2018 NLSC 175, 2018 NLSC 175

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Canadian Imperial Bank of Commerce (Re) , 2018 NLSC 175 Date : August 23, 2018 Docket : 201801G3114 In The Matter of an application by Canadian Imperial Bank of Commerce for an order appointing BDO Canada Limited as Interim Receiver of PTL Holdings Limited, PTL Services (Equipment) Limited, CSL Services (Industrial) Ltd. and 9263357 Canada Inc. And In The Matter of the Bankruptcy and Insolvency Act , R.S.C. 1985, c.

B-3, as amended Between: Canadian Imperial Bank of Commerce Applicant And: PTL Holdings Limited First Respondent And: PTL Services (Equipment) Limited Second Respondent And: CSL Services (Industrial) Limited Third Respondent And: 9263357 Canada Inc. Fourth Respondent

Before: Justice David F. Hurley Reasons for Judgment Given Orally Place of Hearing: St. John’s, Newfoundland and Labrador Date(

s) of Hearing: August 14, 2018 Date of Oral Judgment: August 23, 2018 Appearances: Darren O'Keefe Appearing on behalf of the Applicant Peter O'Flaherty, Q.C. Appearing on behalf of the Respondents Gregory Drodge, Terry King, Barry Whalen and Keith Way Appearing as Directors, Shareholders and Guarantors of the Respondents Authorities Cited: CASES CONSIDERED: Regal Constellation Hotel Ltd., Re. (2004), 128 A.C.W.S. (3d) 646, 37 C.L.R. (3d) 207 (Ont. C.A.); RoyalBank v. Soundair Corp. (1991), (ON CA), 4 O.R. (3d) 1, 7 C.B.R. (3d) 1 (C.A.) STATUTES CONSIDERED: Bankruptcy and Insolvency Act, R.S.C. 1985, c.

B-3 TEXTS CONSIDERED: L. W. Houlden, G. B. Morawetz & J. P. Sarra, The 2018 Annotated Bankruptcy and Insolvency Act (Toronto:Carswell, 2018) REASONS FOR JUDGMENT Hurley, J.: INTRODUCTION [1] The applicant, the Canadian Imperial Bank of Commerce, seeks an order: a. Authorizing the Receiver, BDO Canada Limited, (the “Receiver”) to enter into and complete the agreement of purchase and sale

(the “Purchase Agreement”) made between the Receiver and Locke’s Electrical Limited (the “Purchaser”) with respect to certain assets of PTL Holdings Limited, PTL Services (Equipment) Limited, CSL Services (Industrial) Limited and 9263357 Canada Inc. (the “PTL Group”) arising from the sales and marketing process undertaken and carried out by the Receiver; b. Approving the Purchase Agreement; and c. Vesting all of the property, assets and undertaking of the PTL Group subject to the Purchase Agreement (the “Purchased Assets”) in and to the Purchaser, all as substantially in the form set out in the Notice of Motion.

BACKGROUND [ 2 ] The companies within the PTL Group are insolvent.

The total indebtedness to all creditors is at least $ 19 million consisting of $11 million-plus owed to a group of individuals referred to in these proceedings as the Parsons Vendors and CSL Vendors, $5.8 million- plus owed to The Canadian Imperial Bank of Commerce (“CIBC”) and approximately $3 million in priority and trade payables. [ 3 ] The PTL Group apparently operate as an integrated entity and produce a wide range of services for the construction industry, oil and gas industry and the public sector with operations out of its property at 1 Main Street, Southern Harbour where it has a 14,000 ft 2 repair facility and a fleet of over 270 pieces of equipment.

It is a unionized operation with over 70 employees. It also owns property at 20 Marine Drive, Come By Chance. [ 4 ] On April 20, 2018, CIBC demanded payment from the PTL Group and from guarantors and issued Notices of Intention to Enforce Security under s. 244(1) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (the “ Act ”).

