UBG Builders Inc (Re), 2016 ABQB 472

Court of Queen’s Bench of Alberta Citation: UBG Builders Inc (Re), 2016 ABQB 472 Date: 20160825 Docket: 1201 05843 Registry: Calgary Between: In the Matter of the Companies’ Creditors Arrangement Act , RSC 1985, c-36 , as amended And in the Matter of UBG Builders Inc., Alberta Builders Capital Inc., Alpine Homes

(2006) Inc., American Builders Capital (US) Inc., Edgewater At Griesbach Inc., Elite Homes

(2006) Ltd., Evolution By Greenboro Inc., Greenboro Communities

(2006) Inc., Greenboro Estate Homes

(2006) Ltd., Greenboro Homes

(2006) Ltd., Greenboro Luxury Homes Inc., High Pointe Inc., Mountaineers Village

(2006) Inc., Mountaineers Village II Inc., Origins At Cranston Inc., South Terwillegar Village Inc., The Bridges Management Inc., The Ledges Inc., Timberline Lodges

(2006) Inc., Today’s Communities

(2006) Inc., Today’s Homes

(2006) Inc., Tuscany Developments

(2006) Inc., UBG Alberta Builders

(2006) Inc., UBG Alpine Homes

(2006) Ltd., UBG Bridges Inc., UBG Builders (USA) Inc., UBG Commercial Inc., UBG Land Inc., UBG Lot Deposit Corp., UBG 4500 Calgary Inc., UBG 75 Canmore Inc., UBG 808 Calgary Inc., Unity Investments

(2012) Inc., Valmont At Aspen Stone Inc., Valour Park At Currie Inc., Village At The Hamptons Inc., Village On The Park Inc., Wilderness Homes By Riverdale Inc., Wilderness Ridge at Stewart Creek Inc. (Collectively, The “UBG Group of Companies”) _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice C. M. Jones _______________________________________________________ I.

Introduction [ 1 ] This case deals with the position taken by a Monitor in proceedings under the Companies Creditors Arrangement Act, RSC 1985, c C-36 (“ CCAA ”) in respect of claims advanced by, and payments made to, an unsecured creditor. II. Background [ 2 ] Valmont at Aspen Stone Limited Partnership (“Valmont LP”) was one of many limited partnerships comprising what has been described as the “UBG Group of Companies” (“UBG”). Valmont at Aspen Stone Inc. (“Valmont Inc.”) was the general partner of the Valmont LP. UBG was engaged in residential construction in Alberta and in the United States.

Economic circumstances led UBG to obtain protection under the CCAA (“CCAA Proceedings”) resulting in an Order of this Court (“CCAA Initial Order”) on May 9, 2012. [ 3 ] Valmont LP undertook a multiphase residential condominium project located in Calgary, known as Valmont at Aspen Stone (“Project”). Square Foot Real Estate Corporation (“Square Foot”) entered into a Sales Management Agreement effective September 28, 2011 (“Agreement”), with an entity referred to as Valmont at Aspen Stone Ltd.

I assume for purposes of this judgment that reference in the Agreement to Valmont at Aspen Stone Ltd. was intended to mean Valmont Inc. as general partner. Pursuant to the Agreement, Square Foot was appointed the exclusive agent to promote and sell units in the second and third phases of the Project. [ 4 ] In furtherance of its duties under the Agreement, Square Foot arranged purchase and sale agreements (“Contracts”) with 79 prospective purchasers (“Purchasers”) of condominium units (“Units”).

As a result of Square Foot’s efforts, 73 Offers to Purchase (“OTP”) were signed prior to the CCAA Initial Order and 6 were signed thereafter. [ 5 ] As discussed in detail below, Square Foot was to receive the total commission payable under the Agreement in two tranches.

Those two tranches are referred to in this judgment as front end commissions (“FEC”) and back end commissions (“BEC”). [ 6 ] The entire amount of FEC payable to Square Foot under the Agreement was either paid by Valmont LP to Square Foot prior to May 9, 2012 or accepted for payment by Ernst & Young Inc. (“Monitor”) and paid by it subsequent to May 9, 2012.

[ 7 ] Pursuant to an Order of this Court granted on August 30, 2013 (“Sale Approval and Vesting Order”), the Project was sold to 771280 Alberta Ltd. (“771”). I understand 771 to be a subsidiary of the entity referred to as “RDL” in submissions before me. This was not a sale of individual, completed Units. Rather, it was a sale was of the unfinished Project en bloc. [ 8 ] After 771 purchased the Project, of the 79 OTPs signed up by Square Foot, approximately one-third, in respect of which Square Foot claims BEC in the amount of $175,166, were cancelled.

Deposits received by Valmont LP in respect of these OTPs were not paid to 771, so 771 refunded deposits to these Purchasers from its own funds. The remaining OTPs, in respect of which Square Foot claims BEC in the amount of $269,326.40, were amended by 771 and the Purchasers. The Court was advised that the Purchasers either paid a higher purchase price or bought a different Unit. [ 9 ] Square Foot asserts that it is entitled to BEC in respect of all 79 OTPs in the aggregate amount of $444,492.39 plus GST. It seeks recognition as an unsecured creditor of Valmont LP in respect of these BEC.

In the alternative, Square Foot seeks $269,326.40 plus GST, which it claims is attributable to Units ultimately sold by 771 and which it refers to as “sales achieved by Square Foot”. The Monitor denies Square Foot’s claim to BEC in its entirety. [ 10 ] Square Foot’s claims relate to buildings “C” and “D” of the Project. Closings occurred in respect of Units in Building “B” of the Project prior to CCAA Proceedings. Buildings “C” and “D” were only partially completed when CCAA Proceedings commenced.

No closings in respect of Units in these two buildings had taken place. [ 11 ] Square Foot received FEC in respect of 79 OTPs in the amount of $399,601.19. None of those OTPs resulted in sales that closed, the original Contracts being either cancelled or renegotiated. As discussed below, the terms of the Agreement entitled Square Foot to FEC as soon as the “subject to” period ended and a deal became “firm”. [ 12 ] Square Foot, it appears, had advice from legal counsel throughout CCAA Proceedings.

It replaced its counsel with current counsel sometime in early December 2013. [ 13 ] This Court granted a Claims Procedure Order on June 15, 2012. A Claims Bar Date of July 31, 2012 was established by that Order. Notice to Creditors, attached to the Claims Procedure Order as

Schedule “A” provided, inter alia , that: Any creditor having a claim against an entity forming UBG arising before May 9, 2012, of any nature whatsoever, including unsecured, secured, contingent or Unliquidated Claim is required to file, in the manner set out in this Notice to Creditors, a Proof of Claim in the prescribed form. [ 14 ] The Proof of Claim form attached as

Schedule “B” to the Claim Procedure Order provided that: Claims should not include the value of goods and/or services supplied after May 9, 2012. [Emphasis added.] The CCAA Debtor [Valmont LP] was, as at May 9, 2012, and still is indebted to the creditor in the sum of $___________ as shown by the statement of account attached hereto and marked “Schedule A”. [ 15 ] This excerpt is important because Square Foot takes the position that liability for BEC arose prior to CCAA Proceedings and only payment thereof was deferred. [ 16 ] Square Foot did not file a Proof of Claim in respect of BEC prior to the Claims Bar Date.

