Bank of Montreal Petitioner v. Haro-Thurlow Street Project Limited Partnership, Haro and Thurlow GP Ltd., Harlow Holdings Ltd., 1104227 B.C. Ltd.,, 2024 BCSC 47

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bank of Montreal v. Haro-Thurlow Street Project Limited Partnership, 2024 BCSC 47 Date: 20240111 Docket: H230802 Registry: Vancouver Between: Bank of Montreal Petitioner And Haro-Thurlow Street Project Limited Partnership, Haro and Thurlow GP Ltd., Harlow Holdings Ltd., 1104227 B.C. Ltd., Cloudbreak Holdings Ltd., CM (Canada) Asset Management Co. Ltd., Forseed Haro Holdings Ltd., 1115830 B.C.

Ltd., Terrapoint Developments Ltd., Kang Yu Zou, Wei Dong, Wei Zou, Xia Yu and Treasure Bay HK Limited Respondents Before: The Honourable Justice Fitzpatrick Reasons for Judgment Counsel for Bank of Montreal: K. Jackson M. Gill Counsel for Haro-Thurlow Street Project Limited Partnership, Harlow Holdings Ltd., Haro and Thurlow GP Ltd., 1104227 B.C. Ltd., Cloudbreak Holdings Ltd., CM (Canada) Asset Management Co. Ltd. ,1115830 B.C. Ltd. and Kang Yu Zou: S. Turner D. Han Counsel for Forseed Haro Holdings Ltd.: R. Clark, K.C. Counsel for Terrapoint Developments Ltd.: C.

Brousson Counsel for Wei Dong, Wei Zou and Xia Yu: D. Fitzpatrick Counsel for Treasure Bay HK Limited: D. Shouldice Counsel for Deloitte Restructuring Inc, the Proposed Receiver: C. Hildebrand Place and Date of Hearing: Vancouver, B.C. December 22 and 28, 2023 Place and Date of Judgment: Vancouver, B.C. January 11, 2024 Table of Contents INTRODUCTION .. 4 BACKGROUND FACTS .. 4 The Parties . 4 The Property . 5 Financing of the Property . 6 BMO Debt / Security . 7 The Borrowers’ Sale / Refinance Efforts . 8 BMO Default / Forbearance . 9 Treasure Bay . 10

Further Refinancing Efforts . 10 BMO Present Position / Concerns . 11 POSITIONS OF THE PARTIES .. 13 DISCUSSION .. 14 Receiverships Generally . 15 Borrowers’ / Forseed’s Equity of Redemption .. 16 Nature of the Property . 23 BMO’s Security . 24 Risk to BMO / Terrapoint 25 Dysfunction of HTLP? . 27 Balance of Convenience to the Parties . 30 CONCLUSION .. 32 INTRODUCTION [ 1 ] The petitioner, Bank of Montreal (“BMO”), is a secured creditor of the respondent limited partnership who owns a development property in downtown Vancouver, BC. BMO is owed over $82.2 million in principal and interest (the “Debt”).

BMO’s Debt has been in default since July 2023. [ 2 ] In October 2023, BMO commenced this proceeding, seeking to enforce its mortgage and personal security against the property, the debtors and the guarantors of the Debt. On this application, BMO seeks the appointment of a receiver of the real and personal property secured in its favour, effective in early 2024, with the principal purpose of arranging a sale of the property by spring 2024 to repay the Debt. [ 3 ] All of the respondent debtors/guarantors, with one exception, oppose the appointment of a receiver, particularly one having the power of sale.

The opposing respondents seek further time – to June 2024 - to arrange a refinancing of the lands, asserting that they are entitled to and need this further time to allow them an opportunity to redeem their equity of redemption. BACKGROUND FACTS [ 4 ] There is little controversy about the facts as relevant to the issues. The Parties [ 5 ] The respondent, Haro-Thurlow Street Project Limited Partnership (“HTLP”), is the beneficial owner of the development property in Vancouver (the “Property”). The respondent, Harlow Holdings Ltd. (“Harlow Holdings”), is the legal owner of the Property.

The respondent, Haro and Thurlow GP Ltd. (“HTGP”), is the general partner of HTLP. I will refer to all of these respondents collectively as the “Borrowers”. [ 6 ] HTLP is beneficially owned by its limited partners, the respondents, 11044227 B.C. Ltd. (“110”), as to 45%; Forseed Haro Holdings Ltd. (“Forseed”), as to 45%; and Terrapoint Developments Ltd. (“Terrapoint”), as to 10%. 110, Forseed and Terrapoint are collectively called the “Partners”. [ 7 ] 110 is beneficially owned by the respondent, 1115830 B.C. Ltd. (“111”), which is, in turn, beneficially owned by the respondent Kang Yu Canning Zou (“Mr. Zou”). Mr.

Zou is a director of HTGP, Harlow Holdings, 110 and 111. He is also a director of the respondents, Cloudbreak Holdings Ltd. (“Cloudbreak”) and CM (Canada) Asset Management Co. Ltd. (“CM”). I will refer to all of these respondents collectively as the “CM Group”. [ 8 ] Forseed, the members of CM Group and Terrapoint are guarantors of the Debt. [ 9 ] The respondent Wei Dong is Mr. Zou’s wife. The respondents, Wei Zou and Xia Yu, are Mr.

Zou’s parents (the “Parents”). [ 10 ] The shareholders of HTGP (111 and Forseed being majority), and Intracorp Projects Ltd. (“Intracorp”), an entity related to Terrapoint, a minority shareholder, are parties to a shareholders’ agreement dated September 26, 2018 (the “SH Agreement”). The SH Agreement provides, in essence, that 111 and Forseed shall at all times have a majority of four out of five directors on the board of directors. In addition, the SH Agreement provides that “Major Decisions” by HTLP can be made by majority rule, with any dissenting shareholders having the right to seek arbitration.

[ 11 ] In

Section 1.1(

s) of the SH Agreement, “Major Decisions” include (vi) Incurring any indebtedness in connection with the Lands or Project other than indebtedness under the land and pre-development loan …”. I assume this means any indebtedness other than the Debt and would include any refinancing of the Debt.

The Property [ 12 ] In August 2018, HTLP was formed for the purpose of purchasing the Property, which is currently a mixed commercial and residential rental building located at the south-east corner of the intersection of Haro and Thurlow Streets in Vancouver. [ 13 ] The Property comprises a rectangular-shaped parcel of land with a total gross surface area of about 43,250 square feet.

The Property includes a seven-story residential strata building and a low-rise commercial building over a common underground parking structure. [ 14 ] The overall plan was to redevelop the existing buildings and construct a 55-story residential condominium tower on the site. [ 15 ] The rental of the buildings on the Property is managed by FirstService Residential BC Ltd. (“First Service”). FirstService manages the buildings, collects the residential and commercial rents and remits the net monthly rental revenue to HTLP’s account at BMO.

