



COURT OF APPEAL FOR ONTARIO

CITATION: B&M Handelman Investments Limited v. Drotos,
    2018 ONCA 581

DATE: 20180625

DOCKET: M49307 (C65474)

Paciocco J.A. (Motion Judge)

In the Matter
    of the Bankruptcy of Christine Drotos, of the City of Toronto, in the Province
    of Ontario

BETWEEN

B&M Handelman Investments Limited
, Flordale
    Holdings Limited, M. Himel Holdings Inc., 1530468 Ontario Ltd., Maxoren
    Investments, and Sheilaco Investments Inc.

Applicants (
Responding Party
)

and

Christine Drotos

Respondent

Eric Golden, for the moving party, Rosen Goldberg Inc.

P. James Zibarras, Leslie Dizgun, and Caitlin Fell, for
    the responding party, World Finance Corporation

David Preger, for the responding party, B&M
    Handelman Investments Limited

Adam J. Wygodny, for the responding party, Money Gate
    Investment Corp.

Miranda Spence, for the purchaser, Frederic P.
    Kielburger

Heard: June 13, 2018

On a motion for directions and leave to appeal from the
    order of Justice Sean F. Dunphy of the Superior Court of Justice, dated June 1,
    2018.

Paciocco J.A.:

OVERVIEW

[1]

Rosen Goldberg Inc. is the receiver (the Receiver) of property known
    municipally as 4 Birchmount Avenue, Toronto (the Birchmount Property). At all
    material times, the Birchmount Property was registered to Ms. Christine Drotos
    (the Debtor).

[2]

On June 1, 2018, Dunphy J. made an Approval and Vesting Order approving
    the Receivers sale of the Birchmount Property (the Order). The Order
    authorizes the transfer of the Birchmount Property to Mr. Frederic P.
    Kielburger (the Purchaser) free and clear of all mortgages.

[3]

On June 7, 2018, World Finance Corporation (World Finance), a
    mortgagee of the Birchmount Property, filed a notice of appeal challenging the
    Order. In its notice of appeal, World Finance asserts that its appeal was as of
    right pursuant to s. 193(b) of the
Bankruptcy and Insolvency Act
,
    R.S.C. 1985, c. B-3 (
BIA
). In the alternative, it sought leave to
    appeal the Order pursuant to s. 193(e).

[4]

If World Finance was appealing as of right, the Order would have
    automatically been stayed pending World Finances appeal pursuant to
BIA
,
    s. 195. This stay would have prevented the Receiver from completing the sale of
    the Birchmount Property, which was set to close on June 14, 2018.

[5]

On June 11, 2018, the Receiver brought the instant motion on an urgent
    basis seeking directions regarding World Finances appeal. The Receiver took
    the position that s. 193(b) did not apply and that no leave to appeal should be
    granted under s. 193(e). The Receiver sought an order declaring that the Order
    was not stayed by World Finances notice of appeal and approving the closing of
    the sale on June 14, 2018.

[6]

After denying an adjournment motion brought by World Finance, I abridged
    the time for service and heard the Receivers motion on June 13, 2018. At the
    conclusion of the hearing, I held that World Finance does not have an appeal as
    of right pursuant to s. 193(b). I denied leave to appeal pursuant to s. 193(e).
    And I also approved the sale pursuant to the Order. I indicated that reasons
    for my decision would follow in writing. These are my reasons.

THE
    RECEIVERSHIP AND THE APPLICATION FOR THE APPROVAL AND VESTING ORDER

[7]

The Birchmount Property is a partially constructed 12,900 square-foot
    home located in the Scarborough Bluffs neighborhood. At all material times, the
    Birchmount Property was vacant, in need of repairs, and unfit for occupancy.
    There were three mortgages on title

[8]

The first mortgagee, Pillar Capital Corporation (Pillar), claims that
    as of May 29, 2018 it was owed $2,534,582.27 under its mortgage.

[9]

The second mortgage is held by a group of corporations comprising the
    applicants in the proceedings below. B&M Handelman Investments Limited
    (B&M) is one of the second mortgagees. It claims that as of June 11,
    2018, $1,164,755.78 was owing under the second mortgage, excluding legal fees.

[10]

The
    third mortgage is held 69.9% and 30.1% by World Finance and Money Gate Mortgage
    Investment Corporation (Money Gate), respectively. World Finance alleges that
    the total amount owing under this third mortgage was approximately $6.7 million
    as of May 14, 2018.

[11]

On
    April 10, 2018, B & M applied, pursuant to BIA s. 243(1), for the
    appointment of a receiver. On April 13, 2018, the requested Appointment Order
    was made, appointing the Rosen Goldberg Inc. as receiver over the Debtors
    lands and premises, including the Birchmount Property.