It apparently was advised by its former counsel that it could not submit a claim in respect of amounts it had not yet invoiced. Further, it appears to have been advised that it could not submit an invoice for BEC until a sale closed. Square Foot’s former counsel appears to have taken the position that closing occurred when a Purchaser remitted the balance of the purchase price and title was transferred. [ 17 ] Square Foot filed the f ollowing Proofs of Claim after the Claims Bar Date:

a) Supplemental Proof of Claim with respect to additional FEC – November 18, 2013. This claim, though filed after the Claims Bar Date, was allowed by the Monitor;

b) Amended Proof of Claim adding a new secured claim in the amount of $143,710.03 with respect to the “Sales Centre” – October 7, 2013. This amended a filing on July 30, 2012 in respect of FEC. This claim initially was disallowed by the Monitor, but an amount ultimately was negotiated and paid pursuant to a Consent Order dated June 9, 2014;

c) Proof of Claim in respect of BEC – April 11, 2014; and d) “Supplemental” Proof of Claim with respect to BEC – July 21, 2014. [ 18 ] When Square Foot’s Proof of Claim filed April 11, 2014 was disallowed by the Monitor, it filed a Notice of Dispute and the Supplemental Proof of Claim, seeking to amend its Proof of Claim filed on July 30, 2012.

If Square Foot’s entire claim for BEC of $444,492.39 plus GST set out in its Proof of Claim is not allowed, it seeks, in the alternative by way of the Supplemental Proof of Claim, $269,326.40 plus GST, representing BEC “on the sales of units achieved by Square Foot, where the sale of the unit ultimately closed”. III. Iss u es [ 19 ] Three issues arise in this matter.

First, given the Claims Bar Date of July 31, 2012, I must first consider if Square Foot’s Proof of Claim for BEC filed April 11, 2014 should be accepted. [ 20 ] Second, if I direct that thi s Proof of Claim be accepted notwithstanding late filing, I must interpret the Agreement to determine if Square Foot is entitled to the claimed BEC.

[ 21 ] These two issues are, of course, related and there may be some overlap between them. Nevertheless, they are analytically distinct and must be considered separately. [ 22 ] Third, the Monitor asserts that Valmont LP made improper payments to Square Foot on March 16, 2012 and April 5, 2012 (“Payments”). The Payments, the Monitor asserts, were made to Square Foot as a creditor of Valmont LP, gave rise to a preference over Valmont LP’s other creditors and are therefore void. It seeks an Order requiring Square Foot, on account of Valmont LP, to pay to the Monitor the sum of $111,991.28. IV. Analysis A.

Late Filing [ 23 ] Square Foot argues that its Proof of Claim filed April 11, 2014 in respect of BEC should be accepted as properly filed and dealt with on its merits. It argues that it kept the Monitor and UBG fully informed of its claims to BEC throughout CCAA Proceedings. [ 24 ] The Monitor denies Square Foot’s claim for BEC and asserts that it never gave any assurance of payment to Square Foot.

The Monitor also argues that Square Foot has no entitlement to BEC under the Agreement and that it is futile to allow late filing of a Proof of Claim that would yield nothing. [ 25 ] The test on an application for late filing of a claim under the CCAA was set out by the Court of Appeal in Re Blue Range Resources Corp , 2000 ABCA 285 , 271 AR 138 at para 26 : Therefore, the appropriate criteria to apply to the late claimants is as follows: 1. Was the delay caused by inadvertence and if so, did the claimant act in good faith? 2.

What is the effect of permitting the claim in terms of the existence and impact of any relevant prejudice caused by the delay? 3. If relevant prejudice is found, can it be alleviated by attaching appropriate conditions to an order permitting late filing? 4. If relevant prejudice is found which cannot be alleviated, are there any other considerations which may nonetheless warrant an order permitting late filing? 1.

Inadvertence [ 26 ] Turning to the first criterion, I note that the Court of Appeal stated in Blue Range at para 27 that “In the context of the criteria, “inadvertent” includes carelessness, negligence, accident, and is unintentional.” In subsequent cases, this Court has expressed concern about creditors “lying in the weeds” and seeking to secure some advantage by late filing; see, for example, Re BA Energy Inc , 2010 ABQB 507 , 70 CBR (5 th ) 24 and Royal Bank of Canada v Cow Harbour Construction Ltd , 2011 ABQB 223 , 516 AR 125. [ 27 ] Square Foot argues that there is no evidence that it was attempting to circumvent the CCAA process or that it was in some way “lying in the weeds”.

It argues that it had good reasons not to file formal Proofs of Claim for BEC. The Monitor had advised at the First Meeting of Creditors on May 15, 2012 that creditors were to file Proofs of Claim only on currently-owed invoices as of May 9, 2012 and that if Proofs of Claim submitted included items not invoiced prior to CCAA Proceedings, not only would they be discarded but the position of legitimate pre-CCAA invoice claims would be jeopardized. Square Foot decided not to file Proofs of Claim for BEC because the Project was not then complete and BEC was not payable until closing, which had not yet occurred.

Moreover, Square Foot asserts that it relied on the advice of its then-counsel to not include BEC in its Proof of Claim for FEC filed November 18, 2013 because they were not yet “invoiced” sales. [ 28 ] Square Foot seems to suggest that it was caught between a rock and a hard place. It was told by the Monitor that the claims procedure dictated that it should not file Proofs of Claim except in respect of invoiced amounts. It acknowledges that, as of the date of the Claims Procedure Order of June 15, 2012, the Project was not complete and no closings had taken place.

It acknowledges that BEC were not payable until closing had occurred. Invoices could be submitted only after closing. [ 29 ] Square Foot claims to have informally reminded the Monitor of its claim for BEC in February 2014 at a meeting with counsel for the Monitor.

Square Foot’s counsel followed up with a letter on April 1, 2014, received no reply to that letter and promptly filed Proofs of Claim. [ 30 ] At the same time, Square Foot continued to contribute to post-CCAA efforts to effect sales, made periodic inquiries through Larry Scammell and Don Poirier (representatives of UBG) regarding the Monitor’s awareness of its BEC claim, sought clarification of who (Valmont LP or 771) would be responsible for its BEC and attempted to make a deal with 771.

When no deal with 771 was forthcoming, Square Foot formally submitted a Proof of Claim for its BEC. [ 31 ] The Monitor takes the position that Square Foot’s failure to file its BEC by the Claims Bar Date was not inadvertent and instead represents a “calculated risk”. The Monitor notes that Square Foot had filed some claims by the Claims Bar Date of July 31, 2012 and so was fully aware of it. Its BEC claim was filed in April of 2014, many months thereafter.

The Monitor suggests that Square Foot voluntarily and knowingly assumed that Valmont LP would finish the Project and close the sales to the Purchasers under the OTPs. When it became apparent that the Project would be sold en bloc and that its entitlement to BEC could be effectively eliminated, Square Foot chose to try to establish a relationship with 771 that might lead to payment of the BEC once Units were sold by 771. The evidence suggests that Square Foot indeed made inquiries of UBG, the Monitor and 771 in that regard. Apparently, 771 never responded to Square Foot’s inquiry.

[ 32 ] The Monitor suggests that Square Foot made a conscious decision to attempt to have 771 engage it to assist in selling Units in the Project, rather than attempting to collect BEC from the fund standing in place of the Project as a result of the Sale Approval and Vesting Order. When that proved unsuccessful, Square Foot filed its Proof of Claim. [ 33 ] The Monitor bases its argument, in part, on its position that Square Foot had no entitlement to BEC under the Agreement.

The Monitor takes the position that any BEC claim Square Foot filed prior to the Claims Bar Date would have had to await a determination by the Monitor that sales of the 79 Units under the OTPs were completed, that Valmont LP had received the purchase price for the Units and that Square Foot had invoiced Valmont LP for BEC. The Monitor refers to Scammell’s Questioning, in which he affirmed his understanding that BEC was payable when a “unit was turned over to the purchaser”.

It would be “perverse” the Monitor argues, to now accept a claim for BEC after it had been conclusively established that the contingencies entitling Square Foot to BEC never occurred. [ 34 ] This argument ignores the importance of assessing Square Foot’s entitlement to late file a Proof of Claim for BEC separately from its potential entitlement to BEC under the Agreement. As noted above, the late filing and Agreement

interpretation issues must be analyzed separately. [ 35 ] In my view, Square Foot was not simply waiting in the weeds. It participated in the claims process, was alert to its potential entitlement to BEC and engaged counsel to assist it. [ 36 ] Counsel for the Monitor asserted that Square Foot could have filed its claim for BEC as a contingent claim by the Claims Bar Date. There is unchallenged evidence that the Monitor advised creditors at the First Creditors Meeting that Proofs of Claim should not be submitted in respect of claims not yet invoiced.