The Borrowers have undertaken to continue this practice through any redemption period. [ 16 ] Net monthly revenue from the Property is about $175,000 per month. Although these funds are paid to BMO, the amount is insufficient to service the monthly interest expense of the Debt. Historically, this shortfall was paid by some or all of the Partners to BMO. [ 17 ] The Borrowers have carried out extensive pre-application work for the proposed high-rise building or buildings on the Property. Apparently, they have paid more than $4 million for this work to Intracorp, the development manager of the Property.

Financing of the Property [ 18 ] In August 2018, the Property was purchased for a total cost of $172,750,000, which includes the purchase price of $164,750,000, property transfer taxes, commissions and other expenses. [ 19 ] The acquisition costs on closing were financed by the Debt from BMO of approximately $94 million. In addition, the Partners provided the remainder of the necessary funds by advancing loans totalling approximately $84.5 million to HTLP. [ 20 ] By January 1, 2023, the Partners had advanced over $18 million to fund ongoing costs of HTLP.

Further contributions by the Partners, or some of them, to HTLP continued into 2023. As of December 2023, the Partners’ total contributions to HTLP exceed $106 million. BMO Debt / Security [ 21 ] BMO’s security against the Borrowers is set out in a credit agreement dated August 21, 2018 (the “Credit Agreement”). The security includes both a first ranking mortgage against the Property and a general security agreement against the Borrowers’ personal property. [ 22 ] The Credit Agreement required $50 million guarantees from Cloudbreak and CM and a $10 million guarantee from Terrapoint.

In addition, the Credit Agreement required the deposit of cash collateral and CM Group and Forseed provided some of this collateral to BMO to secure the Debt, as I will discuss below. [ 23 ] The original term of BMO’s loan was to have been for two years, from August 2018 to August 2020. [ 24 ] 110, Forseed and another company have a second mortgage against the Property that was registered in October 2018 (the “Forseed Mortgage”).

There is no evidence as to the amount owed, if any, under the Forseed Mortgage. [ 25 ] The Borrowers say that, for many reasons, they have not met the requirements of the City of Vancouver (the “COV”) to proceed with the development of the Property, despite substantial efforts to do so over the last five years. The Borrowers have not yet formally applied for a development permit for the Property. [ 26 ] As a result of these delays, the Borrowers and BMO negotiated several amendments to the Credit Agreement.

In September 2022, the last amendment to the Credit Agreement provided for an extension of the “Outside Date” to August 31, 2023, which is when the term of the Debt ended. [ 27 ] Various iterations of the Credit Agreement also provided for guarantees to a maximum of $50 million from 110, 111, CM, Cloudbreak and Mr. and Ms. Zou and guarantees to a maximum of $7 million from the Parents. The guarantees from the individuals are secured against various lands held by them, by way of a first mortgage or undertakings not to encumber those lands. The value of the lands held by the individual guarantors, Mr. and Ms.

Zou and the Parents, is said to be approximately $16.9 million. [ 28 ] In early 2023, BMO advised the Borrowers that it would not grant any further extensions of the Debt beyond August 31, 2023. The Debt has now matured and is fully owing. The Borrowers’ Sale / Refinance Efforts

[29] In the face of BMO’s refusal to further extend the Loan, in early spring 2023, the Borrowers retained CBRE Limited to solicitoffers to purchase the Property. [30] In May 2023, the Borrowers received six different offers, ranging in value from $81.5-100 million. Incentives were built intosome of the offers which might have resulted in higher purchase prices if certain conditions subsequent had been met. 110 signed a letterof intent (“LOI”) in respect of one offer for almost $93 million (the “Chard Offer”), which was supported by Terrapoint.

Forseed refusedto approve the Chard Offer and 110 also backed away from its support of it. [31] Ultimately, none of these offers was accepted by the Borrowers. Mr.

Zou states that, while these offers would have generatedsufficient proceeds to pay the Debt in full, even with incentives for potential price increases based on favourable development approvalsby the COV, all of the offers would have resulted in the Partners, collectively, suffering tens of millions of dollars of losses on theirinvestments. [32] Terrapoint asserts that the majority partners of HTLP (111 and Forseed) did not provide any “good faith” reason for refusing toproceed with the Chard Offer. [33] The CM Group and Forseed deny that their rejection of the Chard Offer was done in bad faith.

They say that, rather thanaccepting the loss that would have occurred, they decided to attempt a refinance of the Debt. They acknowledge that, in the long run, thismay prove to be a “bad decision” or “bad business decision”. [34] In late August 2023, the Borrowers’ provided the only firm evidence of their efforts to refinance the Debt to BMO.

Thisamounted to a very “high level” brief one-page document delivered on August 29, 2023 that provided for a $80 million first mortgage,which is, of course, not even sufficient to repay the Debt. [35] Even Terrapoint, a minority stakeholder in HTLP, has little information regarding this proposed refinancing and no informationas to any other refinancing options. Terrapoint is not prepared to be a part of any refinancing of the Property.

This may or may not proveto be a sticking point, since Terrapoint, through Intracorp, has been involved in the management of the development and construction ofthe Property to the present time. BMO Default / Forbearance [36] In July 2023, the Borrowers defaulted in payment of the interest amount, when BMO received the rent amounts from FirstService, but the shortfall was not remitted by the Partners. There is no evidence from Forseed or Mr. Zou as to what caused the default.Terrapoint offers an explanation, as I will discuss below. [37] On August 29, 2023, BMO made demand for payment.

At that time, the Debt was outstanding at $95,520,027.39. BMO alsomade demand on the guarantors. BMO gave notice of its intention to enforce its security against the Borrowers’ property, including theProperty, and the collateral security provided by the guarantors. [38] In August/September 2023, the Borrowers engaged in discussions with BMO with a view to entering into a forbearanceagreement. BMO negotiated a forbearance agreement that it understood was acceptable to the Borrowers. Ultimately, in early October2023, the Borrowers refused to sign the agreement. [39] On October 23, 2023, BMO filed this proceeding.

Treasure Bay [40] One significant circumstance relating to the Property and any potential refinancing of the Debt is Mr. Zou’s dispute withTreasure Bay HK Limited (“Treasure Bay”). [41] On November 12, 2021, Treasure Bay filed an action in this Court against 111, 110, Mr. Zou, Harlow Holdings and GMInternational Holding Limited (“GMIH”). Treasure Bay is a minority shareholder of GMIH. Treasure Bay alleges that Mr. Zou breachedhis fiduciary obligations to GMIH by causing GMIH to advance $30 million to himself, 111 and 110 without adequate security (the “TBAction”).

Treasure Bay alleges that the monies were intended to assist Mr.

