Re Canada North Group Inc, 2017 ABQB 508

Court of Queen’s Bench of Alberta Citation: Re Canada North Group Inc, 2017 ABQB 508 Date: 20170817 Docket: 1703 12327 Registry: Edmonton In the Matter of the Companies’ Creditors Arrangement Act , RSC 1985, c C-36 , as amended and in the Matter of a Plan of Arrangement of Canada North Group Inc., Canada North Camps Inc., Campcorp Structures Ltd., D.J. Catering Ltd., 816956 Alberta Ltd. and 1371047 Alberta Ltd. _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice S.D.

Hillier _______________________________________________________ I Introduction [ 1 ] Canada North Camps Inc. (CNC), Campcorp Structures Ltd., D.J.

Catering Ltd., 816956 Alberta Ltd. and 1371047 Alberta Ltd. (collectively, the Group) request extension of a Stay under s. 11.02(2) of the Companies' Creditors Arrangement Act , RSC 1985, c C-36 ( CCAA ) until November 3, 2017 and ancillary orders. [ 2 ] The Canadian Western Bank (CWB) cross-applies for an order lifting the Stay and appointing either a full or interim Receiver pursuant to s. 243 (or ss. 47 and 244 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 ( BIA )), s. 13(2) of the Judicature Act , RSA 2000, c J-2, s. 99 (

a) of the Business Corporations Act , RSA 2000, c B-9, and s. 65(7) of the Personal Property Security Act , RSA 2000, c P-7. II History [ 3 ] The Group operates or provides a number of services including work camps in the natural resource sector, modular construction manufacturing, camp land rentals as well as real estate holdings including a golf course. CWB has been the Group’s major secured creditor for a significant period of time. [ 4 ] 1919209 Alberta Ltd. (1919) is an insolvent affiliated debtor holding company of two of the companies in the Group.

It was incorporated to lease camp equipment from Weslease Income Growth Fund LP (Weslease) and provide that camp equipment to Canada North Camps Inc. for its use. 1919’s operations are integrated with those of the other applicants. [ 5 ] CNC entered into an agreement to construct a camp on Wandering River. 1371047, and Wandering River Properties Ltd. (owned 2/3 by 1371047) subsequently purchased a parcel for that purpose. CNC joined with the local Heart Lake First Nation and formed Heart Lake CNC LP, Heart Lake Canada North Group GP Ltd., Wandering River Properties Ltd., and Canada North Group LP Holdings Ltd.

[ 6 ] An action by Max Fuel Distributors Ltd. as against Shayne McCracken arises from the operation of the camp business. The other creditors of the Group are stayed from enforcing collateral claims against Shayne McCracken. [ 7 ] The Group’s operations and profitability have been significantly impacted since 2014 by the downturn in the economy. Earlier attempts by the Group and CWB to deal with the debt and cash flow issues proved to be unsuccessful. [ 8 ] In March 2017, the parties signed a Forbearance Agreement but problems continued.

When they were unable to reach a new resolution in a full meeting on June 21, 2017, the Group issued Notices of Intention to make proposals under the BIA effective June 26, 2017. [ 9 ] On July 5, 2017, Nielsen J. granted an initial Stay under s. 11.02(1) of the CCAA . He imposed numerous terms, including that: − Ernst & Young be appointed as Monitor; − R. e. I.

Group Inc. be appointed as Chief Restructuring Officer (CRO); − the Stay continue until August 3, 2017, subject to review; − Debtor in Possession (DIP) financing from the Business Development Bank of Canada (BDC) be made available, not to exceed $1M; − Notice of Intention proceedings under the BIA be “taken up” and continued under the CCAA . [ 10 ] On July 27, 2017, the Group applied under s. 11.02(2) of the CCAA for an extension of the Stay to November 3, 2017.

