2013 ONSC 2782, 2013 ONSC 2782

CITATION : Poly Innovation Inc. (Re), 2013 ONSC 2782 COURT FILE NO.: 32-1718482 DATE: 20130513 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST RE: IN THE MATTER OF INTENTION TO MAKE A PROPOSAL OF Poly Innovation Inc. BEFORE: D. M. Brown J. COUNSEL: S. Kettle, for Poly Innovation Inc. C. Yamashita, for Die-Mold Tool Limited HEARD: May 10, 2013 REASONS FOR DECISION I.

How to proceed when faced with a “gap” in the Bankruptcy and Insolvency Act ? [ 1 ] This motion raised an interesting question about how a court should proceed in the face of a “gap” in the legislative scheme contained in the Notice of Intention to Make Proposal provisions of the Bankruptcy and Insolvency Act . I granted two orders last Friday; these are my reasons for so doing. [ 2 ] Poly Innovation Inc. filed a Notice of Intention to Make a Proposal under

section 50.4 of the BIA on February 25, 2013. This Court granted two extensions of the stay period, the last until May 30, 2013. On March 26, 2013, Mesbur J. approved a sales process for the sale of all of the assets of Poly Innovation. The story has a happy ending. Poly Innovation applied last week for the approval of an offer received from its largest secured creditor, Die-Mold Tool Limited, which would see all creditors of Poly Innovation paid in full. [ 3 ] Poly Innovation has not made a proposal.

Sections 50.4 and 62 of the BIA contemplate that where an insolvent person files a NOI, one of two routes will be pursued. First, a proposal will be made in respect of the insolvent person which, if approved by creditors after their consideration and approved by the court, will bind its creditors and which, if refused, will result in the assignment into bankruptcy of the insolvent person. Second,

section 50.4(8) specifies that where a proposal is not made within the allowed period of time, the insolvent person is deemed to have made an assignment. [ 4 ] Proposals usually involve a compromise of the claims of creditors against the insolvent person, and section 50(1) provides that a proposal may be made by “an insolvent person”. The unique aspect of the present case is that if the court approves the sale of Poly Innovation’s assets to Die-Mold, then all creditors will be paid in full – i.e. no compromise of claims and Poly Innovation would not be insolvent. [ 5 ] The scheme surrounding

section 50.4 of the BIA does not expressly contemplate such a happy ending. How to proceed? Poly Innovation sought orders that in the event the court approved the sale, then the court should relieve it from the operation of BIA s. 50.4(8), relieve it from the requirement to file a proposal and declare that the termination of these proposal proceedings would not cause Poly Innovation to have made a deemed assignment. [ 6 ] I indicated to counsel that I was not comfortable with such an approach.

Although my review of the materials left no doubt in my mind that the proposed sale to Die-Mold fully satisfied the disposition of assets requirements contained in BIA s. 65.13, given the rule-based nature of the BIA I was hesitant to adopt an approach which would relieve a person from the operation of certain provisions of the BIA . [ 7 ] Instead, I concluded that the better approach to addressing a situation not specifically contemplated by the BIA was to follow, albeit by analogy, principles found elsewhere in the BIA . To my eye this was the kind of approach used by C.

Campbell J. in Re TNG Services Inc. [1] where, faced with a successful sale of a company’s assets following the making of a bankruptcy order, he relied on the power of the court to annul the bankruptcy. [ 8 ] In the present case I informed counsel that I would be prepared to follow an approach analogous to that used under BIA s. 43(14) on the withdrawal of an application for a bankruptcy order – i.e.

I would be prepared to consider a request by Poly Innovation, following the approval of the sale, to withdraw its NOI upon the filing by it of an affidavit attesting to the solvency of the company following the sale. [ 9 ] Poly Innovation filed such an affidavit from its President, Daniel McKenzie. Mr. McKenzie deposed that after the distribution of the sales proceeds, “Poly will have no creditors and thus no creditors will be prejudiced by the withdrawal of the NOI.

Accordingly, Poly will be solvent.” [ 10 ] On the basis of that affidavit, and the Third Report of the Proposal Trustee, last Friday I granted orders approving the sale to

Die-Mold, sealing the confidential sales process information, authorizing the distribution of the sale proceeds, and granting Poly Innovation leave to withdraw its NOI “upon the filing of the Withdrawal Certificate…with the Court certifying that the Distribution has been made and further certifying that all claims of the creditors of Poly have been paid in full and that Poly is solvent”. When performed, that order will remove Poly Innovation from the NOI scheme contained in BIA s. 50.4 and the withdrawal of the NOI will not have caused Poly Innovation to have made a deemed assignment. D. M. Brown J. Date : May 13, 2013