Zou in purchasing the Property. [42] On November 12, 2021, Treasure Bay also filed a certificate of pending litigation (“CPL”) against the Property, asserting thatGMIH is entitled to an equitable mortgage or alternatively, is entitled to trace its loan into the Property pursuant to a remedialconstructive trust. [43] Since March 2022, Treasure Bay and the defendants in the TB Action have been engaged in resolving what the parties call the“pleadings dispute”, namely whether Treasure Bay is entitled to proceed with its derivative action without leave of the Court.

After thisCourt’s finding that no leave was required (2022 BCSC 761), that decision was upheld in 1115830 B.C. Ltd. v. Treasure Bay HKLimited, 2022 BCCA 380. On July 20, 2023, leave to the SCC was dismissed: (SCC). [44] The defendants have now filed an application to remove Treasure Bay’s CPL against the Property, arguing that Treasure Bay isnot asserting any interest in the Property to support the filing of the CPL as against an interest in land. That application is scheduled forlate January 2024. Further Refinancing Efforts [45] In Mr.

Zou’s affidavit sworn December 12, 2023, he provides the only update on the Borrowers’ refinancing efforts in the face ofBMO’s foreclosure.

[ 46 ] Mr. Zou states: In late September 2023, at or about the time forbearance negotiations with the petitioner came to an end, the Borrowers retained consultants to assist them in securing take-out financing. These consultants have identified a syndicate of three lenders who have indicated a strong willingness to provide the Borrowers with a loan or loans in amounts sufficient to fully repay the Petitioner’s loan.

However, the Borrowers’ consultants have identified the CPL registered against title to the property in favour of the Respondent Treasure Bay HK Ltd. (“Treasure Bay”) as an impediment to the new lenders proceeding to finalize their commitments and provide funding. Accordingly, Borrowers are proceeding with an application to have the Treasure Bay CPL discharged from title. That application is set for January 22, 2024.

The Borrowers are confident that they will be able to secure take-out financing by no later than June 30, 2024. [ 47 ] BMO emphasizes that absolutely no documents have been provided by the Borrowers to support any of Mr. Zou’s statements, including the identity or involvement of the “three lenders” or their “strong willingness” to provide financing sufficient to repay the Debt. [ 48 ] As can be seen from Mr. Zou’s evidence, the Borrowers are still facing significant headwinds in achieving any refinancing. They could only do so by removing Treasure Bay’s CPL or obtaining Treasure Bay’s consent.

In addition, even assuming that occurs, they have not secured any concrete offers to refinance the Debt. [ 49 ] They are, at best, “hoping” that they will be able to refinance by June 2024. BMO Present Position / Concerns [ 50 ] In July 2023, BMO held $23.6 million of cash collateral as follows: a) $13,625,000 pledged by Forseed; b) $1,375,000 pledged by 110; and c) $8.6 million pledged by CM Grouse Mountain (LP) Ltd. (“CM Grouse”), which is a company related to the CM Group.

Although it is somewhat unclear, the $8.6 million seems to be comprised of $5.6 million in CM Grouse’s account and $3 million in 110’s account. [ 51 ] Subsequent to the interest default and the maturity of the Debt, BMO applied the amounts pledged by Forseed and 110 to the principal owing under the Debt. [ 52 ] BMO continues to hold the deposit made by CM Grouse. BMO has not applied that amount to the Debt as BMO has identified some issues that may impede its ability to do so. One of those issues is that Treasure Bay is a minority shareholder of CM Grouse and holds a position on the board of directors.

Treasure Bay refuses to consent to BMO applying the cash pledged by CM Grouse against the Debt. [ 53 ] In addition, BMO continues to hold the balance in 110’s account of approximately $3 million. 110 placed those funds in the account pursuant to the Credit Agreement, which required that 110 maintain a cash balance of not less than $3 million as cash collateral security for repayment of the Debt. However, BMO’s counsel states that Treasure Bay has indicated that it may potentially have claims against the $3 million on deposit for 110.

In light of that potential difficulty, BMO has declined to apply those funds to the Debt. [ 54 ] Accordingly, despite the CM Group’s attempts to free up further cash in the various accounts at BMO to service the Debt going forward, or pay down outstanding interest, so as to attenuate the risk to BMO going forward, the offered amounts are not issue free and readily available to be used for that purpose. [ 55 ] Currently, the gross monthly interest cost under the Debt is approximately $620,000 per month.

Net monthly revenue from the Property is about $175,000 per month, resulting in a monthly shortfall of about $445,000. [ 56 ] As of December 19, 2023, the principal amount owing under the Debt was $78,256,373.16. Accrued interest amounted to just under $4 million, resulting in a total amount owing in excess of $82.2 million. [ 57 ] Peter Mullin, BMO’s director of the Special Accounts Management Unit, states that the Borrowers’ failure to list or market the Property or pay the monthly interest shortfall has caused BMO to lose confidence that they are working to repay the Debt. In addition, Mr.

Mullin is concerned about BMO’s position eroding given the accruing interest amounts and the risk of deterioration in the market. [ 58 ] By June 2024, the Debt will be at approximately $85 million. POSITIONS OF THE PARTIES [ 59 ] BMO seeks declarations of its mortgage and personal property security and declarations as to their priority. BMO also seeks judgment against the Borrowers.

BMO has agreed not to seek any judgments or declaration of security at this time in respect of any of the guarantors. [ 60 ] In addition, BMO seeks the appointment of a receiver of the Borrowers’ property that is secured in its favour, including the Property. BMO points to the fact that the Borrowers have now been in default for five months. BMO says that the Borrowers are simply

seeking more time for a market reversal or “miracle”, all the while disregarding the delay and prejudice that is being visited upon BMO in the face of their unsupported hope that the Property may be worth more than what is owed on the Debt. BMO has lost confidence in the Borrowers’ ability to repay the Debt. [ 61 ] BMO wants a timely sale of the Property to be arranged by the receiver.

BMO says that it is unreasonable to allow the Borrowers another six months (to June 2024) within which to possibly find the solution to their financing woes, beyond the five months already provided to them, over which time no sale or refinancing has occurred. [ 62 ] After some negotiations with Terrapoint, BMO’s proposed order would appoint the receiver effective January 10, 2024. This date would notionally result in the Borrowers having had six months from default to refinance or sell.

The proposed order would include the power to manage, although BMO has indicated that it does not wish the receiver to address the collection of monthly rents, which is currently being done by First Service. [ 63 ] In addition, BMO has agreed that, save with the consent of Terrapoint, the receiver would not set down any application for sale approval until after March 16, 2024, which would allow the Borrowers a total time to redeem of eight months. [ 64 ] Terrapoint supports the relief sought by BMO, stating that it is concerned that BMO is not well secured and may be facing a shortfall, such that it will be called upon its guarantee.