It also applied to add 1919 as an applicant in these proceedings. [ 11 ] As well, it applied to expand the Stay to apply to proceedings against the entities involved in the Wandering River contract, and against Shayne McCracken. [ 12 ] Finally, the Group applied for an increase in the DIP financing to a maximum of $2,500,000 and an interim lender’s charge up to the same amount due to elevated costs associated with a significant short-term increase in work under a camps contract with the British Columbia provincial government for workers on the wildfires. [ 13 ] The CWB cross-applied for an order lifting the Stay and appointing a full or interim Receiver. [ 14 ] The Monitor sought approval of his First Report and activities, a suspension of limitation periods on claims, and the power to examine the parties regarding questioned transactions on lot sales prior to the CCAA Order (preferences) under s. 36.2 of the CCAA .

Other interested parties also made submissions as affecting their interests. [ 15 ] In an oral decision, this Court extended the Stay to September 29, 2017 with a review to be held on September 26, 2017. The cross-application was dismissed. The Court also issued a series of ancillary directions. The parties were advised that written reasons would be issued dealing with the main issue as to extension of the Stay or appointment of a Receiver. These are the written reasons.

III Affidavit Evidence [ 16 ] The Group’s stated preliminary plan is to return operations to profitability as demand increases, consider sale of some of its assets, and seek new financing or equity investment as required in order to provide a viable Plan of Arrangement. [ 17 ] The Group has presented extensive affidavits from Ms.

Shayne McCracken, Director and Secretary of the applicants, in support of the various applications, containing the following key assertions: − the Group has acted in good faith and with due diligence, working closely with the CRO and cooperating with the Monitor as they gain an understanding of the business and structure; − the Group has specifically worked with the CRO and Monitor to improve financial reporting and accounting processes; − together they have taken initial steps to develop a Plan of Arrangement to present to creditors, including a detailed overview of assets and liabilities; − the Group has been the subject of unsolicited investment and purchase interest, which the Group, Monitor and CRO are pursuing; − meetings have taken place with interested parties as well as arrangements related to drawdowns on DIP financing; − work has included contracts with the Province of British Columbia to address efforts in consequence of raging wildfires in that province. [ 18 ] Ms.

McCracken’s affidavits purport to meet head on the concerns of CWB with the accounting treatment of certain accounts receivable, particularly in relation to the Grand Rapids Pipeline Project and the margining of custom negotiated deferred revenue. In late 2016, cost estimates were prepared for demobilization of the Grand Rapids camp, including removal of the camp for just over $2M and reclamation work estimated at roughly $5.36M based on detailed costing. Ms.

McCracken asserted that the practice of clients assuming the costs of setting up and removing camps by advance invoicing is used by others in the camp industry.

[ 19 ] The margining of custom negotiated deferred revenue allows the Group access to necessary financing to commence work prior to being paid. Ms. McCracken found support for the accounting practice in question in the custom negotiated deferred revenue term of the margining requirement that was part of the credit agreement with CWB. [ 20 ] Two significant receivables were placed on the books between March and May 2017 (it is unclear when they were actually posted and sent to the client) on Grand Rapids.

This ostensibly led to a claim against the financing and increased CWB's exposure significantly at a time when the parties were trying to sort things out following the Forbearance Agreement in mid-March. [ 21 ] Ms. McCracken specifically denied CWB’s allegation that these invoices were provided in bad faith to artificially inflate the amount available on the operating line. She deposed that the invoicing for this work was reviewed by the Group’s corporate counsel.

As well, it was part of the financial reporting to CWB and there were regular conversations with account managers at CWB who were aware of the origin and nature of all significant receivables, including the Grand Rapid receivables. Ms. McCracken maintained the view that the receivables were appropriately margined as deferred revenue. [ 22 ] Ms. McCracken noted that Grand Rapids has now raised issues with respect to payment of some of the invoices and a meeting is scheduled with it in Calgary in early August to discuss payment of those invoices. [ 23 ] Ms.

Jessica Taha filed extensive material for CWB challenging the Stay, and supporting the appointment of a Receiver.