No payments have been made on the demands. [ 5 ] By a Receivership Order of this Court dated 11 May 2018 (the “Receivership Order”), BDO Canada Ltd. was appointed as receiver of all the assets, undertaking and property of the PTL Group acquired for, or used in relation to, a business carried on by the PTL Group (collectively, the “Property”) pursuant to

section 243 of the Act . [ 6 ] Pursuant to sections 3(

l) and 3(

m) of the Receivership Order, the Receiver is empowered to market any or all of the Property and to sell, convey, transfer, lease or assign the Property or any part or parts thereof, provided that any transaction exceeding $250,000.00 is subject to approval of the Court. [ 7 ] Since its appointment, the Receiver has, among other things: a. Taken possession and control of the Property; b. Conducted an inventory of equipment and other tangible personal property owned by the PTL Group (including without limitation, the Property); c. Communicated with creditors of the PTL Group; d.

Obtained appraisals for all of the Purchased Assets; and e. Developed and implemented a sales and marketing process for the Purchased Assets, as more particularly described as (the Sales & Marketing Process). [ 8 ] The Receiver notified potential purchasers of the acquisition opportunity for the PTL Group’s assets and/or operations by sending a teaser letter to parties known to the Receiver or as identified to the Receiver (the Teaser Letter).

A link to the Teaser Letter was also posted on Insolvency Insider, which is an industry publication distributed to a wide range of insolvency and restructuring professionals across Canada. The Receiver also arranged for the Heavy Civil Association of Newfoundland and Labrador to e-mail the Teaser Letter to its members. [ 9 ] In addition, the Receiver placed an advertisement on AllNewfoundland.com and AllNovaScotia.com, which ran for 10 business days commencing May 28, 2018 and placed the advertisement in 3 issues of the St.

John’s Telegram. [ 10 ] As a result of the foregoing, the Receiver was in contact with, or contacted by, a total of 47 potential interested parties. In response to these expressions of interest, the Receiver prepared a Non-Disclosure Agreement (the “NDA”) to be distributed to interested parties upon request. Of the 47 interested parties, 31 requested the NDA. Of the 31 interested parties who requested the NDA, 27 signed and returned the NDA.

These interested parties were provided with the Receiver’s Confidential Memorandum (the “CIM”) and were given an opportunity to commence due diligence, including gaining access to the Receiver’s virtual data room and/or gaining access to and touring Lands and operations of the PTL Group. [ 11 ] Interested parties were required to provide a deposit of not less than 15% of the purchase price offered and to submit their bids in the form of a template Asset Purchase Agreement provided by the Receiver. The Receiver provided the interested parties a deadline of 2:00 p.m.

NDT on Thursday, June, 14, 2018 to submit binding offers. [ 12 ] As a result of the disclosure of the information pertaining to the business operations of the PTL Group, the Receiver received 9 binding offers for the purchase of the Property and, following negotiations with an offeree, the Purchaser, the Receiver accepted the Purchaser’s offer for the Property (the “Offer”) on July 10, 2018 (the “Acceptance Date”), subject to Court Approval. [ 13 ] The Offer accepted by the Receiver for the Property was for a purchase price of $4,100,000.00 with no other terms or conditions, other than the granting of an Order.

APPLICATION FOR APPROVAL AND VESTING

[14] The Receivership Order requires the approval of this Court for the Receiver to complete the transactions contemplated by thePurchase Agreement. The Receiver recommends that the Purchase Agreement be approved.

The Receiver is of the view that the offersubmitted by the Purchaser in the Sales & Marketing Process represents a fair and commercially reasonable price and was arrived at in afair and commercially reasonable manner. [15] CIBC, the senior secured creditor of the PTL Group, supports concluding the transactions contemplated by the PurchaseAgreement. [16] In these proceedings, the Respondents being the PTL Group as well as its owners, directors and guarantors did not oppose theApproval and Vesting Order from this Court, approving the Purchase Agreement and vesting all right title and interest of the PTL Groupin and to the Purchased Assets.

