Is the ultimate sale price the most important factor in the Soundair test?
The appellants appealed an Approval and Vesting Order, which approved a sale proposed in the Asset Purchase Agreement between the Receiver and the respondent. The assets consisted primarily of lands and buildings described as a partially constructed 169 room full service hotel not currently open for business, and a 63 room extended stay hotel currently operating on the same parcel of land in Grande Prairie, Alberta (collectively the “Hotels”). The Hotels are owned by the corporate appellant.
The Receiver of the corporate appellant sought to liquidate the Hotels. The sales process yielded only four offers, each of which was far below the appraised valued of the Hotels. Three of the four offers were extremely close in respect of their stated price; the fourth offer was significantly lower than the others. The Receiver went back to the three prospective purchasers that had similar offers and asked them to re-submit better offers. None varied their respective purchase prices in a meaningful manner, so the Receiver ultimately accepted and obtained approval for one of the offers to purchase. This offer was substantially less than the appraised value of the Hotels.
On appeal, the appellants argued that an abbreviated sale process resulted in an offer which was unreasonably low having regard to the appraisals. They claimed that the Receiver was improvident in accepting such an offer and the chambers judge erred by approving it. Approving the sale would eliminate the substantial equity in the property evidenced by the appraised value, and the “massive prejudice” caused to them as a result materially outweighed any further time and cost associated with requiring the Receiver to re-market the Hotels with a longer exposure time.
The issues on appeal were whether the chambers judge applied the correct test in deciding whether to approve the sale, and whether the chambers judge erred in her application of the legal test to the facts. With respect to the first issue, the parties agreed that the applicable test was the one set out in Royal Bank of Canada v Soundair Corporation. That test involves a consideration of four factors:
- whether the receiver has made a sufficient effort to get the best price and has not acted improvidently;
- whether the interests of all parties have been considered, not just the interests of the creditors of the debtor;
- the efficacy and integrity of the process by which offers are obtained; and
- whether there has been unfairness in the working out of the process.
The appellants argued that the Soundair test has been subsequently modified in River Rentals to require an additional four factors, which the chambers judge erred in not considering:
- whether the offer accepted is so low in relation to the appraised value as to be unrealistic;
- whether the circumstances indicate that insufficient time was allowed for the making of bids;
- whether inadequate notice of sale by bid was given; and
- whether it can be said that the proposed sale is not in the best interests of either the creditor or the owner.
The Court of Appeal held that the River Rentals factors were simply a subset of the first prong of the Soundair test. Moreover, the Court noted that there may be other relevant factors that might lead a court to refuse to approve a sale. River Rentals did not purport to modify the Soundair test, establish a hierarchy of factors, nor limit the types of things that a Court might consider.
The appellants suggested that the failure to obtain a price at or close to the appraised value of the Hotels was an overriding factor that trumped all the others in assessing whether the Receiver acted improvidently. That is not the test. A reviewing Court’s function is not to consider whether a receiver has failed to get the best price. A receiver’s duty is to act in a commercially reasonable manner in the circumstances, with a view to obtaining the best price having regard to the competing interests of the interested parties.
Nor is it the Court’s function to substitute its view of how a marketing process should proceed. The appellants suggested that if the Hotels were re-marketed with an exposure period closer to that which the appraisals were based on, then a better offer might be obtained. However, the Receiver’s decision to enter into an agreement for sale must be assessed under the circumstances then existing. There was no assurance that a longer marketing period would generate a better offer and, in the interim, the Receiver was incurring significant carrying costs. To ignore these circumstances would improperly call into question a receiver’s expertise and authority in the receivership process and thereby compromise the integrity of a sales process and would undermine the commercial certainty upon which court-supervised insolvency sales are based.
The fact that three of the four offers came in so close together in terms of amount, with the fourth one being even lower, was significant. Absent evidence of impropriety or collusion in the preparation of those confidential offers, the fact that those offers were all substantially lower than the appraised value spoke to the existing hotel market in Grande Prairie. At a certain point, it is the market that sets the value of property and appraisals simply become “relegated to not much more than well-meant but inaccurate predictions”.
Even with an abbreviated period for submission of offers, the chambers judge reasonably concluded that the Receiver undertook an extensive marketing campaign, engaged a commercial realtor and construction consultant, and consulted and dialogued with the owner throughout the process, which process the appellants took no issue with until the offers were received.
The Court dismissed the appeal.
Counsel: Dana Nowak and Jeff Lee, Q.C. of MLT Aikins LLP for the Respondent, Pricewaterhousecoopers Inc. in its capacity as receiver of 1905393 Alberta Ltd., Dan Peskett and Christopher Young of Brownlee LLP. Young for the Appellants, Charles Russell, Q.C. and Ryan Trainer of McLennan Ross LLP for the Respondent, Servus Credit Union Ltd., Stephanie Wanke of Miller Thomson LLP for the Respondent, Ducor Properties Ltd., Sean Fitzgerald of Miles Davison LLP (no appearance) for the Respondent, Northern Electric Ltd., Harman Kandola of Shourie Bhatia LLP for the Respondent, Fancy Doors & Mouldings Ltd.