The following assertions are germane, particularly as concerns margining of receivables: − the Group had been margining receivables for which work had not yet been done (citing Grand Rapids); − as a result, the operating line was overdrawn by over $3.8M for work not yet done which only came to light at the June 21, 2017 meeting; subsequent information reflects that it is overdrawn by $8M; − the Group had only performed 10% of required work on one contract and only 40% for another, and none of this was consistent with the margining as represented by the Group, and arranged between the parties dating back to 2012; − despite representations to the contrary before Nielsen J., CWB was not aware of this prior to the June 21, 2017 meeting. [ 24 ] Ms.

Taha attested to her belief that as the level of work dropped dramatically in the economic downturn, the Group changed its approach without advising CWB, and started to render invoices for work which had not yet been done, categorizing those invoices as deferred revenue capable of margining. [ 25 ] In response, Ms. McCracken maintained her position that the Grand Rapids deferred revenue was properly included in the financial statements. She deposed that Ms.

Taha’s position that deferred revenue was only permitted to be used for margining based on the percentage of the work performed is inconsistent with the supporting material provided by Ms. Taha.

The Group kept their branch representatives apprised of the status of the deferred revenue inclusions in the margining calculations and none raised a concern. [ 26 ] In counter response, CWB prepared three affidavits of senior officers at the Edmonton Main Branch deposing that they were unaware of the material amounts that were being margined without the work having been done, and each was unaware of anyone else at CWB having had such knowledge until the meeting on June 21, 2017. [ 27 ] Glenn MacDougall, Manager of ECN Capital Corp. (ECN), also filed an affidavit.

ECN is an equipment lessor and creditor of the Group. In short, he opines that the work resulting from the BC wildfires is a temporary salve on the Group’s financial circumstances, and it is unlikely that the Group will be able to make a viable Plan of Arrangement. He deposed that ECN would be materially prejudiced by the continuation of the Stay, as it will erode the value of ECN’s security. [ 28 ] With respect to expanding the Stay, Ms. McCracken deposed that direct claims against affiliates have been reviewed.

The Group now seeks to expand the stay to specific affiliates where those affiliates are facing claims directly connected to the overall camp operations, in order to preserve the status quo , prevent unnecessary expenditures of effort on litigation, maximize recovery for all parties, and allow for an orderly determination of priority and claims. [ 29 ] Regarding inclusion of 1919, Ms. McCracken deposed that 1919 has no revenue other than lease income from Canada North and is completely dependent on such payments to fulfill its obligations under the leases.

It is included in the consolidated cash flow projections and financial statements for the Group, as it is treated as a flow through entity. The equipment it leases is essential to the uninterrupted operations of the Group. [ 30 ] Finally, Ms. McCracken explained that the increased work for the B.C. government, although welcome, creates a cash flow issue as the work is invoiced approximately a week after completion and receipt of payment typically takes approximately four weeks from invoicing. Consequently, the Group anticipates a cash flow shortage in August 2017 that will not be met by the present DIP facility.

On July 21, 2017, the interim lender approved an increase to the DIP financing to a maximum of $2,500,000. IV Monitor’s First Report [ 31 ] The Monitor has provided a First Report, advising of various steps taken in conjunction with the CRO, highlights of which include: General − a new cash management procedure has been initiated to ensure efficient control of cash and cash reporting, with a review of cash flow projections;

− the Group’s management and staff have been making significant efforts in all respects and are cooperating fully with the efforts ofthe CRO; − based on the Monitor’s own work with Group management, the Group appears to have acted in good faith and with due diligence; − the actual end cash balance for the two weeks ending July 15, 2017 was higher than projected by over $400K and collectionshigher than projected by nearly $350K; − while cash disbursements were lower, this was largely due to temporary deferrals; − the contracts relating to the B.C. wildfires will have a significant positive impact on future cash inflows and receivables.

Accounts Receivable − the Group has used atypical accounting practices as reflected in four areas; − the steps being adopted in response to CWB’s concerns include removing Grand Rapids and Heart Lake related receivables as aconservative strategy while quantum is reviewed; − some but not all of the room guarantees or reservations have been reversed out.

