Scotian Distribution Services Limited (Re), 2020 NSSC 131

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: Scotian Distribution Services Limited (Re) , 2020 NSSC 131 Date: 20200406 Docket: No. 43999 Registry: Halifax Estate Number : 51-2624515 In the Matter of: The Proposal of Scotian Distribution Services Limited Judge: Raffi A.

Balmanoukian, Registrar Heard: March 27, 2020, in Halifax, Nova Scotia (via Teleconference) Counsel: Tim Hill, QC, for the Applicant Balmanoukian, Registrar: [ 1 ] The word “Bankrupt” is derived from the Italian “ banca rotta .” In times of yore, an insolvent merchant’s place of business would be trashed by irate creditors; the result was a “broken bench.” [ 2 ] In Nova Scotia, the Bench will not break. [ 3 ] During the Great Plague of 1665-6, the Court in London moved from Westminster to Oxford (as did Parliament).

But yet, they persisted. [ 4 ] In 2020, we are blessed with far greater modalities of communication and administration. As circumstances direct they are being, and will be brought, to bear in the interests of delivering both justice and access to justice. [ 5 ] As I write, and with a hat tip to Mr. Yeats, mere anarchy is loosed upon the world. [ 6 ] It is not business as usual. Virtually nothing is. [ 7 ] On March 19, 2020, the Supreme Court of Nova Scotia adopted an “essential services” model in response to the Covid-19 pandemic.

This has meant that only matters deemed urgent or essential by the presiding jurist will be heard until further notice; and those, by the method of least direct personal interaction that is consistent with the delivery and administration of justice. This can, in appropriate instances, include written, virtual, electronic, telephone, video, or other modalities, and adaptations of procedures surrounding filing of affidavit and other material. [ 8 ] On March 20, 2020, I issued a memorandum to all Trustees in Nova Scotia reflecting this as it applies to this Court, and underscoring the “urgent or essential” standard.

It can be obtained from the Deputy Registrar whose contact coordinates, in turn, are posted on the Court website (courts.ns.ca). [ 9 ] “Essential” means such matters that must be filed, with or without a scheduled hearing, to preserve the rights of the parties – such as those which face a legislative limitation period. “Urgent” means matters that simply cannot wait, in the opinion of the presiding jurist. [ 10 ] Both the Chief Justice of Nova Scotia, the Honourable Chief Justice Michael J. Wood, and the Chief Justice of the Supreme Court of Nova Scotia, the Honourable Chief Justice Deborah K.

Smith, have been clear that this does not mean that Courts, being an essential branch of government and the guardian of the rule of law, cease to function. It means that they operate during this global emergency – and its local manifestation – on an essential services basis. [ 11 ] Accordingly, scheduled matters are deemed to be adjourned sine die unless brought to my attention in accordance with the memorandum noted above and I (or a presiding Justice) deem the standard to be met. [ 12 ] Against that backdrop, evolving in real time, I faced the present application.

It is a motion for an extension of time to file a proposal, pursuant to

Section 50.4(9) of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 , as amended (the “ BIA ”). That

section reads:

(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. [emphasis added] [ 13 ] The present motion had been scheduled for March 27, 2020. The applicant’s Notice of Intention had been filed on February 28, 2020, meaning that its expiration, 30 days thereafter, was at the end of March, 2020 ( BIA s. 50.4(8) ). The scheduled motion was therefore at the very end of this timeline, and the lack of an extension would result in a deemed assignment in bankruptcy ( BIA s. 50.4(8) ). [ 14 ] The applicant sought to have the matter heard by teleconference.

After a review of the file material, I agreed. The Deputy Registrar, with my gratitude, arranged for recording facilities; this is still an open Court of record. Affected entities are still entitled to notice, and they are still entitled to be heard. As well, our open court principle remains and is at least as important as ever. [ 15 ] To that end, the applicant was directed to provide affected entities, including creditors, with particulars of the conference call, including time and call-in particulars.

That was done, and a creditor (who did not object to the application) did indeed avail itself of this facility. [ 16 ] I note that the affidavit of service, and other material, was filed electronically. That is perfectly in order in accordance with the current directives in effect at present. [ 17 ] I have granted the order based on the following factors: [ 18 ] First, I am satisfied that the ‘urgent or essential’ threshold was met. The limitation period in BIA 50 .4(8) was nigh. The deemed assignment would be automatic.

As I will recount below, such an assignment would at least potentially have impacts that run beyond solely the individual interests of the corporate debtor. [ 19 ]

Section 50.4(9) requires the Court to be satisfied that the applicant meets a three part test each time it is asked for an extension: that it has and continues to act with due diligence; that there is a likely prospect of a viable proposal; and that no creditor would be materially prejudiced by the extension.

The burden is on the applicant each time, to meet each test. [ 20 ] The applicant’s affidavit evidence is that the applicant continues in operation and is diligently pursuing the proposal process; the evidence of the current status of the process (ie the engagement of MNP Ltd., review of operations, and review of assets and liabilities) satisfies me, at present, of the good faith requirement. [ 21 ] It has employees and contracts. Its operations include transportation operations, which at least for the basis of the current application are important and perhaps essential on both a micro and macroeconomic basis.

While “bigger picture” ramifications outside the particular debtor and creditors are not part of the

Section 50.4(9) test, I believe I can take them into account when assessing and placing appropriate weight on the benefit/detriment elements which are the overall thrust of that tripartite standard. [ 22 ] No creditor objected, and there is no evidence that the extension would cause material prejudice to any creditor.

Although this burden, too, is on the applicant, I can take judicial notice that proposals, if performed, generally result in a greater net recovery to creditors overall; while there is some indication that the applicant will seek to resile from certain obligations, the test is whether the extension would be prejudicial, not whether the proposal itself would be. [ 23 ] This would be the applicant’s first extension under 50.4(9), which allows for a series of extensions of up to 45 days each, to a maximum of five months. [ 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. [ 26 ] This Court will, no doubt, face a considerable additional case load as the economic fallout of the current human disaster works its way through what is and remains a robust legal process. An applicant should have every reasonable opportunity to avail itself of a restructuring rather than a bankruptcy, assuming it otherwise meets the requirements of BIA 50 .4(9).

Conclusion [ 27 ] The application is granted, and I have issued the order allowing the time to file a proposal to be extended to and including May 11, 2020. Balmanoukian, R.