



COURT OF APPEAL FOR ONTARIO

CITATION: Marchant Realty Partners Inc. v. 2407553 Ontario
    Inc., 2021 ONCA 375

DATE: 20210531

DOCKET: M52417, M52418 & M52419

Jamal J.A. (Motions
    Judge)

DOCKET: M52417

BETWEEN

Marchant Realty Partners
    Inc., as agent

Responding Party

and

2407553
    Ontario Inc., 2384648 Ontario Inc., 2384646 Ontario Inc., 24000196

Ontario Inc. and 2396139
    Ontario Inc.

Moving
    Parties

DOCKET: M52418

AND BETWEEN

Marchant Realty
    Partners Inc., as agent

Responding Party

and

4544 Zimmerman
    Avenue LP and 4544 Zimmerman Avenue GP Inc.

Moving Parties

DOCKET: M52419

AND BETWEEN

Marchant Realty
    Partners Inc., as agent

Responding Party

and

4267 River Road
    LP and 4267 River Road GP Inc.

Moving
    Parties

Steven L. Graff, Miranda Spence
    and Stephen Nadler, for the moving parties

Sara-Ann Wilson and Kenneth
    Kraft, for the responding party Zeifman Partners Inc.

Heard: May 20, 2021 by video conference

REASONS FOR DECISION

[1]

The moving parties are debtors (Debtors) over whose assets,
    undertakings, and real property the responding party Zeifman Partners Inc., (Receiver)
    is the court-appointed receiver and manager. The Debtors seek leave to appeal to
    this court under s. 193(e) of the
Bankruptcy and Insolvency Act
,
    R.S.C. 1985, c. B-3 (
BIA
), from orders of Cavanagh J. (motion
    judge) of the Superior Court of Justice (Commercial List) dated March 25, 2021,
    approving the Receivers proposed sale process and list prices for five commercial
    properties in downtown Niagara Falls, Ontario (Properties).

[2]

For the reasons that follow, the motions for leave to appeal are
    dismissed.

Background

[3]

Marchant Realty Partners Inc. (Agent), as agent for a group of lenders
    (Lenders), commenced three related receivership proceedings before the
    Commercial List concerning loans the Lenders made to the Debtors. The loans
    matured over three years ago, some loans more than four years ago. As of
    October 2020, the Debtors owed more than $16 million under the loans.

[4]

The three receivership applications were originally scheduled for September
    2018 but were adjourned five times to give the Debtors more time to refinance
    the Properties. The refinancing never happened.

[5]

With no refinancing or repayment plan on the horizon, the Agent moved
    forward with the receivership applications. In August 2020, Gilmore J. of the
    Commercial List appointed the Receiver as receiver and manager over the
    Debtors Properties, although the appointment was stayed for just over two
    months to give the Debtors one last chance to repay the loans. They could not do
    so, and the Receivers appointment became effective in mid-October 2020.

[6]

The Properties are about 4 km from the tourist area of Niagara Falls.
    The Properties are mixed-use commercial properties (most needing repairs), a
    seasonal operating motel (closed because of the pandemic), and vacant land.

[7]

The Receiver is authorized to market the Properties, including
    advertising them for sale, soliciting offers to buy them, and negotiating such
    terms as the Receiver deems appropriate.

The Motion Judges Decision

[8]

The Receiver recommended list prices for the sale of Properties based
    on: (1) independent appraisals from two local appraisers, Humphrey Appraisal
    Services Inc. and Jacob Ellens & Associates Inc.; (2) recommended list
    prices for the Properties from three real estate brokerages; and (3)
    discussions with Jones Lang LaSalle Real Estate Services, the proposed listing
    brokerage, which has expertise selling properties around Niagara Falls. Even
    with these list prices, the Lenders will lose money on their loans to the
    Debtors.

[9]

The Debtors opposed the proposed list prices and relied on competing
    appraisals of Colliers, a commercial real estate firm. Colliers appraisals  which
    focussed on the development potential of the Properties  were almost 300%
    higher than the Receivers list prices. The Debtors asked the motion judge to
    direct the Receiver to list the Properties at Colliers proposed prices for 60
    days to see what the market will bear.

[10]

By
    order dated March 25, 2021, the motion judge approved the Receivers proposed
    sale process and list prices for the Properties. The motion judge found:

The Receiver is an officer of the court with duties to all
    stakeholders. In
my view, the
Receiver has
    shown that it is acting in good faith and diligently to discharge its duties to
    deal with the [Properties] in a commercially reasonable manner. The Receiver
    has reviewed the Colliers appraisals and the information upon which Colliers
    relies for its appraisals of the [Properties]. The Receiver has explained why
    it does not agree with the Colliers appraisals, and why it has recommended that
    the sale process be approved. I have considered the process which the Receiver
    has followed and the information upon which it relies to support its
    recommendations. The [Debtors] have not shown that the Receiver followed a
    flawed procedure. I am not satisfied
that
this
    is an exceptional case where it is proper for me to reject the business
    judgment made by the Receiver.