Terrapoint wishes to restrict any receiver’s ability to manage the Property, given the current arrangements, presumably to reduce costs. [ 65 ] Treasure Bay would like to see a sale of the Property, but it takes no position on the appointment of a receiver. [ 66 ] The Borrowers, the Partners and guarantors (with the exception of Terrapoint) want more time to refinance the Debt – i.e., another six months to June 2024. They dispute that the appointment of a receiver is appropriate, particularly one having a power to sell the Property.

They rely on their continued cooperation in remitting the monthly rents to partially pay the interest and in responding to any other request for documentation or information by BMO. [ 67 ] In addition, the Borrowers assert that they are entitled to a six-month redemption period following this hearing prior to any order being granted to authorize a sale of the Property.

DISCUSSION [ 68 ] BMO seeks the appointment of a receiver pursuant to s. 39 of the Law and Equity Act , R.S.B.C. 1996, c. 253 , which allows a court to do so if it is “just or convenient” in the circumstances. [ 69 ] BMO does not seek an appointment under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 , as it initially did, so as to avoid any finding that the Borrowers are insolvent. Receiverships Generally [ 70 ] As I stated in Cascade Divide Enterprises, Inc. v.

Laliberte, 2013 BCSC 263 at para. 81 , the granting of a receivership order is “extraordinary relief which should be granted cautiously and sparingly”. [ 71 ] I have been referred to what seems to be most of the BC jurisprudence addressing receiverships. [ 72 ] As is well-known, for at least over a decade now, those authorities have invariably endorsed the Court’s consideration of many different factors in deciding whether the appointment of a receiver is justified.

These non-exhaustive factors are found in Frank Bennett, Bennett on Receiverships, 2nd ed. (Toronto: Carswell, 1999) at 130, and were applied in Maple Trade Finance Inc. v. CY Oriental Holdings Ltd. , 2009 BCSC 1527 [ Maple Trade ] at para. 25 ; Textron Financial Canada Limited v. Chetwynd Motels Ltd. , 2010 BCSC 477 [ Textron Financial ] at para. 50 and many other cases. [ 73 ] The Maple Trade factors include:

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, particularly where the appointment of a receiver is authorized by the security documentation;

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 the loan;

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

i) the principle that the appointment of a receiver is extraordinary relief which 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 upon 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;

p) the goal of facilitating the duties of the receiver. [74] In Bank of Montreal v. Gian’s Business Centre Inc., 2016 BCSC 2348 [Gian’s] at para. 23, I stated that all relevant factorsshould be viewed holistically. Recently, Justice Gomery commented to the same effect: Pandion Mine Finance Fund LP v. Otso GoldCorp., 2022 BCSC 136 at para. 54; and Royal Bank of Canada v. Canwest Aerospace Inc., 2023 BCSC 514 at para. 9. [75] In Ward Western Holdings Corp. v. Brosseuk, 2022 BCCA 32 [Ward Western BCCA] at para. 49, the court upheld this Court’sreasons indexed at Ward Western Holdings Corp. v.

Brosseuk, 2021 BCSC 919, and confirmed that the above approach remained validin relation to whether a receiver should be appointed. [76] Below, I discuss the various circumstances relevant here. While I have not done so for each of the specific Maple Trade factorslisted above, I have considered them all. Those factors can be considered conveniently within the following headings. Borrowers’ / Forseed’s Equity of Redemption [77] The main plank of the Borrowers’ and Forseed’s argument is that BMO is attempting to do an “end run” around the usualforeclosure practice so as to defeat their equity of redemption.

They stridently object to the appointment of a receiver. In addition, theyobject to any receiver having a power of sale until after the expiry of a six-month redemption period. [78] They contend that they are entitled to a six-month redemption period because BMO has failed to establish any “specialcircumstances” to shorten the “usual” period.

Finally, they say that BMO should be denied any relief at this time and be required toreturn to the Court for any appropriate relief only after that six-month redemption period which should begin to run from the time of thishearing (i.e. to June 2024). [79] Both the Borrowers and Forseed have referred to many of the well-known foreclosure authorities that have been applied in BCfor decades. In addition to numerous case authorities, this includes Chief Justice McEachern’s “On Foreclosure Practice”, (1983) 41:6The Advocate (Vancouver Bar Association) 583.

As the Chief Justice states, the “usual” case is that, in the absence of specialcircumstances, a six-month redemption period will be set, which recognizes the right of the mortgagor to seek either a sale or refinanceof the debt in a foreclosure. The onus of proving any special circumstances rests on the mortgagee, usually said to arise from a lack ofequity or wasting of the property. [80] McEachern C.J. was intending by his remarks to bring about consistency in foreclosure proceedings in what were then difficultfinancial circumstances, a result that was undeniably achieved.

However, it is worth noting that he emphasized that his remarks were not“authoritative” and that judges were required to exercise their discretion based on the facts of each case and with regard to the law. [81] In support of their position, the Borrowers and Forseed refer to Bank of Nova Scotia v. Mrazek (1985), (BCCA), 64 B.C.L.R. 282 (C.A.) [Mrazek], where the court upheld an immediate order for sale in foreclosure in light of what this Courtfound were special circumstances. In F.B.D.B. v. F.J.H.

Constructions Ltd. (1988), (BC CA), 24 B.C.L.R. (2d) 100(C.A.), the court discussed the usual procedures in foreclosures. [82] They also refer to Royal Bank v. Astor Hotel Ltd. (1986), (BC CA), 3 B.C.L.R. (2d) 252 (C.A.) [Astor Hotel]where the court stated: [34] In a case like the present, where the fixed charge forms a significant part of the debenture security, I see no reason why theusual rules commonly followed in the foreclosure of real property should not apply.

These rules require that except in specialcircumstances the court will not make an order for sale or permit a sale to be made pursuant to a power of sale in a mortgage until theexpiry of the normal redemption period (six months): see South West Marine Estates Ltd. v.

Bank of B.C. (1985), (BCCA), 65 B.C.L.R. 328 at 332, 37 R.P.R. 137 (C.A.), where my judgment reads as follows: If I am wrong in concluding that the courts of equity would intervene to prevent the exercise of a contractual power of sale during theredemption period, it appears to me that this is a proper case for bringing the rules of equity into accordance with modern practice.Firstly, in order that there be certainty in commercial matters it is, in my opinion, necessary that the same principles apply to allproceedings whether by way of foreclosure or by way of exercise of a contractual power of sale.

This rule is as follows: “Except in special circumstances the court will not make an order for sale or permit a sale to be made pursuant to a power of sale untilthe expiry of the normal redemption period (6 months).” Secondly, the courts should intervene to protect the equity of redemption. To distinguish between a sale in foreclosure proceedings and asale made pursuant to a contractual power of sale as a means of permitting the mortgagee to effectively eradicate the equity ofredemption is not in accordance with the basic tenets of equity.

