2019 NLSC 238, 2019 NLSC 238

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Norcon Marine Services Ltd., (Re) , 2019 NLSC 238 Date : December 30, 2019 Docket : 201901G7732 In The Matter of an Application by Norcon Marine Services Ltd. for relief under the Companies' Creditors Arrangement Act , R.S.C. 1985, c. C-36 , as amended - AND - Docket: 201901G7735 In The Matter of the Receivership of Norcon Marine Services Ltd. AND IN THE MATTER OF the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 , as amended Between: Business Development Bank of Canada Applicant And: Norcon Marine Services Ltd. Respondent Before: Justice David B. Orsborn

Place of Hearing: St. John’s, Newfoundland and Labrador Date(

s) of Hearing: December 17, 2019 Date of Oral Judgment: December 18, 2019

Summary: On or about November 9, 2019, Business Development Bank of Canada (“BDC”), a secured creditor of Norcon Marine Services Ltd.(“Norcon”) served a Notice of Intention to enforce its security pursuant to

section 244 of the Bankruptcy and Insolvency Act (“BIA”). Inresponse, but more than ten days after being served with BDC’s Notice of Intention, Norcon, pursuant to

section 50.4 of the BIA, filedNotice of Intention to make a proposal to its creditors. On December 5, 2019, Norcon applied pursuant to

section 11.02(1) of theCompanies’ Creditors Arrangement Act, (“CCAA”) to transfer its proposal process to the CCAA restructuring regime. Concurrently,BDC applied pursuant to

section 243 of the BIA for a court-appointed receiver. Both applications were heard together. Held: Bothapplications were dismissed. The evidence did not support a finding of “appropriate circumstances” to warrant initiating proceedingsunder the CCAA. Neither, in the circumstances where BDC enjoyed a contractual right to appoint a receiver, did the evidence supportthe conclusion that it would be just and convenient for the Court to exercise its discretion to appoint a receiver. Appearances: Tim Hill, Q.C. Appearing on behalf of Norcon Marine Services Ltd. Darren D. O’Keefe and Allison J.

Philpott Appearing on behalf of Business Development Bank of Canada Peter Wedlake Appearing on behalf of Grant Thornton Limited, proposed court-appointed Receiver Geoffrey L. Spencer Appearing on behalf of Deloitte Restructuring Inc., proposed court-appointed Monitor Joseph J. Thorne Appearing on behalf of Bank of Nova Scotia Authorities Cited: CASES CONSIDERED: Clothing for Modern Times Ltd., Re, 2011 ONSC 7522; Ted Leroy Trucking [Century Services] Ltd., Re, 2010SCC 60; Industrial Properties Regina Limited v. Copper Sands Land Corp., 2018 SKCA 36; Enterprise Cape Breton Corp. v.

CrownJewel Resort Ranch Inc., 2014 NSSC 128; Lemare Lake Logging Ltd. v. 3L Cattle Co., 2014 SKCA 35, rev’d 2015 SCC 53; Bank ofMontreal v. Sherco Properties Inc., 2013 ONSC 7023; Bank of Nova Scotia v. Freure Village on Clair Creek, (ONSC), [1996] O.J. No. 5088, 40 C.B.R. (3d) 274 (Ct. J.). STATUTES CONSIDERED: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3; Companies’ Creditors Arrangement Act, R.S.C.1985, c. C-36.

TEXTS CONSIDERED: Lloyd W. Houlden, Geoffrey B. Morawetz & Janis P. Sarra, The 2013-2014 Annotated Bankruptcy and Insolvency Act (Carswell: Toronto, Ontario 2013-2014). REASONS FOR JUDGMENT Orsborn, J. : INTRODUCTION [ 1 ] The Court has been asked to rule on what are essentially two competing applications. One is an application by a debtor – Norcon Marine Services Ltd. (“Norcon”) to transfer restructuring proceedings from the proposal track in the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (“ BIA ”), to the reorganization track provided by the Companies’ Creditors Arrangement Act , R.S.C. 1985, c.

