2022 SKKB 236, 2022 SKKB 236

KING’S BENCH FOR SASKATCHEWAN Citation: 2022 SKKB 236 Date: 2022 10 28 Docket: BKY-RG-00228-2022 Judicial Centre: Regina ___________________________________________________________________________ IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL UNDER

SECTION 50.4 OF THE BANKRUPTCY AND INSOLVENCY ACT , RSC 1985, C B-3, AS AMENDED, OF T & C STEEL LTD. AND T & C REINFORCING LTD. T & C STEEL LTD. and T & C REINFORCING LTD. Applicants Docket: BKY-RG-00230-2022 Judicial Centre: Regina ___________________________________________________________________________ IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL UNDER

SECTION 50.4 OF THE BANKRUPTCY AND INSOLVENCY ACT , RSC 1985, C B-3, AS AMENDED, OF UNDER THE SUN GROWERIES INC. UNDER THE SUN GROWERIES INC. Applicant Counsel: Travis K. Kusch counsel for the applicants David J. Smith for the Canada Revenue Agency Kelsey J. Meyer counsel for the proposal trustee Andrew Basi for the proposal trustee ___________________________________________________________________________ FIAT SCHERMAN J.

October 28, 2022 ___________________________________________________________________________ [ 1 ] Each of T & C Steel Ltd. [TCS], T & C Reinforcing Ltd. [TCR] and Under the Sun Groweries Inc. [UTSG] had given Notices of Intention to Make a Proposal [NOI] to their unsecured creditors. On the filing thereof, Grant Thornton was named as the Proposal Trustee for each.

The applications did not include proposals to their secured creditors. [ 2 ] On September 13, 2022, Gabrielson J. made an order consolidating the proceedings in BKY-RG-00228-2022 and BKY-RG-00229-2022 respecting TCS and TCR into the court file BKY-RG-00228-2022 and granted, pursuant to s. 50.4(9) of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 [ BIA ], a first extension of the time for those applicants to file their proposal to 11:59 p.m. on October 28, 2022, along with ordering other interim measures.

He also made a similar extension order in respect of UTSG. [ 3 ] Each of the applicants now asks the court to order an extension of the time to file their respective proposals to creditors to December 9, 2022. Applicable Legislation and Authorities [ 4 ]

Section 50.4(9) of the BIA states as follows: Extension of time for filing proposal 50.4

(9) The insolvent person may, before the expiry of the 30-day period referred to in subsection (8) or of any extension granted under this subsection, apply to the court for an extension, or further extension, as the case may be, of that period, and the court, on notice to any interested persons that the court may direct, may grant the extensions, not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8), if satisfied on each application that

(

a) the insolvent person has acted, and is acting, in good faith and with due diligence; (

b) the insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and (c) \ no creditor would be materially prejudiced if the extension being applied for were granted. [ 5 ] In light of this provision, before granting the requested extension, I have to be satisfied that: a. The respective applicants are acting in good faith and with due diligence; b. They are likely able to make a viable proposal to their respective creditors if the extensions are granted; and c.

No creditor would be materially prejudiced if the respective extensions are granted. [ 6 ] In Cantrail Coach Lines Ltd. (Re) , 2005 BCSC 351 , 10 CBR (5th) 164 [ Cantrail ] , the British Columbia Supreme Court said the following in respect of this section: [11] I am satisfied on reading the case law provided by counsel that in considering this type of application an objective standard must be applied. In other words, what would a reasonable person or creditor do in the circumstances. The case of Re: N.T.W. Management Group Ltd. [1993] O.J.

No. 621 , a decision of the Ontario Court of Justice, is authority for the proposition that the intent of the Act and these specific sections is rehabilitation, and that matters considered under these sections are to be judged on a rehabilitation basis rather than on a liquidation basis. [12] I am also satisfied that it would be important in considering the various applications before me to take a broad approach and look at a number of interested and potentially affected parties, including employees, unsecured creditors, as well as the secured creditor that is present before the Court. [ 7 ] In Enirgi Group Corp. v Andover Mining Corp. , 2013 BCSC 1833 , 6 CBR (6th) 32 [ Enirgi Group ] , the Court said: [66] Turning to s. 50.4(9) (b), a viable proposal is one that would be reasonable on its face to a reasonable creditor; “this ignores the possible idiosyncrasies of any specific creditor”: Cumberland [ [1994] OJ No 132 (Ont Ct J) ] at para. 4.