[Emphasis added.] [83] Another authority referred to is Sun Life Assurance Co. of Canada v. 535401 B.C. Ltd., 2001 BCSC 605, where the Court set asix-month redemption period and denied the first mortgagee conduct of sale. Conduct of sale was granted in favour of the secondmortgage effective five months into the redemption period. [84] In Textron Financial, Justice Willcock, as he then was, was addressing relief sought by a secured lender, similar to what BMOseeks in this action. That secured creditor sought the appointment of a receiver over a hotel property. It was not a foreclosure.

Inreviewing the Maple Trade factors, at paras. 57–74, Willcock J. considered whether there should be an order for sale before judgment.He referred to the well-settled case law in relation to foreclosures, the power of sale and the right to redeem, including Mrazek and AstorHotel. In particular, at para. 57, he referred to the law being clear that an immediate order for sale can only be made in “exceptionalcircumstances”.

I need not repeat his extensive discussion of those case authorities, other than to note that many of them have also beenreferred to me on this application. [85] In Textron Financial, Willcock J. then framed the issue as being whether a receiver of a business should be appointed with powerto sell, given the “general rule” in foreclosures: [63] That being the general rule in foreclosure actions, the question before me is whether the receiver of a business ought to beempowered to sell the real property of that business without affording the debtor an opportunity to redeem.

The plaintiff says thereceiver acquires the full range of powers to acquire and dispose of assets formerly enjoyed by the debtor, including the power to sell realestate in the ordinary course of business in order to discharge corporate debt. [86] The Borrowers and Forseed also rely on IMOR Capital Corp. v. Bullet Enterprises Ltd., 2012 BCSC 899 [IMOR Capital]. In thatcase, the secured creditor sought to enforce its debenture security and appoint a receiver with power of sale.

The debtor did not opposethe appointment, but disagreed that the receiver should have the power to sell. [87] In IMOR Capital, Justice Burnyeat reviewed many of the foreclosure authorities. At para. 24, he stated that he was satisfied thata redemption period should be set. He found that the secured creditor was “amply” secured.

He then set a six-month redemption periodand adjourned the application to empower the receiver to sell. [88] Arguments similar to those advanced by the Borrowers - concerns about truncating a redemption period - were considered byJustice Horsman, as she then was, in Prospera Credit Union v. Portliving Farms (3624 Parkview) Investments Inc., 2021 BCSC 2449[Prospera] at para. 27. In that foreclosure, Order Nisi had been granted and a redemption period set. Prior to the expiry of the redemptionperiod, the petitioner applied to appoint a receiver with power of sale.

At paras. 34 and 40, Horsman J. addressed these concerns bygranting the receivership order but adjourning the application with respect to the power of sale, with liberty to apply after the expiry ofthe redemption period. [89] The Borrowers and Forseed refer to the granting of a sale power to a receiver as negatively affecting their ability to redeem.

Theypoint to the comment in Textron Financial at para. 86 that: As conduct of sale precludes redemption, the order sought by the plaintiff is inconsistent with affording the defendants a redemptionperiod. [90] In making the above comment, Willcock J. appears to have been referring to Mrazek, where the court stated: [13] The law is clear that an immediate order for sale or an immediate order absolute can only be made on proof by the mortgageeof exceptional circumstances. See Devany v.

Brackpool (1981), (BC SC), 31 B.C.L.R. 256, 21 R.P.R. 100, 127 D.L.R.(3d) 498 (S.C.) where a number of authorities are reviewed by Taylor J. See also Canlan Invt. Corp. v. Gibbons, (BCSC), 42 B.C.L.R. 199, [1983] 3 W.W.R. 226 (S.C.) and, in particular at p. 228, where the judgment of van der Hoop L.J.S.C. reads inpart as follows: The petitioner may be granted an order for sale in lieu of an immediate order absolute at the hearing of the petition where the facts setout in the material justifies such an order.

If a sale is approved, the mortgagor then loses the right to redeem, except in very unusualcircumstances, but is still liable for any deficiency outstanding on the judgment on the personal covenant to pay.

It is therefore onlyunder very clear circumstances that an immediate order for sale should be granted. [The italics are mine.] [91] However, a reading of the cases referred to in Mrazek confirms that the order that results in an extinguishment of the equity ofredemption – or “precludes” it - is not one for “conduct of sale”, but an order approving a sale, which has the same effect as the onearising from the granting of an order absolute of foreclosure. [92] This result is in accordance with well-established BC law which follows Pew v.

Zinck, (SCC), [1953] 1 S.C.R.285, as was recently described in Accepted Financial Corporation v. 1225614 B.C. Ltd., 2022 BCSC 942 by Justice Weatherill: [34] Accepted Financial points to the general rule that an owner cannot redeem, and the court has no jurisdiction to order theredemption of, a mortgage after an order approving sale has been made: Montreal Trust Company v. Brown et al., (B.C.C.A.) [Montreal Trust]; Farmers & Merchants Trust Company v. Church, (B.C.S.C.). See also Galway Capital Corp. v. Nikolov, 2005 BCCA 375 at para. 6; Pollard v.

Regional District of Central Okanagan, 2005 BCCA159 at para. 30. [93] Accordingly, a redemption can take place at any time prior to a sale being approved by the Court on application by any receiver. [94] Here, even if the receiver was granted the power to sell, and with BMO having undertaken not to apply for any sale approvaluntil after March 15, 2024, there could not be any extinguishment of the equity of redemption until court approval of a sale. Having said

that, I accept that any power to sell does affect the Borrowers’ equity of redemption in terms of shortening the time allowed to the debtor to refinance or sell. [ 95 ] The issue could be considered through the lens of either foreclosure or receivership, as both are paths that a secured creditor, such as BMO may follow. As many cases illustrate, even within a foreclosure, receivership appointments may be sought.

A secured creditor is entitled to elect the means by which the security will be enforced, as provided in the Credit Agreement, subject of course to the Court granting any relief sought from it. [ 96 ] In foreclosure law, the Court is able to exercise its equitable jurisdiction to fashion a redemption period. The practice in most cases is to set a six-month redemption period, save in special or extraordinary circumstances. The onus in establishing that a shortened redemption period should be set rests on the mortgagee to prove such “extraordinary” or “special” circumstances.

In most cases, those circumstances will be a proven risk by a lack of equity (either presently or over the redemption period) or some jeopardy to the property that requires immediate attention. [ 97 ] In this case, BMO has chosen to pursue a receivership, not a foreclosure. [ 98 ] In receivership, as I stated above, a secured creditor also bears the onus of establishing the appropriateness of the appointment, again recognizing that it is “extraordinary relief which should be granted cautiously and sparingly”.