[12]

The
    Appointment Order contains the usual Model Order clauses granting the Receiver
    the power to engage consultants and appraisers, market the property, and
    negotiate the terms and conditions of sale. The Appointment Order also permits
    the Receiver to report to, meet with, and discuss with affected Persons (as
    defined in the Appointment Order) as the Receiver deems appropriate and to
    share information subject to confidentiality terms. It permits the Receiver to
    sell the Birchmount Property with court approval and to apply for a vesting
    order to convey the property to a purchaser free and clear of encumbrances.

[13]

After
    obtaining the Appointment Order, the Receiver secured an appraisal of the
    Birchmount Property which set the value at $3.2 million. The Receiver
    considered different sale options and determined that an MLS listing process
    was the optimal method. After reviewing various listing proposals, it entered
    into a 90-day listing agreement with Chris Kelos of Re/Max Corbo & Kelos
    Realty Ltd. (Kelos). Kelos listed the Birchmount Property on the MLS on April
    30, 2018 at a sale price of $3.8 million.

[14]

On
    May 3, 2018, an unconditional offer to purchase for $2.5 million was submitted.
    The Receiver did not accept this offer.

[15]

On
    May 8, 2018, the Receiver received an unconditional offer to purchase from the
    Purchaser. Following negotiations, the Purchaser increased his offer to $3.45
    million, an amount higher than the appraised value. Nonetheless, it was evident
    that insufficient proceeds of sale would be generated by this offer to fully
    retire the encumbrances. In fact, B&M would suffer a shortfall and World
    Finance would recover nothing. The Receiver accepted this offer subject to
    court approval.

[16]

The
    Receiver then brought an application before Dunphy J. in the instant Debtors bankruptcy
    proceedings, seeking approval of the sale of the Birchmount Property. At the
    same time, the Receiver also applied for approval of the sale of four other
    properties from the separate bankruptcy proceeding of Comfort Capital. The sale
    approvals raised similar issues, but the two bankruptcies involve different
    debtors and different subsequent mortgagees. World Finance claims to be
    interested in both of the bankruptcies. Although the Receiver brought both
    applications at the same time, no formal consolidation order was made linking or
    joining the two applications. The form of receivership order in both cases is effectively
    identical.

[17]

With
    respect to the instant Debtors bankruptcy proceedings, the parties disputed
    who had the authority to speak in respect of the third mortgage on the Birchmount
    Property. World Finance appeared and opposed the Receivers application. Money
    Gate appeared and supported the Receivers position.

[18]

World
    Finances key complaint before Dunphy J. was that the Receiver failed to
    consult World Finance about the sale and marketing process and the listing
    price. In its view, had the Receiver discharged its duty, a higher purchase
    price would have resulted. In support of its assertion that the property was
    undervalued, World Finance relied on the opinion of a realtor who states that
    he would have listed the Birchmount Property at between $4 million to $4.5
    million, and would not have accepted an offer of $3.4 million.

THE DECISION OF DUNPHY J.

[19]

Dunphy
    J. granted the Order respecting the Birchmount Property. He considered the
    criteria in
Royal Bank of Canada v. Soundair Corp.
(1991), 4 O.R. (3d)
    1 (C.A.), [1991] O.J. No. 1137 and the procedure adopted by the Receiver in selling
    the property:

In each case, the first step the
    Receiver took was to seek appraisals. These are a necessary pre-condition to a
    Receiver having a sense of what the property being marketed is worth. The
    Receiver obtained two appraisals in respect of the High Point property, one
    appraisal in respect of the Bridge property, one appraisal for the Loyalist
    property, two for the Caldwell property, and one for the Birchmount property.

The Receiver also consider [
sic
] how best to market
    these properties. In considering that question, the Receiver had to have regard
    to the state of these properties. At least two of them were in a very
    challenging state [] The Birchmount property is a partially constructed shell
    with a roof that has a hole in it and has become a home for wild animals.

Among other things, the Receiver also had to consider the
    carrying costs of these properties in terms of accrued reality [
sic
]
    taxes, which are in arrears on many of the properties, and the state of the
    market and other relevant considerations.

After considering the matter, the Receiver determined that
    proceeding to market through the MLS process was the optimal process to follow
    in relation to the five properties that are the subject matter of these
    motions.