That should, in my view, have alerted Square Foot to the need to file a contingent claim for BEC on or before the Claims Bar Date. [ 37 ] The somewhat ambiguous nature of the Proof of Claims form utilized in these CCAA Proceedings may have contributed to Square Foot’s decision. As noted above, it provided that “Claims should not include the value of good and/or services supplied after May 9, 2012”. Nevertheless, I find that Square Foot could have protected its claim to BEC without breaching that provision by filing a contingent claim.

Alternatively, if, as discussed infra , Square Foot believed liability for BEC had already crystalized, subject to deferred payment, it could have issued an invoice for BEC prior to the Claims Bar Date on the premise that BEC was owing but not yet “due”. Presumably, Square Foot could have waived any right it had asserted to a contingent BEC as of the Claims Bar Date, had 771 engaged it on the condition that it do so. [ 38 ] I accept the argument that Square Foot believed its best option was to seek an arrangement with 771, rather than to press for payment of BEC.

I believe that decision reflected what should have been its anxiety about its entitlement under the Agreement to BEC, in light of the circumstances, discussed at length above, which arose in respect of CCAA Proceedings and the Sale Approval and Vesting Order. [ 39 ] In Re SemCanada Crude Co , 2012 ABQB 489 , 546 AR 203, a case involving a somewhat similar “judgment call” by a creditor, Romaine J. stated at paras 52 and 53: Celtic’s failure to make a timely claim was not unintentional.

It submits that it “simply” did not perceive it had a right to damages because it did not believe that the IGPA had been suspended. Celtic was aware of the CCAA proceedings from the time of the Initial Order and retained counsel with respect to the proceedings throughout. It filed a Proof of Claim for a different kind of claim.

It cannot argue that its failure to file a claim was careless, negligent or accidental; it was Celtic’s deliberate choice, acting with the advice of counsel, to maintain its position that the IGPA had not been suspended, but amended, without providing for the possibility that this position would be found to be incorrect and that it may have a claim for damages arising from a suspension. ... Celtic submits that the possibility of suspension damages must also have been apparent to SemCAMS and the BA before the Plan was negotiated and presented to creditors.

That is beside the point; the Claims Process in CCAA proceedings requires creditors to identify and to file their claims or be barred from pursuing them. It is not up to the debtor company to guess at potential claims, or whether creditors will decide to pursue them. [ 40 ] Square Foot was not a casualty of a claims procedure that did not adequately address the type of potential claim its

interpretation of the Agreement gave rise to. It knew it could file a contingent claim. Its failure to submit a contingent claim for BEC by the Claims Bar Date or to obtain written confirmation that the Monitor agreed with its decision not to actually issue an invoice for BEC prior to the Claims Bar Date may have been careless or negligent.

However, I do not find it to be inadvertent or unintentional. [ 41 ] Square Foot also argues that its claim for BEC was well known to the Monitor and that its failure to file a formal Proof of Claim by the Claims Bar Date was inadvertent in the sense that it arose from Square Foot’s understanding that the Monitor would recognize its claim. Square Foot argues that, while the Monitor never gave direct assurances that BEC would be paid, the Monitor had known since the commencement of CCAA Proceedings about the basis for and quantum of Square Foot’s BEC claims.

Square Foot does not formally advance an estoppel argument in response to the Monitor’s denial, nor does it formally advance the argument that Square Foot relied to its detriment on representations made by the Monitor. Rather, it argues that it would be unfair to deny Square Foot the ability to advance its BEC claims as an unsecured creditor.

Square Foot points out that the Monitor did accept certain late filed claims for FEC. [ 42 ] The Monitor does not deny that it had some knowledge of Square Foot’s potential BEC claims, but distinguishes between the provision of information regarding potential BEC and the formal submission of a Proof of Claim.

The Monitor argues that it must rely strictly on the Proof of Claim process, approved by this Court, to ensure equal treatment of all creditors. [ 43 ] Scammell’s and Poirier’s evidence, the Monitor argues, establishes that BEC become payable only out of Unit sale proceeds and only when a Unit sale to a Purchaser closed.

It also establishes that any assurances by Scammell and Poirier regarding payment of BEC were given in the context of a sale of Units by Valmont LP and that Square Foot was warned that a sale of the Project en bloc would mean that Square Foot would need to look to 771, not Valmont LP, for payment of BEC. However, 771 did not respond to Square Foot’s overtures.

[ 44 ] While this matter is discussed in more detail in respect of the fourth Blue Range criterion, it is relevant here because it informs the analysis of Square Foot’s intentions. If it knew or ought to have known that it could not look to 771 for its BEC, yet it still did not file a Proof of Claim, can its decision to not do so be said to have arisen unintentionally, through inadvertence? [ 45 ] There is sufficient evidence regarding communications with the Monitor through Scammell and Poirier to suggest to me that the Monitor was aware that Square Foot might assert a claim to BEC.

That, however, is different from the assertion of a formal claim, with ensuing consequences, as part of a claims procedure. The Monitor’s awareness of Square Foot’s BEC claim does not amount to a waiver of the requirement for that claim to be submitted in accordance with proper claims procedure. [ 46 ] In this respect, I take guidance from the following comments by Romaine J. in Re BA Energy at para 41: The objective of a claims procedure order is to attempt to ensure that all legitimate creditors come forward on a timely basis.

A claims procedure order provides the debtor and the Monitor with the information necessary to fashion a plan that may prove acceptable to the requisite majority of creditors given the financial circumstances of the debtor and that may be sanctioned by the court. The fact that accurate information relating to the amount and nature of claims is essential for the formulation of a successful plan requires that the specifics of a claims procedure order should generally be observed and enforced, and that the acceptance of a late claim should not be an automatic outcome.

The applicant for such an order must provide some explanation for the late filing and the reviewing court must consider any prejudice caused by the delay. [ 47 ] Though it appears the Monitor was less proactive than it might have been in attempting to clarify if and how Square Foot would advance a claim for BEC, the responsibility for advancing a claim lies with the creditor, not the Monitor and I am not satisfied that the Monitor was responsible for doing more.

The Monitor’s awareness of Square Foot’s BEC claim does not obviate Square Foot’s responsibility for pursuing that claim in the appropriate manner and it cannot be said that Square Foot was unaware of the claims process. Therefore, I find that Square Foot’s failure to file a Proof of Claim for BEC prior to the Claims Bar Date was not the result of inadvertence. 2. Prejudice [ 48 ] The second Blue Range criterion requires consideration of any prejudice resulting from the delay in filing the claim.

The Court of Appeal held at para 40 of Blue Range that “In a CCAA context, as in a BIA context, the fact that Enron and the other Creditors will receive less money if late and late amended claims are allowed is not prejudice relevant to this criterion.” [ 49 ] Square Foot argues that assurances were given that the contracts it had assisted in negotiating with Purchasers before CCAA Proceedings commenced would somehow be transferred as part of the en bloc sale of the Project, that their value would be recouped in the sale price by the Monitor and that BEC would be paid to Square Foot.

Square Foot was advised by Scammell that if 771 did not contract with Square Foot, BEC would be “covered off by the Monitor” in the receipt of the purchase price to be negotiated with 771. [ 50 ] Indeed, the evidence satisfies me that, once it became clear the Project would be sold en bloc , Scammell advised Square Foot to contact 771 and attempt to negotiate a deal directly with it. By then, however, the Claims Bar Date had come and gone.

