- Insolvency Insider Canada
- Posts
- Exceptional circumstances justify provisional execution
Exceptional circumstances justify provisional execution
What is the test for provisional enforcement pending appeal?
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/7b59bfec-cc34-412b-a4d6-bfb897bb8be2/image.png?t=1721185942)
Peakhill Capital Inc. v. 1000093910 Ontario Inc., 2024 ONSC 3887
What is the test for provisional enforcement pending appeal?
Overview: In this case, the Court considered whether it should order provisional enforcement of an order pending appeal. The receiver brought a sale approval motion and the debtor brought a motion to redeem the first mortgage on the property, which was granted. Not only did the debtor now have the money to pay down the mortgage, it had also secured funds to cover the receiver’s fees and the prospective purchaser’s break fee. The prospective purchaser appealed and brought an urgent motion seeking a stay pending appeal. The Court found that the exceptional circumstances of this case — the fact that the debtor had a cheque in hand to pay the first mortgage, the receiver’s fees and the break fee — justified lifting the stay to allow the debtor to redeem the mortgage.
On July 2, 2024, the Court heard a motion by the Receiver for an approval and vesting order, among other relief, and a motion by the respondent, 1000093910 Ontario Inc. (the “Debtor”) to permit it to redeem the first mortgage. The Court held that the Debtor be permitted to redeem the first mortgage to pay fully the amount owing on the first mortgage, the costs and fees of the Receiver, and the sum of $250,000, which was to be paid into Court or held in trust for the benefit of the prospective purchaser, 2557904 Ontario Inc. (“255”). The Debtor subsequently brought an urgent motion to sign the draft order that had been approved as to form and content by the Receiver, the applicant/first mortgagee and the financial lender, Firm Capital. 255 did not agree with the Order, and brought an urgent motion to the Court of Appeal seeking a stay of the Order pending an appeal.
The urgency for the Debtor’s motion stemmed from the fact that costs were being incurred with every day of delay, which included interest on the first mortgage of approximately $17,000 per day, along with the Receiver and the applicant incurring further costs. Moreover, the financing with Firm Capital was to be completed by July 12, 2024 or the financing offer would expire.
The pertinent sections of the Bankruptcy and Insolvency Act were 193 and 195. In determining whether to exercise the jurisdiction to lift the stay pending appeal, the Court should consider “whether there is a serious issue to be appealed, whether the moving party would suffer irreparable harm if the stay were not lifted and whether the moving party would suffer greater harm than the responding party if the stay were not lifted”. The factual matrix of each case is determinative on whether the Court should or should not exercise its jurisdiction under section 195.
The Receiver took no position. Peakhill Capital Inc. (“Peakhill”), the applicant in the receivership proceedings, supported the Debtor’s request to redeem the first mortgage. The respondent, guarantors, second mortgagee, and tenants all argued that the circumstances here were exceptional. The respondent had obtained the financing to pay into Court the sum of $250,000, which was the break fee set out in the relevant sale agreement intended to compensate 255 for the failure to close in certain circumstances. If the provisional execution was not provided, then the financing would fall and there could be further losses for the applicant, and definitely further losses for the second mortgagee and the guarantors. The respondent would lose their property, and tenants would have to vacate.
255 argued that it had a valid appeal and that appeal was automatic. To permit the provisional execution would in effect remove 255’s right to appeal. 255 also argued that this Court had no jurisdiction to grant the relief requested.
In reviewing section 195, the Court is to use the modern approach to statutory interpretation that the words of the Act are to be read in their entire context in their grammatical and ordinary sense. Section 195 reads as an exception to a stay. The Court held that it had the jurisdiction to make such provisional execution and the provisional execution was not stayed, but such jurisdiction should be exercised with caution given the operation of a notice of appeal.
The Court agreed with the Debtor, the second mortgagee, the financial lender, the tenants and the guarantors that the circumstances here were exceptional. The fact that the Debtor had a cheque in hand to pay the applicant in full, the receiver in full, and the amount due to 255 was exceptional. There would be irreparable harm or prejudice to Peakhill, the Debtor, second mortgagee, and guarantors if provisional execution were not granted. The financing would fall away. Peakhill would incur further costs and interest, which may or may not be paid, and would have to wait longer for its money. The second mortgagee would have a loss. The Debtor would lose the property. Existing tenants would have to find alternate premises. The guarantors would be liable for any deficiency with the applicant and the second mortgagee. On the other hand, if the redemption were permitted to be finalized before July 12, 2024, costs and interest would be limited and would come to an end. Peakhill would be paid in full. The tenants would remain in the premises. The second mortgagee would not have a deficiency and the guarantors would not be subject to any deficiency on the first mortgage and without question, the second mortgage.
By contrast, 255 would lose the purchase of the property, but would still have its break fee of $250,000. While it would still also have the outstanding proceeding with the realtor on the first agreement of purchase and sale, pursuant to which the realtor was claiming payment of its commission, there was no certainty that the realtor would be successful in that proceeding and, if successful, against whom.
The Court acknowledged that 255 was a prospective purchaser that followed the procedure of the bidding process. But it was not hidden that the closing of the purchase pursuant to the second agreement of purchase and sale was predicated on the approval of this Court. That is why the second agreement contained a provision for the payment of a break fee.
Taking all circumstances into consideration, the Court concluded that the harm and prejudice to the parties other than 255 was real and immediate. The harm or prejudice to 255 on the realtor proceeding was not certain. The loss of the purchase of the property existed but there was no evidence that any real costs or harm would be suffered by 255 if the property was not sold to it, other than the break fee agreed upon in the second agreement. The Court granted provisional execution in the draft order provided by the receiver.
.Judge: Justice Sutherland
Counsel: Dominique Michaud, Joey Jamil and Philip Holdsworth of Robins Appleby for the Applicant Peakhill
Gary Caplan and Aram Simovonian of Scalzi Caplan and Derek Ketelaars of Youngman Law for the Respondent/Debtor
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.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/04e141a4-e1ef-4e8f-b90e-2123a4600439/image.png?t=1720572757)