ 18 ] It has expressed no concern that Castle Rock is acting in bad faith or without due diligence and if it is suspected that this was the case, it would be duty bound to report this to the Court. The Second Report asserts that Castle Rock will make a proposal. [ 19 ] A.G.C. argues that it is suffering material prejudice because Castle Rock is transferring funds to its related company in India.

[ 20 ] As noted above, this was well known to Clark before he invested in Castle Rock and therefore this cannot constitute material prejudice. Conclusion [ 21 ] I find that Castle Rock has met the burden of establishing that an extension of time for the filing of the proposal to creditors should be granted. The cross-application by A.G.C. is dismissed. Counsel may speak to the terms of the Order granting the extension, including costs. Heard on the 22 nd day of March, 2012. Dated at the City of Edmonton, Alberta this 28 th day of March, 2012. R. Paul Belzil J.C.Q.B.A. Appearances: Michael McCabe, Q.C.

Reynolds Mirth Richards Farmer LLP for the Applicant Darren Bieganek, Q.C. Duncan & Craig LLP for the Respondent Rick Reeson, Q.C. Miller Thomson Independent Counsel for BDO