If the appointment is appropriate, the Court will then proceed to consider what powers should be granted to the receiver, including whether there should be a power of sale and, if so, when any sale powers should be effective. [ 99 ] To that extent, there is great similarity in the test to be applied in both paths – whether foreclosure and/or receivership - in that the onus rests of the secured creditor/mortgagee to show special circumstances or justify the extraordinary relief sought. [ 100 ] BMO does not dispute that there is an equity of redemption, although at this point, it is technically held by Forseed given that the Borrowers transferred their equity of redemption to Forseed under the Forseed Mortgage which is registered after BMO’s mortgage.

BMO also does not dispute the equity of redemption is a relevant consideration here. [ 101 ] In my view, the above case authorities support the proposition that the Court should consider the debtor’s equity of redemption in terms of whether a receiver will be appointed and, if so, whether that receiver will be granted the power of sale and when. Such a consideration is clearly relevant to the question as to whether any such appointment and power is “just or convenient”, again having regard to the nature of the relief sought.

In addition, a consideration of any equity of redemption also comes within the Maple Trade factors – factor (k) – in relation to the “effect of the order upon the parties”. [ 102 ] I respectfully agree with the comments of Justice Gomery in Kruger v. Wild Goose Vintners Inc., 2021 BCSC 1406 emphasizing that procedures in receivership, perhaps more so than in foreclosures, are flexible. This is consistent with the needs and often complexity of insolvency scenarios which require consideration of many factors. He stated: [73] The procedure in receivership proceedings is flexible.

There is no requirement that a creditor obtain an order nisi before applying for an order for sale, for example. However, deference is still afforded to a debtor who wishes to redeem. Bank of Montreal v. Hester Creek Estate Winery Ltd. , 2004 BCSC 724 , involved a sale by a court-appointed receiver/manager in which the debtor sought to tender the amount owing and redeem at the hearing of an application to approve a sale of the debtor's assets.

At paragraph 27, Justice Tysoe, as he then was, observed that: Whenever there is a court-ordered-sale process, it is always implicit that the conduct of sale is subject to the debtor being able to pay off the secured creditor before a sale is approved by the court. I am aware of no authority to the effect that the granting of conduct of sale precludes the debtor from redeeming the property.

Allowing a redemption of the mortgaged property in these circumstances does not blemish the integrity of the court process but, rather, it represents the court process at work. [ 103 ] Seen in that light, and recognizing that an equity of redemption exists, even in a receivership, the true issue in that event is what amount of time should be afforded to the Borrowers and/or Forseed to redeem BMO’s mortgage, in the context of whether BMO has established sufficient factors to justify whatever period of time is sought.

Again, that will be a decision of the Court taking all of the circumstances into account. [ 104 ] The Borrowers also assert that, since a redemption period should be set, it should be six months from the date of order, citing Dass v. Rumball , 2015 BCSC 343 at para. 70 and Century Services Corp. v. LeRoy , 2021 BCSC 1285 at para. 192 . Both cases allowed a six-month redemption period in foreclosure proceedings, as there was no basis to shorten the period.

These cases illustrate the usual procedure, but do not stand for the proposition put forward by the Borrowers in the sense of requiring that a redemption period run from the date of the hearing. [ 105 ] In any event, what BMO proposes is the receiver having the power of sale in the near future, which effectively amounts to recognizing a six-month redemption period from the date of default (July 2023) or a shortening of the time for redemption, which is open to the Court to consider.

Nature of the Property [ 106 ] Attempts by the Borrowers and Forseed to minimize the complexity of the property secured in favour of BMO, including the Property, are without merit. [ 107 ] The Property is not a residential home that can be easily listed on the MLS. [ 108 ] The Property is a tenanted commercial and residential complex, i.e. an operating business. It is also a unique development property, which will attract only a certain cohort of potential purchasers. It is well taken on this application that the Borrowers’ own lack

of success in advancing the development over the last five years may be relevant to any purchaser who would similarly seek to develop the Property. [ 109 ] I agree with BMO that selling the Property will require the specialized expertise of a receiver to competently list and market the property. This may include the receiver retaining a commercial real estate brokerage, just as the Borrowers did in spring 2023. [ 110 ] Any receiver will have to undertake certain investigations and complete due diligence to prepare an appropriate sales process.

I would expect that financial information would be reviewed as part of that process. I expect that there will be the need to prepare complex sale documentation, such as teasers, non-disclosure agreements and the like.

I expect a data room will be set up and populated to assist prospective buyers with the necessary due diligence to make an informed offer. [ 111 ] It is uncertain whether the Borrowers will be cooperative in the context of a sales process, although I acknowledge their counsel’s submission that they have not refused to satisfy any request to date. [ 112 ] All of this is to say that a sales process for the Property can be expected to take some time, perhaps months. Toward that end, it will be necessary to grant an order appointing a receiver with appropriate powers relating to access to the Property.

BMO’s Security [ 113 ] Under the Maple Trade factor (g), BMO has the right to appoint a receiver under the documentation provided for the loan.

BMO has not appointed a receiver; rather, BMO seeks a court appointment, as it is entitled to do in the Credit Agreement, particularly since any sale would require court approval and a vesting order. [ 114 ] As was stated in Prospera at para. 24 , where a secured party is entitled to appoint a receiver, the “extraordinary nature of the remedy is less central to the inquiry”. [ 115 ] The undisputed fact is that BMOs’ Debt and security have been in default since July 2023 and demand for payment in full was made in August 2023. [ 116 ] Nevertheless, I accept that this factor is but one factor to be considered and no presumption of entitlement to a court appointment arises from the fact that the Credit Agreement allows for such an appointment: Textron Financial at para. 55 ; Prospera at para. 24 ; Ward Western BCCA at paras. 62–66 ; Vancouver Coastal Health Authority v.

Seymour Health Centre Inc. , 2023 BCSC 1158 at paras. 76–80 . Risk to BMO / Terrapoint [ 117 ] The parties very much disagree as to whether or not BMO is at risk in terms of recovering the Debt. [ 118 ] The amount of the Debt is significant. Further, the ongoing increase in the debt is also significant, with over $4 million of accrued interest already owed. [ 119 ] The Borrowers refer to an appraisal dated July 31, 2023 prepared by L.W. Property Advisors. This document indicates an appraised value of $192 million as at July 31, 2023.

However, this valuation is based on the Property’s development potential, not its current value as is.

In my view, this appraisal is more aspirational, than real, particularly since the Borrowers have been singularly unsuccessful in advancing their development efforts over the last five years and no doubt significant funds must be spent in the future toward creating the development that is being “appraised”. [ 120 ] Further, there is no evidence that any lender would consider this appraisal as supporting lending value in respect of any refinancing. [ 121 ] The 2023 BC Assessment indicates that, as of July 2021, the Property had a value of $107,980,400; as of July 2022, the Property had a value of $98,042,000.