The Receiver also considered
    possible listing agents and in considering that question looked at the
    experience of the brokers considered, looked at their experience in the areas,
    considered their recommendations as to listing price and considered that in
    relation to appraisals

[]

In the case of the B&M receivership,
    which is to say the Birchmount property, an information package was prepared,
    there were online and advertising and email blasts, open houses, newspaper
    coverage was arranged

[20]

Justice
    Dunphy concluded that fair market value had been obtained. He referred to the realtors
    opinion of value that World Finance relied upon to support its position that a
    higher value could be obtained, stating that while this report had some helpful
    comments, it did not have any solid valuation evidence that I can attach
    weight to in it. Justice Dunphy concluded that the Receivers business
    judgment had been applied and informed by the appraisals responsibly sought.

[21]

He
    applied the
Soundair
principles to the argument that the Receiver
    failed to consult World Finance. He was not prepared to accept the criticism
    that the Receiver acted too quickly. In his view, the MLS marketing process was
    designed to obtain offers as soon as reasonably practicable and in each case
    multiple offers were received. Nor was Dunphy J. persuaded that the Receiver failed
    to consider the interests of all parties. He stated:

There has been some confusion about who those other parties are
    and how much their claims are. Who is entitled to speak for them has also been
    an issue in this case. Ultimately, however, the interests of all of the parties
    is the same. Their interest is in obtaining the highest and best price
    reasonably available.

[22]

Justice
    Dunphy dismissed the specific complaint that World Finance ought to have been
    consulted on the marketing process and given a greater degree of input,
    concluding as follows:

This objection runs into a number of factual walls. Firstly,
    the appraisals were obtained in this case and they were available to the
    creditors if they chose. The receivership order allowed the Receiver to share
    information with creditors subject to appropriate NDAs. At least some of the
    stakeholders did obtain the appraisals and signed NDAs. I cannot say that this
    was not available to others. Nobody in this case contacted the Receiver until
    the time came to begin the process of seeking court approval, which does not
    speak well for the level of interest they had in seeking to shape the process.

THE ISSUES

[23]

The
    issues on this motion are: (1) whether the proposed appeal of the Order is as of
    right pursuant to s. 193(b);
[1]
and (2) alternatively, whether leave to appeal should be granted pursuant to s.
    193(e). If the appeal is not as of right, and leave is not appropriate, the
    Receiver asks this court to approve the sale to the Purchaser, as provided for
    in the agreement of purchase and sale.

[24]

Section
    193 of the
BIA
provides, in relevant part:

Unless otherwise expressly provided, an appeal lies to the
    Court of Appeal from any order or decision of a judge of the court in the
    following cases:

[]

(b) if the order or decision is likely to affect other cases of
    a similar nature in the bankruptcy proceedings;

[]

(e) in any other case by leave of a judge of the Court of
    Appeal.

ANALYSIS

(1)

Subsection 193(b) does not apply

[25]

World
    Finance contends that it has the right to appeal the Order under s. 193(b). It
    claims that any order made in connection with its appeal of the Approval and
    Vesting Order related to the Birchmount Property will likely affect other cases
    of a similar nature relating to Approval and Vesting Orders made in the Comfort
    Capital bankruptcy.

[26]

World
    Finance contends that although there are two separate bankruptcies involved, in
    substance the application to approve the sale of the five properties was only
    one bankruptcy proceeding within the meaning of s. 193(b). It notes that the Receiver
    brought the applications together before the same judge. Each application raised
    the same course of conduct by the Receiver. And one set of reasons was
    provided. World Finance argues that it would be met with an issue estoppel
    argument if it raises the same issues in subsequent proceedings to approve
    vesting orders on other properties. It contends that s. 193(b) should be
    interpreted purposively, giving World Finance an appeal as of right so that it
    is not left, unfairly, without an avenue to challenge the Order.

[27]

First,
    I do not agree that s. 193(b) should be interpreted in the expansive manner
    that World Finance submits. In
Downing Street Financial Inc. v. Harmony
    Village-Sheppard Inc.
, 2017 ONCA 611, 49 C.B.R. (6th) 173, at para. 20,
    Tulloch J.A. described the clear direction in recent case law in favour of a
    narrow construal of the rights to appeal in ss. 193(a) to (d) of the
BIA
,
    citing
Re En Route Imports Inc.
, 2016 ONCA 247, 35 C.B.R. (6th) 1, at
    para. 5. This narrow construal is incompatible with World Finances position,
    and there are good reasons for it.

[28]

In
2403177 Ontario Inc. v. Bending Lake Iron Group Ltd.
, 2016 ONCA 225,
    396 D.L.R. (4th) 635, at para. 49, Brown J.A. explained that initially the
BIA
provided only for appeals as of right. The inclusion in 1949 of a leave to
    appeal provision removed the need for a broad interpretive approach to ss. 193(a)
    to (d). More importantly, the appeal as of right provisions should be read
    harmoniously with the
Companies Creditors Arrangement Act
, R.S.C.
    1985, c. C-36, which requires leave for all appeals from orders made under the
    statute.
[2]
Reading s. 193s appeal as of right subsections narrowly avoids disharmony
    between the two insolvency regimes.

