2019 MBCA 95, 2019 MBCA 95

Citation: 7451190 Manitoba Ltd v CWB Maxium Date: 20190919 Financial Inc et al, 2019 MBCA 95 Docket: AI19-30-09213 IN THE COURT OF APPEAL OF MANITOBA IN THE MATTER OF: A Final Order for the Appointment of MNP Ltd. as Receiver and Manager BETWEEN : CWB MAXIUM FINANCIAL INC. ) J. L. Sinclair ) for the Appellant ) (Applicant) Respondent ) C. E. Howden and ) E. N.

Blouw - and - ) for the Respondent ) CWB Maxium Financial 6934235 MANITOBA LTD. carrying on ) Inc. business as WHITE CROSS PHARMACY ) WOLSELEY and 7085797 MANITOBA INC. ) No appearance ) for the Respondents ) 6934235 Manitoba Ltd. (Respondents) Respondents ) c.o.b. as White Cross ) Pharmacy Wolseley and - and - ) 7085797 Manitoba Inc. ) 7451190 MANITOBA LTD. ) Chambers motion heard: ) August 6, 2019 ) (Respondent) Appellant ) Decision pronounced: ) September 19, 2019 mainella JA Introduction [ 1 ] 7451190 Manitoba Ltd. (the company) seeks to challenge an order made pursuant to

section 243 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 (the BIA ) and

section 55 of The Court of Queen’s Bench Act , CCSM c C280 , appointing a receiver/manager over the assets, undertakings and properties of it and the other respondents. The receivership order was entered on the same day it was pronounced, December 20, 2018. [ 2 ] An appeal of the receivership order was commenced on January 14, 2019.

In chambers proceedings before me, the applicant raised several objections with the appeal: (1) the company did not have an appeal as of right, rather, it requires leave to appeal that should be refused; (2) the appeal was statute barred as it was not filed within 10 days of the order or decision appealed from; and (3) the company could not be represented in this Court by its director who is not licenced to practice law in Manitoba. [ 3 ] Previously, I decided that the company could not be represented by its director (see 7451190 Manitoba Ltd v CWB Maxium Financial Inc et al , 2019 MBCA 28 ).

The company has now retained legal counsel to represent it on the proceedings related to the appeal. [ 4 ] The remaining questions for me to decide are: (1) whether the nature of the company’s appeal of the receivership order requires leave or is of right pursuant to

section 193 of the BIA ;

(2) if the company requires leave to appeal, should leave to appeal be granted; and (3) whether the company should be granted an extension of time to file its notice of appeal and, if leave is required, its applicationfor leave to appeal. [5] For the following reasons, I conclude that the company’s appeal of the receivership order is not of right and, given thecircumstances, leave to appeal should be denied. Accordingly, it is unnecessary to address the request for an extension of time.

Background [6] In my previous decision, I set out the following relevant background (at paras 5-8): The applicant is the secured creditor of the company and the two other corporate respondents carrying on business as a Winnipegpharmacy. Based on a default of various loan agreements by all three of the respondents the applicant made an application in the Courtof Queen’s Bench for the appointment of MNP Ltd. as receiver and manager, without security, of all of the assets, undertakings andproperties of the company and the two other corporate respondents.

The total indebtedness claimed by the applicant from the threerespondents as of November 2, 2018, was $2,153,863.07. The receivership application was heard on December 20, 2018. At that time, Daren Lee Jorgenson was the manager of the pharmacy. He is a non-lawyer and was permitted to represent the company on the receivership application. His son, Eaton Jorgenson, was the soleofficer and director of the company at the time. The other corporate respondents did not appear on the receivership application orotherwise oppose it. The officers and directors of the other corporate respondents are not family members of Mr.

D. Jorgenson. Mr. D. Jorgenson admitted at the hearing of the receivership application that no payments on the loans owed to the applicant haddeliberately been made after October 15, 2018, because of a dispute between him and the applicant as to an advance of $206,000 to thecompany in June 2018. Mr. D. Jorgenson alleges that an officer of the applicant colluded with former directors and shareholders of thecompany to allow them to misappropriate that advance once the company received it, and therefore it should not form any part of theindebtedness claimed by the applicant. Mr. D.

