



COURT OF APPEAL FOR ONTARIO

CITATION: 8527504 Canada Inc. v. Sun Pac Foods Limited, 2015
    ONCA 916

DATE: 20151223

DOCKET: M45642 & M45643

van Rensburg J.A. (In Chambers)

BETWEEN

M45642

8527504 Canada Inc.

Responding Party (Applicant)

and

Sun Pac Foods Limited

Respondent

Application under Section 243 of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c. B-3 and Section 101 of the
Courts of
    Justice Act
, R.S.O. 1990, c. C. 43

AND BETWEEN

M45643

8527504 Canada Inc.

Responding Party (Applicant)

and

Liquibrands Inc.

Respondent

Application under
    Section 243 of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3
    and Section 101 of the
Courts of Justice Act
, R.S.O. 1990, c. C. 43

David E. Wires and Krista Bulmer, for the moving party, Csaba
    Reider.

Harvey Chaiton, for the responding party, 8527504 Canada
    Inc.

Anthony J. OBrien, for the responding party, BDO Canada
    Limited, court-appointed receiver of Sun Pac Foods Limited and Liquibrands Inc.

Heard: December 1, 2015

ENDORSEMENT

A.

Overview

[1]

This is a motion for leave to appeal two orders of Newbould J. (the
    motions judge) dated September 28, 2015 (the September 2015 Orders) in two
    related receiverships  of Sun Pac Foods Limited (Sun Pac) and of Liquibrands
    Inc. (Liquibrands). The applicant, Csaba Reider, also seeks leave to appeal
    the costs order of November 5, 2015, if leave is granted in respect of the
    September 2015 Orders.

[2]

The motion is brought under s. 193(e) of the
Bankruptcy and
    Insolvency Act
, R.S.C. 1985, c. B-3
(the BIA). Leave to appeal is discretionary and the court must take a
    flexible and contextual approach. In deciding whether to grant leave, the court
    must consider (a) the general importance of the issues for appeal to the
    practice in bankruptcy and insolvency matters or to the administration of
    justice as a whole; (b) whether the proposed appeal is
prima facie
meritorious;
    and (c) whether proceeding with the proposed appeal would unduly hinder the
    progress of the bankruptcy or insolvency proceedings:
Business Development
    Bank of Canada v. Pine Tree Resorts Inc.
, 2013 ONCA 282, 115 O.R. (3d)
    617, at para. 29.

[3]

For the reasons that follow, the motion for leave to appeal the
    September 2015 Orders is dismissed.

[4]

Essentially, I have concluded that the main issue that the moving party Csaba
    Reider wishes to put before this court  whether the receiver was entitled to
    market and sell a court action commenced by Sun Pac and Liquibrands prior to
    their receiverships (the Action)  was already determined by an earlier order
    of Newbould J., the judge case managing the receiverships. This court
    previously denied leave to appeal that earlier order.

[5]

The fact that the challenge is now made by Mr. Reider, as the director
    of Liquibrands and former director of Sun Pac, and not by Liquibrands itself,
    raising new arguments as to why the Action does not form part of the lenders
    security and cannot be sold by the receiver, is immaterial. Mr. Reider was
    privy to the receivership proceedings throughout and is bound by the earlier determination
    that the receiver was empowered to deal with, and to market and sell, the
    Action.

[6]

To the extent that Mr. Reider raises a new issue that was not decided by
    the earlier orders  whether the credit sale of the Action to a defendant to
    that action ought to have been approved by the court  he has not met the test
    for leave to appeal that decision to this court.

B.

The Companies, the Action and the Receiverships

[7]

Sun Pac was a manufacturer of beverages, croutons and breadcrumbs. In
    November 2011, Sun Pac was acquired by Liquibrands Inc. (Liquibrands), a
    company owned by Mr. Reider.

[8]

8527504 Canada Inc. (852) is Sun Pacs senior secured lender and was
    owed approximately $4 million when the Sun Pac receivership proceedings were
    commenced.

[9]

Sun Pacs debt to 852 was guaranteed up to the amount of $1 million by
    Liquibrands. Liquibrands is also a secured creditor of Sun Pac, and is owed
    approximately $2.6 million.

[10]

On
    852s application, which was not opposed, BDO Canada Limited (BDO) was
    appointed receiver of Sun Pac on November 12, 2013.

[11]

Earlier
    on the day that the order appointing the receiver was granted, Sun Pac and
    Liquibrands commenced the Action in the Superior Court of Justice, against 852
    and Bridging Capital Inc. (together, the Lender Defendants).

[12]

The
    Action alleges, essentially, that the Lender Defendants were in breach of their
    obligations to Sun Pac and Liquibrands under a forbearance agreement, and
    caused the failure of Sun Pac and its inability to pay the Lender Defendants
    and other creditors. The Action claims more than $100 million in damages.

C.

The December 2014 Orders

[13]

On
    December 4, 2014, Newbould J. made three orders (the December 2014 Orders).
    The orders:

·

approved the reports of BDO as receiver of Sun Pac, and permitted
    the receiver to pay the amount realized on the assets of Sun Pac to 852, on
    account of its first ranking security interest, rejecting the argument by
    Liquibrands that the funds should be paid into court pending the determination
    by trial of the issues raised in the Action;

·

appointed BDO as receiver of all of the property, assets and
    undertaking of Liquibrands following its default on the $1 million guarantee of
    Sun Pacs debt to 852, rejecting Liquibrands argument that no receiver should
    be appointed pending the outcome of the Action; and

·

refused the request by Liquibrands that a different receiver be
    appointed over the remaining assets of Sun Pac for the purpose of advancing
    the Action.