The Test for Leave to Appeal Under s. 193(e) of the
BIA

[11]

The
    moving parties seek leave to appeal from the motion judges orders under s.
    193(e) of the
BIA
. This provision provides that, unless an appeal lies
    as of right or as otherwise expressly provided, an appeal lies to the Court of
    Appeal from any order or decision of a judge of the court  by leave of a
    judge of the Court of Appeal.

[12]

In
    deciding whether to grant leave under s. 193(e) of the
BIA
, this court
    considers the following principles:

·

Granting leave is discretionary and must be exercised in a
    flexible and contextual way:
Business Development Bank of Canada v. Pine
    Tree Resorts Inc.
, 2013 ONCA 282, 115 O.R. (3d) 617, at para. 29.

·

In exercising its discretion, the court should examine whether
    the proposed appeal: (1) raises an issue of general importance to
    bankruptcy/insolvency practice or the administration of justice, and is one
    this court should address; (2) is
prima facie
meritorious; and (3)
    would not unduly hinder the progress of the bankruptcy/insolvency proceedings:
Pine
    Tree Resorts
, at para. 29;
McEwen (Re)
, 2020 ONCA 511, 452 D.L.R.
    (4th) 248, at para. 76.

Should this Court Grant Leave to Appeal?

(1)

Does the proposed appeal raise an issue of general importance to
    bankruptcy/insolvency practice or the administration of justice?

[13]

The Debtors
    assert that the proposed appeal raises an issue of general important to
    bankruptcy/insolvency practice. They frame the issue on the proposed appeal as the
    extent of the deference that the Court owes to a receivers business judgment
    when approving a sale process. They claim the appeal will provide guidance to
    receivers as they consider the level of scrutiny they may expect from the Court,
    and to other stakeholders as they consider whether to challenge the actions
    taken by any given receiver.

[14]

The
    Receiver frames the issue on appeal much more narrowly. It claims the appeal is
    highly fact-specific and concerns, in essence, the appropriate list prices of the
    Properties. It says no legal principles are in dispute and the appeal will have
    no bearing or importance for the practice of insolvency and the administration
    of receivership proceedings.

[15]

I
    agree with the Receiver. Although on any appeal the court would consider and
    apply the principles of deference applicable to a receivers business judgment,
    those principles are not in dispute. They were correctly stated by the motion
    judge, who cited this courts decision in
Regal Constellation Hotel Ltd. (Re)
(2004), 71 O.R. (3d) 355 (C.A.), at para. 23:

Underlying these considerations are the principles the courts
    apply when reviewing a sale by a court-appointed receiver. They exercise
    considerable caution when doing so, and will interfere only in special
    circumstances  particularly when the receiver has been dealing with an unusual
    or difficult asset. Although the courts will carefully scrutinize the procedure
    followed by a receiver, they rely upon the expertise of their appointed
    receivers, and are reluctant to second-guess the considered business decisions
    made by the receiver in arriving at its recommendations. The court will assume
    that the receiver is acting properly unless the contrary is
clearly
shown. See
Royal Bank of Canada v.
    Soundair Corp.
(1991), 4 O.R. (3d) 1, 83 D.L.R. (4th) 76 (C.A.).

[16]

On the
    Debtors argument, the appeal would involve the application of these settled principles.
    However, applying settled principles of deference to the Receivers business decisions
    here would not raise an issue of general importance to bankruptcy/insolvency
    practice or the administration of justice.

[17]

The
    Debtors also say the motion judge failed to apply the correct legal test
for evaluating whether a receiver has acted properly in
    selling a
property, as stated in
Royal Bank of Canada v. Soundair Corp.
(1991), 4 O.R. (3d) 1 (C.A.). This issue relates to the deference issue because
    the Debtors claim the motion judge failed to cite or apply the
Soundair
test and instead was unduly deferential to the Receiver. I will consider this
    argument below in evaluating whether the proposed appeal is
prima facie
meritorious.

(2)

Is the proposed appeal
prima facie
meritorious?

[18]

In
    evaluating whether the proposed appeal has
prima facie
merit, I begin
    by noting that this court gives substantial deference to the discretion of commercial
    court judges supervising insolvency and restructuring proceedings and does not
    intervene absent demonstrable error:
Ravelston Corp. Ltd. (Re)
, 2007
    ONCA 135, 85 O.R. (3d) 175, at para. 3.

[19]

As already
    noted, commercial court judges also give substantial deference to the decisions
    and recommendations of a receiver as an officer of the court. If the receivers
    decisions are within the broad bounds of reasonableness and the receiver proceeded
    fairly, after considering the interests of all stakeholders, the court will not
    intervene:
Ravelston
, at para. 3;
Regal Constellation Hotel
,
    at para. 23. A court will assume that the receiver is acting properly unless
    the contrary is clearly shown:
Regal Constellation Hotel
, at para.
    23.