C- 36 (“ CCAA ”). The second is an application by a secured creditor – Business Development Bank of Canada (“BDC”) – pursuant to

section 243 of the BIA for a court-appointed receiver. [ 2 ] The applications were heard on December 17, 2019 and a decision given on December 18 in the form of a brief

summary only. Both applications were dismissed. ISSUES [ 3 ] Is Norcon to be permitted to continue its restructuring proceedings under the CCAA ? [ 4 ] Should a receiver be appointed by the Court? BACKGROUND [ 5 ] For some 20 years, Norcon has been involved in the marine transportation business, operating passenger/freight and cargo ships. Presently, it owns four vessels. [ 6 ] In recent times, Norcon has been hit hard by the loss of government contracts for ferry services and by problems in the aquaculture industry, an industry which provides and continues to provide a source of revenue for Norcon.

Two of Norcon’s vessels are presently listed for sale, and one is under arrest pursuant to proceedings in the Federal Court. The fourth vessel is working in the aquaculture business.

Norcon also owns some real property. [ 7 ] Because of the loss of the ferry contracts, the downturn in the aquaculture business and the need to write off a large debt from a related company, Norcon’s financial situation is not good. [ 8 ] BDC is owed almost $1,400,000, some $836,000 of which represents the guaranteed debt of Burry’s Shipyard Inc. (“BSI”), a related company which is now bankrupt. [ 9 ] On or about November 9, 2019, BDC served a Notice of Intention to enforce its security under

section 244 of the BIA . On November 25, 2019, Norcon filed, pursuant to

section 50.4 of the BIA , a Notice of Intention to make a proposal under the BIA . Such a notice may only be filed by an insolvent person. [ 10 ] It is clear that one of the reasons, if not the primary reason, for Norcon’s filing of a Notice of Intention was to impose a statutory stay on any enforcement actions by BDC. However, due to the lapse of time between November 9 and November 25, 2019, the statutory stay provision was not engaged. [ 11 ] On December 5, 2019, Norcon filed an application seeking, in effect, to transition the BIA proceedings to CCAA proceedings. It asked for an initial order under

section 11.02(1) of the CCAA , the effect of which would be to stay all proceedings – including BDC’s enforcement action, for an initial ten days. Concurrently, BDC filed an application pursuant to

section 243 of the BIA asking for a court- appointed receiver. These are the two applications before the Court. DISCUSSION [ 12 ] I will deal first with Norcon’s application for an initial CCAA order. [ 13 ] Provided that no proposal has been filed, proceedings commenced under

Part III of the BIA may be continued under the CCAA . As Justice Brown said in Clothing for Modern Times Ltd., Re , 2011 ONSC 7522 , the BIA proposal regime and the CCAA regime “serve the same remedial purpose” (paragraph 11), with the CCAA regime being somewhat more flexible.

However, the objective remains the same – to provide a window of opportunity within which, without having to deal with creditors’ claims and enforcement proceedings (because of a statutory stay), a company can explore the prospect of a reorganization or a sale which would avoid or significantly lessen the harmful economic and social effects of a liquidation and cessation of the business. See, generally, Ted Leroy Trucking [Century Services] Ltd., Re , 2010 SCC 60 . I refer particularly to paragraph 59: 59 Judicial discretion must of course be exercised in furtherance of the CCAA ’s purposes.

The remedial purpose I referred to in the historical overview of the Act is recognized over and over again in the jurisprudence. To cite one early example:

The legislation is remedial in the purest sense in that it provides a means whereby the devastating social and economic effects of bankruptcy or creditor initiated termination of ongoing business operations can be avoided while a court-supervised attempt to reorganize the financial affairs of the debtor company is made. [Citation omitted.] [ 14 ] The threshold for gaining access to the CCAA process is not high. On an initial application,

section 11.02(3)(

a) requires an applicant to satisfy the court that “circumstances exist that make the order appropriate”. When a continuation is sought in circumstances where, as here, the BIA proposal process has already been engaged, case authorities suggest the

section 11.02(3)(

b) criteria of good faith and diligence also come into play. See Clothing for Modern Times at paragraph 14; and Industrial Properties Regina Limited v. Copper Sands Land Corp. , 2018 SKCA 36 , at paragraphs 22-23 . [ 15 ] Although the threshold of appropriate circumstances is, in my view, low, it does require the Court to consider the initial application in the context of the objectives of the CCAA .

In other words, is the Court able to conclude, even at an early stage, that there is some chance that engaging the CCAA process – which brings all enforcement proceedings to a halt – will result in furthering the purposes of the legislation? [ 16 ] To obtain this breathing room, a debtor must do more than simply plead for time. The authorities speak of the need to have “a germ of a plan” that would suggest “a reasonable possibility of restructuring”.

