AFFINITY CREDIT UNION 2013 v. AFFINITY, 2023 SKKB 82

KING’S BENCH FOR SASKATCHEWAN In Bankruptcy and Insolvency Citation: 2023 SKKB 82 Date: 2023 04 21 Docket: KBG-SA-00204-2023 Judicial Centre: Saskatoon IN THE MATTER OF THE RECEIVERSHIP OF THE LIGHTHOUSE SUPPORTED LIVING INC. BETWEEN: AFFINITY CREDIT UNION 2013 AND AFFINITY HOLDINGS INC., APPLICANTS - and - THE LIGHTHOUSE SUPPORTED LIVING INC., RESPONDENT AND: Docket: KBG-SA-00149-2023 Judicial Centre: Saskatoon IN THE MATTER OF THE RECEIVERSHIP OF THE LIGHTHOUSE SUPPORTED LIVING INC. BETWEEN: Twila Reddekopp and Jerome hepfner, APPLICANTS - and -

THE LIGHTHOUSE SUPPORTED LIVING INC. AND BLUE MOUNTAIN ADVENTURE PARK INC., RESPONDENTS Counsel: Wayne L. Pederson, K.C., for Affinity Credit Union 2013 and Ryan A. Pederson and Affinity Holdings Inc. Travis K. Kusch for Twila Reddekopp and Jerome Hepfner Paul D. Olfert for MNP Ltd. David J. Smith for the Attorney General of Canada Andrew M. Mason for Donald Windels and Adeel Salman No one for The Lighthouse Supported Living Inc. and Blue Mountain Adventure Park Inc. ___________________________________________________________________________ FIAT ROTHERY J.

April 21, 2023 ___________________________________________________________________________ [ 1 ] In February, 2023, Twila Reddekopp [Reddekopp] and Jerome Hepfner [Hepfner], two board members of The Lighthouse Supported Living Inc. [The Lighthouse], brought an application pursuant to s. 65(1) of The Queen’s Bench Act, 1998 , SS 1998, c Q-1.01 [ QB Act ], and s. 86 of The Non-profit Corporations Act, 1995 , SS 1995, c N-4.2 (rep) (now s. 8 - 6 of The Non-profit Corporations Act, 2022 , SS 2022, c 25 ) [ NPCA ], seeking an order appointing MNP Ltd. as interim receiver of the assets of The Lighthouse, to manage the operations of The Lighthouse for a limited period of time.

Management of the board of directors of The Lighthouse had deteriorated, and The Lighthouse was in a dire financial state and unable to make the next payroll obligations. Reddekopp and Hepfner also sought funding to finance the interim receivership for the limited time period. [ 2 ] During the same time frame, Affinity Credit Union 2013 and Affinity Holdings Ltd. [Affinity], applied for an appointment of MNP Ltd. as interim receiver of The Lighthouse pursuant to s. 47 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 [ BIA ].

Affinity demanded payment of the demand loan and line of credit, an amount in excess of $310,000. Affinity demanded payment of the arrears owed pursuant to eight mortgages it granted to The Lighthouse, in the sum of approximately $595,000. The total amount owing by The Lighthouse to Affinity is in excess of $2.6 million as at April 4, 2023. [ 3 ] At the time of these two applications for the appointment of MNP Ltd. as interim receiver, The Lighthouse was represented by legal counsel, Paul Fedoroff and Craig Frith.

On February 24, 2023, counsel for Reddekopp and Hepfner, for Affinity, and for The Lighthouse, presented a draft interim receivership order for the Court’s consideration, which was consented to by all parties. An order was granted in KBG-SA-00149-2023, appointing MNP Ltd. as interim receiver of The Lighthouse and Blue Mountain Adventure Park Ltd. (a related corporation) until 11:59 p.m. (local Saskatoon time) on April 13, 2023.