Status of Restructuring Efforts and Related Plan − the Group’s business and operations are very complex; − the CRO believes, based on preliminary work to date and co-operation of the management team, that there is certainly potential fora going concern plan that could provide significantly greater value to stakeholders as compared to a liquidation; − the CRO is of the initial view that several profit and gross margin improvements have been realized by the Group due to changesto operations, staffing and other operational matters. 1919 − the leasing arrangement with Weslease has been extended for use by the Group valued at approximately $6M and listed as: threeJack+Jill dorms, two power distribution centres and one waste water treatment plant; − expansion of the Stay to include 1919 is reasonable. [32] As well, the Monitor and the Group have been in contact with various parties who have expressed interest in participating in arestructuring through refinancing, purchasing assets or investing in the Group.

V Law [33] An initial Stay under s. 11.02(1) of the CCAA may be imposed for a maximum period of 30 days.

The role of this Court on asubsequent application under s. 11.02(2) is not to re-evaluate the initial decision, but rather to consider whether the applicant hasestablished that the current circumstances support an extension as being appropriate and that the applicant has acted, and is acting, ingood faith and with due diligence, as required under s. 11.02(3). [34] The purpose of the CCAA is to permit the debtor to continue to carry on business and, where possible, avoid the social andeconomic costs of liquidating its assets.

Appropriateness of an extension under the CCAA is assessed by inquiring into whether the ordersought advances the policy objectives underlying the CCAA.

A stay can be lifted if the reorganization is doomed to failure, but where theorder sought realistically advances those objectives, a CCAA court has the discretion to grant it: Century Services Inc v Canada(Attorney General), 2010 SCC 60 at paras 15, 70, 71, 2010 SCC 50 , [2010] 3 SCR 62. [35] In applying for an extension, the applicant must provide evidence of at least “a kernel of a plan” which will advance theCCAA objectives: North American Tungsten Corp, Re, 2015 BCSC 1376, 2015 CarswellBC 2232 at para 26, citing Azure DynamicsCorp, Re, 2012 BCSC 781, 91 CBR (5th) 310. [36] Pursuant to s. 11.02(3), the applicant is required to demonstrate that it has acted, and continues to act, in good faith.

Honesty isat the core of “good faith”: San Francisco Gifts Ltd., Re, 2005 ABQB 91 at para16, 10 CBR (5th) 275. [37]

Section 11.02(3) refers to consideration of good faith and due diligence in both the past and present tense. Romaine J. in Alberta Treasury Branches v Tallgrass Energy Corp, 2013 ABQB 432 at para 13, 9 CBR (6th) 161 confirmed the language of s.11.02(3), to the effect that the court needs to be satisfied that the applicant has acted in the past, and is acting, in good faith.

See alsoAlexis Paragon Limited Partnership (Re), 2014 ABQB 65 at para 16, 9 CBR (6th) 43. [38] By contrast, in Muscletech Research and Development Inc (Re), [2006] OJ No 462 at para 4, 19 CBR (5th) 57 (Sup Ct Just),Farley J. held that the question of good faith relates to how the parties are conducting themselves in the context of the CCAAproceedings. Courts in subsequent cases adopted this view: Pacific Shores Resort & Spa Ltd (Re), 2011 BCSC 1775 at para 31-32,[2011] BCJ No 2482, and 4519922 Canada Inc.(Re), 2015 ONSC 124 in paras 44-46, 22 CBR (6th) 44.

[ 39 ] In Guestlogix Inc, Re , 2016 ONSC 1348 , [2016] OJ No 1129, the Court expanded the stay to proceedings against a guarantor, noting that it was insolvent and in default of its obligations, highly integrated with the debtor company, and the debtor company would be able to include all the assets of the guarantor in a potential transaction if the guarantor were added. [ 40 ] The Court has broad equitable jurisdiction to determine appropriate allocation among assets of administration, interim financing and directors’ charges: Hunters Trailer& Marine, Re , 2001 ABQB 1094 , 30 CBR (4 th ) 206.

