Approving a run off SISP?

Overview: In this case, the Court considered a request by a secured creditor to put the debtor into receivership and to continue an out-of-court SISP that had been ongoing for 5.5 months. The creditor had lost confidence in the debtor to run the sales process given certain steps recently taken by the debtor, including the recent termination of the sale advisor. The Court granted the run off SISP, which contemplated reengaging the sale advisor, finding this to be the best opportunity for value maximization.

The Applicant, CWB, was owed more than $45 million by the Debtors. Since February 2024, the Debtors had engaged in a strategic process to monetize their assets with the support of CWB, which consisted of marketing the Debtors’ pharmacy, medical clinic and medical technology businesses, but did not include the home care businesses (the “Out of Court Sale Process”). Following a breakdown in the relationship between CWB and the Debtors, CWB sought the appointment of a receiver over the Debtors and their property. That application was subsequently adjourned, in favour of the appointment of a “soft monitor”, to permit the Out of Court Sale Process to advance.

The soft monitor called into question the integrity of the Out of Court Sale Process because two bidders used the same legal counsel in that process, and the Debtors terminated the engagement of the sale advisor. In an effort to preserve the time, effort and money that went into conducting the Out of Court Sale Process, CWB brought an application for approval of the “Run-off SISP” to be conducted under the supervision of the proposed receiver and the re-engagement of the sale advisor. CWB argued that a Run-off SISP, which was structured as an abbreviated extension of the Out of Court Sale Process, was the best available option to ensure that the Debtors’ assets were sold in a fair and transparent manner and minimize costs (by engaging the same sale advisor from the Out of Court Sale Process and continuing to use the established virtual data room).

The proposed Run-off SISP contemplated a single-phase sale process, whereby the proposed sale advisor would contact participants from the Out of Court Sale Process and invite them to submit their final bids. In the event that Superior Offers were received, the Receiver would select the best bid as the Successful Bid to generate the greatest value with the least amount of closing risk for stakeholders in the process. The Run-off SISP contemplated extending the Out of Court Sale Process over approximately three weeks. Given the Out of Court Sale Process identified a large group of interested participants, CWB asserted that it was neither necessary nor economic to engage in a longer marketing process.

The Bankruptcy and Insolvency Act provides that, on application by a secured creditor, the Court may appoint a receiver to take any other action that the court considers advisable, including approving the Run-off SISP. Further, the proposed receivership order allowed the receiver to market the Debtors’ property, solicit offers and negotiate the terms of a sale for same. Stalking horse sale processes are frequently used in insolvency proceedings to increase the likelihood that the sale process being conducted obtains the best price for the debtor company’s assets or business. The use of a stalking horse process aims to maximize both value and fairness by setting a floor price.

There are a number of factors to consider in assessing the use of a stalking horse sale process, including:

• Whether a sale transaction is warranted at that time;

• Whether the sale would benefit the whole “economic community”;

• Whether any of the debtor’s creditors have a bona fide reason to object to a sale of the business;

• Whether there is a better viable option;

• The fairness, transparency and integrity of the proposed process;

• The commercial efficacy of the proposed process;

• How the stalking horse agreement arose; and

• Does the timing support approval?

The Court held that the Run-off SISP with the stalking horse process was the best opportunity for value maximization. CWB was no longer prepared to allow the Debtors to remain in control of a sale process given the events that had transpired. The Out of Court Sale Process lasted for approximately 5.5 months and was effectively concluded by virtue of the Debtors’ termination of the sale advisor. Accordingly, the Run-off SISP did not pose any risk to the outcome of the previous process. The use of the stalking horse bid created certainty of a transaction in the Run-off SISP while also providing an opportunity to ameliorate the value derived in that process for the benefit of CWB and the Debtors’ other stakeholders.

The Court concluded that the proposed structure of the Run-off SISP was reasonable, fair, transparent and appropriate in the circumstances, and approved the Run-off SISP. Further, the continued use of the virtual data room would eliminate the costs associated with having to establish a new one. Accordingly, approval of the continued use of the existing data room was reasonable and appropriate, and, therefore, granted.

Judge: Associate Chief Justice D. Blair Nixon

Counsel: Robyn Gurofsky and Jessica Cameron of Fasken for CWB; Patrick Fitzpatrick of Miller Thomson for Pharmacy Brands Canada Inc.; Ian Duncan of Taylor McCaffrey for Katherine Peters (creditor); Kelsey Meyer and Adam Williams of Bennett Jones for PwC as soft monitor; Afshan Naveed of Dentons for RBC (secured creditor); Shaun MacIsaac of PMR Law for William Trent Kitsch; Garrett Finegan and Ravinth Latour of BLG for FGC Health; Daniel Segal for the DOJ; Asim Iqbal of Gowling WLG for 1000968249 Ontario Inc. (the stalking horse bidder); James Reid and Patrick Corney of Miller Thomson for Care Lending Group; and Ripple Kaila of JSS Barristers for GG & HH Inc.