Affinity agreed to fund the interim receiver’s borrowing charge of $100,000, and withdrew its own application for an interim receiver pursuant to the BIA . [ 4 ] The terms of the interim receivership order granted February 24, 2023 included a provision allowing MNP Ltd. to market properties that The Lighthouse owns in Battleford, Saskatchewan, and to apply for any vesting orders to convey title to purchasers. [ 5 ] Because the interim receivership order expired at 11:59 p.m. on April 13, 2023, that date was set by the Court for any applications that might arise.

Affinity applied for a receivership order in accordance with the BIA , QB Act and The Personal Property Security Act, 1993 , SS 1993, c P-6.2 [ PPSA ], of The Lighthouse’s assets. It was willing to fund the proposed receiver’s borrowing charge of $500,000. [ 6 ] Reddekopp and Hepfner applied to extend the interim receivership order granted February 24, 2023 to 11:59

p.m. on July 22, 2023, and sought an increased interim receiver’s borrowing charge of $500,000. [ 7 ] One of the five board members of The Lighthouse, Lisa McCallum, resigned from the board effective March 31, 2023. Reddekopp advised that the board was deadlocked with two opposing factions, Reddekopp and Hepfner as one faction, and Donald Windels [Windels] and Adeel Salman [Salman] as the other faction. On April 4, 2023, counsel for The Lighthouse advised the Court that it was unable to obtain instructions from The Lighthouse and could no longer act as counsel for The Lighthouse. Mr.

Fedoroff filed the notice of withdrawal of lawyer of record effective April 4, 2023. [ 8 ] MNP Ltd. filed its own application, returnable April 13, 2023, seeking approval of its first report dated April 6, 2023, approval of its actions to April 6, 2023, and approval of its professional and legal fees incurred to date.

It also sought an increase of the interim receiver’s borrowing charge from $100,000 to $500,000 should the Court grant the extension of the interim receivership order to July 22, 2023, as requested by Reddekopp and Hepfner. [ 9 ] As a preliminary matter on the return date of April 13, 2023, Andrew Mason, counsel for the two board members, Windel and Salman, sought an adjournment of all applications until The Lighthouse had an opportunity to hold a meeting of the members to elect a board so that The Lighthouse could instruct counsel. Mr.

Mason wanted an opportunity for The Lighthouse to respond to the receivership application brought by Affinity because his clients perceived the scope of the receivership to be too broad. [ 10 ] Because of the urgency of the situation, the request for an adjournment into May 2023 was denied. However, the terms of the proposed receivership order allowed for The Lighthouse to bring that issue back before the Court on short notice, should it wish to.

In the meantime, the only asset of The Lighthouse that might be subject to a sale approval order was one property in Battleford that MNP Ltd. was able to sell under the interim receivership order. Then counsel for The Lighthouse had already consented to this property being sold. Thus, providing The Lighthouse an opportunity to bring the issue of the terms of the receivership order back for review would not prejudice The Lighthouse in any way. Furthermore, Mr.

Mason advised the Court that paragraphs 31 and 31A of the proposed receivership order were sufficient for the purposes of placing any applications before the Court. [ 11 ] Counsel for Reddekopp and Hepfner concedes that there is no funding available to extend the interim receivership under the NPCA . Counsel also advised he has no instructions to seek an order appointing a receiver-manager under s. 8 - 6 of the NPCA . Thus, that application was dismissed. [ 12 ] The application of counsel for MNP Ltd. as interim receiver to approve its report, activities and fees was granted.

Its application for an increased borrowing charge under the interim receivership was dismissed as the interim receivership concluded at 11:59 p.m. on April 13, 2023. [ 13 ] Affinity applies to have MNP Ltd. appointed as receiver-manager over all the assets of The Lighthouse as provided by s. 243(1) of the BIA . Affinity argues that it is “just and convenient” for the Court to make the receivership appointment.

Factors to be considered by the Court in exercising the judicial discretion include those referred to in Lemare Lake Logging Ltd. v 3L Cattle Company Ltd. , 2014 SKCA 35 at paras 98-100 , 371 DLR (4th) 663 (rev’d on constitutional grounds 2015 SCC 53 , [2015] 3 SCR 419), and citing from Bennett on Receiverships , 2d ed (Toronto: Carswell, 1999): 98 The case law relating to the appointment of receivers has identified a broad range of considerations that can bear on the issue of whether an appointment is appropriate.