[20]

The
    Debtors assert, however, that this court would overcome the deference shielding
    the receivers business judgments and the motion judges review of those
    judgments because the motion judge made an extricable error of law. The Debtors
    say the motion judge erred in law by failing to state or apply the
Soundair
test for evaluating whether a receiver has acted properly in recommending list
    prices for the Properties.

[21]

The
Soundair
test in the context of a sale involves consideration of:

·

Whether the receiver made sufficient effort to obtain the best
    price and did not act improvidently;

·

The interests of the parties;

·

The efficacy and integrity of the process by which offers were
    obtained; and

·

Whether there has been unfairness in the working out of the
    process:
Soundair
, at p. 6;
Regal Constellation Hotel
, at
    para. 24.

[22]

The
    Debtors claim that the motion judge did not cite or apply the
Soundair
test but instead applied a new, two-part test: (1) the respondent on a motion
    to approve a sale process must show the receiver followed a flawed process in
    developing its sale process; and (2) only if that hurdle is cleared may the respondent
    challenge the sale process itself.

[23]

I do
    not accept the Debtors submission. Although I agree the motion judge did not expressly
    set out the
Soundair
test, he cited
Soundair
elsewhere in his
    reasons. As an experienced commercial judge, he was familiar with the
Soundair
test and applied it in his reasons:

·

Whether the receiver made sufficient effort to obtain the
    best price and did not act improvidently
 The motion judge found that the
    Receiver made sufficient effort to obtain the best and most realistic list
    price and did not act improvidently. He noted that the Receiver reviewed the
    Colliers appraisals and the information upon which Colliers relies for its
    appraisals of the [Properties]. The Receiver has explained why it does not
    agree with the Colliers appraisals, and why it has recommended that the sale
    process be approved. The motion judge also noted that the Receiver explained
    why listing the Properties for 60 days at Colliers proposed list prices could
    result in little to no interest in the sale process, with the result that
    properties languish on the market and ultimately require drastic price
    reductions to generate interest. This could lead to lower recoveries than
    what would have been possible had the property [been] listed for sale at an
    appropriate price at the outset.

·

The interests of the parties
 The motion judge found
    that the Receiver considered the interests of all parties in proposing the
    suggested list prices. He noted that [t]he Receiver is an officer of the court
    with duties to all stakeholders, which included the interests of the Debtors. He
    found that the Receiver has shown that it is acting in good faith and
    diligently to discharge its duty to deal with the [Properties] in a
    commercially reasonable manner.

·

The efficacy and integrity of the process by which offers
    were obtained
 The motion judge considered the integrity of the process
    by which the list prices were recommended. He considered the process which the
    Receiver has followed and the information upon which it relies to support its
    recommendations. He found that [t]he [Debtors] have not shown that the
    Receiver followed a flawed procedure.

·

Whether there has been unfairness in the working out of the
    process
 The motion judge found no unfairness in the process that the Receiver
    followed. He found the Receiver properly considered and responded to Colliers
    appraisals. The proposed list prices did not result from any unfairness.

[24]

I thus
    conclude the motion judge applied the
Soundair
test. I see no
    extricable error of law or any basis to interfere with his decision.

[25]

The proposed
    appeal therefore lacks
prima facie
merit.

(3)

Would the proposed appeal unduly hinder the progress of the receivership
    proceedings?

[26]

Lastly,
    the Debtors assert that the proposed appeal would not unduly hinder the progress
    of the receivership proceedings. They say the Debtors have no other assets, so all
    the Receiver has left to do is list and sell the Properties. The Debtors agree
    to expedite the appeal and claim that any minor delay in the sale process is
    not enough to deny leave to appeal.

[27]

I
    disagree. All the loans in issue matured at least three years ago, some four
    years ago. Over two years have passed since the original return date of the
    receivership applications. There have been further delays to allow the Debtors
    to refinance the Properties, which they could not do. Substantial property
    taxes are accruing on the Properties and the Receiver is responsible for their ongoing
    carrying costs, which rank ahead of the Lenders mortgages and are thus eroding
    their potential recovery. Further delay in the Receivers ability to sell the
    Properties will only further degrade the Lenders security position and should
    not be permitted.

[28]

I thus
    conclude the proposed appeal would unduly hinder the progress of the
    receivership proceedings.

Disposition

[29]

The motions
    for leave to appeal are dismissed. As agreed by the parties, there shall be no order
    as to costs.

[30]

As
    jointly requested by the parties, pending further order the unredacted versions
    of the Debtors factums shall remain under seal and will not be publicly
    available because they contain commercially sensitive and confidential information
    about the Receivers and Debtors proposed list prices for the Properties.

M. Jamal J.A.