The Sale Approval and Vesting Order, which presumably reflected the deal negotiated between the Monitor and 771, specifically relieved 771 from any liability Valmont LP may have had to Square Foot. It appears that Square Foot did not object to the terms of the Sale Approval and Vesting Order. Should this operate to deny it the ability to late file a Proof of Claim for BEC? [ 51 ] In my view, it should not.

The terms of the Sale Approval and Vesting Order should operate only to limit what might otherwise be Square Foot’s claim for BEC to sale proceeds of the Project which the Monitor holds in place of individual Units and the Project itself. The only prejudice that would result from this would be a diminution in the amount received by other creditors; the Court of Appeal has held that this does not constitute prejudice for this purpose. 3. Conditions [ 52 ] Neither party placed any emphasis on this criterion, both sides appearing to see the late filing as an “all or nothing” proposition.

Accordingly, I have not considered the possibility of attaching any conditions to late filing, if permitted. 4. Other Considerations [ 53 ] As alluded to above, Square Foot’s primary argument in favour of its application for late filing is that it reasonably relied on representations that its claim for BEC would be recognized notwithstanding the absence of a formal Proof of Claim.

Though it does not plead estoppel, misrepresentation or breach of duty, the inference Square Foot would have this Court draw is that it would unfair to deny it the ability to have its BEC considered along with other unsecured creditors in dividing up the Claims Reserve.

In this respect, the comments of Romaine J. in Re BA Energy at para 34 are apposite: “It is clear from the nature of the [ Blue Range ] criteria that the question of whether a late claim should be accepted is an equitable consideration, taking into account the specific circumstances of each case.” [ 54 ] Square Foot seeks to establish that the Monitor, through Scammell and Poirier, had full and timely information regarding its BEC.

Tim Taylor, a representative of Square Foot, stated as follows in an Affidavit: In the post-CCAA period, it was confirmed by Larry Scammell that all ‘back-end’ commissions would be paid at the time of Closing on any deals that were directly written by Square Foot. Mr.

Scammell also confirmed that this information was passed along to the Monitor and to the Purchaser. [ 55 ] Square Foot asserts that both Scammell and Poirier confirmed the accuracy of this statement during questioning and that it is reasonable to conclude that the Monitor knew that Scammell and Poirier had assured Square Foot that it would be paid BEC.

[ 56 ] Square Foot referred to various events as “evidence” of a commitment by the Monitor to honour BEC, including:

(1) Scammell’s confirmation that he received a spreadsheet depicting both FEC and BEC and forwarded it to the Monitor; (2) a telephone conversation among Simon Kowalkow (a representative of Square Foot), Scammell and Poirier on November 30, 2012 suggesting that Scammell and Poirier knew what had been paid and what was outstanding;

(3) Poirier’s confirmation that Square Foot would be paid at the time of closing;

(4) Scammell’s confirmation that he would pass to the Monitor information received on December 21, 2012 from Kowalkow and Taylor regarding BEC;

(5) Scammell’s alleged discussions with the Monitor regarding a 50/50 split of commission between FEC and BEC; and

(6) Taylor’s understanding that BEC would be paid once construction was completed and Unit sales closed, together with Poirier’s confirmation that if the Project was built, Square Foot would receive its BEC. [ 57 ] The reasonableness of Square Foot’s reliance on this “evidence” is premised on the assertion that Scammell and Poirier were acting as agents or representatives of the Monitor and were able to bind the Monitor.

The Monitor expressly denies this assertion; its position is that Scammell and Poirier were employees of UBG, not agents or representatives of the Monitor. [ 58 ] The evidence satisfies me that Scammell and Poirier were in frequent contact with Taylor during CCAA Proceedings, that the Monitor was aware of the circumstances in which Square Foo t could become entitled under the Agreement to receive FEC and BEC and that the Monitor knew the quantum of Square Foot’s potential BEC claim. [ 59 ] However, the evidence does not satisfy me that Scammell and Poirier were imbued with authority to commit the Monitor to anything.

They were employed by UBG, not by Ernst & Young. If representations were made, they do not constitute representations or assurances by the Monitor that it would recognize BEC. If Square Foot chose to rely on advice from Scammell and Poirier, it did so at its peril. There is a significant difference between relying on representatives of UBG as conduits for information to and from the Monitor and relying on those representatives for conclusions regarding legal rights.

Square Foot could have instructed its then counsel to obtain confirmation from the Monitor or its counsel that no further actions were required for the Monitor to recognize its claim for BEC. There is no evidence before me that it did so. [ 60 ] Further, the evidence suggests that once it became apparent that the Project would be sold en bloc , Square Foot was being told to make arrangements directly with 771. The Monitor argues that if Scammell gave any assurances to Square Foot, he did so only in the context of sales closed by Valmont LP, not by 771.

It asserts that Valmont LP never become liable to pay BEC and that 771 was relieved by the Sale Approval and Vesting Order from any liability under the Agreement for BEC that might be owed to Square Foot. [ 61 ] Square Foot argues that it was entitled to expect the Monitor to treat it reasonably and honourably by having its BEC recognized in the sale price to 771. [ 62 ] Ultimately, one-third of the Contracts negotiated by Square Foot were cancelled. The Court was advised that 771 refunded deposits advanced by these Purchasers, notwithstanding that it had not received those deposits from Valmont LP.

New/amended contracts were put in place with the other two-thirds of the Purchasers. There is no evidence before the Court as to whether the purchase price for the Project reflected an understanding between the Monitor and 771 respecting Square Foot’s claims to BEC. What is clear is that Square Foot neither objected to the Sale Approval and Vesting Order nor sought assurances from the Monitor that its BEC formed part of the deal with 771.

That being the case, it simply is not evident to me that the Monitor’s actions can be characterized as dishonourable or unreasonable. [ 63 ] Square Foot notes that, once CCAA Proceedings commenced, it was asked to stay on by UBG and it continued to staff the Valmont LP sales centre. To quote counsel for Square Foot “It’s a member of the family”. Square Foot notes that Scammell confirmed that Square Foot’s efforts added value by keeping many buyers in place and finding new buyers, which promoted the sale of the project to 771.

Square Foot argued that it was an integral part of UBG’s marketing efforts and that it added considerable value to completion of the Project, even after Valmont LP entered CCAA Proceedings. At Questioning, Poirier confirmed the accuracy of the following comment in Taylor’s Affidavit: Square Foot believes that it was largely through its efforts that the ultimate buyer of the project was presented with a nearly-completed project (from a design and marketing perspective), where all it had to do was “turn the lights back on”.

No re-branding, marketing, tweaking, or re-designing had to be done and no money had to be put into these line items for the new owner to have a very viable, marketable project. [ 64 ] No evidence was provided to support these assertions. In my view, the Monitor’s acquiescence to Square Foot’s continued sales efforts is not evidence that the Monitor considered Square Foot’s contribution significant or somehow worthy of recognition of its BEC claim without compliance with the established claims procedure. There was no evidence from 771 to support the assertion that Square Foot’s efforts lightened its burden.

It makes sense that Square Foot would, in its own interests, continue its function during this pre- en bloc sale phase in order to maximize retention of Purchasers. [ 65 ] I must consider if, under the circumstances, it would be inequitable to deny Square Foot the ability to late file a Proof of Claim for BEC. I conclude that a denial would not be inequitable. It is clear that Square Foot acted in reliance on its dealings with Scammell and Poirier, but the evidence does not satisfy me that those gentlemen were able to bind the Monitor to any undertakings or understandings.

They were merely a conduit through which Square Foot found it convenient to communicate with the Monitor. Square Foot was not justified in basing its claims submission strategy on Scammell’s and Poirier’s understandings of industry practice or contract

interpretation. Square Foot could, and should, have protected its BEC claim by filing a contingent Proof of Claim or by seeking assurances directly from the Monitor or its counsel. [ 66 ] In the result, Square Foot’s application to late file a Proof of Claim for BEC is denied. B. Validity of Claim [ 67 ] The Monitor takes the position that, irrespective of the late filing of the Proof of Claim, Square Foot is not entitled to payment of BEC under the terms of the Agreement.