A number of decisions refer to the list of factors found in the second edition of Bennett on Receiverships, supra at pp. 130-132.

These include matters such as: * Whether irreparable harm might result if the order is not made; * The risk to the security holder taking into consideration the size of the debtor’s equity in the collateral; * The nature of the property or collateral; * The need to protect or safeguard the debtor’s assets while litigation takes place; * The need to prevent waste of the debtor’s assets; * The balance of convenience as between the parties; * The fact that the creditor has a right to appoint a receiver under the loan agreement in question; * The conduct of the parties; * The impact of the order on the parties; * The cost of the receivership to the parties; * The likelihood of maximizing return to the parties.

See, for example: Maple Trade Finance Inc. v. CY Oriental Holdings Ltd. , 2009 BCSC 1527 , 60 C.B.R. (5th) 142 at para. 25 . 99 The third edition of Bennett on Receiverships , (Toronto: Carswell, 2011), at pp. 155-162, suggests that the following factors are typically taken into consideration in deciding whether to appoint a receiver: (

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

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

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

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

e) the balance of convenience between the parties. See also: Houlden, et al, The 2013 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2013) at p. 1005.

100 These sorts of factors will inform judicial reasoning on an application such as the one brought by Lemare Lake in this case but, of course, the bottom-line issue remains the one specified in s. 243(1) of the BIA : Is the appointment of a receiver “just or convenient”? Also see Affinity Credit Union 2013 v Vortex Drilling Ltd. , 2017 SKQB 228 at para 19 , 50 CBR (6th) 220. [ 14 ] The test pursuant to s. 65 of the QB Act is whether it appears to the judge that it be appropriate or convenient to appoint a receiver.

Section 8 - 6 of the NPCA states the Court may make any order it considers appropriate, including the appointment of a receiver-manager. [ 15 ] Affinity has mortgages over the two towers located on Second Avenue and 20th Street in Saskatoon, as well as numerous houses situated throughout the city, all owned by The Lighthouse. Affinity also has a general security agreement, registered against all present and after-acquired personal property of The Lighthouse. These security documents all allow for the appointment of a private receiver or a court-appointed receiver.

This contractual right under the agreements is a factor that weighs in favour of granting the court appointment when a debtor has defaulted. See Maple Trade Finance Inc. v CY Oriental Holdings Ltd. , 2009 BCSC 1527 at para 26 , 60 CBR (5th) 142 . [ 16 ] The report filed by MNP Ltd. regarding its activities and findings of the first 37 days of its interim receivership appointment paints a dismal financial situation. The Lighthouse is presently operating at a deficit of $100,000 per month. Without a receivership order, The Lighthouse will be unable to pay its employees.

Affinity’s security is at risk as a result of approximately $561,000 unpaid employee source deductions owed to Canada Revenue Agency. [ 17 ] The Lighthouse’s board of directors is deadlocked, and unable to make key decisions about the management of the operation and any possible disposition of assets to allow a future for the towers at Second Avenue and 20th Street. [ 18 ] The Lighthouse is insolvent, and can only meet operating expenses by way of a receiver’s borrowing charge, which Affinity is willing to fund.

In short, the balance of convenience weighs in favour of the receivership appointment. [ 19 ] Therefore, on April 13, 2023, I granted the order appointing MNP Ltd. receiver-manager of The Lighthouse. This is an appointment made pursuant to the NPCA as well as the BIA , QB Act and PPSA . There may be issues that are specific to the duties imposed upon a receiver under that legislation, as The Lighthouse is a non-profit corporation. [ 20 ] A further application is set for April 28, 2023 for MNP Ltd. to apply for approval of the sale of one of the Battleford properties.

Counsel may bring other matters before the Court on that date that may arise. J. A.R. ROTHERY