Third party stay rejected, receiver appointed over Sunterra affiliate

National Bank of Canada v Sunterra Food Corporation, 2026 ABKB 206
When should the CCAA stay be extended to affiliated or otherwise connected parties?

Summary: The Alberta Court of King’s Bench has refused to extend a CCAA stay to an affiliated but non-debtor entity, West Market Square Inc. (WMS), finding that the Sunterra Group failed to demonstrate the level of operational integration or restructuring necessity required to justify such relief, particularly in the face of a secured creditor, ATB Financial, seeking a receivership over WMS. While courts may extend stays to third parties where they are deeply embedded in the debtor’s business, essential to restructuring, or where proceedings against them would materially harm the restructuring effort, the Court held that those factors were largely absent, noting insufficient evidence that WMS’s assets or equity were critical to the broader restructuring or would be better realized under the CCAA than in a receivership. The Court also rejected arguments that a receivership would unduly divert resources or erode value, emphasizing that the Sunterra Group would need to address ATB’s secured claim in any event, and ultimately concluded that it was just and convenient to appoint a receiver, with the result that extending the stay would unfairly prejudice ATB Financial’s enforcement rights.

The Sunterra companies (the “Sunterra Group”) obtained creditor protection under the Companies’ Creditors Arrangement Act. The Sunterra Group sought to extend the CCAA stay of proceedings to West Market Square Inc. (WMS), a company 50% owned by Sunterra Enterprises Inc. (SEI), one of the companies comprising the Sunterra Group. The request stemmed from a receivership application advanced by ATB Financial, as secured lender to WMS, outside of the CCAA proceedings.

The Sunterra Group argued that extending the stay to WMS, as a third party, would help maintain stability and value during the restructuring proceedings. ATB Financial’s application and any other similar action against WMS or its business and property had the potential to undermine the Sunterra Group’s efforts to preserve and maximize value in these proceedings as they could: (i) materially impact the value of WMS and, in turn, SEI’s interest therein, to the detriment of the Sunterra Group and other stakeholders; and (ii) divert key personnel and resources from the Sunterra Group’s ongoing restructuring efforts.

ATB Financial argued that its application was important for preservation purposes. Ongoing jeopardy to its position would be brought under control, operations stabilized and supported by the Receiver, and rents collected and recorded in a transparent process, under the Court’s supervisory jurisdiction. It argued that deference should be granted to its concerns as the only secured creditor.

Courts have extended a CCAA stay to affiliated or otherwise connected parties or other entities (e.g. partnerships or limited partnerships) not originally under the stay umbrella where the latter are functionally integrated and embedded within the overall corporate and business structure of the debtor company. The Court found that the Sunterra Group did not show the degree of integration or connection between WMS’s operations and those of the rest (or some of) the Sunterra group, nor show the significance of WMS’s (possible) equity in the ground lease for the retail outlet from which the Sunterra Group operates (i.e. after factoring out ATB Financial’s claim) to the Sunterra Group’s overall restructuring plans. Even assuming some connection between that outlet and the rest of the Sunterra Group, there was no evidence of the connection to the extent required by the case law.

Courts have extended CCAA stays to connected affiliates or other entities for other reasons, such as:

1. where the currently “outside” parties are co-borrowers with the CCAA-shielded parties or guarantors of their obligations;

2. where the inclusion of the outside party or parties is necessary for the performance of critical reclamation obligations;

3. where the outsiders “hold copyright and intellectual property rights [apparently beneficial to the entire group], have contractual relationships with critical suppliers and other third parties, and are engaged in important aspects of the overall [enterprise]”;

4. where the outsiders are parties to agreements with an insider entity (i.e. with an entity sheltered by the CCAA stay) and where proceedings by third parties against the outsiders “would have a detrimental effect on the [insiders’] ability to restructure and implement [a proposed transaction] and would lead to an erosion of value in the [overall enterprise]”;

5. where the outsiders have “tax attributes which could be beneficial to the [larger enterprise]” and where they will be included in contemplated SISP [sales and investment solicitation] process, such that “the stay should apply to them to give comfort to potential bidders that enforcement actions against those parties will be stayed while a sales process is being conducted”; and

6. where “[a]ny proceedings commenced against the [outsiders] would necessarily involve the [restructuring entities’] key personnel and consume [their] limited resources”.

Most of these pro-extension factors were not present here. The Sunterra Group did not explain how the proposed receivership (whether standard or interim) would eclipse whatever net equity WMS had in the ground lease in question or in its assets overall. To the extent Sunterra was concerned about equity diminishment (i.e. not full eclipsing) in the receivership, it did not explain how a court-supervised receivership could or at least would result in subpar realization on the ground lease or other WMS assets, compared to the recoveries theoretically possible under the CCAA restructuring process.

ATB Financial’s entire claim must be paid before SEI can recover any equity out of WMS (i.e. failing coming to terms with ATB on arrears payment and reinstatement of ongoing payments). Sunterra failed to show a materially better prospect of recovering such equity under the CCAA proceeding compared to the proposed receivership.

As for “diverting key personnel and consuming resources”, in any case, whether in a receivership or inside the CCAA proceeding, the Sunterra Group needed to determine how to pay out ATB Financial in full or, if possible, bring WMS current with ATB Financial (and presumably cover ATB’s enforcement-to-date costs). Consequently, some person or persons inside the Sunterra Group and some Sunterra Group resources would have to be dedicated to addressing the ATB Financials issue either way.

The Court found it was just and convenient that a receiver be appointed to ensure that WMS’ assets were properly managed, that any excess of revenues over operating expenses and receivership costs was paid to or earmarked for ATB Finacial, and that ATB Financial’s position as secured creditor was protected. Having found that a receivership was warranted, the Court found that blocking a receivership via a stay would prejudice ATB Financial. Accordingly, the CCAA stay was not extended to WMS.

Judge: Justice Lema

Professionals involved:

• Derek Pontin of Dentons for ATB Financial

• Robert Chadwick of Goodmans for the Sunterra Parties

• Lenci Kadavil of Parlee McLaws for Signature Pointe Developments Inc.

• Gunnar Benediktsson of Norton Rose Fulbright for FTI Consulting as the CCAA Monitor