1. The Agreement [ 68 ] The remuneration of Square Foot is contemplated in clause 6 of the Agreement, the relevant portions of which provide as follows: 6. Commission and Remuneration of Square Foot (

A) The remuneration of Square Foot for successfully selling units in the Building is based purely on performance with no retainers, draws or guarantees given by the Principal. The Principal agrees to pay Square Foot the following sums: (1) for Units sold by the Salespeople working for Square Foot which are assigned to the Building, a Commission equal to the following shall be paid, plus applicable GST. a. Base Commission per deal 2.75% … (

B) In respect of every Unit sold for which a Contract exists and for which a Commission is payable to Square Foot under Clause 6(A) (1), 6(A)(2), and 6(A)(3), the Principal shall pay to Square Foot: (1) fifty percent (50%) of the applicable Commission on the Principal’s subsequent cheque run following invoicing from the later of a Purchaser’s subject removal or the date of execution of the Contract for the Unit and payment by the Purchaser of the initial deposit to be paid by the Purchaser which deposits will not be less than ten percent (10%) of the purchase price of the Unit ... (2) the balance of the Commission (“Balance Commission”) of fifty percent (50%) upon completion of the sale and purchase of the Unit and receipt by the Principal of the balance of the purchase price for the Unit.

Square Foot will invoice the Principal once a month for all commissions owing and payment will be payable on the Principal’s subsequent cheque run following invoicing; (

C) In the event the sale and purchase of a Unit for which a Commission is payable is not completed, the following shall occur: (1) where the failure to complete the transaction is by reason only of the default of the Purchaser, the Balance Commission shall be forfeited by Square Foot and Square Foot shall have no further claim against the Principal for the Balance Commission. In addition, in the event that the initial portion of the Commission for the Unit has been paid to Square Foot, then Square Foot shall refund the Commission to the Principal one month following completion date for the sale provided that:

a) all or a portion of any deposit paid in respect of the Unit has not been forfeited to the Principal in an amount in excess of the initial portion of the Commission;

b) in the event that the Purchaser has not forfeited all or a portion of their deposit, that the Principal diligently pursue its legal remedies to both complete the sale retention of the Purchaser’s deposit in the case of non-completion; and (2) in the case of default by the Vendor, the Balance Commission shall be payable by the Principal to Square Foot on the earlier of the date of completion contemplated in the Contract and thirty (30) days from the issuance of an occupancy permit for the Unit unless the Vendor’s default arises in whole or in part from the Purchaser alleging that the Vendor is in breach of the Contract as a result of an act or misrepresentation made on the part of Square Foot. … (

E) The Principal shall not be liable for any fees, commissions, compensation or remuneration for or in connection with the sale of the Units other than the Commissions earned under Paragraph 6, unless specifically agreed by the Principal. [ 69 ] Clause 12 of the Agreement provides, in part, as follows: Miscellaneous ….No modification of this Agreement shall be effective unless set forth in writing and signed by both parties.

This Agreement contains the entire agreement between the parties and supersedes all prior and written agreements between the parties with respect to the subject matter hereof. [ 70 ] It is common ground that the Commission referred to in clause 6(B)(1) is the FEC and that the Balance Commission referred to in clause 6(B)(2) is the BEC. 2. Liability for Commission [ 71 ] Square Foot argues that liability for payment of both FEC and BEC arises under clause 6(A)(1) when Units are sold.

Clause 6(B), it argues, merely deals with the timing of payment, liability for which crystallizes when Square Foot has sold a Unit. [ 72 ] It argues that a Unit is considered sold when, in accordance with clause 6(B)(1), a sale becomes unconditional or a deposit is paid, whichever is later. Clause 6(B)(2), Square Foot argues, merely defers payment of BEC until Valmont LP receives the balance of the purchase price for a Unit.

It does not qualify Valmont LP’s liability to pay both FEC and BEC, once a sale of Unit becomes unconditional. [ 73 ] Square Foot asserts that Valmont LP completed a sale of all of the Units to 771 and received monies on account of purchase price of individual Units, albeit as proceeds of sale of the Project en bloc .

[ 74 ] Conversely, the Monitor argues that under clause 6(B)(2), Valmont LP’s liability to pay BEC arises only when it completes a sale of a Unit to a Purchaser under a Contract and gets paid. Its position is that, since Valmont LP did not complete the sale of individual Units to Purchasers under Contracts and did not receive the purchase price, no BEC is owing. The Monitor notes that sales of Units were either cancelled or renegotiated by 771 without Square Foot’s involvement. [ 75 ] In my view, Square Foot’s

interpretation of the Agreement is not tenable. It effectively requires Valmont LP to guarantee or insure payment of BEC to Square Foot even though it may not realize any sale proceeds. [ 76 ] Clause 6 establishes a protocol of “staged entitlement” to Commission. The introductory words of Clause 6(

A) make clear that Square Foot’s remuneration is based on successful sales. It establishes that Square Foot will become entitled to a 2.75% commission provided that it concludes binding Contracts with Purchasers. [ 77 ] Clause 6(

B) stipulates under what circumstances Square Foot’s Commission becomes payable. Under clause 6(B)(1), FEC is payable upon the later of removal of a Purchaser’s conditions and payment of the required deposit. FEC was paid in accordance with this protocol. [ 78 ] Under clause 6(B)(2), BEC becomes payable upon completion of the sale and receipt by Valmont LP of the purchase price. Square Foot argues that completion of the sale occurs upon removal of a Purchaser’s conditions. The Monitor argues that it means when title is transferred.

In the ordinary course, the two events contemplated in clause 6(B)(2) (completion of the sale and receipt of the purchase price) would be expected to happen at the same time. I note that the clause includes no qualifiers such as “upon the earlier of” or “upon the later of”. [ 79 ] In any event, I reject Square Foot’s argument that clause 6(A)(1) creates liability for Commission and that clause 6(

B) pertains only to timing. Rather, I find that clause 6(

B) sets out Valmont LP’s liability to pay Commissions and that liability for BEC is contingent, arising if and only if the sale of a Unit closes. [ 80 ] The staged entitlement makes sense from a risk allocation perspective. Payment of half the Commission upon execution of the Contract and the other half upon completion of the sale of the Unit effectively splits the risk between Square Foot and Valmont LP in the event that a sale does not close. Valmont LP takes the risk that it will pay FEC and Square Foot takes the risk that it will lose its BEC. This

interpretation, in my view, accords not only with the wording of the Agreement but also with the “business efficacy” principle of contract

interpretation. Square Foot’s

interpretation, by contrast, strains the wording of the Agreement and requires the unreasonable assumption that Valmont LP would have agreed to terms requiring it to pay Commission irrespective of whether it closed the sale and got paid. [ 81 ] To some extent, Square Foot’s evidence supports this notion of staged entitlement. During the hearing, I asked counsel for Square Foot why, if liability for BEC had crystalized by the time the Monitor became involved, Square Foot did not prepare and submit invoices for BEC and a Proof of Claim.

Counsel advised that industry practice was to create an invoice at the time it is normally paid, which would be the time of closing. [ 82 ] In my view, that practice affirms the Monitor’s position. Until the conditions in clause 6(B)(2) are satisfied, no amount is payable in respect of BEC, an invoice in respect thereof cannot be prepared and no Proof of Claim can be filed, other than on a contingent basis.

I suggest that is the practice because to do otherwise would be to recognize entitlement to BEC before that entitlement has arisen. [ 83 ] In this case, BEC did not become payable under clause 6(B)(2) because the conditions were not fulfilled. Therefore, Square Foot is not entitled to BECs. [ 84 ] Counsel for Square Foot argues that clause 6(C)(1) of the Agreement is consistent with liability for BEC arising when a Contract becomes unconditional. He notes that clause 6(C)(1) provides that Commission shall be forfeited in the event of default by a Purchaser.