BMO emphasizes that this represents a 9% decline from 2021-2022. [ 122 ] The sales process conducted in spring 2023 is undeniably the most reliable indication of value, assuming no change in the market has taken place since then. [ 123 ] In addition to the BMO default, HTLP is also in default of paying its 2023 property taxes.

As of December 2023, the amount owed is $355,850.09. [ 124 ] The only evidence, such as it is, concerning refinancing, indicates a lending value of $80 million, suggestive of the fact that the value of the Property is not as high as the Borrowers would suggest. [ 125 ] Evan Allegretto, Terrapoint’s representative, states in his affidavit sworn in December 2023 that the real estate market has changed considerably since August 2023, likely resulting in a lower value for the Property than even the Chard Offer.

He points to: higher interest rates; weaker sales data; increased tightening of credit; increased rates of foreclosures reducing overall valuations; limited number of potential purchasers who are able to purchase the Property due to its size, price and development requirements; and, increased construction costs. [ 126 ] Forseed objects to Mr. Allegretto’s evidence as being impermissible expert evidence and not properly before the Court as such. I agree that no expert evidence is before me, however, Mr.

Allegretto’s evidence is not put forward as expert evidence of value; rather, it represents his actual observations of factors which are well taken as being relevant to the real estate market, particularly in relation to development lands, such as the Property. [ 127 ] Terrapoint supports the appointment of a receiver to sell the Property. It does not believe that BMO is well secured and it is

concerned that any delay of repayment will be result in BMO suffering a shortfall, which could result in Terrapoint being called upon under its guarantee. [ 128 ] The Borrowers’ position, that BMO should be delayed in being granted any right of sale until after June 2024, would significantly expose BMO to more risk.

When one considers that any sales approved after that time would further delay repayment, any sale would have to achieve in excess of $85 million (to account for a further six-months interest ($2.7 million)) and pay outstanding and accruing property taxes, commissions on a sale and receiver expenses. [ 129 ] Even if one accepts that the real estate market is not declining, but remaining stable, this scenario puts BMO into a far riskier recovery situation that even what presently exists. [ 130 ] I reject the Borrowers’ submission that there is “sufficient equity” in the Property to justify further delay to June 2024. [ 131 ] I conclude that BMO is at some risk now and faces increasing risk of being under-secured in respect of the Property if there is any further delay.

It is no answer that the guarantors point to their own risk under the guarantees and the collateral security that some of them have given. At this stage, BMO is entitled to relief in respect of the assets of the Borrowers that secure the Debt. This risk is not mitigated by the exposure of the guarantors who have their own real assets and properties at risk, particularly given Mr. Zou’s own refusal to fund 110’s capital contributions to HTLP since 2022.

Dysfunction of HTLP? [ 132 ] Terrapoint asserts that the management of HTLP is dysfunctional. [ 133 ] Terrapoint states that Forseed has, since August 2022, failed to make required capital contributions to HTLP. Currently, Forseed owes approximately $3.4 million. 110 has also failed to make required capital contributions to HTLP and currently owes approximately $360,000. [ 134 ] To avoid default in the Debt, Terrapoint made capital shortfall loans of approximately $1.4 million to May 2023.

When that funding stopped, the default in the Debt occurred. [ 135 ] The CM Group and Forseed acknowledge that they have not made certain contributions to HTLP when required. They defend that position by pointing to the $15 million cash collateral that they provided to BMO, which has now been applied to the Debt. [ 136 ] Terrapoint remains frustrated by the fact that all of the Partners agreed on the sales process in spring 2023 and 110, at least initially, signed the LOI for the Chard Offer.

Only later did 110 and Forseed vote against proceeding with any sale. [ 137 ] I agree that the see-sawing of actions on the part of 110 is puzzling. Mr. Zou’s stated reason to reject the offers given that substantial losses would occur is understandable, but only to a point. It is difficult to see that the Borrowers could have deluded themselves into thinking that the Property was worth the same or more than they had invested in it some years ago. [ 138 ] The Property is worth what third parties will pay for it. The Property is not worth what an owner may have initially paid for it.

Further, any refinancing of the Property by a lender will inevitably be tied to what the Property is worth now, not what it might be worth in the future. [ 139 ] The only way to avoid the potential difficulty of a delta arising between what the property is worth and what amount can be secured by way of refinance is to offer financial resources from other persons – such as the guarantors – to backstop the loan. There is also the difficulty of servicing the debt, and the fact that the current rents from the Property do not service the Debt.

No lender would advance funds without this shortfall being addressed. [ 140 ] Here, all of this difficulty would have been avoided if 110 and Forseed had continued to make their capital contributions so as to allow ongoing interest payments to BMO to August 2023, during which time they should have arranged for refinancing to repay BMO in August 2023.

Presumably, such contributions would also have allowed HTLP to make property tax payments. [ 141 ] It is telling that the CM Group and Forseed are unwilling to make any further payments to BMO to cure the interest defaults, which may have alleviated risk to BMO and may have allowed them more time to address the CPL issue and refinance the Debt.

This is contrast to the debtor’s proposal to make significant payments to delay the receivership in Maple Trade (paras. 3 and 27 ) and Textron Financial (para. 17 ), which were both factors considered by the Court in delaying either the receivership or granting the receiver the power of sale. [ 142 ] What is also concerning is the apparent sequential approach of the Borrowers to resolving what was a well-known financial deadline in August 2023 when the Debt matured. In April 2023, the decision was to only pursue a sale, not a sale or refinance in tandem.

Only after the sale efforts were abandoned, were some efforts made in August 2023 to refinance. By any measure, those were completely inadequate to even pay out BMO. [ 143 ] Now, four months later, the Borrowers are still only suggesting some refinancing efforts, without providing anything concrete to support their bald statements.

Those supposed refinancing efforts are, to use BMO’s counsel’s word, “opaque” and not illuminating at all in terms of what has been tentatively done and what results, if any, achieved: Textron Financial at para. 78 ; Gian’s at paras. 30–32. [ 144 ] I agree that BMO and Terrapoint’s concerns about the ability of the Borrowers to refinance are valid. No credible term sheet has been provided to date, even one that assumes the removal of Treasure Bay’s CPL.

There is nothing to indicate what financing might be available to the Borrowers, including whether other financial supports are required and, if so, whether those are available. There is some uncertainty as to whether the Borrowers can even refinance without the involvement of Terrapoint, who point blank now refuses to be a part of any such effort.

[ 145 ] Further, there is a complete lack of evidence as to how the Borrowers and Forseed intend to address the Forseed Mortgage in terms of any refinancing. As the saying goes, you foreclose down, redeem up. There is no information even as to what is owed under the Forseed Mortgage, let alone any comment by Forseed as to it having any intention to redeem the Property in respect of the Debt, which it is entitled to do. [ 146 ] The Borrowers and Forseed have known since September 2022 that the Debt was going to mature in August 2023.

