Cerberus Business Financial, LLC v. B & W Heat Treating Canada, ULC, 2020 ONSC 3781

Does a trustee have the right to assign a lease to premises that a receiver already surrendered to the landlord?

A. Farber & Partners Inc., in its capacity as the Trustee, brought a motion regarding whether it could access the premises of the bankrupt (the “Premises”), and whether it could extend or suspend the three-month limitation period provided for in s. 38(2) of the Commercial Tenancies Act (the “Commercial Tenancies Act“), which provides that a trustee must elect to disclaim, retain or assign a lease within that time period. The Landlord argued that the Trustee had no right to access the Premises or assign the Lease, nor was there any basis in law to extend or suspend the three-month period provided for in the CTA.

The Trustee was originally appointed as Receiver over all of the assets, undertakings and properties of the Debtor in September 2019. The Receivership Order provided that the Receiver could file an assignment in bankruptcy on behalf of the Debtor. After the Receiver filed an assignment in bankruptcy on behalf of the Debtor and was appointed as the Trustee, the Receiver wrote to the Landlord stating that the Receiver would no longer occupy the Premises or pay rent and later delivered the keys to the Premises to the Landlord. On the same day, the Trustee wrote directly to the Landlord advising that the First Meeting of Creditors would be held via teleconference.

At the meeting, the Trustee was instructed not to occupy the Premises and that at the Trustee’s discretion, it was to retain or disclaim the Lease at any time within 90 days of the assignment in bankruptcy. Thereafter, the Trustee sought to assign the Lease to a new tenant. The Trustee also sought to access the Premises. The Landlord refused to grant access. The Landlord asserted that given the COVID-19 pandemic, the Premises were not essential and must remain closed to the public pending further action by the Ontario government.

The Landlord argued that the fact Farber acted both as Trustee and Receiver was significant and that the Receiver could have surrendered the keys to the Trustee. Since it did not, the Landlord submitted that the Trustee had knowledge of the Receiver’s surrender and “at least” tacitly acquiesced to the surrender of possession and the keys to the Landlord. The Landlord therefore claimed that Farber as Trustee could not claim that it was not bound by an act which it took itself, as Farber as Receiver.

The Court held that the Trustee had the right to access the Premises. Farber as Receiver and Farber as Trustee provided two distinct letters to the Landlord on March 31, 2020. This clearly distinguished the Trustee’s role from the Receiver’s role with each taking different and distinct positions concerning its obligations and rights.

Second, s. 38(2) of the CTA provides the Trustee with specific rights to assign the Lease. The Court did not accept the Landlord’s proposition that Farber as Receiver could prejudice the right of Farber as Trustee under the CTA. After all, this could not be the case if there were two separate companies acting as Receiver and Trustee. A different analysis should not apply merely because Farber acted in both capacities and given the specific rights afforded to Farber as Trustee pursuant to s. 38(2) of the CTA, which are not afforded to a Receiver.

The fact that Farber as Trustee had knowledge of Farber as Receiver’s position is immaterial. The Court acknowledged that Farber as Receiver did not help matters when it wrote to the Landlord on May 5, 2020 requesting access to the Premises so its real estate broker could conduct a tour. However, Farber’s conflation of its roles on this occasion did not preclude Farber as Trustee from exercising its rights provided for in s. 38(2) of the CTA.

The Court then considered whether to grant the extension sought by the Trustee. The Court was not of the view that the time period contained in s. 38(2) of the CTA constitutes a limitation period. However, it would be reasonable for it to exercise its discretion and provide the Trustee with the primary relief sought—a 90-day extension of the time period contained in s. 38(2) of the CTA so that it could attempt to market the Lease for a further 90 days.

The Trustee’s motion was granted, but the parties bore their own costs.

CounselMaya Poliak of Chaitons LLP for the Respondent and BlueWater as Guarantor, Fred Taylor and Colby Linthwaite of Fred Tayar & Associates for 2428076 Ontario Inc. and Kenneth Kraft and Mark Freake of Dentons Canada LLP for A. Farber & Partners Inc., in its capacity as Trustee

Judge: McEwen J.

 

Fullcase: http://canlii.ca/t/j8bgq

 

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