Jorgenson advised that he has reported the alleged theft to police and other authorities. The applicant denies the allegation. Mr. D. Jorgenson advised the judge that no payments would be made to the applicant from the operation of the pharmacy on the loanagreements until the $206,000 dispute was resolved. He asked for an adjournment of the receivership application.

The judge refused therequest and granted the receivership order because he was “not persuaded that the adjournment (would) serve any useful end.” He statedthat it was just and convenient to appoint a receiver to “preserve and protect the property pending a judicial resolution of any issues.” [7] Under the loan agreements, the applicant had the contractual right to appoint a private receiver in a case of default. Instead, it sought a court-appointed receiver. [8] At the application for the appointment of a receiver, Mr. D. Jorgenson advised of several reasons to adjourn theapplication.

He said the matter was complicated as there was a possible misappropriation of funds that had only recently been brought tothe attention of the police. He said there was no urgency to the application as the pharmacy was still operating and rent and salaries werebeing paid. In addition, the default on the loans was a technical one based on a disagreement between him and the applicant over the$206,000 advance and not the other loans. Next, the company had only been served two days prior to the hearing and wanted 20 days tofile affidavit material in opposition to the application.

Finally, the company wanted the assistance of the Court’s case managementprocess because it did not have a lawyer to represent it. [9] Mr. D.

Jorgenson also advised the Court that the company might be prepared to agree to a court-appointed receiverwith limited oversight powers to ensure the pharmacy was being properly operated but nothing more. [10] After the receivership order was granted, the company did not seek a stay of it. [11] The receivership order contained a “comeback clause” which states as follows: THIS COURT ORDERS that any interested party may apply to this Court to vary or amend this Order on not less than seven (7) days’notice to the Receiver and to any other party likely to be affected by the order sought or upon such other notice, if any, as this Court mayorder. [12] The nature and purpose of a “comeback clause” in an insolvency proceeding was described this way by Farley J inUnited Air Lines Inc, Re, 2003 CarswellOnt 2786 (Sup Ct J) (at para 3): I would note the presence of a comeback clause in the order.

That is a safety device to ensure that anyone who is affected by this orderand who has not had a meaningful opportunity to make timely representations (if they deem that necessary) are able to re-attend in thisCourt to ask for relief - with the onus remaining on the applicant United to demonstrate that the original relief obtained by it remainsappropriate in the circumstances prevailing. In other words any affected party is not put at any disadvantage. I would note the OntarioCourt of Appeal’s views in Algoma Steel Inc., Re (2001), (ON CA), 25 C.B.R. (4th) 194 (Ont.

C.A.) as to theappropriate use of the comeback clause. [13] In addition to the comeback clause, a judge of the Court of Queen’s Bench has the following authority under section

187(5) of the BIA which states: Court may review, etc. 187(5) Every court may review, rescind or vary any order made by it under its bankruptcy jurisdiction. See Elias v Hutchinson , 1981 ABCA 31 at paras 30-31 ; and HOJ National Leasing Corp (Re) , 2008 ONCA 390 at paras 26-30 . [ 14 ] Since appointed, the receiver has filed two reports with the Court of Queen’s Bench, informing of inquiries undertaken and decisions made, and has sought approval of various activities. The company has not filed any motion challenging the actions taken by the receiver. Discussion and Conclusion [ 15 ] The parts of

section 193 of the BIA relevant to this matter dealing with appeal rights provide as follows: Court of Appeal 193 Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases: . . . (

c) if the property involved in the appeal exceeds in value ten thousand dollars; . . . (

e) in any other case by leave of a judge of the Court of Appeal. Is Leave to Appeal Required? [ 16 ] By necessary implication of the operation of the BIA , a judge of this Court sitting in chambers has jurisdiction to decide the threshold question of a party’s right of appeal under

section 193 of the BIA and whether leave to appeal is required (see PricewaterhouseCoopers Inc v Ramdath , 2018 MBCA 41 at para 20 ( Ramdath #1 )). [ 17 ] The company relies on

section 193 (

c) of the BIA , arguing that it has an automatic right of appeal because the value of its property is well in excess of $10,000. In my view, this submission must fail. [ 18 ] The appointment of a receiver does not bring into play the value of the “property involved” for the purposes of