In Industrial Properties Regina , the Saskatchewan Court of Appeal put it this way – at paragraphs 19-21: 19 The evidentiary burden the debtor corporation must satisfy to establish “appropriate circumstances” for the purposes of a 30-day stay order is not exceptionally onerous : Alberta Treasury Branches v. Tallgrass Energy Corp , 2013 ABQB 432 (Alta. Q.B.) at para 14 , (2013), 8 C.B.R. (6th) 161 (Alta. Q.B.) [ Alberta Treasury ] ; Matco Capital Ltd. v. Interex Oilfield Services Ltd. (August 1, 2006), Doc. 0601-08395 (Alta. Q.B.) [ Matco ]; Hush Homes Inc., Re , 2015 ONSC 370 (Ont.

S.C.J.) at paras 51-53 , (2015), 22 C.B.R. (6th) 67 (Ont. S.C.J.); Redstone Investment Corp., Re , 2014 ONSC 2004 (Ont. S.C.J.) at paras 49-50 . 20 ... The debtor corporation is often in crisis-mode due to its failure to meet creditor obligations and is seeking CCAA protection to obtain some breathing room to enable it to get its affairs in order without creditors knocking at the door. Therefore, to obtain an initial 30-day order [now ten days], the applicant is not required to prove it has a “feasible plan” but merely “a germ of a plan”: Alberta Treasury at para 14.

The court must assess whether the circumstances are such that, with the initial order, the debtor corporation has a “reasonable possibility of restructuring”: Matco . To require the applicant corporation to present a fully-developed restructuring plan or have the support of all its creditors at the initial stage of CCAA proceedings, although desirable, is not expected.

To impose such a threshold to establish “appropriate circumstances” would unduly hinder the purpose of an initial order which, as the Supreme Court explained in Century Services , is to provide the conditions under which the debtor can attempt to reorganize. 21 For the purposes of an initial order, the debtor corporation must convince the court that the initial order will “usefully further” its efforts towards attempted reorganization. … If, however, the debtor corporation fails to satisfy this onus and the court determines that the application is merely an effort by the debtor corporation to avoid its obligations to its creditors and postpone an inevitable liquidation, the initial application should be denied: … [ 17 ] The present case is a little different than the usual CCAA initial application.

Norcon’s Notice of Intention to make a BIA proposal was filed on November 25, 2019, just over two weeks ago. In my view, this suggests that restructuring is not a possibility that has just appeared. Although not a lot of time has passed, the fact that the Court is being asked to continue an existing restructuring proceeding suggests that the “germ” of any plan should exhibit a slightly higher possibility of coming to life than might otherwise be the case.

Further, once a debtor has engaged the BIA proposal process, there should be some reason, linked to the purpose of the restructuring/reorganization objective, to warrant continuing under the CCAA process. See, for example, the impending expiration of the maximum six-month proposal period in Clothing for Modern Times .

The earlier in the BIA proposal process the transfer request, the more apparent should be the particular purpose precipitating the request for transition to the CCAA . [ 18 ] What does the evidence here suggest? [ 19 ] The evidence from Norcon consists of a pro-forma affidavit of Glenn Burry – an owner of the company – deposing as to the facts in the application. The only paragraph in the application that looks to the future is paragraph 12: 12.

The Company is actively seeking new contracts for its vessels and services, but does not expect to enter into such new contracts until early Spring, 2020. [ 20 ] There is no other evidence from Norcon about potential available contracts, ability to bid, chances of success, terms, efforts to date, or the like. [ 21 ] BDC filed an affidavit of Robert Prince, Director of Business Restructuring, setting out the lengthy history of BDC’s dealings with Norcon and BSI.

Norcon filed a “Pre-filing Report” of Deloitte Restructuring, the proposed CCAA monitor, and also filed its “review engagement” financial statements for the year ending January 31, 2019. The monitor updated the figures to October 31, 2019.

[ 22 ] As October 31, 2019, Norcon’s current assets totaled $611,000, primarily receivables of $561,000 (rounded). Current liabilities were just over $2,660,000, not including the $836,000 liability attached to the guaranteed debt of BSI. The current liabilities include approximately $444,000 owed to the Canada Revenue Agency for unpaid source deductions and the like, income taxes of $54,000, bank indebtedness and accounts payable of over $1,290,000, and $873,000 representing the current portion of long-term debt. The long-term debt (excluding the current portion) owed to arm’s-length creditors is $1,400,000.