[29]

In
Bending Lake
,

Brown J.A. explained at para. 32 that s. 193(b)
    applies where there is a real dispute that is likely to affect another case in
    the
same
bankruptcy proceedings. The Order that
    World Finance proposes to appeal was made in the instant Debtors bankruptcy
    and pertains only to this bankruptcy proceeding. The fact that the outcome of the
    proposed appeal could affect cases arising out of the Comfort Capital bankruptcy
    is insufficient to give rise to an appeal as of right. There is no appeal as of
    right in this case under s. 193(b).

[30]

Second,
    this outcome does not operate to unfairly deny World Finance an opportunity to
    challenge the Order that it says will likely affect other cases it will be
    involved in. This is because a party whose interest are likely to be affected
    in other case of a similar nature arising in other bankruptcy proceedings can
    move to protect those interests by seeking leave to appeal, where an appeal as
    of right is not available. Where leave is warranted in the circumstances, it
    will be granted.

[31]

I
    turn, then, to World Finances alternative position that leave to appeal should
    be granted under s. 193(e) in this case.

(2)

Leave to appeal should not be granted

[32]

The
    granting of leave to appeal under s. 193(e) is discretionary and contextual. The
    test for leave described by Blair J.A. in
Business Development Bank of
    Canada v. Pine Tree Resorts Inc.
, 2013 ONCA 282, 115 O.R. (3d) 617, at
    para. 29, was adopted by a panel of this court in
Impact Tool & Mould
    Inc. (Receiver of) v. Impact Tool & Mould Inc. (Trustee of)
, 2013 ONCA
    697, at para. 3. The proposed appeal must:

a)

raise an issue that is of general importance to the practice in
    bankruptcy/insolvency matters or to the administration of justice as a whole,
    and is one that this [c]ourt should therefore consider and address;

b)

be
prima facie
meritorious; and

c)

[not] unduly hinder the progress of the bankruptcy/insolvency proceedings.

[33]

As
    Doherty J.A. noted in
Ravelston Corp. (Re)
, [2005] O.J. No. 5351
    (C.A.), 24 C.B.R. (5th) 256, at para. 28, the leave inquiry should begin with some
    consideration of the merits of the proposed appeal, for if the appeal cannot
    possibly succeed, there is no point in granting leave to appeal regardless of
    how many other factors might support the granting of leave to appeal.

[34]

World
    Finance argues that its proposed appeal is
prima facie
meritorious. It
    contends that the Receiver failed to consider World Finances interests, and that
    the process used was unfair because the Receiver did not consult with World
    Finance on the marketing process, or the price at which the Birchmount Property
    would be listed. It urges that Dunphy J. misapplied the
Soundair
principles
    in finding otherwise.

[35]

Specifically,
    World Finance claims that Dunphy J. erred in law when finding that the Receiver
    had considered World Finances interests by assuming that all parties had the
    same interest, namely, obtaining a higher sale price. It further submits that
    he erred in law in finding the process to have been fair by considering irrelevant
    or improper explanations for the Receivers failure to consult with World
    Finance about the marketing process and listing price.

[36]

In
    my view, World Finances grounds of appeal are not legitimately arguable points.
    They do not present a realistic possibility of success and therefore lack
prima
    facie

merit.

[37]

First,
    there is no reasonable prospect that fault could be found in Dunphy J.s
    conclusion that, in seeking the highest and best price reasonably available,
    the Receiver was considering the shared interest of all of the parties. World
    Finances argument that, as a fulcrum creditor, it had unique interests in the marketing
    strategy and list price that were not considered has no traction. Marketing
    strategy and list price are means to an end, namely, achieving the highest and
    best price reasonably available, the very thing that Dunphy J. considered.

[38]

World
    Finances claim that Dunphy J. considered irrelevant and improper explanations
    for the Receivers failure to consult directly with World Finance about the
    marketing and listing price for the Birchmount Property is also without merit.

[39]

World
    Finance has not presented any authority for the proposition that a receiver has
    a positive obligation to consult with subsequent mortgagees as to a particular
    sales process and the listing price.

[40]

Indeed,
    the Appointment Order in this case expressly permits the Receiver to report to,
    meet with, and discuss with affected Persons as the Receiver deems appropriate
    and to share information subject to confidentiality terms. The Receiver had
    discretion under the order to proceed as it did.

