Enterprise Cape Breton Corporation v. Crown Jewel Resort Ranch Inc., 2014 NSSC 420

Supreme Court of Nova Scotia Citation: Enterprise Cape Breton Corporation v. Crown Jewel Resort Ranch Inc. , 2014 NSSC 420 Date: 20141125 Docket: SN No. 423486 Registry: Sydney Between: Enterprise Cape Breton Corporation Applicant v. Crown Jewel Resort Ranch Inc. and I.N.K. Real Estate Respondents Library Heading Judge: The Honourable Justice Michael J. Wood Heard: November 3, 2014 in Sydney, Nova Scotia Final Written Submissions: November 10, 2014 Subject: Receivership – Approval of Sale and Vesting Order

Summary: Court appointed receiver advertised the sale of the debtors’ assets by public tender. Motion for approval of sale and vesting order discharging encumbrances and transferring title to purchaser. Issues:

(1) Was the evidence on the motion sufficient?

(2) Should the sale be approved?

(3) Should a vesting order be granted? Result: The Court was not satisfied with the evidence filed by the receiver and directed counsel to provide supplemental affidavits. After being satisfied that none of the affected parties who had notice of the motion were opposed the Court approved the sale agreement. The Court had doubts about its jurisdiction to grant the requested vesting order. Even if there was jurisdiction such an order should not be issued in the circumstances. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET.

SUPREME COURT OF Nova Scotia Citation: Enterprise Cape Breton Corporation v. Crown Jewel Resort Ranch Inc. , 2014 NSSC 420 Date: 20141125 Docket: SN , No. 423486 Registry: Sydney Between: Enterprise Cape Breton Corporation Applicant v.

Crown Jewel Resort Ranch Inc. and I.N.K. Real Estate Inc. Respondents Judge: The Honourable Justice Michael J. Wood Heard: November 3, 2014 in Sydney, Nova Scotia Final Written Submissions: November 10, 2014 Counsel: Robert Risk, for the Applicant Iris Kedmi, self represented By the Court: [ 1 ] On March 27, 2014 the Court appointed MacKenzie, Gillis, MacDougall Inc. as Receiver all of the assets, undertaking and properties of the respondents Crown Jewel Resort Ranch, Inc. and I.N.K. Real Estate Inc.

The Receiver’s powers included the authority to market any or all of the companies’ property and to sell, convey, transfer, lease or assign it with the approval of this Court. [ 2 ] The Receiver marketed the assets of the respondents through a public tender process. After reviewing the submissions the Receiver entered into an Asset Purchase Agreement with the highest bidder. On November 3, 2014 I heard the Receiver’s motion for approval of the sale and the granting of a vesting order. The only person appearing in opposition to the Receiver’s motion was Ms. Iris Kedmi. Ms.

Kedmi received notice of the motion as the recognized agent of the respondent, I.N.K. Real Estate Inc. Her submissions to the Court related to her personal interest in the assets, and in particular some of the chattels located on the property. She wanted to ensure the sale did not adversely affect her potential claim to an ownership interest in any of the items being sold. [ 3 ] At the time of the hearing counsel for the Receiver acknowledged the transaction would not affect any claim by Ms. Kedmi and agreed that a clause to this effect would be included in the approval order, if granted.

This acknowledgement dealt with the issues raised by Ms. Kedmi and meant that the motion was essentially unopposed. Evidence on the Motion [ 4 ] In support of the motion the Receiver filed two affidavits of Marianne Steele-MacSween who is Vice-President of the Receiver. An affidavit of Steven Lane of Atlantic Canada Opportunities Agency was also filed. [ 5 ] At the time of the hearing I expressed concern about the sufficiency of the evidence filed.

In particular I noted the following: • There were no abstract of title or PPSA searches which would show existing encumbrances on the assets to be sold. • There was no affidavit of service confirming who had received the motion documents and when. • The affidavit of Ms. Steele-MacSween referred to an appraisal of the real estate to be sold, but did not attach a copy. • The affidavit of Ms. Steele-MacSween noted the tender had been advertised in three newspapers and a number of websites, but did not attach copies of the notices.