The Court in Canwest Publishing Inc (Re) , 2010 ONSC 222 at para 54 , 63 CBR (5th) 115 set out factors to be considered in determining priority of charges under s. 11.52 of the CCAA which are critical to the successful restructuring of the business: (

a) the size and complexity of the businesses being restructured; (

b) the proposed role of the beneficiaries of the charge; (

c) whether there is an unwarranted duplication of roles; (

d) whether the quantum of the proposed charge appears to be fair and reasonable; (

e) the position of the secured creditors likely to be affected by the charge; and (

f) the position of the Monitor. [ 41 ]

Section 11.2(4) of the CCAA provides that in deciding whether to make an order allowing DIP financing, the Court must consider: (

a) the period during which the company is expected to be subject to CCAA proceedings; (

b) how the company’s business and financial affairs are to be managed during the proceedings; (

c) whether the company’s management has the confidence of its major creditors; (

d) whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company; (

e) the nature and value of the company’s property; (

f) whether any creditor would be materially prejudiced as a result of the security or charge; and (

g) the monitor’s report. [ 42 ] In US Steel Canada Inc (Re) , 2014 ONSC 6145 at paras 12-18 , 20 CBR (6th) 116 the Court discussed the authority under s. 11.2 to grant priority to the DIP lender's charge to secure the DIP loan. In addition to the factors set out in s. 11.2(4) , it considered the following in granting priority: (

a) notice had been given to all of the secured parties likely to be affected and broadly to all PPSA registrants, and other interested entities; (

b) the maximum amount of the DIP loan was appropriate based on the anticipated cash flow requirements of the applicant as reflected in its cash flow projections for the entire restructuring period, in order to continue to carry on its business during the restructuring period; (

c) the cash flows were the subject of a favourable report of the Monitor in its First Report; (

d) the Applicant's business would continue to be managed by the applicant's management with the assistance of the CRO during the restructuring period; (

e) the existing operational relationships between the applicant and its largest creditor would continue; and (

f) the DIP loan would assist in, and enhance, the restructuring process. VI Analysis Extension of Order [ 43 ] Various factors were profiled by Ms. Wanke before Nielsen J. to support the Group’s position that a restructuring under the CCAA is possible; if the objective is liquidation, then appointment of a Receiver is appropriate. Nielsen J. recognized the possibility of a successful restructuring in rejecting the application to appoint a Receiver and granting the application to impose a Stay under the CCAA with a Monitor and CRO.

In recognizing that a lot of work had been done, he found that those supporting the steps to restructure should be given that opportunity in the collective best interest despite the prejudice of deferral and risk as regards repayment of CWB and other creditors. [ 44 ] I now have the responsibility to measure the progress in the period leading up to expiry of the initial Stay.

Without second- guessing the initial decision, I must assess the current circumstances, including the good faith and due diligence of the parties in light of steps taken to date. [ 45 ] The legislative objective of a CCAA order is to provide the Court considerable scope to maintain the status quo for a company

to make proposal arrangements to facilitate remaining in operation for a collective benefit. One may have preferred to see some further advancement on the “germ of a Plan” but I am satisfied that the CRO has begun consultations with unsolicited parties who have expressed an interest and that a structure for such a Plan is now an important priority. [ 46 ] I am mindful that the Monitor was obliged to report on just under three weeks of activity in rendering a First Report by July 24, 2017.

Various factors have impacted the lack of concrete progress on a Plan at this point, including the value of the Group as a going concern estimated at $97M (equipment, manufacturing and real estate) with diverse activities, assets and work product, the complexity of restructuring, and the need to modernize the sophistication of a family operation that is unable to operate as it has done historically. [ 47 ] Professional advisors are now in place assisting in this required modernization. Potential investors have and continue to express interest in the Group.

