AFFINITY CREDIT UNION 2013 Plaintiff - v. -, 2023 SKKB 152

KING’S BENCH FOR SASKATCHEWAN In Bankruptcy and Insolvency Citation: 2023 SKKB 152 Date: 2023 07 13 Docket: QBG-SA-00572-2021 Judicial Centre: Saskatoon ___________________________________________________________________________ IN THE MATTER OF THE RECEIVERSHIP OF RITCHIE INDUSTRIES INC. and DUCK MOUNTAIN ENVIRONMENTAL LTD. AND IN THE MATTER OF THE BANKRUPTCY OF RITCHIE INDUSTRIES INC. and DUCK MOUNTAIN ENVIRONMENTAL LTD. BETWEEN: AFFINITY CREDIT UNION 2013 Plaintiff - and - RITCHIE INDUSTRIES INC. and DUCK MOUNTAIN ENVIRONMENTAL LTD. Defendants Counsel: Ryan A.

Pederson for the plaintiff, Affinity Credit Union 2013 Diana K. Lee, K.C., and Ryan D. Moneo for the receiver, MNP Ltd. Wayne M. Rusnak, K.C. for Robert Ritchie ___________________________________________________________________________ FIAT ROTHERY J. July 13, 2023 ___________________________________________________________________________ [ 1 ] MNP Ltd. [Receiver] is both a court-appointed receiver of Ritchie Industries Inc. [Ritchie] and of Duck Mountain Environmental Ltd. [Duck Mountain], as well as the licenced insolvency trustee of Ritchie and Duck Mountain.

Ritchie and Duck Mountain each filed a notice of intention to make a proposal pursuant to the Bankruptcy and Insolvency Act , RSC 1985, c B-3 [ BIA ], which was terminated by court order on June 29, 2021, resulting in the deemed bankruptcy of both corporations on June 29, 2021. By way of a consent order submitted by Ritchie, Duck Mountain and the secured creditor, Affinity Credit Union 2013 [Affinity], MNP Ltd. was appointed receiver of both corporations on June 29, 2021. [ 2 ] Robert Ritchie [Robert] is both the sole shareholder and sole director of Ritchie and Duck Mountain.

He is also the guarantor of the indebtedness of both corporations to Affinity. [ 3 ] Ritchie operated a Petro-Canada service station and a liquor store in the town of Kamsack, Saskatchewan. The Receiver received court approval and sold the Petro-Canada service station in November 2021. The Receiver has completed a sale of the liquor store and applied on June 23, 2023, for the court approval of that sale. [ 4 ] At that application, counsel for Robert sought an adjournment to file affidavit material and to argue his opposition to that sale. The application was adjourned to July 6, 2023.

Counsel for Robert, the Receiver and Affinity made their respective submissions on July 6, 2023. [ 5 ] I approved the sale of the assets of the liquor store that date, with written reasons to follow.

While the details of the sales transaction remain under seal until the Receiver files the requisite certificate with the Court, these are the reasons that support the approval of the sale and the granting of the vesting order. [ 6 ] The problems surrounding and the rationale for the sale of the liquor store in the manner presented to the Court are fully canvassed in the Receiver’s fifth report to the Court dated June 19, 2023. For clarity, I quote the relevant portions of the report:

21. The Liquor Store assets are comprised of real property, equipment and chattels and inventory. 22. The Liquor Store real property is legally described as Parcel C, Plan 102056688 Ext. 1, Kamsack, SK (the “Liquor Store Property”)and consists of one commercial building of approximately 4,808 sqft on approximately 5.98 acres. In accordance with a July 29, 2021Land Title Search, the Liquor Store Property is registered in the name of Ritchie. 23. Affinity Credit Union requested a Fair Market Appraisal of the Liquor Store Property dated July 6, 2021 from Suncor Valuations(the “Liquor Store Property Appraisal”).

A copy of the Liquor Store Property Appraisal is attached to the Ritchie ConfidentialAddendum to the First Report. 24. The equipment and chattels include the shelving, electronic merchant equipment and coolers located within the commercialbuilding. The inventory consists of the liquor and other retail inventory. 25. After its appointment the Receiver was advised by management of Ritchie that the intention was that the Liquor Store business wasoperated through a limited liability partnership referred to as Kamsack Liquor Store Limited Partnership (the “KLS LP”).

The partnersincluded in the KLS LP were intended to be Ritchie and G.C.O. Investments Ltd. (“GCO”) with Ritchie as the General Partner ofKLS LP. 26. The Receiver’s counsel reviewed the Ritchie books and records, spoke with prior legal counsel for Richie [sic] and conductedregistry searches. They have advised that KS LP [sic] was never registered under The Business Names Registration Act and accordinglythe liability partnership never legally came into existence, even though the parties thought it had. 27. It also appeared that Ritchie was inconsistent as to whether they traded as the intended limited partnership.

