When might a Court grant a Sale and Vesting Approval Order with respect to a “pre-packaged” sale absent a third-party sales or marketing process?
The Applicant, Winmar (Canada) International Ltd. (“Winmar”) is a franchisor whose franchisees provide property restoration services to both commercial and residential customers. Winmar entered into a Franchise Agreement with the Respondent, 6119701 Manitoba Ltd. o/a Winmar Winnipeg (“611”) to provide such restoration services and secured 611’s obligations thereunder with a general security agreement.
By August 29, 2022, the Franchise Agreement had been terminated, 611’s operating account had been frozen by its primary lender, and 611 had significant CRA priority claims for outstanding source deductions and GST. Together, this created an urgent and time-sensitive situation, in respect of 611’s approximate 150 restoration contracts with its residential and commercial customers (“Customer Contracts”) currently in progress. Restoration services by their nature are often urgent services and are typically subject of insurance claims. Immediate intervention was required to ensure the completion of Customer Contracts as the failure to complete such work would likely result in the applicable insurance company refusing to pay 611, further resulting in suppliers and/or subcontractors remaining unpaid and filing liens on customers’ properties.
A corporation owned by the President of Winmar (the “Purchaser”) offered employment to 611’s approximate 30 employees and agreed to purchase the equipment (which was scattered across the approximate 150 job sites), vehicles, accounts receivable and Customer Contracts (the “Purchased Assets”) to enable the completion of the Customer Contracts. Concurrent with the approval of the sale the two landlords would enter into new leases the Purchaser.
To facilitate the sale Winmar sought the appointment of Grant Thornton Limited (“Grant Thornton”) as receiver over the Purchased Assets, and concurrent with Grant Thornton’s appointment a sale and vesting order with respect to the “pre-packaged” sale.
Winmar argued that, notwithstanding the absence of a third party sale process, the appointment of a receiver over the Purchased Assets was just and convenient and the sale ought to be approved as 611 was unable to access credit to conduct such a process due to the freezing of its operating account, the CRA priority payables owing and its substantial indebtedness. The only viable alternative to the proposed sale was the liquidation of the equipment and vehicles which was unlikely to yield a better price based upon independent appraisals obtained by the Purchaser and would likely not result in the completion of the Customer Contracts. In addition, Winmar argued that the completion of the Customer Contracts was urgent and the failure to complete such contracts in a timely manner would likely render them of no value.
On September 2, 2022, the Court appointed Grant Thornton as receiver of the Purchased Assets and approved the sale and vesting of the Purchased Assets in the Purchaser based on the Soundair principles, and citied, inter alia: (i) 611’s “crippling debt”; (ii) the absence of a viable business; (iii) that 611 had no means by which it could satisfy its debts; (iv) 611’s primary lender did not object to the orders sought; (v) that it was satisfied with the logic behind the valuation of the Customer Contracts and accounts receivable; (vi) the allocation of the purchase price to the equipment and vehicles was derived from the midpoint of the appraisal values and on a balance of probabilities was the best possible price; and (vii) there did not appear to be any reasonable alternatives to the granting of the receivership order and the sale approval and vesting order, due to the high risk associated with any such alternatives.
Judge: Bock, J.
Counsel: J.J. Burnell and Anjali Sandhu of MLT Aikins LLP for the Applicant, Winmar (Canada) International Ltd.; Catherine Howden of Pitblado LLP for the Receiver, Grant Thornton Limited; Ross McFadyen of Thompson Dorfman Sweatman LLP for the Lender, Carpathia Credit Union
By Matilda Lici