It follows that Enirgi’s views about any proposal are not necessarily determinative. The proposal need not be a certainty and “likely” means “such as might well happen.” ( Baldwin [ [1994] OJ No 271 (Ont Ct J) ], paras. 3-4).

And Enirgi’s statement that it has lost faith in Andover is not determinative under s. 50.4(9) : Baldwin at para. 3; Cantrail at paras. 13-18 ). [ 8 ] Then more recently the Nova Scotia Supreme Court said the following in Scotian Distribution Services Limited (Re) , 2020 NSSC 131 [ Scotian Distribution ] : [24] To say that virtually all economic prospects in the near to medium term are moving targets is a considerable understatement.

The applicant must still demonstrate that it is “likely [to] be able to make a viable proposal” with the extension in place, but in the current context I consider this to be a threshold in which the benefit of any doubt should be accorded to the applicant.

This does not relieve the burden of proof on the applicant of establishing that likelihood to a civil standard; it does, however, indicate that at least on a first extension, it will not likely be a difficult standard to meet. [25] I can take further judicial notice that especially in the current environment, a bankruptcy of an operating enterprise would almost inevitably be nasty, brutish, and anything but short. Creditors would be well advised to consider the viability and desirability of a proposal through that lens.

The Position of Interested Parties [ 9 ] Counsel for the applicants says that the affidavits of Chad Joinson, the sole director and shareholder of each of the applicants, provides evidence that they are acting in good faith, with due diligence and that no creditor would be materially prejudiced. He adds that given there is no evidence presented by any interested party disputing this evidence, these requirements are satisfied.

Thus, counsel says the remaining issue is whether I am satisfied the applicants are likely able to make a viable proposal to their respective creditors if the extensions are granted. [ 10 ] The only interested parties appearing were the Royal Bank of Canada [Royal Bank] through their legal counsel Mr. Olfert and David Smith for Canada Revenue Agency [CRA]. The Court was advised that the Royal Bank takes no position in respect of the applications.

This is understandable since no compromise of the debts to it are proposed. [ 11 ] David Smith advised the Court that the CRA does not take issues with the good faith or diligence of the applicants, nor was he able to say that the ongoing obligations of the applicants to the CRA (there being no current indebtedness) are prejudiced. However, he takes the position that the extensions sought should not be granted, because he argues that on the basis of the information available to the Court, I should not be satisfied the applicants are likely able to make a viable proposal to their respective creditors.

My Analysis and Conclusions [ 12 ] The affidavits of Chad Joinson make no express statement that the applicants are likely able to make a viable proposal to their respective creditors. The furthest he goes is to state: “It is my honest belief that a viable proposal will be made in this matter”. He provides no factual basis for his stated honest belief, nor does he speak to whether the financial information and projections the applicants were providing to the Proposal Trustee were accurate and truthful.

This is significant because the Proposal Trustee relied on the financial information and projections provided for its reports to the Court.

[ 13 ] The best information that I have in respect of the prospects for a viable proposal are contained in the Proposal Trustee’s Second Report in respect of the applications. Their reports are not evidence, but proposal trustees have a status akin to officers of the court in BIA proceedings. The Second Report respecting TCS and TCR contains the following statements: 7. To date, nothing has come to the Proposal Trustee’s attention that would cause it to question the reasonableness of the information and explanations provided to it by the Companies and their management.

The Proposal Trustee has requested that management bring to its attention any significant matters which were not addressed in the course of the Proposal Trustee’s specific inquiries. Accordingly, this Report is based on the information (financial or otherwise) made available to the Proposal Trustee by the Companies. … 25. The Proposal Trustee’s review of the Second Cash Flow Statement consisted of inquiries, analytical procedures and discussions related to information supplied to the Proposal Trustee by management of T&C.

Since hypothetical assumptions need not be supported, the Proposal Trustee’s procedures with respect to such assumptions were limited to evaluating whether they were consistent with the purpose of the Second Cash Flow Statement. The Proposal Trustee has also reviewed the support provided by management for the probable assumptions and the preparation and presentation of the Second Cash Flow Statement. Based on the Proposal Trustee’s review, nothing has come to its attention that causes it to believe that, in all material respects: (

a) the Probable and Hypothetical Assumptions are not consistent with the purpose of the Second Cash Flow Statement; (

b) as at the date of the Second Cash Flow Statement, the Probable and Hypothetical Assumptions developed by management were not suitably supported and consistent with the Companies’ plans or do not provide a reasonable basis for the Second Cash Flow Statement, given the Probable and Hypothetical Assumptions; or (

c) the Second Cash Flow Statement does not reflect the Probable and Hypothetical Assumptions. … 28.

