Redeeming a mortgage at the sale approval hearing?

Royal Bank of Canada v. 1434399 Ontario Inc., 2025 ONSC 3516
Can a debtor redeem a mortgage at the sale approval hearing in a receivership proceeding?

Summary: In this case, the court considered a request to adjourn a sale approval application from a debtor who claimed to have arranged financing ($1.4 million) to assist him in redeeming the mortgage ($1.8 million). The debtor argued that the financing he was able to arrange exceeded the proposed transaction’s purchase price. The court found the debtor’s efforts to be too little, too late. In order to even consider a late-breaking proposal to exercise the equity of redemption in the face of a transaction that has been fully negotiated and executed and is ready to close, the party seeking to redeem must turn up with “cash in hand” and be ready to fully redeem the mortgage(s) on the property at issue. A late-breaking offer, unless it provides exceptional value in comparison to the proposed transaction, should not be allowed to interfere with the integrity of the receivership sale process. Here, in the 20 months following the receiver’s appointment, not only did the debtor not come to court with any funds in hand, but his promise of funds fell short of what he needed to redeem. As a result, the court rejected the adjournment request and ultimately approved the transaction.

Royal Bank of Canada applied for the appointment of a receiver over all of the assets, undertakings and properties of the respondent, 1434399 Ontario Inc. (the “Debtor”). The application was unopposed by the Debtor and the receivership was granted.

The Receiver brought a motion for, among other things, an order approving a sale transaction with the proposed purchaser and vesting in the proposed purchaser all right, title and interest in a real property located in St. Catharines, Ontario that was the subject of the receivership, and an order discharging the Receiver and releasing it from liability.

The principal of the Debtor and personal guarantor of the Debtor’s obligations to RBC sought an adjournment of the Receiver’s motion and brought its own motion for the discharge of the Receiver. The Receiver’s motion was previously adjourned twice before, most recently on a peremptory basis against the principal of the Debtor. The principal argued that the proposed purchase price was well below market value and he had two persons who were willing to lend the Debtor $1.4 million to assist him to redeem the subject mortgage (approximately $1.8 million). He acknowledged that he was not in a position to redeem the existing mortgage but argued that the financing he was able to arrange exceeded the transaction’s purchase price.

The Court found that the principal’s request was too late and too little: in the 20 months following the Receiver’s appointment, not only did he not come to court with any funds in hand, but his promise of funds fell short of what he needed to redeem. There was no real basis on which to accept his optimism that he would soon, or ever, be in a position to redeem.

The Court must consider the integrity of the court-approved sales process. In order to even consider a late-breaking proposal to exercise the equity of redemption in the face of a transaction that has been fully negotiated and executed and is ready to close, the party seeking to redeem must turn up with “cash in hand” and be ready to fully redeem the mortgage(s) on the property at issue. A late-breaking offer, unless it provides exceptional value in comparison to the proposed transaction, should not be allowed to interfere with the integrity of the receivership sale process.

Here, the principal did not turn up with “cash in hand”, fully ready to redeem. In fact, he did not present an offer at all. Rather, based on the financing he thought he had, and the amount he thought may be payable in the transaction, he argued that the Receiver and RBC should accept his proposal because it will generate more than RBC would receive if the transaction were approved. The Court noted that his proposal would seriously undermine the integrity of the court-approved sale process that had been in place since September 2023.

The Court was satisfied that the court-approved sale process was carried out in a manner consistent with the Soundair principles. The Receiver established that it had taken reasonable, proper and sufficient steps to market and sell the real property, including obtaining appraisals, arranging for an environmental assessment, obtaining sale and marketing proposals from two brokers, marketing the property, negotiating the transaction and bringing the motion. The Court accepted that efforts made by the Receiver’s broker provided sufficient exposure of the property to the market. The property was advertised for sale for approximately seven months and attracted only six interested parties, of which, only four conducted a physical inspection of the property, following which, only two offers were received.

The Court found the principal’s objections to the AVO to be without evidence and merit, and denied his request for an adjournment. The Court granted the Receiver’s motion.

Editor’s note: The debtor has appealed the decision.

Judge: Justice Sheard

Professionals involved:

• Rachel Moses of Gowling WLG for msi Spergel Inc. as Receiver

• Victoria Adams of Harrison Pensa for RBC

• Stephen Barbier of Goldmans for the Debtor