It is not contested that Norcon, as of the date of filing of the application, satisfied the $5,000,000 threshold under section 3(1) of the CCAA . [ 23 ] The net book value of the fixed assets – primarily the vessels – is shown as $5,800,000. There is no evidence of current estimated market value. [ 24 ] Of the efforts to date to reorganize or restructure Norcon, the Pre-filing Report says this – at paragraph 6.1: 6.1 [Norcon] has taken the following steps to deal with operational and financial challenges it is currently facing: (

i) Reduced operating expenses, including a reduction in headcount and a redeployment of Management resources from administrative to revenue generating tasks. (ii) Actively pursuing contracts for the next operating season. (iii) Prior to the NOI Filing, the Applicant was working with CRA on an arrangement satisfactory to both parties to reduce the liability owing from the Applicant. (iv) Engaged in discussions with Deloitte regarding a financial consulting engagement during the week beginning November 17, 2019. [ 25 ] The proposed monitor reviewed Norcon’s projected cash flow statement for the 13 weeks ended February 28, 2020.

The Pre- filing Report says: 7.3 The Cash Flow Forecast has been prepared by Management for the purpose described in the notes to the Cash Flow Forecast, using the probable and hypothetical assumptions set out in the notes. [ 26 ] The assumptions referred to are the projection of the collection of accounts receivable as of November 25, 2019, and the continuation of an existing vessel crewing contract and aquaculture support contract.

No evidence was given as to the particular provisions or durations of these contracts. [ 27 ] I did not find the proposed monitor’s comments on the cash flow report particularly helpful: 7.4 The Proposed Monitor’s review of the Cash Flow Forecast consisted of inquiries, analytical procedures and discussions on the information provided by Management of the Applicant. The Proposed Monitor’s involvement with respect to the hypothetical assumptions was limited to evaluating whether they were consistent with the purpose of the Cash Flow Forecast.

The Proposed Monitor has also reviewed the supporting documentation provided by Management of the Applicant for the probable assumptions and the preparation and presentation of the Cash Flow Forecast. 7.5 Based on our review and the foregoing reserves and limitations, nothing has come to the attention of the Proposed Monitor that causes us to believe that, in all materials respects: (

i) the hypothetical assumptions are not consistent with the purpose of the Cash Flow Forecast; (ii) as at the date of the Pre-filing Report, the probable assumptions developed by the Applicant are not suitably supported and consistent with the plans of the Applicant or do not provide a reasonable basis for the Cash Flow Forecast, given the hypothetical assumptions; or (iii) the Cash Flow Forecast does not reflect the probable and hypothetical assumptions.

Counsel was not able to assist in my comprehension of these paragraphs. [ 28 ] The projected cash flow report, on its face, shows a cash position improvement of $197,001 over the 13-week period. However, $283,476 of the cash inflow comes from the collection of existing accounts receivable. Taking these receivables out of the equation, the projected cash position will worsen by $86,475.

[ 29 ] The projected cash flow took no account of debt servicing over the 13-week period, such debt servicing estimated by BDC to be in excess of $83,000. [ 30 ] The monitor appears to offer argument in support of Norcon’s application for a CCAA process. It gives the following reasons – at paragraph 9.1: 9.1 As discussed herein, the Applicant wishes to convert the NOI Filing to the CCAA Proceedings on December 17, 2019 for the following reasons: (

i) the CCAA will provide the Applicant with increased flexibility as it moves forward with its restructuring plan; (ii) the CCAA will provide the Applicant with additional time (if required) to prepare and present a restructuring plan, including a Plan of Arrangement, to its creditors; and (iii) if granted, the Initial Order will provide the Applicant with a stay of proceedings against all creditors, including the pending application of BDC to appoint a Receiver over the Property of the Applicant. [ 31 ] The arguments relating to increased flexibility and additional time were not explained.

The time argument is difficult to accept where, unlike the situation in Clothing for Modern Times , the BIA proposal process is just beginning and can potentially last for six months.

I note that the situation in Clothing for Modern Times was where the available extensions of time to make a proposal had expired, leaving a CCAA continuation as the only means of avoiding a deemed bankruptcy. [ 32 ] There is nothing I see in the proposed monitor’s report which provides a hint of a plan for restructuring, other than, as noted, a plan to reduce operating costs in some undefined amount. [ 33 ] The cash flow projection shows a 13-week total of compensation, occupancy and related general expenses of some $263,000, a weekly average of just over $20,000.

