Court weighs disclosure duties of distressed public companies

Re Ravelin Properties Reit and 17732571 Canada Inc., 2026 ONSC 3186
What are the disclosure obligations on a distressed public company?

Summary: In approving Ravelin’s CBCA plan of arrangement, the Court rejected a debentureholder’s attempt to carve out a proposed securities claim from the arrangement release, holding that distressed issuers are not required to provide “blow by blow” disclosure of non-binding restructuring negotiations before a transaction is ready to be announced. The debentureholder alleged that Ravelin should have disclosed an earlier non-binding proposal from Clarke before announcing the final arrangement agreement, but the Court found that the February 20 press release was complete and accurate, that no agreement existed at the time, and that the market already knew Ravelin was in default and exploring strategic alternatives. The Court held that the proposed claim did not justify amending the release or risking a transaction that had been approved by securityholders and found to be fair and reasonable.

Ravelin Properties REIT and its listed subsidiaries or affiliates (“Ravelin”) are a publicly listed REIT with real estate holdings in North America and in Ireland. Ravelin’s exposure to the office real estate market has resulted in financial challenges since the pandemic, with the growth of remote workers, the slowness of returning to office and similar macro-economic factors. Ravelin has approximately $1 billion of debt, substantially all of which is currently in default, and of which, approximately $158 million is owing to three series of REIT Debentureholders, approximately $700 million is owed to G2S2 Capital secured by general and specific security and approximately $200 million is owed to other secured lenders with specific security.

Ravelin and its Special Committee of the Board have sought some form of strategic transaction including assets sales, refinancing transactions, equity recapitalizations and other restructuring options to deal with its financial issues for some time. On January 5, 2026, the Board received an unsolicited and non-binding letter outlining a proposed transaction with Clarke Inc. (“Clarke”). The proposed transaction was an arrangement under the CBCA, pursuant to which, unitholders and debentureholders of Ravelin would receive shares in Clarke. On March 26, 2026, 17732571 Canada Inc. (“Applicant”) and Ravelin entered into the Arrangement Agreement, which was the foundational document of the proposed Plan of Arrangement that was presented to the Court for final approval.

The Unitholders stood to receive .582 Clarke shares for every 1,000 units (with provision made for fractional units). The Debentures would all be extinguished in return for receipt of 14.562 Clarke shares for every $1,000 in principal amount of Debentures (with provisions made for fractional interests). Upon completion of the Arrangement, the Applicant would become the sole trustee of the REIT and all existing trustees of the REIT or board members of affiliates would resign. A later amendment subsequently provided that all persons other than certain identified secured lenders would be deemed to have waived all defaults, termination rights and remedies arising from the proposing and carrying out of the proposed Arrangement.

Mr. Yves Courcy voted in favour of the Arrangement Resolution with those Debentures that he still owned at the time of the vote. However, he complained that the Debentures that he lost following the margin call from his broker after a sharp sell-off in Ravelin’s debentures, which occurred in the days following the February 20, 2026 publication of a press release by Ravelin regarding the expected non-payment of the principal falling due on its 9% Debentures scheduled to mature on February 28, 2026 and the likelihood of a delisting and halt in trading of that maturing series of Debentures in consequence. Mr. Courcy argued that Ravelin failed in its duty to make timely disclosure of material changes, and that he had a civil action against Ravelin based on the loss of value of his Debentures. In order to preserve this alleged cause of action, he sought an amendment to the proposed Arrangement in the form of a carve-out from the general release of his particular cause of action.

The Court noted that whether Mr. Courcy might have a valid case to seek leave to bring an action under s. 138.8 of the Securities Act was relevant but not determinative of the question of the fairness and reasonableness of the proposed Arrangement. The Supreme Court in Lundin expressly held that “whether there has been a material change in a given case is a highly contextual question of mixed fact and law” requiring “judgment and common sense” and that material changes “usually involve more than mere negotiations or internal deliberations”. The impugned February 20 press release was complete and accurate. The market was well aware of the coming maturity of the 9% Debentures interest on which had not been paid for two years. The halting and delisting of matured debentures is routine. The market was well aware that the REIT had been in default of its obligations to pay interest on the 9% Debentures since March 1, 2024, and of the existence of numerous other defaults on its existing indebtedness and of the fact that a special committee was exploring strategic alternatives.