It appears that DIP funding has been used prudently to cover operational expenses including higher than expected professional expenses. Cash flows are quite healthy and the Group owns a number of assets of marketable value. [ 48 ] CWB notes that Nielsen J. indicated on the initial Stay application that the Group would have to show more than a germ of a plan at the next hearing. It is not entirely surprising that three weeks did not prove long enough to complete the steps necessary to create a Plan of Arrangement.

There is no allegation of delay or inertia by the Monitor or the CRO in performance of significant responsibilities undertaken since confirmation of their appointment July 5, 2017. The Monitor reported that the Group has been working with due diligence and in full cooperation. A number of competing interests require the attention of the Monitor. Having considered all of the circumstances before the Court, I am satisfied that the Group has established due diligence. [ 49 ] It bears noting that CWB is not the only party who would be affected by receivership.

Employees, other creditors, clients, and the public would also be affected. Changes have already been implemented by the CRO, as observed and reported by the Monitor. [ 50 ] The Group has had the recent opportunity to enter into contracts with the Province of B.C. in relation to the wildfires. It appears that despite the Group’s liquidity crisis – impacted by various factors, including market conditions – the business of the Group may well be salvageable.

This assessment appears to be supported by: the cash flow projections, recoveries on receivables, and changes begun by the CRO in consultation with the Monitor with particular regard to increased work potential and to increase the sophistication of accounting. [ 51 ] However, CWB takes the position that the Group has been in default of its obligations to CWB for many months. CWB extended time for the Group to find refinancing and continued to make available to the Group the operating line facility in the amount of $12,000,000, margined on accounts receivable of the Group.

CWB asserts that the Group took advantage of CWB by falsely including one or more multi-million dollar accounts receivable for which the work had not yet been done. [ 52 ] The parties disagree as to whether the law supports serious consideration of past bad faith if it is relevant to the viability of the CCAA proposal or its continuation. [ 53 ] The language of s. 11.02(3) of the CCAA does not temporally restrict the consideration of bad faith. The wording of that provision is captured broadly in Tallgrass .

It would appear that Muscletech and the cases which followed it stand for the proposition that courts should look only to conduct in the context of the CCAA process. This represents a restrictive reading of s. 11.02(3) and the purpose of such a narrow

interpretation is unclear. [ 54 ] It is logical that past due diligence will usually have minimal relevance as a factor. However, past bad faith illuminated after CCAA proceedings have been initiated may undermine the confidence of creditors and the Court in the viability of CCAA proceedings. In my view, past bad faith may well be a relevant factor in the Court’s assessment under s. 11.02(3).

This is in keeping with the approach taken in Alexis Paragon , 2014 ABQB 65 at paras 37-38 . [ 55 ] I note that the facts in this case are distinguishable from those in San Francisco where the alleged deception appeared to be aimed at deriving an advantage from customers through knock off products and counterfeit safety labels, rather than deriving an advantage from a financing secured creditor through accounting practices as alleged here by CWB. [ 56 ] Again, the major issue in this regard is, and has been profiled as, the status of accounts receivable in terms of the margining of contracts for work not yet performed or not fully performed. [ 57 ] CWB takes the position that, upon consultation with her client and corporate counsel, Ms.

Wanke misrepresented the situation to Nielsen J. in her oral submissions on July 5, 2017. While this Court is not reviewing the basis for Nielsen J.’s order, the issue of margining was raised at that time and the allegation of bad faith remains a live issue. I understand the

interpretation placed by CWB on the representations made in front of Nielsen J. both from Affidavits and then information provided to legal counsel. Ms. Wanke summarized her understanding as being that this was part of the camp business on the books of the Group and not a lack of good faith. I accept her expression on this review to the effect that she would have preferred to have been more familiar with the Grand Rapids contract at the time but that this issue only surfaced latterly.