The Proposal Trustee believes that granting an extension of time to file a proposal and the continuation of these Proceedings is in the best interest of stakeholders, and preferable to a liquidation in a bankruptcy and/or receivership. [ 14 ] The Second Report in respect of UTSG contains the same statements but paragraphs 25 and 28 quoted above are found at paragraphs 27 and 30 of this Report. [ 15 ] Each Second Report has attached, as Appendix 2, a Report on the Actual Cash Flow over the Period September 3 to October 14, 2022, and, as Appendix 3, a Cash Flow Forecast for the period October 15 to January 13, 2022 [ sic ] (presumably 2023 was intended). [ 16 ] By way of

summary, these appendices provide the following information: a. Re the consolidated operations of TCS and TCR: i. Its cash flow over the period September 3 to October 14 was a negative $125,699 and was some $273,000 less than the projected cash flows the applicants had previously provided; and ii. Its projected cash flow from operations October 15 to January 13 is stated to be $251,684 before professional costs and $138,684 after the professional costs associated with the proposal. b. Re UTSG: i.

Its cash flow from operations over the period September 3 to October 14 was $207,064, some $195,000 less than the projected cash flow the applicants had previously provided; and ii. Its projected cash flow from operations October 15 to January 13 is $22,094 before professional costs and a negative $90,406 after the professional costs associated with the proposal. [ 17 ] Thus, the applicants had failed by some significant measure to achieve their projected cash flows for the period to October 14 with somewhat mixed projections going forward.

This information leaves me with serious reservations as to whether the applicants are viable businesses. [ 18 ] In their Second Reports, Grant Thornton, in carefully limiting and curiously phrased statements, say that having reviewed the support provided by management for the probable assumptions and the preparation and presentation of the Second Cash Statements: 25. … Based on the Proposal Trustee’s review, nothing has come to its attention that causes it to believe that, in all material respects: (

a) the Probable and Hypothetical Assumptions are not consistent with the purpose of the Second Cash Flow Statement; (

b) as at the date of the Second Cash Flow Statement, the Probable and Hypothetical Assumptions developed by management were not suitably supported and consistent with the Companies’ plans or do not provide a reasonable basis for the Second Cash Flow Statement, given the Probable and Hypothetical Assumptions; or (

c) the Second Cash Flow Statement does not reflect the Probable and Hypothetical Assumptions. [ 19 ] The Proposal Trustee then end their Second Reports with the following conclusion:

28. The Proposal Trustee believes that granting an extension of time to file a proposal and the continuation of these proceedings is in the best interests of the stakeholders, and preferable to a liquidation in a bankruptcy and/or receivership. and recommend the Court approve the stay extensions sought. [ 20 ] I find the evidentiary and informational basis provided to the Court in support of the extension application to barely meet the test of a likelihood of being able to make a viable proposal. As stated in Scotian Distribution , on a first extension, the test “will likely not be a difficult standard to meet”.

But this is not a first extension. [ 21 ] It is only by giving regard to: a. the statement in Enirgi Group to the effect that “’likely’ means ‘such as might well happen”’; b. the direction in Cantrail quoted above to the effect that is important for the Court to take a broad approach and look at a number of interested and potentially affected parties, including employees and unsecured creditor; c. recognizing that Grant Thornton is, in providing to the Court their reports, effectively an officer of the court in respect of the conclusions and recommendations they provide, notwithstanding my concerns about the limitations inherent in their reports; and d. my opinion that the creditors should, where a reasonable possibility of acceptance of a proposal exists, be given the opportunity to decide, since they are the ones who will be primarily affected; that I am able to conclude that I am satisfied that the applicants “would likely be able to make a viable proposal” if given additional time.

I recognize that creditors might view what I might perceive as unviable as to them being viable and acceptable. [ 22 ] Accordingly, I am granting the extensions sought and direct that orders shall issue in the form of the draft orders filed on October 21, 2022, on each of the files. [ 23 ] In granting the requested second extensions, I wish to make it clear that should the applicants fail to complete their proposals within the time limits set forth in the orders I have made and come to the Court seeking a further extension, they should expect the Court will be requiring better and focused evidence and information on the likelihood of a viable proposal, given the problematic cash flow projections in turn based on unknown “probable and hypothetical assumptions”. [ 24 ] Because of the attention I have given to these matters and the concerns expressed herein, and in the interests of judicial efficiency, I will remain seized of any future application for a further extension of time. “B.

Scherman” J. B. Scherman