[41]

Moreover,
    even if a general duty to consult applied in this case, Dunphy J. was clearly
    entitled to come to the decision he did, for the reasons he expressed.

[42]

As
    he pointed out, in this case there was confusion as to the secured creditors
    true identities and who represented their interests. There were also fraud
    allegations at play, which explained why the Receiver was not more proactive in
    its dealings with certain creditors. Moreover, those creditors previously
    showed a low level of interest in seeking to shape the process. In these
    circumstances, Dunphy J. found that making the appraisals available to those
    creditors who chose to consult them was sufficient.

[43]

None
    of these factors are irrelevant or improper considerations. Dunphy J. was
    entitled to consider them. As Blair J.A. pointed out in
Regal Constellation
    Hotel Ltd. (Re)
(2004), 71 O.R. (3d) 355 (C.A.), [2004] O.J. No. 2744, at
    para. 23, courts exercise considerable caution when reviewing a sale by a
    court-appointed receiver and will interfere only in special circumstances. Moreover,
    defence is owed to the decision Dunphy J. made: 22.

[44]

Finally,
    I accept the Receivers submission that World Finances proposed appeal lacks
    merit for the simple reason that even if the Birchmount Property were to sell
    for the amount World Finance claims it could have achieved, World Finance would
    still receive nothing. World Finances process-based complaint is therefore an idle
    appeal. There is no material wrong it can complain of.

[45]

Even
    if World Finances proposed appeal had
prima facie

merit, I
    still would have denied leave to appeal, as neither of the other two leave to
    appeal requirements are satisfied.

[46]

World
    Finances proposed appeal does not raise an issue that is of general importance
    to the practice in bankruptcy matters or to the administration of justice as a
    whole. It is a fact-specific dispute about the propriety of this particular
    sale transaction.

[47]

In
    my view, granting leave to appeal would also unduly hinder the bankruptcy
    proceeding. If the sale was delayed, additional interest and costs payable on
    the first mortgage would have continued to accrue, serving only to further
    denude the second mortgagees position.

[48]

Moreover,
    the agreement of purchase and sale provided specific timelines for the
    obtaining of court approval and for the closing of the sale. It permitted
    postponement of the closing date for only 60 days after the original closing
    date. The sale transaction was originally scheduled to close on June 11, 2018 and
    was postponed until June 14, 2018. If leave to appeal had been granted, the
    additional delay required for the disposition of the appeal could have resulted
    in the loss of this transaction.

[49]

Accordingly,
    I denied leave to appeal pursuant to s. 193(e).

[50]

I
    granted the Receivers request to approve the sale under the agreement of
    purchase and sale because Dunphy J. found that the Receiver made efforts to
    obtain the best price and achieved the offer to purchase after considering the
    interests of all parties in a fair process that had integrity. Moreover, postponement
    of the sale would have created the prejudice described above.

DISPOSITION

[51]

For
    these reasons, I granted the Receivers motion. I declare that World Finance
    does not have an appeal as of right pursuant to s. 193(b) and hold that leave
    to appeal pursuant to s. 193(e) of the
BIA
should not be granted. The
    Order approving the closing of the sale to the Purchaser on June 14, 2018 is also
    approved.

[52]

Costs
    are assessed by a judge of the Superior Court of Justice, Commercial List in
    insolvency proceedings. I will not interfere with that judges discretion to do
    so, and therefore will make no costs order relating to the costs claimed by the
    Receiver and B&M.

[53]

Money
    Gate was not served with the motion but appeared and exercised its right of
    standing, as its interests were at stake. World Finance will pay costs, on a
    partial indemnity basis, to Money Gate in the amount of $2,000, inclusive of
    HST and disbursements.

[54]

The
    Purchaser also requested nominal costs. It did not play an active role in the
    proceedings. In my view, a costs award in favour of the purchaser is not
    warranted so I decline to make one.

Released: June 25, 2018 (D.M.P.)

David M.
    Paciocco J.A.





[1]
While World Finance raised the potential application of s. 193(c) in
    its factum, it did not seek to rely on that subsection in oral argument. In any
    event, reliance on that subsection would not have been tenable given World
    Finances emphasis on process-related errors:
2403177 Ontario Inc. v.
    Bending Lake Iron Group Ltd.
, 2016 ONCA 225, 396 D.L.R. (4th) 635, at para.
    54.



[2]

See also
Century Services Inc. v. Canada
    (Attorney General)
, 2010 SCC 60, [2010] 3 S.C.R. 379, at para. 24, where a
    majority of the Supreme Court held that the
BIA
and the
CCAA
should be read harmoniously to the extent possible.