She said she would have stated the client’s position somewhat differently, but that the net effect remains that the margining was consistent with the Group’s understanding of its entitlement. [ 58 ] CWB’s concerns regarding the margining are understandable. It takes the position that while margining on deferred revenue was permissible, the Grand Rapids contracts do not qualify for that treatment according to the terms as agreed to between the parties notwithstanding the assertions advanced by the Group.

CWB says there was an understanding as relates to the formula to be applied to these receivables that was violated, especially as to the two major Grand Rapids accounts issued between the end of March 2017 and beginning of May 2017.

Counsel for CWB took the Court through a number of documents relating to the credit agreement between CWB and the Group to explain what the Group’s reasonable understanding should have been in relation to contracts qualifying for special treatment of the accounts receivable for margining purposes. [ 59 ] The Monitor has reviewed and discounted a number of entries as inappropriate; it will likely have to further endorse commitment to revise other receivables. The Court agrees that a commitment to revise other receivables may be appropriate.

However, there are a number of priorities competing for the attention of the CRO. It is difficult to measure whether any breaches of the protocol

were intentionally deceptive as distinct from aggressive and misguided. That distinction is harder to make based on duelling affidavits as distinct from oral testimony, questioning or at minimum some objective detailed analysis by the Monitor to assist the Court’s

interpretation of events. [ 60 ] I have struggled to understand the treatment of invoicing as to the records of accounts receivable, particularly as the idea of charging for work not done is rather foreign to my experience as to the entitlement to collect. So too, the deferral of the time for payment extending from 45 days to 120 days obfuscates the idea of entitlement. The matter is complicated by the risk and relative reliability of these receivables as assets, distinct from a bad or at least tainted debt that needs to be monitored for collection procedures.

All of these aspects appear to arise in far greater sums for 2016 than in any previous year which, understandably, is further troubling to principals at CWB. [ 61 ] I endorse the concerns of CWB as legitimate. Even in the absence of a finding of bad faith, the practice employed as reflected in treatment of the Grand Rapids receivables raises legitimate concerns regarding the future viability of the Group.

I accept that the practice in question has resulted in margining which has led to overall debt to CWB which is incongruent with the Group’s receivables as they would be represented in the normal course, as confirmed in the Monitor’s First Report. [ 62 ] I also note CWB’s concern that the cash flow projection relied on by the Monitor did not take into account unpaid professional fees relating to the work toward reorganization, and the projected loss to the end of October 2017 is considerably offset only by the fortuitous and uncertain wildfire camp work.

CWB’s receivables, to the extent they are collectible, are being used up by payment of the professional fees and interim financing. [ 63 ] Nevertheless, I am not prepared to conclude on the basis of the material as presented to me that the Group has failed to act in good faith to the extent of disentitling the extension sought. [ 64 ] Clearly, the parties now disagree on the

interpretation of the arrangement between them as regards margining based on deferred revenue. The issue before this Court is not the correct

interpretation of the various document referred to by CWB’s counsel, but rather whether the Group’s reliance on its understanding amounted to bad faith. There has been no trial of the latter issue. While raising questions, the evidence adduced on this application falls short of supporting a finding of bad faith in the sense of knowing reliance on an unsupportable

interpretation of the documents, or intentional concealing of the practice or any relevant financial information. This is particularly so in light of the evidence of the Group’s understanding that the arrangement between CWB and the Group expressly contemplated that the Group was permitted to margin deferred revenue when no work had been done. [ 65 ] If the CWB was not aware of the effect or extent of this type of margining, it is not clear from the evidence that the Group understood it was acting other than consistently with the intention of the parties in this regard.

This view of the matter is generally supported by the Monitor’s information that the sophistication of all facets of the accounting system in place has not kept up with the sophistication of its business. The CRO is working to address accounting practices which require improvement. [ 66 ] There is undeniably a considerable difference in the parties’

interpretations of the conduct and reporting. Obviously, a debtor may be motivated to maximize access to funding. The past practice here is somewhat unclear, but even if the Group exceeded the terms or protocol as generally agreed, I do not ascribe bad faith to its actions. [ 67 ] Overall, I find that extension of the Stay is in the best interest. However, a further vigorous review must take place within a reasonable period of time. [ 68 ] The November 3, 2017 date targeted by the Group is not reasonable in the circumstances. [ 69 ] As such, the next hearing is set for September 26, 2017.