Critically, the liquorlicense which formed the basis of the business was never transferred from Ritchie to the KLS LP and only Ritchie could legally havebeen operating the Liquor Store. They did however open an account with Canada Revenue Agency in the name of the limited partnershipand advised it that the employer was KLS LP. In some cases, creditors believed they were dealing with Ritchie and in other cases theythought they were dealing with a partnership. 28.

Based on discussions with our counsel, the Receiver concluded that the costs of resolving, by way of (probably multiple) courtproceedings, the legal issues involved would be excessive and detrimental to the realization of the estate. As a consequence, a settlementagreement (the “Settlement”) between GCO and Ritchie was negotiated (concurrently with the sale described below) agreeing thatKLS LP never came into existence. As a consequence, the Receiver did not have to deal with the issue of the liquor license and the cashadvances made by GCO were to be treated as unsecured advances to Ritchie.

All other third-party creditors of the Liquor Store bothsecured and unsecured will not be prejudiced by the Settlement. While the cost of doing so falls on the primary secured creditor(Affinity), it supported the Settlement in light of the avoided costs and resolution of the related issues. 29. The Receiver and GCO have agreed on the terms of [the] sale transaction for the Liquor Store assets and an Asset PurchaseAgreement has been negotiated by the parties (subject to Court approval) (the “Liquor Store Offer”). 30.

The Receiver entered into a Lease Agreement with GCO in relation to the operations of the Liquor Store effective June 1, 2023 (the“Liquor Store Lease Agreement”). A copy of the Liquor Store Lease Agreement dated June 1, 2023 is attached as

Schedule 1. TheLiquor Store Lease Agreement was negotiated as part of the sale transaction with GCO. … 34. The Receiver and the principal of GCO have agreed on the terms of [the] sale transaction for the Liquor Store assets and an AssetPurchase Agreement has been negotiated by the parties (subject to Court approval) (the “Liquor Store APA”). 35. A copy of the Liquor Store APA is attached to the Ritchie Confidential Addendum. 36.

The Receiver has not initiated a public sales process for the Liquor Store because: • the purchase price in the Liquor Store APA represents a realization value in line with market value based upon the Liquor StoreAppraisal and Ritchie’s internal books and records. • Sale to GCO is a condition of the Settlement (defined above) which Settlement has a significant, albeit contingent and thereforeunquantified, financial benefit to the estate. 37.

The Receiver is advised that the primary secured creditor (Affinity) does not object to the acceptance of the Liquor Store APA. [7] In determining whether a proposed sale by the Receiver ought to be approved, the Court must assess whetherthe Receiver has acted properly in the sale process. That duty imposed upon the Court is outlined in Royal Bank of Canada v SoundairCorp. (1991), (ON CA), 83 DLR (4th) 76 (Ont CA) [Soundair].

The ratio in Soundair was applied in TheToronto-Dominion Bank v 101142701 Saskatchewan Ltd., 2012 SKQB 289 at para 24, 401 Sask R 203, where I stated: [24] I now turn to the APA which was approved by the court. As stated in Royal Bank v. Soundair Corp., supra, at p. 6, the court isrequired to analyze the proposed sale by the Receiver in the following manner: As did Rosenberg J., I adopt as correct the statement made by Anderson J. in Crown Trust Co. v.

Rosenberg (1986), (ON SC), 60 O.R. (2d) 87, 39 D.L.R. (4th) 526 (H.C.J.), at pp. 92-94 O.R., pp. 531-33 D.L.R., of the duties which a court must performwhen deciding whether a receiver who has sold a property acted properly. When he set out the court's duties, he did not put them in anyorder of priority, nor do I. I summarize those duties as follows: 1. It should consider whether the receiver has made a sufficient effort to get the best price and has not acted improvidently.

2. It should consider the interests of all parties. 3. It should consider the efficacy and integrity of the process by which offers are obtained. 4. It should consider whether there has been unfairness in the working out of the process. And see: Atrium Mortgage Investment Corporation v King Edward Apartments Inc. , 2018 SKQB 296 at para 13 , 65 CBR (6th) 15 . [ 8 ] It is the position of counsel for Robert that the Receiver has failed on all four factors that the Court has a duty to assess.

Specifically, by not offering the liquor store for sale by some public sale process, the Receiver has not obtained the best price. Furthermore, because the appraisal upon which the Receiver relies is from 2021, it is stale-dated and cannot be relied upon. As well, the Receiver does not calculate “goodwill” in its assessment of fair market value; the sale price should be in the range of $700,000 more than what the purchaser has offered in this transaction. [ 9 ] Counsel for Robert does concede that any other offer to purchase that does not include the settlement with G.C.O.

Investments Ltd. [GCO] must at least exceed $400,000 more than the present sale price to account for the cost of future litigation as referred to in the Receiver’s fifth report to the Court.

However, because the Patels, principals of the corporation that purchased the Petro-Canada service station, are interested in making an offer to purchase, counsel for Robert submits that an adjournment of this application of 30 days should be granted to see if they do so. [ 10 ] In assessing the Receiver’s actions in the sale process, I turn firstly to considering whether the Receiver has made a sufficient effort to get the best price and has not acted improvidently.

