Approving a sale without a public sales process?

Affinity Credit Union 2013 v Ritchie Industries Inc., 2023 SKKB 152
When will a sale be approved without a public sales process?

Overview: This case considers when a sale will be approved without a public sales process. The Court found that the Receiver had made a sufficient effort to get the best price and had not acted improvidently.

MNP Ltd. was the court‑appointed receiver and licenced insolvency trustee of Ritchie Industries Inc. (“Ritchie”) and of Duck Mountain Environmental Ltd. (“Duck Mountain”). Ritchie and Duck Mountain each filed a notice of intention to make a proposal pursuant to the Bankruptcy and Insolvency Act, which was terminated by court order on June 29, 2021, resulting in the deemed bankruptcy of both corporations on June 29, 2021. By way of a consent order submitted by Ritchie, Duck Mountain and the secured creditor, Affinity Credit Union 2013 (“Affinity”), MNP Ltd. was appointed receiver of both corporations on June 29, 2021.

Ritchie operated a Petro‑Canada service station and a liquor store in Saskatchewan. The Receiver received court approval and sold the Petro‑Canada service station. Robert Ritchie (“Robert”), being the sole shareholder and director of Ritchie and Duck Mountain, as well as the guarantor of the indebtedness of both corporations to Affinity, opposed the sale.

After its appointment, the Receiver reviewed the Ritchie books and records, and conducted registry searches. It learned that the limited liability partnership that purportedly operated the liquor store business was never registered under The Business Names Registration Act and, accordingly, never legally came into existence, even though the parties thought it had. Critically, the liquor license which formed the basis of the business was never transferred from Ritchie to the partnership, so only Ritchie could legally have been operating the liquor store.

The Receiver concluded that the costs of resolving, by way of (probably multiple) court proceedings, the legal issues involved would be excessive and detrimental to the realization of the estate. Accordingly, a settlement agreement was negotiated between the two partners of the limited partnership (being GCO and Ritchie), agreeing that the partnerships never came into existence. The Receiver and GCO agreed on the terms of the sale transaction for the liquor store assets and finalized an Asset Purchase Agreement.

The Receiver did not initiate a public sales process for the liquor store because:

• the purchase price in the APA represented a realization value in line with market value based upon the appraisal obtained for the liquor store and Ritchie’s internal books and records;

• the sale to GCO was a condition of the settlement agreement between GCO and Ritchie, which had a significant, albeit contingent and therefore unquantified, financial benefit to the estate; and

• Affinity, as the primary secured creditor of Ritchie and Duck Mountain, did not oppose the APA.

In determining whether a proposed sale by the Receiver ought to be approved, the Court must assess whether the Receiver has acted properly in the sale process. The Court must consider:

• whether the receiver has made a sufficient effort to get the best price and has not acted improvidently;

• the interests of all parties;

• the efficacy and integrity of the process by which offers are obtained; and

• whether there has been unfairness in the working out of the process.

Robert argued that the Receiver had failed on all four factors. Specifically, by not offering the liquor store for sale by some public sale process, the Receiver had not obtained the best price. As well, the Receiver did not calculate “goodwill” in its assessment of fair market value, which Robert estimated to be in the range of $700,000. The Receiver argued that the sale was not of a “going concern” business; it was a forced sale within the context of a receivership, which made it subject to a discount.

In assessing the Receiver’s actions in the sale process, the Court considered whether the Receiver had made a sufficient effort to get the best price and had not acted improvidently. It found that the Receiver had a difficult legal issue to resolve, and it had managed to do so while obtaining a decent price for the asset. It orchestrated a sale that provides certainty for the parties, and ensured that the receivership did not need to carry on simply because the Receiver was embroiled in litigation for the foreseeable future. Further, Affinity, as the secured creditor, supported the sale proposed. While the Receiver did not advertise on the open market, it pursued a sales process that both provided a fair price and a resolution to the legal problems that Ritchie found itself in. Robert was not treated unfairly in the sales process. The whole problem that the Receiver was required to resolve in ensuring that it could pass clear title to a purchaser was a problem of Robert’s making.

Accordingly, the order approving the sale was granted.

Judge: Rothery J.

Counsel: Ryan A. Pederson of Leland Kimpinski LLP for Affinity Credit Union 2013; Diana K. Lee and Ryan D. Moneo of Kanuka Thuringer LLP for MNP Ltd.; Wayne M. Rusnak of Rusnak Balacko Kachur Rusnak for Robert Ritchie