The Court will require a Report from the Monitor at least 7 business days prior to that date. Increase in DIP Financing [ 70 ] Ms.

McCracken suggests in her affidavit that they only need a small increase in the DIP loan to cover operations in light of healthy cash flows and significant assets. [ 71 ] While the creditors may rightly take issue with the characterization of the increase as “small”, I approve the request to increase the DIP financing from $1M to $2.5M in the form of order proposed by counsel for the Group to address the anticipated cash flow shortage resulting from welcome work during what is typically a slower season for the Group.

Counsel for CWB took no issue with the form of order. [ 72 ] At the close of submissions, counsel for CRA alerted the Court, as well as BDC in particular, that it took issue with the increase in DIP financing and that it would be applying for priority with respect to $1.14M owing to the Minister by the Group for unremitted source deductions and GST. It was seeking an order to vary so as to put the administrative charge, director’s charge and interim lender charges in second place behind the CRA.

In light of that information, BDC counsel indicated that the CRA’s position would not impair BDC’s ability to advance the DIP financing, noting that the matter would be argued at a later date. 1919 [ 73 ] The application to add 1919 was not opposed. As was the case in Guestlogix , the operations of 1919 are inextricably linked to those of the Group, as it leases important equipment and provides it Canada North. [ 74 ] I order that 1919 be added as a party included in the Group.

Counsel for the Group agreed to include in the order a clause restating the allocation provision in the initial Stay Order to recognize that Welease has made this concern known at this point. Counsel

for CWB did not take issue with such a provision in the order. Approval of Monitor’s First Report [ 75 ] And at the request of the Monitor, I approve: − his First Report and activities; − suspend the limitation periods on claims; − confer power to examine parties on questioned transactions regarding lot sales prior to CCAA . [ 76 ] The further Report of the Monitor is required at least 7 days before the next hearing. Expansion of Stay [ 77 ] The Stay is expanded to apply to proceedings against Heart Lake and associated parties involved in the Grand Rapids contracts, and proceedings by Max Fuel against Ms.

McCracken. Counsel for CWB did not take issue with this. In the result, the applications for appointment of a Receiver, interim or otherwise, are dismissed. Sealing of Confidential Information [ 78 ] I order that the confidential information identified as such on the Court file be sealed. Service Protocol to Reduce Costs [ 79 ] The Monitor is to maintain a service list of parties who provide the Monitor with email addresses. Those parties may be served by email effective the date of the email.

All others are to be served by the Monitor posting its and others’ materials on its website, effective as at the date of posting. VII Conclusion [ 80 ] I have determined that it is in the collective interest to extend the CCAA Stay to September 29, 2017. The Order will be subject to review by me on September 26, 2017 in usual consultation with the Court Coordinator. Heard on the 27 th day of July, 2017. Dated at the City of Edmonton, Alberta this 17 th day of August, 2017. S.D. Hillier J.C.Q.B.A. Appearances: S.A. Wanke and S. Norris DLA Piper (Canada) LLP

for the Applicants/Cross-Respondents C.P. Russell, Q.C. McLennan Ross LLP for the Respondent/Cross-Applicant D.R. Bieganek, Q.C. Duncan Craig LLP for the Monitor, Ernst &Young LLP J. Oliver Cassels Brock for Business Development Bank of Canada T.M. Warner Miller Thompson for ECN Capital Corp. M.J. McCabe, Q.C. Reynolds Mirth Richards & Farmer LLP for PricewaterhouseCoopers R.J. Wasylyshyn Ogilvie LLP for Weslease Income Growth Fund LP H.M.B.Ferris Lawson Lundell LLP for First Island Financial Services Ltd. G.F. Body Justice Canada for Canada Revenue Agency