section 193 (

c) of the BIA . As Blair JA explained in Business Development Bank of Canada v Pine Tree Resorts Inc , 2013 ONCA 282 , “an order appointing a receiver does not bring into play the value of the property; it simply appoints an officer of the court to preserve and monetize those assets, subject to court approval” (at para 17) (see also Farm Credit Canada v Gidda , 2014 BCCA 501 at paras 21-22 ; and 2403177 Ontario Inc v Bending Lake Iron Group Limited , 2016 ONCA 225 at para 59 ). [ 19 ] For

section 193(

c) of the BIA to apply, the “appeal must directly involve property exceeding $10,000 in value” ( Enroute Imports Inc (Re) , 2016 ONCA 247 at para 5 ). The direct involvement of property occurs when the evidentiary record provides a basis that the order being challenged has “some element of a final determination of the economic interests of a claimant in the debtor” ( 2403177 Ontario Inc at paras 61-62; Downing Street Financial Inc v Harmony Village-Sheppard Inc , 2017 ONCA 611 at paras 23-27 ; and Forjay Management Ltd v Peeverconn Properties Inc , 2018 BCCA 188 at paras 52-54 ). That is not the situation here.

The company suffered no loss by the appointment of the receiver, nor has any other party had a gain. [ 20 ] Accordingly, the company’s challenge to the receivership order requires leave to appeal being granted in accordance with

section 193 (

e) of the BIA . Should Leave to Appeal be Granted? [ 21 ] The parties agree, as do I, that the test for leave to appeal being granted under

section 193 (

e) of the BIA was discussed thoroughly by Cameron JA in PricewaterhouseCoopers Inc v Ramdath , 2018 MBCA 71 at paras 14-24 ( Ramdath #2 ). The criteria to consider in deciding whether to grant leave to appeal under

section 193 (

e) of the BIA are: 1. The proposed appeal raises an issue of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole. 2. The issue raised is of significance to the action itself. 3. The proposed appeal is prima facie meritorious.

4. Whether the proposed appeal will unduly hinder the progress of the bankruptcy/insolvency proceeding. [22] Notwithstanding these criteria, the Court retains a residual discretion to grant leave to appeal where the refusal to do sowould result in an injustice. [23] The company’s proposed appeal turns on the issues of the necessity of making the receivership order and doing so onshort notice. The company says that the remedy of the appointment of a receiver was unnecessary; the pharmacy is a healthy business.

Rather, the applicant triggered the receivership for a tactical purpose simply because it did not want to resolve the dispute over the$206,000 advance with Mr. D. Jorgenson. Further, the judge erred by not giving the company proper time to resist the appointment of areceiver or to use the case management process of the Court. [24] I am not persuaded by the company’s arguments in favour of leave to appeal being granted. [25] The proposed appeal does not raise an issue of general importance to the practice in bankruptcy/insolvency matters or tothe administration of justice as a whole.

As was the situation in Ramdath #2 and, in large part, Pine Tree Resorts Inc, there is noprecedential significance to this case that will affect others or the law generally. In his succinct reasons, the judge simply applied well-settled law as to the appointment of a receiver and the granting of an adjournment to the distinct facts of this case. [26] In terms of the second criteria (significance of the issue to the action itself), as was explained in Pine Tree Resorts Inc,this factor often will be of “lesser assistance” (at para 30) in deciding the question of leave.

In this case, while the company says theissues it raises are of significance to the action itself, the fact of the matter is that the loan agreements gave the applicant the contractualright to appoint a private receiver once default occurred, which the company admits was deliberate and for reasons other thaninsolvency.

The extraordinary nature of a receivership order being granted becomes of less concern in a situation, such as here, wherethe creditor has a contractual right to the remedy of a private receiver upon default and the occurrence of a default is unchallenged (seeBank of Nova Scotia v Freure Village on Clair Creek, (ON SC), 1996 CarswellOnt 2328 at para 13 (Ct J (Gen Div))). [27] If anything, a court-appointed receiver is to the company’s benefit, as opposed to a private receiver, as the process ismore transparent and a court-appointed receiver is a fiduciary acting as an officer of the court (see Gidda at para 16).