As outlined in the Receiver’s fifth report to the Court, negotiations were completed with GCO and a settlement reached between GCO and the Receiver pertaining to Ritchie. That way, the Receiver could ensure that the purchaser would be able to obtain clear title to the liquor store, and the Receiver would not be left with the uncertainty and cost of litigation. [ 11 ] Counsel for Robert seems to equate the “best price” with fair market value. Counsel for Robert submits that the Receiver, in considering the purchaser’s offer, has relied on a stale-dated appraisal to determine fair market value.

The Receiver explained that the appraisal is only two years old and that market values in Kamsack, Saskatchewan, have not increased since. Oppositely, the Receiver observed that other properties in this receivership listed for sale have reflected realization values at less than the appraised market values of 2021. [ 12 ] Counsel for Robert submits that there is no allocation for goodwill in this sale. Robert himself suggests it should be in excess of $700,000.

The Receiver explained that this sale is not of a “going concern” business; this is a forced sale within the context of a receivership, and that makes it subject to a discount. I agree. [ 13 ] The Receiver has been most provident in this case in selling the liquor store. It has a difficult legal issue which it must resolve, and it has managed to do so while obtaining a decent price for this asset. It has orchestrated a sale that provides certainty for the parties. It ensures that the receivership need not carry on simply because the Receiver is embroiled in litigation for the foreseeable future.

This is of great benefit to Robert, as guarantor of Ritchie’s indebtedness to Affinity. [ 14 ] The Court must consider the interests of all parties in determining whether the Receiver has acted properly in the sales process. Affinity, as the secured creditor, supports the sale proposed and agrees that a resolution to the legal issues is the most appropriate course of action. Counsel for Affinity pointed out that the ongoing interest costs on the $900,000 mortgage secured against the property are accruing at about $4,800 per month.

Having the assets sold will prevent further deficiencies, for which Robert may be liable. [ 15 ] This sale does not adversely affect any of the other creditors. And payment of outstanding indebtedness to Affinity is to Robert’s benefit. [ 16 ] The efficiency and integrity of the process is intact. While the Receiver did not advertise on the open market, it pursued a sales process that both provided a fair price and a resolution to the legal problems that Ritchie found itself in. [ 17 ] There has been no unfairness in the working out of the process.

While Robert, in his affidavit, attempts to paint the discussions between the Receiver and the Patels, the principals of the corporation that bought the service station from the Receiver, as simply putting them off while the Receiver continued negotiations with the purchaser, quite the opposite is reflected in the exchange of emails between the Receiver and the Patels. The Receiver was clear with the Patels that a sale was being negotiated and anticipated to conclude. Furthermore, the Receiver and the Patels discussed other potential properties in receivership that they may be interested in purchasing.

There has been no unfairness to the Patels. [ 18 ] Robert alleges that he has been treated unfairly in the working out of the sales process because he is responsible for any shortfall to Affinity pursuant to his guarantee. However, the whole problem that the Receiver was required to resolve in ensuring that it could pass clear title to a purchaser is a problem of Robert’s making. He was the sole shareholder and director of Ritchie.

There is no unfairness to Robert in this sales process. [ 19 ] Counsel for Robert submits that the application should be adjourned for 30 days to see if the Patels make an offer that is substantially better than the present one before the Court. I rejected that request. To adjourn the approval of a sale that meets the criteria of the Receiver acting properly in the hope that a better offer might be made by the Patels is folly. It is appropriate to assume that the Patels are looking for a bargain; they would not be interested in paying a premium price simply to cover the costs of Ritchie’s legal predicament.

Even if they were to pay a premium for the liquor store, it does not translate to any better realization of the assets than this offer presented by the Receiver. That means no reduction of the risk to Robert. Oppositely, the costs of the receivership would continue, and the interest on the loans would continue to accrue. All of that is a liability that Robert may bear pursuant to his guarantee to Affinity.

[20] I am reminded of the comments of Galligan J.A. in Soundair, at 102-103: There are two statements by Anderson J. contained in Crown Trust Co. v. Rosenberg [(1986), (ON SC), 39 DLR (4th)526], which I adopt as my own. The first is at p. 548: The court should not proceed against the recommendations of its Receiver except in special circumstances and where the necessity andpropriety of doing so are plain. Any other rule or approach would emasculate the role of the Receiver and make it almost inevitable thatthe final negotiation of every sale would take place on the motion for approval.

The second is at p. 550: It is equally clear, in my view, though perhaps not so clearly enunciated, that it is only in an exceptional case that the court will interveneand proceed contrary to the Receiver's recommendations if satisfied, as I am, that the Receiver has acted reasonably, prudently and fairlyand not arbitrarily. [21] As those words pertain to this application for sale approval, I found that the Receiver has “acted reasonably,prudently, fairly and not arbitrarily”. The Receiver has been able to negotiate the sale of an asset with many blemishes and for a fairprice.

Accordingly, the order approving the sale was granted. “A.R. Rothery” J. A.R. ROTHERY