How savings within these expenditures would realistically assist in restructuring the finances of Norcon – with a current ratio (current assets/current liabilities) of 0.23 was not explained. I think it is fair to say that, overall, the issues facing Norcon are issues of revenue and debt servicing rather than control over relatively minor expenses. [ 34 ] The financial statements and the projected cash flow statement provide no support for Norcon’s position. The report of the proposed monitor provides no support for Norcon’s position.

The only hope offered is one in the form of pursuing new contracts with the hope of getting one. In the circumstances of this case, that hope is not sufficient to satisfy the appropriateness threshold needed to open the door to CCAA proceedings. [ 35 ] Assessing the matter as objectively as I can, the evidence does not disclose a germ of a reasonable possibility of reorganizing or restructuring Norcon to a position from which it can either continue its operations or be sold as a going concern or otherwise.

The evidence discloses no potentially viable thread with which to begin the process of weaving a plan that will fulfill the objectives of the CCAA . The threshold of appropriate circumstances has not been crossed. [ 36 ] In view of this finding, it is not necessary to consider the issues of good faith and due diligence. [ 37 ] The application for an initial CCAA application is dismissed. [ 38 ] That leaves BDC’s request for a court-appointed receiver.

BDC’s request is supported by the Bank of Nova Scotia, another senior secured creditor. [ 39 ] BDC’s application was brought following its November 9, 2019, Notice of Intention to enforce its security. As noted, BDC is owed almost $1,400,000 by Norcon, including the guaranteed debt of BSI, a related company which is now bankrupt. It is fair to assume that BDC initiated the enforcement mechanism to protect its own interests as a secured creditor. [ 40 ] The appointment of a receiver by the Court engages the exercise of the Court’s discretion.

A receiver may be appointed when it appears to the Court to be just or convenient to do so. Any discretion must be judicially exercised. [ 41 ] In Enterprise Cape Breton Corp. v. Crown Jewel Resort Ranch Inc. , 2014 NSSC 128 , Justice Edwards set out, from The 2013- 2014 Annotated Bankruptcy and Insolvency Act , factors that may be considered by a court – at paragraph 26: (

a) whether irreparable harm might be caused if no order were made, although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed; (

b) the risk to the security holder taking into consideration the size of the debtor’s equity in the assets and the need for protection or safeguarding of the assets while litigation takes place; (

c) the nature of the property; (

d) the apprehended or actual waste of the debtor’s assets; (

e) the preservation and protection of the property pending judicial resolution;

(

f) the balance of convenience to the parties; (

g) the fact that the creditor has the right to appoint a receiver under the documentation provided for in the loan; (

h) the enforcement of rights under a security instrument where the security holder encounters or expects to encounter difficulty withthe debtor and others; (

i) the principle that the appointment of a receiver is extraordinary relief that should be granted cautiously and sparingly; (

j) the consideration of whether a court appointment is necessary to enable the receiver to carry out its duties more efficiently; (

k) the effect of the order on the parties; (

l) the conduct of the parties; (

m) the length of time that a receiver may be in place; (

n) the cost to the parties; (

o) the likelihood of maximizing return to the parties; and (

p) the goal of facilitating the duties of the receiver. [42] In Lemare Lake Logging Ltd. v. 3L Cattle Co., 2014 SKCA 35 (rev’d on constitutional grounds 2015 SCC 53), theSaskatchewan Court of Appeal suggested this analysis – at paragraph 99: 99 The third edition of Bennett on Receiverships, (Toronto: Carswell, 2011), at pp. 155-162, suggests that the following factors aretypically taken into consideration in deciding whether to appoint a receiver: (

a) whether irreparable harm might be caused if no order ismade; (

b) whether the security holder’s position will be prejudiced if no receivership order is made; (

c) whether it is necessary toapprehend or stop waste of the debtor’s assets; (

d) whether it is necessary to preserve and protect property pending a judicial resolutionof matters outstanding; and (

e) the balance of convenience between the parties. See also: Houlden, et al, The 2013 Annotated Bankruptcyand Insolvency Act (Toronto: Carswell, 2013) at p. 1005. [43] These factors are not unlike those considered when injunctive relief is sought. [44] It is accepted that the court’s appointment of a receiver over the property of a person is an extraordinary order.

