Debtor granted right to redeem over receiver's sale approval motion

Overview: In this case, the Court considered competing motions by a receiver to approve the sale of a property and the debtor to redeem the first mortgage on the property. The Court granted the debtor’s motion to redeem on the basis that the debtor had secured the funds required to pay the first mortgage, the receiver’s fees and expenses, and the break fee and legal costs and disbursements contemplated in the stalking horse agreement. Allowing the debtor to redeem in these circumstances would not have a significant impact on the integrity of the system. The purpose of the receivership was being fulfilled. All affected interests had been taken into consideration and all but one, the stalking horse bidder — who was not a creditor but a prospective purchaser in the bidding process — agreed with granting the debtor the right to redeem.

The Receiver brought a motion for an approval and vesting order in connection with the sale of assets owned by the Debtor, including 20 Regina Road, Vaughan, Ontario (the “Property”), pursuant to a Stalking Horse Agreement dated November 13, 2023. The Debtor was the owner and commercial landlord of the Property, which was occupied by a non-arms’ length tenant, Countertop Solutions Inc. (“Countertop”), pursuant to a lease that expires on April 30, 2032. The Debtor brought a motion to permit it to redeem the mortgage held by the Applicant, the first mortgagee.

A Sale Process had been previously carried out in accordance with the Sale Process Approval Order granted by the Court. Ultimately, despite the solicitation of over 5,000 potential purchasers and 37 parties executing NDAs, no Qualified Bids were received. As a result, 2557904 Ontario Inc. (“255”), the Stalking Horse Bidder, was determined to be the Successful Bidder in the Sale Process. The Stalking Horse Agreement contemplated vacant possession and the only material condition to close was the Court’s issuance of the approval and vesting order.

The Receiver indicated that for the Debtor to redeem, the amount of $23,450,000 was required. The Debtor had secured the funds required to pay the Applicant, the Receiver’s fees and expenses, the Break Fee contemplated in the Stalking Horse Agreement and the legal costs and disbursements as set out in the Stalking Horse Agreement.

In considering whether a debtor should be able to exercise its right to redeem, a balancing analysis is required. The Court needs to balance the guiding principles of the sanctity of the receivership sales process with that of the right of the debtor to redeem. The lateness of the debtor’s request to redeem is not, on its own, fatal in the balancing analysis, but is a significant factor to be taken into consideration. If a court-approved sales process has been carried out in a manner consistent with the principles set out in Royal Bank of Canada v. Soundair Corp., (1991), 4 O.R. (3d) 1 (C.A.), a court should not permit a later attempt to redeem to interfere with the completion of the sales process. Once the court’s process has been invoked to supervise the sale of assets under receivership, the process must take into consideration all affected economic interests in the properties in question, not just those of one creditor.

The Court found that the Debtor had obtained the financing to satisfy all creditors. While 255 did not agree, the Court considered that 255 was not a creditor but a prospective purchaser flowing from the bidding process. Moreover, the Stalking Horse Agreement contemplated that if the bid were not approved by the Court, 255 would receive $200,000 for costs incurred and time spent along with $50,000 in legal costs.

Allowing the Debtor to redeem in these circumstances would not have a significant impact on the integrity of the system. All creditors were being paid in full. The Receiver was being paid in full. The Break Fee and legal costs were being paid into Court for security for 255. The purpose of the receivership was being fulfilled. All affected interests had been taken into consideration and all but one, 255, agreed with granting the Debtor the right to redeem. While 255 followed the process, put forth a bid, and incurred costs and resources to do so, with any bidding process, there is a risk that the agreement will not be accepted by the Court, and it is for that reason that a Break Fee and reimbursement for costs and legal fees were included in the Stalking Horse Agreement.

If the Court did not grant leave for the Debtor to redeem, the second mortgage would have a deficiency. The guarantors would be subject to payment of the deficiency with the second mortgage and perhaps, with the first mortgage. The Tenants would not have to relocate. Balancing the interests of all interested parties to that of 255, the balancing, in the Court’s view, favoured the Debtor and all the parties that supported the Debtor’s request for leave to redeem. Thus, the Debtor was granted leave to redeem the mortgage.

.Judge: Justice Sutherland

Counsel: Gary Caplan and Derek Ketelaars of Scalzi Caplan for the Debtor

Dominique Michaud, Joey Jamil and Philip Holdsworth of Robins Appleby for the Applicant Peakhill

Richard Swan and Aiden Nelms of Bennett Jones for KSV as receiver

Domenico Magisano of Lerners for Ren/Tex Realty Inc. and ReMax Premier Inc.

Laura Culleton of Chaitons for the second mortgagee, Zaherali Visram

D.J. Miller of TGF for Firm Capital Corporation (third party lender for the respondent)

Ran He of THC Lawyers for 20 Regina JV Ltd (joint owner of the respondent)

Kevin Sherkin and Mitchell Lightowler of Miller Thomson for the purchaser, 2557904 Ontario Inc.