He asks: What ca n that possibly mean other than it was due, it was payable, closing didn’t take place, which is a timing issue only and so it’s forfeited because it didn’t happen but the liability was there. [ 85 ] With respect, I think it means that the contingent BEC never becomes payable in accordance with the staged entitlement. Square Foot’s entitlement is forfeited. [ 86 ] Counsel for Square Foot points to clause 6(C)(2) which contemplates default by the Vendor. In such a situation, he asserts that only the timing of the payment of BEC is affected.

Liability is not changed by this clause, just timing of payment. This, he argues, supports his assertion that liability for BEC is determined under clause 6(A)(1). [ 87 ] In my view, clause 6(C)(2) merely creates an alternate contingency for liability for BEC. If the sale of a Unit will not close because of default on the part of Valmont LP, the conditions in clause 6(B)(2) cannot be satisfied, so clause 6(C)(2) provides an alternate means for liability for BEC to arise. This is consistent with the risk allocation discussed above because it means that Valmont LP bears the risk of its own default. 3.

Event of Default [ 88 ] Square Foot asserts that clause 6(C)(2) further supports its claim to BEC. It argues that Valmont LP failed to complete the sale of Units negotiated by Square Foot by entering into CCAA Proceedings. [ 89 ] The Monitor argues that that clause 6(C)(2) is not engaged because entering CCAA Proceedings does not amount to default by Valmont LP. It points to clause 10 of the Sale Approval and Vesting Order which provides:

Notwithstanding any provision to the contrary in any third party agreement (

a) The transaction contemplated hereby shall not create or be deemed to constitute a breach by any of the petitioners of any third party agreement to which they are a party. [ 90 ] I accept that Square Foot worked to induce Purchasers to make offers for all of the Units and that it was not Square Foot’s fault that Valmont LP required CCAA protection. [ 91 ] However, clause 6(C)(2) is effective only in the event of default by Valmont LP.

The Agreement does not define “default” and Square Foot provided no authority for the proposition that CCAA protection should be considered an event of default by Valmont LP. [ 92 ] In the absence of an express term in the Agreement, I find that characterizing CCAA Proceedings as an event of default is unreasonable. Moreover, it is inconsistent with the risk allocation otherwise contemplated in the Agreement. Even if CCAA Proceedings are not a default by Valmont LP, Square Foot retains its entitlement to FEC notwithstanding that sales of the Units were not completed by Valmont LP.

By contrast, if CCAA Proceedings are an event of default, Valmont LP is liable for the full amount of Square Foot’s Commission, both FEC and BEC, notwithstanding the lack of completed sales. If the parties had wanted to allocate the risk of insolvency in that manner, they could have done so in the Agreement. Without such an express term, I am not prepared to interpret the term “default” in clause 6(C)(2) in this way. [ 93 ] Consequently, clause 6(C)(2) is of no assistance to Square Foot. 4.

Collateral Attack [ 94 ] The Monitor notes that the doctrine of collateral attack applies where a party bound by an order seeks to avoid compliance by challenging the order itself and its enforceability indirectly in a separate forum. It asserts that Square Foot’s BEC claims are a collateral attack on the Sale Approval and Vesting Order. That Order provided, inter alia , for transfer of title to the Project, including the OTPs, to 771 free and clear of all claims by or against Valmont LP.

Thus, whatever claims Square Foot might have had against Valmont would not attach to 771. [ 95 ] It would appear that Square Foot had all of the information necessary to calculate its BEC claims prior to July 30, 2012 and was fully aware of the process that culminated in a successful bid by 771 on August 30, 2013. It did not instruct its counsel to appear at the application to approve the sale nor did it object or seek to have conditions attached to the Sale Approval and Vesting Order.

The Monitor suggests Square Foot is at fault for not seeking to have protective terms governing its entitlement to BEC included in the Sale Approval and Vesting Order. [ 96 ] I do not find that Square Foot’s actions constitute a collateral attack on the Sale Approval and Vesting Order. Square Foot does not seek to alter the terms of that Order. It simply seeks to have claims that it formerly had against Valmont LP attach to the Claims Reserve. [ 97 ] Nevertheless, I have found that Square Foot is not entitled to receive BEC. C.

Fraudulent Preference [ 98 ] T h e Monitor applies for a declaration that the Payments made by Valmont LP to Square Foot on March 16, 2012 and April 5, 2012 in the total amount of $111,991.28 are void as against the Monitor and seeks an Order requiring Square Foot to pay that amount to the Monitor on account of Valmont LP. In the alternative, if Square Foot had a valid claim for BEC, the Monitor had sought an Order reducing the amount of such claim by $111,991.28. In light of my conclusion above, this alternative need not be addressed. 1.

Background [ 99 ] The Bridges Project was a 122 unit condominium project in the Bridgeland community in Calgary. UBG, through one of its limited partnerships, owned all of the units in the Bridges Limited Partnership. An entity called PAYCON Holdings Ltd. acquired half of those units. [ 100 ] The Bridges Management Inc. served as general partner to the Bridges Limited Partnership. On March 21, 2012, it entered into an agreement (“Marketing Management Agreement”) to engage Square Foot as marketing agent to promote the Bridges Project. Clause 3(

b) of the Marketing Management Agreement required Square Foot “to coordinate the re-design of the sales centre space already leased, paying for all costs related to exterior marketing materials, interior displays and marketing materials, exterior signage (both on-site, and at the sales centre location) office equipment and furniture, show suite construction, renovations, and any other additional marketing/construction expenses that may relate to the necessity of a point of sale facility and display.” [ 101 ] Clause 6 of the Marketing Management Agreement dealt with Square Foot’s remuneration.

Clause 6(A)(3) purports to bind Valmont LP, which was not a party to the Marketing Management Agreement, to advance a “non-refundable retainer” to Square Foot in respect of the Bridges Project sales centre: In addition to invoicing as noted above, the Principal and Square Foot will come to a mutu a l agreement within 15 days of signing this agreement to provide remuneration in the form of a non-refundable retainer from Valmont at Aspen Stone LP to support the costs of sales centre design and construction. [ 102 ] When the payments were made by Valmont LP to Square Foot they were invoiced and booked by Square Foot as payment of BEC.

According to Taylor, this was “a convenience to UBG, who owed Square Foot this amount under an entirely separate agreement”.

Taylor described the arrangement as follows: This somewhat unique arrangement (being paid out of Valmont LP cash flow for Bridges Management Inc.’s obligation to Square Foot under a separate agreement), was done at UBG’s request, and solely as an accommodation to UBG, and to assist it in effectively marshalling its cash flow throughout its entire family of companies. 2. Legislation [ 103 ] The Monitor relies upon s. 95 of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 (“ BIA ”) and s. 36.1 of the CCAA , which provided as follows at the relevant time: 95.

(1) A transfer of property made, a provision of services made, a charge on property made, a payment made, an obligation incurred or a judicial proceeding taken or suffered by an insolvent person (

a) in favour of a creditor who is dealing at arm’s length with the insolvent person, or a person in trust for that creditor, with a view to giving that creditor a preference over another creditor is void as against — or, in Quebec, may not be set up against — the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy; and (

b) in favour of a creditor who is not dealing at arm’s length with the insolvent person, or a person in trust for that creditor, that has the effect of giving that creditor a preference over another creditor is void as against — or, in Quebec, may not be set up against — the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is 12 months before the date of the initial bankruptcy event and ending on the date of the bankruptcy.

(2) If the transfer, charge, payment, obligation or judicial proceeding referred to in paragraph (1)(

a) has the effect of giving the creditor a preference, it is, in the absence of evidence to the contrary, presumed to have been made, incurred, taken or suffered with a view to giving the creditor the preference — even if it was made, incurred, taken or suffered, as the case may be, under pressure — and evidence of pressure is not admissible to support the transaction. 36.1

(1) Sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act apply, with any modifications that the circumstances require, in respect of a compromise or arrangement unless the compromise or arrangement provides otherwise.