However, the members of this group oppose the wording of Clause 5 of the draft order submitted to thisCourt for approval, which provides, “The purchase price set out in the Purchase Agreement is fair and commercially reasonable and wasarrived at in a commercially reasonable manner.” [17] Their counsel maintains that this clause is overreaching by the Receiver in view of its refusal to provide information on theeffect of the proposed sale on the liability of the guarantors.

Clause 5 is said to be prejudicial to the owners and guarantors should ashortfall arise after the sale of the assets. [18] This draft clause has its origin in

section 247 of the Act: 247 A receiver shall (

a) act honestly and in good faith; and (

b) deal with the property of the insolvent person or the bankrupt in a commercially reasonable manner. [19] The duty of a receiver pursuant to s. 247(

b) of the Act is summarized in L. W. Houlden, G. B. Morawetz & J. P. Sarra, The2018 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2018) at 1122: Under 247(b), a receiver must deal with the property of a debtor in a commercially reasonable manner.

This duty to seek bids for thepurchase of the debtor’s assets requires the following: marketing the property to more than two persons where one of them is unlikely topurchase; a reasonable effort to find competing offers; discussions with people in the industry in an attempt to identify potentialpurchasers; contacting potential purchasers to obtain expressions of interest; and providing interested parties with an information packagethat will encourage bids. [20] Based on the information and evidence provided, I am satisfied that the Receiver took the necessary and reasonable steps toobtain the best price for the assets.

Where the Receiver has achieved its main obligation in obtaining as high a value for the assets as itreasonably could, the Court is entitled to find that the Receiver has acted properly and according to the directions given to it by the Court(Regal Constellation Hotel Ltd., Re. (2004), 128 A.C.W.S. (3d) 646, 37 C.L.R. (3d) 207 (Ont. C.A.) [21] The Court’s authority to confirm the actions of the Receiver is recognized in its entitlement to rely on the Receiver’s expertisein arriving at its recommendations as it is assumed that the Receiver is acting properly unless it is clearly shown to be otherwise (RoyalBank v.

Soundair Corp. (1991), (ON CA), 4 O.R. (3d) 1, 7 C.B.R. (3d) 1 (C.A.)). [22] As well, the Court was provided with extensive background evidence from senior officials of BDO Canada and CIBC whichindicated the process to be appropriate, transparent and fair.

Of course, at this junction the Court cannot ignore the fact that the pendingsale is not being opposed by any of the parties. [23] As indicated, the intervening group, especially as guarantors, raised the issue of there being sufficient notice on matters thataffect the outstanding indebtedness to CIBC. [24] The Receiver responded by asserting that it complied with all the reporting requirements set out in the Act. As well, theReceiver submitted that there was absolutely no evidence that the guarantors were not provided with the same information and reports asthe other parties.

As the receivership was ongoing and the sale pending, the Receiver maintained that many of the debtors liabilities werenot quantified or known at this time. [25] The Receiver questioned the right or standing of certain parties to intervene on the application. As their opposition is limited tothe contents and form of the Approval and Vesting Order a measure of flexibility is warranted.

Should the parties had major objections tothe actions of the Receiver, the issue of standing would be reviewed more fully. [26] In conclusion, I am of the opinion that Clause 5 of the draft order is a restatement of 247 of the Act and within the authority ofthe Court to confirm.

On the evidence and recommendations provided, I am authorizing the completion of transaction between Locke’sElectrical Limited and the Receiver as set out in paragraphs 1, 2 and 3 of the draft Approval and Vesting Order attached to the Notice ofMotion and I am authorizing the Vesting of Assets as set out in paragraphs 4, 5, 6, 7 and 8 of the draft Approval and Vesting Orderattached to the Notice of Motion. [27] The Applicant is entitled to its costs based on Column 3 against the guarantors excluding appearances not involving theguarantors.

_____________________________ David F. Hurley Justice