It reflects theauthority and jurisdiction of the court to act to protect and preserve property, often before the issues between the parties have beenadjudicated. [45] The extraordinary and intrusive nature of the order must inform what is considered to be just and convenient, although as I willpoint out, this aspect assumes less importance when a party already has a contractual right to appoint a receiver. [46] The party asking the Court to appoint a receiver must persuade the Court that the appointment would be just or convenient.

Theword ‘just’ suggests a requirement of fairness and balance while “convenient’ suggests, in my view, not just an order which the applicantwould find helpful, but one that is necessary for the protection of the assets in question.

To put it simply, is it fair or necessary that theauthority of the Court be used to pass control of, in this case, the debtor’s assets to a receiver who will deal with those assets pursuant tocourt supervision? [47] In this analysis, of what relevance is it that the applicant – here, BDC – has the ability and contractual authority to appoint areceiver and manager without enlisting the aid of the Court? [48] In Bank of Montreal v.

Sherco Properties Inc., 2013 ONSC 7023, the Court said this at paragraph 42: 42 Where the security instrument governing the relationship between the debtor and the secured creditor provides for a right toappoint a receiver upon default, this has the effect of relaxing the burden on the applicant seeking to have the receiver appointed. Whilethe appointment of a receiver is generally regarded as an extraordinary equitable remedy, courts do not regard the nature of the remedy asextraordinary or equitable where the relevant security document permits the appointment of a receiver.

This is because the applicant ismerely seeking to enforce a term of an agreement that was assented to by both parties. See Textron Financial Canada Ltd. v. ChetwyndMotels Ltd., 2010 BCSC 477 (B.C. S.C. [In Chambers]); Freure Village, supra; Canadian Tire Corp. v. Healy, 2011 ONSC 4616 (Ont.S.C.J. [Commercial List]) and Bank of Montreal v. Carnival National Leasing Ltd., 2011 ONSC 1007 (Ont. S.C.J.). [Emphasis added.] [49] Blair J. of the Ontario Superior Court expressed it slightly differently in Bank of Nova Scotia v. Freure Village on Clair Creek, (ON SC), [1996] O.J. No. 5088, 40 C.B.R. (3d) 274 (Ct.

J.) when he said at paragraphs 11 and 13: 11 The Court has the power to appoint a receiver or receiver and manager where it is “just or convenient” to do so: … In decidingwhether or not to do so, it must have regard to all of the circumstances but in particular the nature of the property and the rights andinterests of all parties in relation thereto. … The fact that the moving party has a right under its security to appoint a receiver is animportant factor to be considered but so, in such circumstances, is the question of whether or not an appointment by the Court isnecessary to enable the receiver-manager to carry out its work and duties more efficiently; …

… 13 While I accept the general notion that the appointment of a receiver is an extraordinary remedy, it seems to me that where the security instrument permits the appointment of a private receiver … and where the circumstances of default justify the appointment of a private receiver, the “extraordinary” nature of the remedy sought is less essential to the inquiry. Rather, the “just or convenient” question becomes one of the Court determining, in the exercise of its discretion, whether it is more in the interests of all concerned to have the receiver appointed by the Court or not.

This, of course, involves an examination of all the circumstances … including the potential costs, the relationship between the debtor and the creditors, the likelihood of maximizing the return on and preserving the subject property and the best way of facilitating the work and duties of the receiver-manager . [Emphasis added.] [ 50 ] I note his use of the word “necessary” when referring to a court appointment.

Thus, while the fact of a party’s prior consent to a private contractual appointment may lessen or eliminate the need for caution because of the intrusive nature of the appointment of a receiver, the threshold of just or convenient must still be met.

Particularly when considering whether an appointment would be convenient – an element which incorporates the practical and protective nature of the appointment – my view is that a court must consider whether court supervision of the receiver is necessary to protect and preserve the assets in question and to manage any undue complexity in the functioning of the receivership.

The issue is not that far removed from situations in administrative law where the availability of an adequate alternative avenue of relief may persuade a court not to exercise its discretion to grant relief by way of an order in the nature of a prerogative writ. [ 51 ] Is a court-supervised receivership order convenient in the sense of the added factor of court supervision being necessary to protect the interests of BDC and others affected by the fortunes of Norcon? [ 52 ] Here, counsel for BDC acknowledged that a receivership of Norcon’s secured property would be relatively straightforward.

