What constitutes material prejudice in relation to a request to lift a stay of proceedings?
SIIF, the secured creditor of the Debtor, brought a receivership application, and the Receiver was appointed pursuant to an order made on February 4, 2014. At the time of the receivership order, the Debtor owed SIIF in excess of $10 million and owed trade creditors in excess of $600,000. One of the trade creditors—who was owed $338,121.82—filed its lien claim under The Builders’ Lien Act and commenced an action in 2015, which was stayed in accordance with the receivership order.
On January 28, 2016, the Receiver issued a statement of claim against the trade creditor, alleging that it was negligent in failing to warn the Receiver about the status of its scope of work. The trade creditor filed a statement of defence. On March 7, 2019, just prior to the commencement of the pre-trial conference, the trade creditor sought to amend the statement of defence to include set-off as a defence. The set-off pertained to the $338,121.82, plus interest, that the Debtor still owed to the trade creditor under its contract.
Because the receivership order included a provision that prohibited the commencement of proceedings in any court or tribunal against the Receiver without the written consent of the Receiver or leave of the court, the Receiver applied for directions as to whether the trade creditor was denied leave to amend its defence. The trade creditor sought an order granting it leave to lift the stay and to grant it leave to amend its defence.
The purpose of a stay in the receivership order is to permit the orderly and equitable realization and distribution of the debtor’s assets. The test for lifting a stay imposed pursuant to a receivership order focuses on the totality of the circumstances and the relative prejudice to the parties involved in the receivership.
The Court should be satisfied that the party applying to lift the stay is likely to be materially prejudiced by the stay, or that it would be equitable to lift the stay on other grounds. In order for a party applying to lift the stay to show material prejudice, it must show that it would be treated differently or unfairly, or would suffer worse harm than other creditors if the stay were not lifted. The mere fact that a party is not entitled to exercise a contractual right for which it has bargained is not a sufficient reason to lift the stay.
The trade creditor argued that if it could not rely on set-off as a defence to the Receiver’s action against it for negligence, it would potentially be liable to the Receiver for work that it had done but had not been fully paid for. Moreover, the trade creditor would suffer worse harm than other creditors because it was the only creditor that was being sued by the Receiver. The Receiver countered that other creditors were also implicated in lawsuits, and the trade creditor’s assertion that it would suffer worse harm was not factually correct.
The Court held that lifting the stay to permit the trade creditor to apply to amend its defence would materially prejudice the other creditors, and upset the distribution scheme under the receivership. The trade creditor failed to demonstrate that it would be materially prejudiced by the stay. In fact, by lifting the stay, the Court would have allowed the trade creditor to be paid what it was owed as a creditor of the Debtor in priority to the other trade creditors and the secured creditor.
The Court denied the application to lift the stay.
Counsel: David Gereke and Troy Baril of Miller Thomson LLP for MNP Ltd., Jeffrey Lee of MLT Aikins LLP for Saskatchewan Immigrant Investor Fund Inc. and Nolan Courteau of MacDermid Lamarsh for Pro-Western Mechanical Ltd.