Debtor seeks to discharge receiver with refinancing proposal

Royal Bank of Canada v. 1512632 Ontario Inc. and 2856586 Ontario Inc.
Will the court discharge a receiver on the basis of a proposed refinancing?

Summary: The Ontario Superior Court of Justice has dismissed a motion by two Brampton-based trucking companies that sought to refinance their properties and discharge the Court-appointed receiver, finding the proposal insufficiently substantiated and incomplete. The Court held that the plan relied on estimated liabilities, failed to account for key obligations including unsecured creditor claims, and would leave shortfalls of about $77,000 to secured creditors and over $1 million to unsecured creditors. As a result, the Court found the refinancing was not fair or in the interests of justice, declined to discharge the receiver, and allowed the sale process to continue under Court supervision.

On the application of Royal Bank of Canada following defaults under the Debtors’ loan arrangements with the Bank, Grant Thornton Limited was appointed as Receiver of the Debtors. As of April 25, 2025, the Debtors were indebted to the Bank in an amount in excess of $2.5 million, plus accruing interest and RBC’s continuing costs of enforcement. Prior to the appointment of the Receiver, the Debtors operated a trucking business.

Following its appointment, the Receiver took possession of the Debtor’s real properties, and 24 vehicles and equipment located at the properties. The Receiver also located 16 pieces of the Debtors’ equipment at third-party premises, which were retrieved pursuant to a court order. The Receiver listed the real properties for sale and was in the process of negotiating offers for the purchase and sale of the properties. The Receiver auctioned the equipment, including vehicles, and obtained proceeds of $421,297.88. The Receiver also released some of the equipment to the financing companies that were creditors of the Debtors. Several of those creditors had not yet sold the equipment subject to their security and were not yet able to quantify their loss. The Receiver advised the Court that there was no other equipment in its possession.

The Debtors wished to refinance two parcels of real estate and use the proceeds to pay out the Bank, as the first mortgagee, and the second mortgagee on the properties, pursuant to a commitment letter for $4.1 million. The Debtors also sought to discharge the Receiver. The Debtors submitted that the sale of the properties in receivership would cause irreparable harm and heavy economic loss that would result in the Debtors declaring bankruptcy. They argued that allowing the refinancing would permit them to discharge the major creditors’ debts, including those owing to the Bank, and revive the business in order to generate funds to pay out the other creditors while preserving and maximizing the value of the real properties. In support of the Debtors’ proposal, they filed a report from an accountant showing that the proposed refinancing would leave a $7,000 surplus after paying certain creditors.

The Receiver did not support the refinancing arrangement proposed by the Debtors. The Receiver was concerned that the Debtors had not determined all of their financial obligations to ensure that the funding they expected to secure would be sufficient to discharge all of their obligations. The Debtors’ accountant’s report was based on estimates, not on payout statements from the Bank or the second mortgagee. There was no evidence from Canada Revenue Agency with respect to the quantum of arrears owing. The proposed refinancing did not include the commission fee that would have been payable by the Receiver to its real estate agent had the listing agreement been terminated. Further, the Debtors had not identified their unsecured creditors and the amounts owing to them.

Based on the Receiver’s review of the information it had with respect to the amounts owing after the refinancing, the refinancing was expected to result in a shortfall of $77,003.93 in respect of secured creditors and $1,110,112.43 in respect of unsecured creditors. The Receiver argued that the proposed financing was insufficient to satisfy the debts owing and that discharging the Receiver based on the incomplete or underfunded refinancing proposal would shift the risk onto the creditors to their prejudice.

While the Court was sympathetic to the Debtors’ predicament, it was not satisfied that it was in the interests of justice to grant the order sought. The Court agreed with the Receiver that to allow the refinancing would unfairly shift the risk back to the creditors to the Debtors’ benefit. The Court found that the refinancing plan did not sufficiently address the interests of the other creditors. The Debtors’ calculation was based on estimates of the amounts owed as opposed to the actual money owed. Accordingly, there was a risk that the estimates relied on by the Debtors undervalued the debt that was owed. Further, the Debtors’ proposal did not give any consideration to what was owed to unsecured creditors. Third, the Debtors’ proposal did not account for the payment of the realtor’s commission or the repaym0ent of the Receiver’s borrowing certificates. Fourth, there was no indication as to how the business of the Debtors could be revived given that the equipment had been sold or returned to creditors.

The Court held that it was not in the interests of justice to grant the Debtors’ request to pay back some but not all of the creditors, based solely on the hope that the Debtors could revive the business with a view to getting the remaining creditors repaid. While the main two creditors stood to benefit from the refinancing, the remaining creditors would be significantly prejudiced. Accordingly, the Court declined to approve the Debtors’ proposed refinancing.

The Court was also not prepared to discharge the Receiver, noting that while some receiverships are terminated upon presentation of an acceptable plan of refinancing, in this case, the refinancing plan was not fair and equitable to all creditors and the reason for appointing the Receiver remained.

Judge: Justice Dennison

Professionals involved:

• Sanjeev Mitra and Matilda Lici of Aird & Berlis for Grant Thornton as receiver

• Melinda Vine of Harrison Pensa for RBC

• Satish Mandalagiri for the Debtors