Mamdani (Re), 2021 ABQB 586

Court of Queen’s Bench of Alberta Citation: Mamdani (Re), 2021 ABQB 586 Date: 20210726 Docket: B201 710829 Registry: Edmonton Between: In the Matter of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 , as amended - and - And In the Matter of the Notice of Intention to Make a Proposal of Riaz Mamdani - and - And In the Matter of the Proposal of Riaz Mamdani Business Instincts Groups Inc Applicant - and - 1373024 Alberta Inc Applicant _______________________________________________________ Reasons for Decision

of the Honourable Madam Justice D.L. Shelley _______________________________________________________ I. Introduction [1] The matters before this Court are similar applications by Business Instincts Group (BIG) and 1373024 Alberta Inc (137)(together, the Applicants). [2] On May 7, 2021, a meeting of creditors was held in relation to the Proposal of Mr. Mamdani. Two of Riaz Mamdani’screditors, Royal Bank of Canada (RBC) and MCAP Financial Corp (MCAP), voted against the Proposal.

The majority of creditors, innumber and value, voted in favour of the Proposal. [3] After May 7, 2021, BIG acquired RBC’s Claim and 137 acquired MCAP’s claim. II. Issue [4] The Applicants ask this Court to authorize BIG and 137 to change the votes of RBC and MCAP, respectively, against theProposal and substitute votes in favour of the Proposal. They also ask this Court to direct A Farber & Partners Inc (the Trustee) to rectifythe record of votes on the Proposal and record the vote on the RBC and MCAP Claims as in favour of the Proposal.

The Applicants relyon two Affidavits of Erika Racicot, one sworn June 10, 2021, and the other sworn July 8, 2021. [5] Mr.

Mamdani supports the Applications. [6] While not taking a position on the Application, the Trustee advises that there is no authority for the Court to permit a partywho, after the deadline to vote on the proposal, purchases the claim of a creditor that voted on the proposal in order to change the sellingcreditor’s vote. [7] Other creditors, namely 10460010 Canada Inc, 10727938 Canada Inc, 10108014 Canada Inc, and 9741631 Canada Inc(collectively TPE) and Telus Core Investment Corporation (TCIC) oppose the Applicants’ request to change the votes as requested. [8] Collectively, TPE and TCIC are Mamdani’s second largest creditor and they are the largest creditor to vote against theProposal on May 7, 2021.

TPE and TCIC argue that the Court does not have jurisdiction to, nor should the Court, change a creditor’svote in respect of a proposal after the vote was cast at a creditors’ meeting that was duly convened for purposes of voting on theproposal. III.

Positions of the Parties [9] All of the parties agree that there is no precedent that would allow a creditor, or an assignee of a creditor, to change theirvote in respect of a proposal after the conclusions of the creditors’ meeting. [10] The Applicants rely on case law in which Courts have allowed creditors, who voted one way at a creditors’ meeting, tochange their position at the sanction hearing: namely, Re Eagle Mining, 1999 CarswellOnt 1291 (CJ); Re Innovative Coating SystemsInc, 2017 CarswellOnt 7607 (Sup Ct); and Re Roman Catholic Episcopal Corp of St.

George’s, 2005 NLTD 150 , 2005CarswellNfld 238 (Sup Ct). [11] The Applicants submit that a creditor seeking to change its vote after a creditors’ meeting is analogous to a creditor changingits position between the creditors’ meeting and the sanction hearing. [12] Mr. Mamdani did not provide written submissions. However, at the hearing, he argued that the Court has inherent jurisdictionto provide the relief sought by the Applicants. His counsel was not in favour of the Court setting a blanket rule that would allow creditorsto change their votes in any circumstances.

However, counsel submitted that it would be appropriate on these facts and in thesecircumstances for the Court to exercise its inherent jurisdiction to allow the Applicants to change assignors’ votes two months after thecreditors’ meeting. [13] Counsel for the Trustee provided some context for the Court, advising that these Applications are one piece of a contentiousand extensive proposal process. Counsel for the Trustee submitted that the only way this Court could grant the remedy sought by theApplicants is if the Court resorted to its inherent jurisdiction.

Counsel submitted that there is no authority, other than inherentjurisdiction, for this Court to rely on. Counsel submitted that the cases relied on by the Applicants do not and cannot support theApplicants’ argument, and the Applicants’ proposed remedy is inconsistent with the Bankruptcy and Insolvency Act, RSC 1985, c B-3(BIA). [14] TPE and TCIC (collectively referred to as the Respondents) strongly oppose the Applications. The Respondents object to thepossibility of the Court’s use of its inherent jurisdiction in these circumstances for several reasons.

First, the Respondents take theposition that the BIA, specifically sections 53 and 54, does not allow for the relief requested. Further, the Respondents note that theApplicants did not seek relief under the Court’s inherent jurisdiction. Instead they relied on case law, in what the Applicants call an

analogous situation. The Trustee is the party that mentioned the Court’s inherent jurisdiction as a possible source of relief. [ 15 ] The Respondents further argue that, even if the Court could use its inherent jurisdiction to grant the relief sought by the Applicants, the Applicants have failed to provide sufficient evidence to support such relief. [ 16 ] Immediately after submissions were heard, Applicants’ counsel requested an adjournment on the basis that this application may be more appropriately heard with the full factual basis before the Court.