Since at least that time, they have had the ability to redeem the Property, but they had failed to do so. It can hardly be suggested that they have acted with any sense or urgency, or even timeliness, toward resolving the issue with BMO. [ 147 ] While I would not necessarily agree with Terrapoint that the management of HTLP by the Partners is “dysfunctional”, it is certainly challenged and somewhat in disarray in terms of direction and results.

Balance of Convenience to the Parties [ 148 ] The CM Group and Forseed’s response to Terrapoint’s concerns regarding the lack of any sale or lack of support that a refinance is even possible is that, if it turns out that their decisions were “bad business decisions”, they will suffer greater losses than Terrapoint. [ 149 ] At bottom, the CM Group and Forseed now seem keenly focussed on seeking to minimize their own downside, and hope for an upside, while remaining unconcerned about the risks faced by BMO and Terrapoint as the matter is delayed. [ 150 ] The Borrowers also allege that a receivership will result in prejudice to them arising from the stigma associated with the appointment of a receiver such they will be unable to secure new financing.

They cite Korion Investments Corporation v. Vancouver Trade Mart Inc. , [1993] B.C.W.L.D. 2928 (S.C.) at para. 12 , which was referenced in Southern Cone Capital Ltd. v.

EmVest Food Products (Mauritius) Ltd. , 2017 BCSC 2385 at para. 44 . [ 151 ] BMO disagrees, referring to Prospera at para. 32 , where Horsman J. found that the reputational impacts of the appointment of a receiver would not significantly impair a debtor’s ability to refinance, beyond the impairment that had already accrued at the outset from the foreclosure proceedings themselves. [ 152 ] BMO’s legal proceedings have already begun and the result has been that the Borrowers’ financial difficulties have now been fully disclosed to the public.

In light of this, I agree with BMO that any receiver appointment is unlikely to give rise to any further “stigma” or difficulties. In some quarters, the appointment may be seen as beneficial toward maximizing value for the Property in the sense of telling the market that professionals who have expertise in the real estate market will be addressing the matter. [ 153 ] BMO says that the Borrowers and Forseed have been given substantial time already to remedy their default.

After the July 2023 interest was not paid, BMO engaged in good faith discussions with them upon which BMO would forbear from any enforcement action. [ 154 ] That forbearance agreement was not signed. This resulted in further delay in filing the action and now a five months delay after the first default. BMO says that the Borrowers have had time to address the Debt, by either paying the interest, securing a financing commitment, even a conditional one, or list the Property for sale. [ 155 ] The Borrowers object to any suggestion that they have deliberately delayed BMO in taking steps under its security.

Somewhat surprising, they say that there was nothing to prevent BMO from commencing proceedings sooner than it did and that BMO could have commenced proceedings in July 2023. [ 156 ] I agree with the Borrowers that they have not deliberately delayed BMO in proceeding under its security. However, on the other hand, BMO has acted in commercially reasonable manner in entering into further negotiations with the Borrowers by agreeing to terms upon which the Borrowers would be given more time to solve their financial difficulties.

It cannot be doubted that this negotiation process was for the benefit of the Borrowers, particularly given their current allegations that the proceedings are publicizing their financial difficulties to the world, including prospective lenders. [ 157 ] At bottom, the Borrowers cannot have it both ways. Having effectively asked BMO to delay matters while a potential forbearance agreement was pursued, they cannot now suggest that the ensuing delay is irrelevant to a consideration of the issues relating to the receivership.

I agree with BMO that it would be a perverse situation to do so, and would encourage lenders to immediately commence proceedings and disregard any potential negotiated interim solutions. Generally speaking, in insolvency proceedings, a solution without litigation is one that benefits all stakeholders. [ 158 ] I acknowledge that a receivership, including one that entails sale powers, will have an effect on the Borrowers.

However, that must be balanced against the interests of BMO that is entitled to appoint a receiver and is entitled to realize on its security, failing repayment, within a reasonable period of time, after default (here, July 2023) and where risk of repayment exists. CONCLUSION [ 159 ] I conclude from all the circumstances that BMO has met its burden to establish that it is just and convenient to appoint the receiver.

I agree with BMO that it is necessary to have the receiver appointment effective as of January 12, 2024 so as to allow the receiver to investigate the circumstances of the Property and the rental business with a view to considering how a sales process might be implemented. [ 160 ] I am also satisfied that the receiver should be granted the ability to access the Property and the books and records of the Borrowers. The receiver will also have the ability to manage and operate the business (para. 2(

c) of the initial draft order), although it is my intention that the receiver will seek to maintain the current operations as much as possible, so as to minimize receivership costs. This would include continuing to allow for the collection of rents by First Service, as before. I do so on the basis that some oversight by the

receiver is appropriate given the ongoing leaseholds, particularly as to how those might affect any sale or refinance in the future. [ 161 ] I would also expect that, if the receiver considers that changes to the current management of the Property are required to be made, advance notice will be given to the Borrowers and the Partners so that they may provide input or, if necessary, apply to the Court. [ 162 ] In light of the somewhat minimal, and what are described as “hopeful” efforts on the part of the Borrowers to refinance, I intend to allow them more time to do that, before the receiver embarks on a sales process. [ 163 ] I have concluded that the further time to be allowed to the Borrowers will be more than what was sought by BMO, but less than what was sought by them.

I cannot conclude that it is appropriate to allow the Borrowers and Forseed to delay matters until after June 2024, which would effectively allow them a total period of 12 months to redeem. During that time, there would be increasing risk to BMO, particularly given the additional $2.7 million in interest that would accrue. [ 164 ] The receiver is appointed as of January 12, 2024, but will not be empowered to undertake any sales efforts until after February 23, 2024.

In addition, the receiver will be unable to file any application for approval of any sale until after April 26, 2024. [ 165 ] Forseed made certain submissions in relation to the provisions in the draft order regarding the execution of documents by the receiver. As that provision is in relation to the Property only, and not relating to the Borrowers generally, that is appropriate. I agree that amendments are necessary to the order with respect to the initiation or management of legal proceedings in relation to the Borrowers, which would include their ability to defend this proceeding and also the TB Action.

That provision regarding the powers of the receiver should be amended to exclude those legal proceedings. [ 166 ] Finally, I decline to authorize the receiver to exercise shareholder, partnership, joint venture or other rights that may be held by the Borrowers. Such a provision may restrict their ability to refinance. Generally speaking, nothing in the receivership order should be taken as restricting the ability of the Borrowers to pursue refinancing of the Debt. The receiver has liberty to apply to exercise any such rights as may be appropriate beyond what is already granted. “Fitzpatrick J.”