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YG Limited Partnership and YSL Residences Inc., 2022 ONSC 6548

Do limited partners of a limited partnership that has filed an NOI have standing to challenge an appeal by a creditor of the disallowance of its claim?

In April 2021, YG Limited Partnership and YSL Residences Inc. (collectively, “YSL”) filed Notices of Intention to Make a Proposal pursuant to section 50.4(1) of the Bankruptcy and Insolvency Act. In January 2020, YSL had entered into an agreement with CBRE for the listing of a property owned by YSL (the “YSL Property”), pursuant to which CBRE was to be paid a commission equal to 0.65% of the purchase price if the property was sold and the purchaser was one of the parties introduced by CBRE. On February 21, 2020, as CBRE was already performing the oral agreement, it provided YSL with a proposed written agreement, which further clarified and defined the terms of the bargain. The written agreement was never executed through inadvertence, although both parties performed the agreement and acted in all respects as if it had been formally executed.

YSL subsequently encountered financial difficulties and filed the NOIs. CBRE filed a claim with the Proposal Trustee of YSL in respect of the commission owing on the sale of the YSL Property. The Proposal Trustee initially disallowed the claim as it was not satisfied, on the information initially filed in support of the claim, that it ought to be allowed. CBRE moved for an order setting aside the disallowance of its claim by the Proposal Trustee, and allowing the claim. The Proposal Trustee and CBRE subsequently entered into a settlement agreement pursuant to which the claim would be allowed in exchange for the agreement of CBRE not to seek its costs on this motion. Accordingly, supported by the Proposal Trustee, CBRE submitted that the disallowance should be set aside and its claim should be allowed pursuant to the settlement agreement, and, for the purposes of this motion, the Court should consider the matter de novo.

The only parties opposing the relief sought were certain limited partners in the YG Limited Partnership. They argued that CBRE had failed to prove its claim with the requisite cogent evidence originally before the Proposal Trustee (i.e., the material originally filed in support of the CBRE claim), or at all. The Court was tasked with determining whether, among other things, the limited partners had standing on CBRE’s appeal.

Section 135 of the BIA sets out the regime pursuant to which proofs of claim are admitted or disallowed. A trustee may disallow, in whole or in part, any claim. That disallowance is final and conclusive unless, pursuant to subsection (4), the person to whom the notice was provided appeals from the trustee’s decision to the court in accordance with the General Rules. Pursuant to subsection (5), the court may expunge or reduce a proof of claim on the application of a creditor or of the debtor, if the trustee declines to interfere in the matter.

The Court held that the limited partners lacked the standing to challenge the Proposal Trustee’s decision. The limited partners were not creditors. They held limited partnership units in the YG Limited Partnership. That alone was insufficient to make them debtors within the meaning of s. 135 of the BIA or generally within the structure of the BIA, any more than shareholders of a debtor corporation would themselves automatically be debtors.

The contractual entitlements of the limited partners applicable to their partnership units did not assist them here. The partnership agreement set out the rights and obligations of the general partner to act on behalf of the limited partnership, and of the limited partners themselves. The contractual right in the partnership agreement to bind the partnership with respect to things such as claims was granted to the general partner. The general partner, on behalf of the limited partnership, consented to the relief sought by CBRE.

Finally, the Proposal Trustee had, in fact, “interfered” as contemplated in section 135(5). This was not a case where a trustee simply refused to take a position or would not engage on the issue.

The Court also considered that s. 37 of the BIA provides that, where the bankrupt or any of the creditors or any other person, is aggrieved by any act or decision of the trustee, he may apply to the court, and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just. The Court held that the limited partners were not “persons aggrieved”. A “person aggrieved” is a person who has suffered a legal grievance, a person against whom a decision has been pronounced by the trustee that has wrongfully deprived him or her of something, or wrongfully refused him or her something, or wrongfully affected his or her title to something. Here, the limited partners’ grievance boiled down to the fact that their ultimate potential recovery would presumably be reduced if the claim were allowed. That was not sufficient to make them aggrieved within the meaning of section 37.

Accordingly, the Court concluded that the limited partners lacked the requisite standing to oppose the motion. It held that the appeal from the decision of the Proposal Trustee should be considered as a hearing de novo, since to do otherwise would result in an injustice to CBRE. Finally, the Court allowed the appeal and granted CBRE’s motion to set aside the Trustee’s disallowance and allow the claim.

Judge: Osborne J.

Counsel: Haddon Murray and Elie Laskin of Gowling WLG for CBRE; Alexander Soutter of TGF for the Yonge Street LPs; Robin Schwill of Davies for KSV as Proposal Trustee; Jesse Mighton of Bennett Jones for Concord Properties; Sarah Stothart of Goodmans for Maria Athanasoulis; and Conner Sipa of McCague Borlack for Harbour International Investment Group and Yulei Zhang

Fullcase: https://canlii.ca/t/jt5ft

By Matilda Lici