The January 5 letter was a non-binding proposal that required discussion and negotiation. There was no agreement to report upon on February 20, 2026. Negotiations had not reached the point where an announcement could have responsibly been made. The place where negotiations ended up in late March 2026, when the announcement was made, tells us nothing about the state of those negotiations on February 20, 2026, when the allegedly misleading press release was made, even if the exchange ratio in the proposed Arrangement ended up the same as in the January 5 proposal.

In the world of restructuring negotiations, no transaction is “in the bag” until it is. The securities of Ravelin had been in the distressed end of the marketplace for some time and were firmly within the restructuring universe. The business of restructuring is about trying to preserve value from destruction to the benefit of all stakeholders. Blow by blow press releases of negotiations based on an unrealistic view of the meaning of material change in the actual context of an actually distressed company would achieve nothing in terms of transparency of the marketplace for distressed securities. The more likely result would be simply to tilt the market against debtors trying to salvage value for their stakeholders. It would also be the antithesis of the context-driven, fact-specific analysis demanded by the Supreme Court in Lundin.

Mr. Courcy’s claim was fundamentally indistinguishable from the claim of every securityholder who bought or sold securities prior to the announcement of the final transaction. He did not detrimentally rely on the accuracy of an allegedly misleading press release on February 20, 2026. His securities were sold by reason of a margin call that he himself had nothing to do with triggering and his own financial fragility that prevented him from avoiding a forced sale. Allowing his claim to go forward would logically require opening the door for every other securityholder who claims to have incurred a tangible loss arising from the allegedly mis-advised market while allowing all those who reaped a gain to retain it.

The approval of a complex commercial transaction is essentially a binary decision. Either the transaction is approved as it was voted upon, or it is not. At its most fundamental level, arrangements of this sort are essentially a sale transaction where a buyer assumes the control of the enterprise on condition that its balance sheet and assets are brought into the required state by the proposed arrangement in return for making a negotiated pool of compensation available to the stakeholders. What Mr. Courcy was asking was for the Court to unilaterally increase the purchase price to see if the purchaser would walk away to the detriment of all security holders, or whether they would pay the extra amount to his benefit alone (or all other similarly situated securityholders). The assessment of fairness and reasonableness tilted the balance quite heavily against permitting a speculative cause of action such as Mr. Courcy’s to deprive all stakeholders, including himself, of the value of this transaction. The Court, therefore, rejected his application and declined to amend the release required by the proposed Arrangement in the manner he requested.

The Court was satisfied that the Arrangement was brought forward for approval in good faith. The proposed Arrangement required significant compromises by Unitholders and Debentureholders, but those sacrifices were no more than the gravity of the crisis required. Ravelin had undertaken as robust and thorough a process as the circumstances in which it found itself permitted. The Court was also satisfied that the proposed Arrangement was fair and reasonable. The backdrop against which fairness and reasonableness must be considered must take into account the alternatives to the proposed Arrangement and the quality of the evidence of fairness and reasonableness. The capital structure of the enterprise in this case included the vast majority of its secured debt being in default and in a position to enforce its security but for contractual standstill and forbearance agreements. The hard reality of this situation was that any restructuring transaction that did not satisfy those obligations in full had to be capable of winning the adherence of the holders of such defaulted securities. Wishing there were other options available did not make it so.

The Court approved the proposed Arrangement.

Judge: Justice Dunphy

Professionals involved:

• Puya Fesharaki, Robert Thornton & Rebekah O’Hare of TGF for Ravelin Properties Reit and 17732571 Canada Inc.

• Mike Shakra of Bennett Jones for the Purchaser