As noted, the assets are primarily fixed assets – four vessels and real property – covered by security. There is no suggestion that the assets are at risk of being removed from the jurisdiction. Any ongoing management of the business would not be complex. Counsel advised that two primary creditors, BDC and the Bank of Nova Scotia, have already signed an inter-creditor agreement addressing issues of relevance to them. [ 53 ] BDC offers the following reasons to support a finding of just or convenient: 29.

BDC submits that it is just and convenient for this Court to appoint a receiver in the present case for the following reasons: (

a) BDC has the contractual right to appoint a private receiver. (

b) The amount of the Indebtedness is not in dispute. (c) … Norcon has withheld information, has shown disregard for DBC’s rights and has occasioned several Events of Default. A court-appointed receiver will be able to prevent and/or mitigate further defaults through greater transparency. (

d) The arrest of one of Norcon’s vessels in which BDC has a security interest establishes that BDC’s security is in jeopardy. A court-appointed receiver is necessary to immediately protect and preserve BDC’s security interest in Norcon’s property. (

e) A court-appointed receiver will be able to more effectively deal with and sell property in a manner that will maximize the value for the creditors of Norcon. (

f) A court-appointed receiver will be able to provide all stakeholders with a more efficient forum for creditors of Norcon to resolve priority issues. (

g) A court-appointed receiver is required as the cooperation of Norcon with a private receiver is unlikely, given Norcon’s conduct to date. [ 54 ] The application continues: 30. The Court’s refusal to grant the Receivership Application would place the interests of BDC and other creditors at significant risk. [ 55 ] There is little, if any, evidence on these points. [ 56 ] With respect to the conduct of Norcon, the evidence is that it did not disclose to BDC that one of its vessels had been arrested in the context of a proceeding in Federal Court.

Without further evidence and argument on the point, I am not prepared to conclude, without more, that the arrest in and of itself places BDC’s security in jeopardy and while this one instance of non-disclosure may be a fact, it is not sufficient to support the inference that Norcon or its management would be obstructionist so as to warrant Court supervision of a receivership. Neither, in my view, does it support the inference that Norcon’s management would not cooperate with a private receiver.

The evidence does support the view that the BIA-related history of the related company, BSI, and the CCAA filing by Norcon reflect efforts to delay enforcement action by creditors. But where a creditor has the ability to act expeditiously pursuant to a contractual right, the fact that a debtor may try to delay the process does not call for the intervention of the Court. [ 57 ] The suggestion by BDC that Court supervision is necessary to more effectively deal with and sell the property and provide a

more efficient forum for the resolution of priority disputes is simply that – a suggestion. I refer again to Blair J.’s comments in Freure Village where he suggests that an examination of all the circumstances is required to determine whether or not an appointment by the court is necessary. [ 58 ] A fair assessment of all of the circumstances requires evidence. I note the comprehensive nature of the evidence before Edwards J. in Crown Jewel Resort . [ 59 ] Looking at the evidence as a whole, I am not satisfied that there is sufficient evidence from which to draw reliable inferences relating to, and these are examples only, (

i) the potential for irreparable harm in the absence of court supervision; (ii) the risk to BDC and the need for the added factor of court supervision in the protection and preservation of the assets; (iii) the need for court supervision of the relationship between Norcon and its creditors; and (iv) the relative costs and returns of a court-supervised process. [ 60 ] In effect, and with respect, I am being asked to assume that a court-supervised process is necessary – just or convenient – for the effective and lawful realization of BDC’s security interest.

I am not prepared to make such an assumption. [ 61 ] BDC has the contractual right to appoint a receiver/manager with wide powers to take over the business, manage Norcon and its assets and, if considered appropriate, sell the assets. There is no evidence to suggest that such a receiver/manager would not act efficiently and responsibly in accordance with the law, would not properly protect BDC’s security, would not act in good faith to secure maximum value for the secured property, and would not have ready access to the court process should the need arise. [ 62 ] In

summary, on such evidence as I have, I am not able to reasonably draw the inference that the circumstances are such as to render just or convenient the Court’s appointment of a receiver. [ 63 ] BDC’s application for a court-appointed receiver is dismissed. [ 64 ] The parties will bear their own costs in both matters. _____________________________ David B. Orsborn Justice