(2) For the purposes of subsection (1), a reference in sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act (

a) to “date of the bankruptcy” is to be read as a reference to “day on which proceedings commence under this Act”; (

b) to “trustee” is to be read as a reference to “monitor”; and (

c) to “bankrupt”, “insolvent person” or “debtor” is to be read as a reference to “debtor company”. 3. Elements [ 104 ] The Monitor asserts that the elements necessary to establish that the Payments to Square Foot constituted a preference are: 1. The Payments were a “transfer of property made, a provision of services made, a charge on property made, a payment made, an obligation incurred or a judicial proceeding taken or suffered”; 2. The Payments were made by a debtor company, Valmont LP; 3.

The Payments were made within three months of the commencement of CCAA Proceedings, being the granting of the CCAA Initial Order; 4. Square Foot was a creditor of Valmont LP when the Payments were made; and 5. The Payments were made with a view to giving Square Foot a preference over other creditors of Valmont LP or a preference is to be presumed because the payments had the effect of preferring Square Foot over other creditors of Valmont LP and Square Foot has failed to rebut that presumption. a. Payments [ 105 ] It appears to be common ground that the Payments were made to Square Foot.

Therefore, I find that this element is satisfied. b. Debtor Company [ 106 ] The Monitor asserted in its brief that this element is satisfied because it is clear that the Payments were made by Valmont LP. That, however, is not the contentious point. To satisfy the criteria set forth in the BIA and CCAA , the alleged preferential payment must be made by a “debtor company”. [ 107 ] Section 2(1) of the CCAA provides that: “debtor company” means any company that (

a) is bank r upt or insolvent,

(b) … is deemed insolvent within the meaning of the Winding-up and Restructuring Act… [108] Insolvency is not defined in the CCAA.

Section 3 of the Winding-up and Restructuring Act provides that a company is deemedinsolvent, inter alia, if it is unable to pay its debts as they become due. [109]

Section 2 of the BIA provides that: insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities tocreditors provable as claims under this Act amount to one thousand dollars, and (

a) who is for any reason unable to meet his obligations as they generally become due, (

b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, … [110] The Court in Re Stelco Inc (2004), (ON SC), 48 CBR (4th) 299 (Ont SC) stated as follows at paras 21 and22: The CCAA does not define "insolvent" or "insolvency". Houlden & Morawetz, The 2004 Annotated Bankruptcy and Insolvency Act(Toronto, Carswell; 2003) at p 1107 (N5) states: In interpreting "debtor company", reference must be had to the definition of "insolvent person" in s. 2(1) of the Bankruptcy andInsolvency Act...

To be able to use the Act, a company must be bankrupt or insolvent: Reference re Companies' Creditors Arrangement Act (Canada), (SCC), 16 C.B.R. 1 [1934] S.C.R. 659, [1934] 4 D.L.R. 75. The company must, in its application, admit its insolvency. It appears to have become fairly common practice for applicants and others when reference is made to insolvency in the context of theCCAA to refer to the definition of "insolvent person" in the BIA. [111] Square Foot argues that the Monitor must prove that Valmont LP was insolvent and directed the Court’s attention to Janis P.Sarra, Geoffrey B. Morawetz and L.W.

Houlden, The 2015-2016 Annotated Bankruptcy and Insolvency Act (Carswell, 2016) at 571under the heading “Proof of Insolvency”: The court will not presume insolvency; it must be proved: Re Van der Liek (1970), 14 C.B.R. (N.S.) 229 (Ont. H.C.). A mere statementby the trustee that it believes the debtor was insolvent at the time of the alleged preference is insufficient: Re Blenkarn Planer Ltd.(1958), (BC SC), 37 C.B.R. 147 (B.C.S.C.). Evidence that is speculative and based on hearsay will not be sufficient:Re Debentis Invts. Ltd. (1981), 39 C.B.R. (N.S.) 39 (Ont.

S.C.) Re Bagnell (1985), 58 C.B.R. (N.S.) 66 (N.S.T.D.). The trustee is not,however, required to prove insolvency beyond a reasonable doubt; proof is the usual proof in civil cases: Re Blenkarn Planer Ltd....Theproof must, however, be clear and convincing: Fischer v. Moffat & Powell, Perth Ltd. 1984, 53 C.B.R. (N.S.) 28 (Ont.

S.C.). [112] Square Foot also argues that, for fraudulent preference purposes, the insolvency of the debtor must be proved as of the date ofthe alleged preference: Re Jims Welding Ltd, 2013 ABQB 590, 571 AR 276 at para 6. [113] The Monitor asserts that, for purposes of determining if a company is a debtor company under the CCAA, the Court can rely onthe extended definition of insolvency articulated at para. 40 of Stelco: Whether there is a reasonably foreseeable (at the time of filing) expectation that there is a looming liquidity condition or crisis which willresult in the applicant running out of “cash” to pay its debts as they generally become due in the future without the benefit of the say andancillary protection and procedure by court authorization pursuant to an order. [114] While the Monitor concedes that this extended definition does not apply for fraudulent preference purposes, it takes the positionthat the presence of unsatisfied liabilities at the date of CCAA filing can be considered by the Court in looking back to the circumstancesthat were likely to prevail at the time of the alleged preference. [115] The Monitor points to the discussion of preferences in Sarra, Morawetz and Houlden at para (4) of p 571: However, if it can be shown that the debtor was hopelessly insolvent at the date of bankruptcy, it may be a reasonable assumption thatlittle change has occurred in the financial position of the debtor from the date that the preference was given: Re Holt Motors Ltd. (1966), (MB KB), 9 C.B.R. (N.S.) 92, 56 W.W.R. 182, 57 D.L.R. (2d) 180 (Man.

Q.B.). [116] The Monitor also argues that a fraudulent preference may be established on the basis of liquidity/cashflow insolvency orbalance sheet insolvency; both are not required. The Monitor relies here on cashflow insolvency. [117] The Monitor’s premise is that, at the time of the Payments, Valmont LP was unable to pay its debts and had ceased paying itsobligations in the ordinary course of business as they became due.

The Monitor argues that, as of May 9, 2012, Valmont LP wasrecognized as an insolvent debtor company because para 2 of the CCAA Initial Order refers to the applicants, including Valmont LP, as“affiliated debtor companies within the meaning of the CCAA.” [118] Square Foot argues that the ex parte nature of the CCAA Initial Order means that there was no one present in Court to challengeassertions that any particular company within a group like UBG is truly insolvent, especially when financial statements tendered inevidence are prepared on a consolidated basis. [119] Square Foot points to the Monitor’s report dated June 12, 2012, approximately one month after CCAA Proceedings commencedand months after the dates of the Payments.

That report stated as follows:

The Monitor with input from the Company prepared a financial analysis of the Valmont project and provided same to Scotiabank for its review and consideration. The purpose of the financial model was to supply Scotiabank with a detailed analysis of the Valmont project so that Scotiabank could assess the project’s financial position and determine ongoing funding requirements. The financial model provided to Scotiabank indicates that Valmont is profitable and that Scotiabank is well secured on its loans.

If the project is completed UBG is expected to realize profits exceeding $3.0 million after payout of the amount owed to the private investor. [ 120 ] The Monitor asserts that the Court cannot rely on the representations in this report about Valmont LP’s prospects, notwithstanding the Monitor’s efforts to do a detailed and comprehensive evaluation. The Monitor argues that its assessment was based on Valmont LP’s projections, which the Court should presume do not reflect a high level of certainty. [ 121 ] I find that argument somewhat troubling.

