DIP charges tip the scale in competing CCAA & receivership applications

Servus Credit Union Ltd v 2353824 Alberta Ltd, 2026 ABKB 542
What is the test for deciding between competing CCAA and receivership applications?

Summary: The Alberta Court of King’s Bench has appointed BDO as receiver over a Fort McMurray warehouse property, finding that the debtor’s proposed CCAA proceeding offered no credible path to create value beyond Servus Credit Union’s secured claim. The Court held that negligible equity, $1.05 million in proposed priority charges and the absence of a concrete refinancing or sale plan all favoured receivership, providing useful guidance on how courts will assess competing CCAA and receivership applications.

At issue before the Court was whether a judicial listing of a warehouse property in Fort McMurray should be converted into a receivership, as sought by the lender, Servus Credit Union Ltd. (“Servus”), or whether a Companies’ Creditors Arrangement Act proceeding should be commenced, as sought by the property owner, 2353824 Alberta Ltd. (“235”).

The initial consideration when deciding between competing CCAA and receivership applications is whether there is sufficient equity in the properties such that a proposed CCAA proceeding, given its restructuring costs and the resulting delay in secured lenders’ enforcement, will not put the secured lenders’ security at risk. A CCAA process is more appropriate than a receivership where there is a reasonable prospect of recovery for multiple stakeholder groups. The CCAA provides a transparent process and a framework for the interests of all stakeholders to be considered. Where it appears that the senior secured lenders are the only stakeholders who will see any recovery, the CCAA process is contrary to their interests because of the additional expense and because it offers no practical benefit to other stakeholders.

Here, the Court found that 235 had negligible equity in the property in question, even on its own appraisal’s best estimate of value (i.e., $4,740,000). Collectively, the tax, lien, and additional-interest claims totalled $189,841.95, on top of a loan balance of $4,289,528.79, for a total of over $4.4 million. Even assuming the property’s value to be $4,740,000, the gross equity was only $260,629.26, which excluded disposition costs. Deducting those amounts from the gross equity of $260,629.26 would leave only $111,319.26 to cover other disposition costs and Servus’s solicitor-client costs of its entire enforcement steps. Accordingly, whether on a sale at $4.74 million or less, Servus was effectively the only affected stakeholder. The absence of material equity beyond Servus’s secured claim pointed toward receivership.

Second, in all the real estate cases where debtors were unsuccessful in obtaining CCAA protection, they proposed DIP charges with priority ahead of all existing secured creditors whose security would be at risk if the DIP charges were approved. In assessing whether DIP financing is particularly onerous, the courts have weighed the size and terms of the proposed DIP against the effect it would have on the secured lender’s mortgage security.

Here, three priority charges were proposed under the CCAA approach: an Administration Charge in the amount of $350,000 in favour of the Monitor, the Monitor’s counsel, and counsel to the Applicants; a Directors’ Charge in the amount of $200,000 in favour of the directors and officers of the Applicants; and a DIP Lender’s Charge in the amount of $500,000 in favour of the DIP Lender, securing all obligations of the Applicants under the DIP Facility. 235 had a practical onus to show that incurring expenses up to the theoretical limit of all three charges would result in increased value not only covering those charges but yielding incremental value, whether to pay Servus and the other property-anchored charges in full or, beyond that, to generate funds for other creditors and, in theory, 235’s shareholder. However, 235 evidenced no concrete refinancing or sale plan or even a rough sketch of either, offering only general forecasts instead. 235 did not provide any forecast, under any scenario, for how incurring the proposed charges would result in increased net value, let alone cover the charges.

There was a material risk of the proposed CCAA charges encroaching into Servus’s equity, with no convincing (or any) evidence of counterbalancing increased value resulting from incurring them. At minimum, 235 should have provided a value-generation forecast showing how the incurring of such expenses would provide a benefit to Servus and, potentially, to other stakeholders. This factor favoured the appointment of a receiver.

With Servus being the only material stakeholder, the Court held that it should have control over what realization-related charges were incurred, subject to the Court’s review of the commercial reasonableness of its enforcement steps as a safety valve. This factor also favoured receivership. Servus emphasized, and 235 did not dispute, that its security included receivership as relief. While this did not render approval of a receivership automatic, it was another factor favouring receivership.

For these reasons, the Court approved Servus’s application to appoint BDO as receiver of the property on the terms outlined in the draft order accompanying its application.

Judge: The Honourable Justice Michael Lema

Professionals involved:

• Tom Gusa of Dentons for Servus Credit Union Ltd.

• David Mann KC and Scott Chimuk of Blue Rock Law for 2353824 Alberta Ltd.