There was no evidence of the date or number of newspaper insertions. • The affidavit of Ms. Steel-MacSween did not explain why the Receiver concluded that sale by public tender was the best option. There was also no explanation as to why the three newspapers in question (Ottawa Citizen, Toronto Star and Chronicle Herald) were selected. [ 6 ] When I raised my concerns about this lack of information with counsel for the Receiver, he requested leave to have Ms. Steel- MacSween provide viva voce testimony on those issues. I granted permission for him to do so. [ 7 ] Following the testimony of Ms.

Steele-MacSween I directed that a supplement affidavit be filed attaching the documentation relating to advertising as well as the real estate appraisal. I also requested a solicitor’s certificate of title, proof of service and PPSA search results. Supplemental affidavits of Ms. Steel-MacSween and counsel for the Receiver were filed on November 10, 2014. Approval of the Sale

[ 8 ] According to the Receiver’s report as well as Ms. Steele-MacSween’s affidavits and testimony the Receiver placed notices in the three newspapers noted above, as well as five websites. The notices said the Receiver was selling the assets of an inn and restaurant tourist operation located in Big Baddeck, Nova Scotia. A general description of the property and buildings was included and readers were advised that further information could be obtained from the Receiver’s website or by contacting Ms. Steele-MacSween directly. [ 9 ] Ms. Steele-MacSween says she received 17 inquiries concerning the tender.

At the time of closing three formal bids were received; the highest of which was submitted by Dr. Mary Doyle and Mr. Nahman Korem in the amount of $402,000.00. [ 10 ] The Receiver entered into an Asset Purchase Agreement on August 14, 2014 with Dr. Doyle. Mr. Korem had previously transferred his interest in the tender to her.

The assets to be conveyed consisted of two parcels of land and various chattels associated with the operation of the inn and resort. [ 11 ] The Receiver had a copy of a real estate appraisal report effective as of May 2011 which concluded that the market value for the two lots of land and the associated buildings was $748,000.00. In addition the Receiver had an opinion from a forest technician that the timber on the two lots had a roadside value of $88,000.00.

There was also an appraisal of the equipment and furnishings located on the premises giving a value between $46,000.00 and $50,000.00. [ 12 ] According to the affidavit from the Receiver’s counsel filed on November 10, 2014 the only parties with encumbrances against the land and assets included in the sale are the Atlantic Canada Opportunities Agency (formerly Enterprise Cape Breton Corporation), Allan A. Kennedy, D.W. Matheson & Sons Contracting Limited and the Nova Scotia Department of Labour and Advanced Education. These parties, as well as the debtors Crown Jewel Resort Ranch Inc. and I.N.K.

Real Estate Inc., received notice of the motion for approval of the sale. As noted above, none of these parties have appeared in opposition. [ 13 ] In accordance with the applicable case authorities I have considered the efforts of the Receiver to obtain the best price for the assets, the interests of all parties as well as the process by which offers were obtained. In light of the lack of any opposition from the parties who might be affected by the sale I am prepared to accept the Receiver’s recommendation that the agreement with Dr.

Doyle be approved. [ 14 ] In giving my approval I recognize that it is not the role of the Court to review in detail every element of the process followed by the Receiver. I need only conclude they have acted fairly, reasonably, and not arbitrarily. I am satisfied that this is the case. Vesting Order [ 15 ] In addition to approval of the sale the Receiver is asking the Court to issue what is referred to as a “vesting order”. The effect of the order would be to transfer the debtor’s interest from the Receiver to the purchaser without the necessity of any conveyancing documents, such as deeds or bills of sale.

The form of vesting order requested goes even further and includes a declaration that title shall: …vest absolutely in the Purchaser, free and clear of and from any and all security interests (whether contractual, statutory or otherwise), hypothecs, mortgages, trusts or deemed trusts (whether contractual, statutory, or otherwise), liens, executions, levies, charges, or other financial or monetary claims, whether or not they have attached or been perfected, registered or filed and whether secured, unsecured or otherwise… [ 16 ] The order also provides that any claims or encumbrances which it discharges shall attach to the net proceeds of sale of the assets. [ 17 ] At the hearing I asked counsel for the Receiver the basis for the court’s jurisdiction to issue such an order.

He requested the opportunity to file a supplemental memorandum on the issue, which he did on November 10, 2014. In his memorandum counsel suggests two potential sources for the authority to grant a vesting order. The first is s.243(1)(

c) of the Bankruptcy and Solvency Act which provides: 243.