The Court dismissed the application for adjournment and advised that a decision would be forthcoming. IV. Analysis [ 17 ] As was indicated at the time of the adjournment request, it is unusual for an applicant to complete its submissions, hear from the responding parties and then request an adjournment. Although an adjournment may be appropriate in certain circumstances, this Court concluded that this was not one of those circumstances. In this case, the Applicants had sufficient time to provide evidence in support of the applications.

They chose to found their applications on general principles rather than providing an evidentiary basis upon which to argue that those principles, ought to be applied in this application.

Having chosen to do so, the Court is left with deciding the matter on the basis of the evidence and submissions before the Court. [ 18 ] The Applications to allow the Applicants to withdraw the votes by RBC and MCAP against the Proposal, and to substitute votes in favour of the Proposal, are denied. [ 19 ] First, I do not accept that the cases provided by the Applicants, in which Courts allowed creditors to change their positions between their vote at the creditors’ meeting and their position at the sanction hearing, are analogous to the situation before the Court.

There is a difference between opposing a sanction proposal and changing a vote at a creditors’ meeting. There are automatic consequences that follow a creditors’ meeting that do not depend on the overview of the Court. In contrast, at a sanction hearing, the Court ultimately decides what will happen; there are no automatic consequences that depend on a creditor or their vote. [ 20 ] Second, and importantly, the Applicants offered very little evidence in support of these Applications.

In a case such as this, where the Applicants are asking the Court to set down a new precedent, either relying on analogous jurisprudence or using its inherent jurisdiction, the Applicants should provide a factual basis, or context, for the decision sought from the Court. In this case, no factual basis was provided for the “why” of this application. Instead, Counsel for various parties advised the Court of some of the factual background, including the reason for the Applications.

However, Counsel’s submissions are not evidence. [ 21 ] The “why” of these Applications, which the Court was able to discern at the oral hearing, has to do with an anticipated challenge that one or more creditor may make to the value of some other creditors’ claims. The Applicants, and Mr. Mamdani, are concerned that, if such an application is brought and is successful, this could move the vote on the proposal from a “yes” vote to a “no” vote. They submit that this could potentially put Mr. Mamdani into automatic bankruptcy.

The Applicants argue that, if the Court allows them to now change the votes attached to their assigned claims, this could “tip the scale” and assist in keeping the proposal at “yes”, rather than “no”. [ 22 ] The Respondents note that the Applicants are assignees of creditors that voted at the creditors’ meeting in relation these claims. Here, we are not talking about allowing creditors to change their votes after a creditors’ meeting, we are talking about an assignee changing a vote in relation to a claim purchased after the creditors’ meeting.

The Respondents submit that a decision in favour of the Applicants has the potential for great mischief – they note there would be nothing stopping a creditor from buying up claims after a creditors’ meeting to change the vote. [ 23 ] It is trite law that an assignee steps into the shoes of the assignor. In this case, the Applicants acquired the interest of creditors who had voted at a duly constituted meeting of creditors.

I conclude that to allow assignees of creditors’ positions that have been established over two months ago to retroactively recast the assignors’ votes would indeed create the potential for great mischief. At the least, it would create the potential for great uncertainty and, arguably, would have the potential of rendering the voting at creditors’ meetings to be a meaningless exercise. [ 24 ] The authorities relied on by the Applicants do, however, provide support for the Applicants’ ability to take a different position at the sanction meeting than did their assignors.

In the meantime, the assignors must deal with the potential consequences of valid challenges to the valuation of claims and the consequential impact on the tabulation of creditors’ votes. [ 25 ] As the Applicants’ did not rely on the Court’s inherent jurisdiction in bringing their application, and given the dearth of evidence that could support the extraordinary remedy of using the Court’s inherent jurisdiction, I decline to make any determination about whether the Court’s inherent jurisdiction would or could be of any use to a creditor, or assignee, in a future similar situation. V.

Conclusion [ 26 ] The applications are dismissed. [ 27 ] If the parties are unable to agree on costs, they are to contact my assistant within 30 days of the issuance of these Reasons to advise of the need to address that issue.

Heard on the 15 th day of July, 2021. Dated at the City of Edmonton, Alberta this 26 th day of July, 2021. D.L. Shelley J.C.Q.B.A. Appearances: Kentigern A. Rowan, Q.C. Ogilvie LLP for the Applicants Business Instincts Group Inc and 1373024 Alberta Inc. Karen Fellowes, Q.C. Natasha Doelman Stikeman Elliott LLP for A Farber & Partners Ltd Randal Van de Mosselaer Mark Sheeley Osler, Hoskin & Harcourt LLP for 10460010 Canada Inc, 10727938 Canada Inc, 9827838 Canada Inc, 10108014 Canada Inc, 9741631 Canada Inc, and Telus Core Investment Corp Walker McLeod McCarthy Tetrault LLP For Riaz Mamdani