In my view, theissues raised by the company are of no significance to the action itself. [28] On the question of the arguable merit of the company’s proposed appeal, it is important to begin by recognising that theappointment of a receiver is a matter of discretion (see Saskatchewan (Attorney Gen​eral) v Lemare Lake Logging Ltd, 2015 SCC 53 atpara 47).

Such a decision will therefore be afforded significant deference on appeal, absent a misdirection in law or fact, or a decisionthat is so clearly wrong as to amount to an injustice (see Homestead Properties (Canada) Ltd v Sekhri et al, 2007 MBCA 61 at para 13;and BG International Limited v Canadian Superior Energy Inc, 2009 ABCA 127 at para 6).

Similar deference will be afforded to adecision whether to adjourn a matter (see Viterra Inc v McIvor, 2019 MBCA 22 at para 4). [29] Promptness and timeliness are considerations on an application for the appointment of a receiver (see Lemare LakeLogging Ltd at paras 45, 75). Appeal courts must be sensitive to the reality that time is a luxury that a judge, considering whether toappoint a receiver, does not typically have. [30] The record before the judge highlighted the importance of his acting quickly.

It was undisputed that all of therespondents were in default of the loan agreements and that nothing would be paid to the applicant until the dispute over the $206,000advance was resolved. That was a conscious choice of Mr. D. Jorgenson; not, as previously mentioned, because of insolvency, butbecause of his complaint as to the conduct of the applicant and former officers and directors of the company.

He was not hiding the facthe was attempting to leverage the total indebtedness to resolve the dispute over the $206,000 advance which was only approximately 10per cent of what was owed to the applicant. [31] None of the reasons Mr. D. Jorgenson proposed to the judge to delay deciding whether to appoint a receiver bears onthe uncontested facts.

There is nothing before me that satisfies me that there is prima facie merit that the judge erred in law or fact orreached an unjust result in refusing the adjournment, or that he should not have appointed a receiver to preserve and protect the propertywhen there was, as he put it, clearly a “serious breakdown” in the relationship between the parties. [32] Finally, on the last consideration, it strikes me that the uncertainty and delay of the proposed appeal will unduly hinderthe progress of the bankruptcy/insolvency proceeding. Insolvency litigation is fluid.

It is well recognised that delays can prejudice theability of the receiver to carry out the realisation process (see 2403177 Ontario Inc at para 64). While the dispute over the $206,000advance has not been resolved, the pharmacy is now operating in accordance with the loan obligations owed to the applicant. Thereceiver is carrying out its mandate without objection of the parties. If leave to appeal is granted, the receivership process will be haltedbecause of the automatic statutory stay (see

section 195 of the BIA). The status quo should not be upset in my view, particularly giventhe weakness of the case the company has put forward in seeking leave to appeal. [33] When I consider the relevant criteria as a whole, taking into account the entire context, I am not satisfied that it isappropriate to grant the company leave to appeal the receivership order. [34] In the circumstances, I do not see that result as an unjust one. The company had a legal, and far more proportional,alternative to challenge the disputed indebtedness than the brinksmanship Mr. D. Jorgenson engaged in.

The company could have suedthe applicant over the $206,000 advance as opposed to walking away from all of its loan obligations. If it had done so, the receivershipwould not have occurred and the costs to all of the parties would have been reduced. [35] Also, while, to date, no unfairness has arisen because of the appointment of a receiver, I am mindful of the fact that thetermination of any possible appeal by the company of the appointment of the receiver by my order will not leave it without remediesshould there be a fundamental change of circumstances going forward.

The wording of the comeback clause and the jurisprudencesurrounding the applicability of section 187(5) of the BIA provide the company with remedies depending on what may occur.

[ 36 ] In

summary, I have not been convinced that there is appropriate reason for me to exercise my residual discretion to grant leave to appeal in a situation that otherwise does not meet the relevant criteria for granting leave under

section 193 (

e) of the BIA . Disposition [ 37 ] The company requires leave to appeal the receivership order pronounced and entered on December 20, 2018. [ 38 ] Leave to appeal is denied, with costs. JA