(1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so: … (

c) take any other action that the court considers available. [ 18 ] The other is s.41 (

g) of the Judicature Act R.S.N.S. 1989, c.240 which says: The Court, in the exercise of the jurisdiction vested in it in every proceeding pending before it, shall have power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as to the Court seems just, all such remedies whatsoever as any of the parties thereto appear to be entitled to in respect of any and every legal or equitable claim properly brought forward by them respectively in the proceeding so that as far as possible all matters so in controversy between the parties may be completely and finally determined and all multiplicity of legal proceedings concerning any of such matters avoided; [ 19 ] It would appear that the jurisdiction to grant vesting orders arises out of legislation.

In Halsbury’s Laws of Canada – Receivers and other Court Officers

section HRC-70 indicates that provincial legislation may provide the Court with jurisdiction to make an order vesting property in a purchaser. The sample vesting order found in Halsbury’s is virtually identical to that proposed by the Receiver in this case. That form is described as arising out of the Commercial List of the Ontario Superior Court of Justice.

[20] According to Halsbury’s Nova Scotia is one of four Provinces and Territories that do not have legislation giving the courtjurisdiction to make a vesting order. [21] The authority for a vesting order was discussed by the Ontario Court of Appeal in Re: Regal Constellation Hotel Ltd., (ON CA), [2004] O.J. No. 2744 at paras 31 and 32: 31 In Ontario, the power to grant a vesting order is conferred by the Courts of Justice Act, R.S.O. 1990, c.

C.43, s. 100, which providesas follows: • A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of,encumbered or conveyed. 32 The vesting order itself is a creature of statute, although it has its origins in equitable concepts regarding the enforcement of remediesgranted by the Court of Chancery. Vesting orders were discussed by this court in Chippewas of Sarnia Band v. Canada (2000), (ON CA), 195 D.L.R. (4th) 135 at 227, where it was observed that: • Vesting orders are equitable in origin and discretionary in nature.

The Court of Chancery made in personam orders, directingparties to deal with property in accordance with the judgment of the court. Judgments of the Court of Chancery were enforced onproceedings for contempt, followed by imprisonment or sequestration.

The statutory power to make a vesting order supplemented thecontempt power by allowing the Court to effect the change of title directly: see McGhee, Snell's Equity 30th ed., (London: Sweet andMaxwell, 2000) at 41-42 [emphasis added]. [22] I do not believe the sections of the Bankruptcy and Insolvency Act and Judicature Act relied on by the Receiver give the Courtjurisdiction to issue a vesting order as requested.

I need not come to a firm conclusion on that point as I would not exercise my discretionand approve a vesting order in this case in any event. [23] The material filed by the Receiver does not satisfy me that a vesting order is necessary. If the purpose is to simplify the transferof assets and avoid the necessity of obtaining releases from the encumbrancers I have no evidence that they have been requested toprovide releases and refuse to do so. [24] A more important circumstance justifying refusal is that the tender documents and Asset Purchase Agreement say the Receiverwill provide a deed and bill of sale.

That is what Dr. Doyle contracted to receive. The documents include standard provisions permittingthe purchaser to conduct inquiries into the assets and raise objections with respect to title. The Receiver is then given an opportunity totry and deal with the objection to the satisfaction of the purchaser. If they are unable to do so the purchaser is released from theirobligations under the Agreement.

The Receiver makes no representations with respect to title to the assets or any encumbrances whichmay exist. [25] The effect of the vesting order requested by the Receiver is that the purchaser assumes no risk with respect to title and the Courtdischarges all encumbrances. There is no need for the purchaser to investigate title and raise objections.

The Receiver has not explainedwhy the Court should provide this assurance and override the terms of the Agreement. [26] All bidders were aware of the process by which title to the assets would be investigated and that the debtor’s interest would betransferred without any representation or promise on the part of the Receiver. It would be unfair to other potential bidders to change therules of the game at this point and issue a vesting order in favour of Dr. Doyle. [27] I dismiss the request for a vesting order in the circumstances of this transaction.

Conclusion [28] For the reasons outlined above I will approve the sale from the Receiver to Dr. Doyle as contained in the Asset PurchaseAgreement dated August 14, 2014. I will not issue the vesting order. [29] I have reviewed the draft order provided by counsel for the Receiver as of November 12, 2014. In order to reflect my decisionparagraphs 2, 3, 4, 5 and 7 should be deleted. I will sign the revised form of order upon receipt. Wood, J.