Notwithstanding the extensive disclaimers appearing at the beginning of every Monitor’s report, surely readers are entitled to place some degree of reliance on the integrity of the Monitor’s investigative process. [ 122 ] The Monitor notes that para 2 of its Report in respect of the Bridges Project states “In February 2012, UBG’s financial difficulties became evident, and towards the end of March 2012, there were few funds in the UBG group available to repay the amounts borrowed from GEH”. [ 123 ] GEH, a UBG entity, had a significant line of credit with the Toronto Dominion Bank.

At the first of each month it would draw down $8 to $9 million on that facility and advance funds to other UBG entities, including Valmont LP. At the end of each month, UBG entities, including Valmont LP, would repay funds to GEH so it could pay down its line of credit. In March 2012, Valmont LP was not remitting funds in amounts which fully covered what it had received. [ 124 ] However, the Monitor acknowledged that it does not have inter-company loan agreements; thus, it was able to establish what terms of repayment applied to the UBG entities.

I was left with the impression that movement of money within the UBG group was relatively fluid. Entities from which funds could be obtained were tapped. Those which did not have funds were not, presumably in anticipation of their various projects coming to fruition at which time they could be tapped. I am unable to conclude that Valmont LP had debts due to UBG entities or to GEH that it could not pay.

No evidence was provided to suggest that demands had been made of Valmont LP which remained unmet or that Valmont LP was a guarantor of GEH’s debt to the Toronto Dominion Bank. [ 125 ] In addition to financing through the UBG group, Valmont LP had received funds from Scotiabank under a demand facility. Counsel for the Monitor advised that, on May 9, 2012, Valmont LP owed Scotiabank $4.3 million and takes the position is that these monies “could become presently due”.

The Monitor suggests that at the date of the Payments, Valmont LP was insolvent, in part because it had been drawing on its facility with Scotiabank at the end of each month to send funds up the UBG chain. In March 2012, when it received $875,000 from an entity called Today’s Communities, it paid back only $40,000. [ 126 ] However, as of the dates of the Payments, Scotiabank had not demanded payment and counsel for the Monitor acknowledged that, until a demand for payment on that facility was made, no amount could be said to be “due”.

Moreover, while Valmont LP owed $4.3 million, its line of credit appears to have been $9.8 million. [ 127 ] Further, Square Foot notes that the Scotiabank facility was secured by a mortgage on the Project lands in the amount of $40,000,000.

It asserts that Valmont LP would have owed approximately $10,000,000 at the time of the Payments, consisting of the Scotiabank debt of $4.3 million and indebtedness to “investors” of $6.76 million and that the assets held by Valmont exceeded its indebtedness by a margin of 4 to 1. [ 128 ] The Monitor also drew the Court’s attention to a number of lien claims filed against the Project lands after CCAA Proceedings commenced.

The Monitor invites the Court to infer that these lien claims must have been accruing as of the dates of the Payments, such that it would be reasonable to conclude that significant amounts were owing to trades that could not be paid.

Because the amounts reflected in lien registrations filed in May, June and July of 2012 are significant, the Monitor would have the Court draw the inference that amounts owing on March 16 and April 5, 2012 were similarly unmanageable such that Valmont LP would have been incapable of paying its trade creditors on those dates. [ 129 ] However, the liens were not registered against title as of the dates of the Payments. Further, the Monitor acknowledges that it does not know what terms of payment applied to Valmont LP’s trade creditors.

Indeed, the Monitor acknowledges that the registration of various liens after CCAA Proceedings commenced does not tell the Court when those lien claims crystalized or were perfected. The Monitor provided no evidence confirming that, as of the dates of the Payments, trade creditors had demanded payment that Valmont LP refused. [ 130 ] Taking all of the foregoing into account, the Monitor has not satisfied me that on the dates of the Payments, Valmont LP could reasonably be said to have been incapable of paying its liabilities as they “generally became due”.

There is no clear and convincing evidence before me that, in accordance with its general activities, Valmont LP could not pay amounts it reasonably could have been expected to pay on March 16 and April 5, 2012. c. Relevant Time [ 131 ] While it is clear from the above discussion that the timing of Valmont LP’s alleged insolvency is at issue, what is relevant for purposes of this element of the test is the timing of the Payments. As the Payments were made in March and April of 2012 and the CCAA Initial Order was granted on May 9, 2012, it is clear that the Payments were made within the relevant time frame.

Accordingly, I find that this element is satisfied. d. Creditor [ 132 ] The legislation requires that the allegedly preferential payment be made “in favour of a creditor”. The Monitor asserts that this requirement is satisfied because, on the dates of the Payments, Square Foot was a contingent creditor of Valmont LP in respect of

potential BEC and in respect of certain FEC. [ 133 ] The Monitor acknowledged that it was unsure how the Payments were recorded in Valmont LP’s books, but pointed out that no funds were ever paid by Bridges LP to Valmont LP on account of the Payments. [ 134 ] Square Foot asserts that section 6(3)(

A) of the Marketing Management Agreement was intended solely to accommodate UBG and to assist it in effectively marshalling its cashflow throughout its entire family of companies. Its position is that the Payments were not on account of BEC, but were made to allow Square Foot to be paid for the costs of construction and design of the Bridges sales centre. [ 135 ] It is curious that the Monitor asserts that Square Foot was a creditor of Valmont LP on the basis of contingent BEC while at the same time denying that any liability for BEC arose under the Agreement.

However, to the extent that there were unpaid amounts outstanding in respect of FEC at the time of the Payments, I am satisfied that Square Foot was a creditor. [ 136 ] It is less clear that the Payments were made to Square Foot on account of that debtor-creditor relationship and Square Foot denies that they were. However, as the legislation requires only that payment be made “in favour of” a creditor, I conclude with some reluctance that this element of the test is satisfied. e.

Preference [ 137 ] The Monitor asserts that the Payments had the effect of pr eferring Square Foot over Scotiabank and are therefore presumed to have been made with a view to preferring Square Foot over other creditors; see St Anne Nackawic Pulp Co (Trustee of) v Logistec Stevedoring (Atlantic) Inc , 2005 NBCA 55 , 286 NBR (2d) 95 at para. 5 . The Monitor argues that Square Foot bears the onus of rebutting this presumption and cannot do so.

It states as follows in its written submissions: The fact that Square Foot had to record the payments as “advance payments” for back-end commissions for which it had a contingent claim at the time but which were not yet due and owing, and the fact that Square Foot actually issued premature back-end commissions (invoices VAL-016 and VAL-017, both contained in Exhibit “H” to the Taylor Affidavit), are determinative.

Square Foot had to create a paper trail to account for its receipt of the payments, but the paper trail was a fiction because it relied on back-end commission claims that were not yet due and owing, but were only contingent claims at the time. [ 138 ] The Payments, the Monitor argues, were not made for services supplied to Valmont LP, ultimately for the benefit of Valmont LP’s creditors.

Rather, they were payments made for services supplied to Bridges LP, for the benefit of its creditors. [ 139 ] In my view, it is difficult for the Monitor to argue that a creditor is being preferred or the that effect of the Payments was to prefer Square Foot over other Valmont LP creditors when the evidence does not suggest that the Payments operated in any way to reduce Valmont LP’s liabilities, contingent or otherwise, to Square Foot. In my view, the Payments are not what is intended to be captured by the legislation. 4.

Finding [ 140 ] In light of the foregoing analysis, the Monitor’s application for repayment of the Payments is dismissed. V. Conclusion [ 141 ] In the result, Square Foot’s application to late file a claim for BEC is dismissed. The Monitor’s claim for return of the Payments is also dismissed. [ 142 ] If the parties are unable to agree on costs, they may file written submissions within 30 days of the date of this judgment. Heard on the 16 th day of December, 2015 and the 10 th day of February, 2016. Dated at the City of Calgary, Alberta this 25 th day of August, 2016. C.M. Jones J.C.Q.B.A.

Appearances: Chris Simard Bennett Jones LLP for the Monitor

Phil Lalonde McLeod Law LLP for Square Foot Real Estate Corporation