[14]

Pursuant
    to the motions judges December 4th endorsement, the receiver was to propose a
    marketing process for the sale of the Action that would be settled by the court
    absent agreement. Counsel for 852, the receiver and Liquibrands negotiated and
    agreed to the terms for the marketing process which were included in an order
    in the Sun Pac receivership as well as the order appointing BDO as receiver of
    Liquibrands. The terms included the following:

(d)

the Action is being offered for sale subject to the terms and conditions
    set out in the [Asset Purchase Agreement prepared by BDO];

(e)

[852] may be an offeror and may make its offer by way of credit bid or
    otherwise without prejudice to any party to oppose the right of [852] to make
    an offer or to oppose any offer made;



(g)

the
    sale of the Action shall be conditional upon [court] approval of same

D.

The First Motion for Leave to Appeal

[15]

Liquibrands
    motion for leave to appeal the December 2014 Orders was dismissed on April 2,
    2015.

[16]

In
    its motion for leave, Liquibrands asserted, among other things, that the
    motions judge erred in finding that the Action was collateral [under 852s
    security] and in ordering BDO to conduct a marketing process for the sale of
    the Action.

[17]

Feldman
    J.A., sitting in chambers, noted in her endorsement that the issue of
    importance asserted for appeal was whether the lender should be entitled to
    profit from its breach of the forbearance agreement by creating a
fait
    accompli
of the receivership and the disposal of the litigation against
    it. She noted that Liquibrands wanted to see the Action continued and
    concluded before the rights of the parties to the proceeds of the receivership
    were finally determined.

[18]

Feldman
    J.A. concluded that to proceed as proposed by Liquibrands would turn the
    process inside out, allowing the debtors, through a funded receiver, to use the
    funds realized in the receivership to fund their action rather than to pay 852.
    She found that the December 2014 Orders were grounded in law and reason, and
    were based on the facts and the documents presented. She concluded that the
    orders were owed deference.

[19]

After
    noting that Liquibrands was not objecting to the procedure for marketing the
    Action in the event that its request that a separate receiver be appointed to
    pursue the lawsuit was rejected, Feldman J.A. observed, at para. 15:

I raised some issues in oral argument regarding the propriety
    of [the marketing] procedure, particularly with respect to who should be
    permitted to bid and how to fairly determine the value of the lawsuit. Counsel
    for the receiver advised the court that all issues regarding the propriety of
    any proposed sale of the action could be raised at the approval hearing. In the
    circumstances of this case, the denial of leave to appeal is not to be taken as
    an endorsement of all aspects of the procedure for marketing the lawsuit
    against the creditor.

E.

The Sale Process

[20]

The
    receiver then marketed the Action, following the process set out in the
    December 2014 Orders. The deadline for receipt of offers was May 15, 2015. Two
    offers were received: a cash offer for $100 from Liquid Brands Inc., signed
    by Mr. Reider as president, and a credit bid from 852 for $1 million. The
    receiver accepted 852s offer, subject to court approval.

F.

The Next Set of Motions

[21]

After
    making his offer, but before the bids were opened, Mr. Reider served a notice
    of motion seeking an order permitting him to advance the Action under the
    residual authority of the directors of the companies. He proposed to pledge
    the assets of Liquibrands not covered under the receivership order as security for
    costs of the Action. In the alternative, he sought an order prohibiting 852
    from bidding to purchase the Action.

[22]

Mr.
    Reider argued that it would be a conflict of interest for a receiver of a
    debtor to be involved and in control of litigation by the debtor against the
    secured creditor that caused the receivership, and that such litigation can be
    pursued under a directors residual powers: see
Maple Leaf Foods Inc.

v.

Markland Seafoods Limited,
2007 NLCA 7, 279 D.L.R. (4th) 682, and
Re
    Inyx Canada Inc.
(2007)
,
    36 C.B.R. (5th) 154, [2007] O.J. No. 3846 (S.C.).

[23]

The
    receiver moved for court approval of the sale of the Action to 852, and the
    motions were argued together on June 22, 2015.

G.

The September 2015 Decision and Orders

[24]

In
    the September 2015 Orders, the motions judge dismissed Mr. Reiders motion, and
    approved the sale of the Action to 852.

[25]

The
    motions judge held that the order sought by Mr. Reider was directly contrary to
    the December 2014 Orders which authorized the receiver to conduct a sale process
    for the Action, and in respect of which leave to appeal was denied. Having been
    involved in the proceedings as an active participant and as a privy to both
    Liquibrands and Sun Pac, Mr. Reider was bound by the earlier orders.

[26]

The
    motions judge also dismissed Mr. Reiders argument that he was not bound 
    because the December 2014 Order directing a sale process for the Action was not
    a head of relief sought by 852 in its motion material leading to that order. The
    receivers right to sell the Action had been raised in 852s supplementary
    factum and thoroughly argued before the motions judge and in the earlier leave
    to appeal motion. Nothing in the decision refusing leave to appeal preserved
    any right to challenge the sale process that had been agreed on, and approved
    by the court.

[27]

The
    motions judge then considered Mr. Reiders objection to 852 as a purchaser. He
    referred to various cases recognizing the power of a trustee in bankruptcy to
    sell to a defendant an action commenced by the bankrupt against that defendant,
    even where it meant that the sale would end the litigation: see
Re Almadi
    Enterprises
, 2014 ONSC 1020, 12 C.B.R. (6th) 162;
Re Katz
(1991),
    6 C.B.R. (3d) 211, [1991] O.J. No. 1369 (Ont. Gen. Div.),
Watt v. Beallor
    Beallor Burns Inc.
(2004), 1 C.B.R. (5th) 141, [2004] O.J. No. 450 (Ont.
    S.C.) He saw no reason not to apply the principles from these bankruptcy cases
    to a receivership, concluding that the duty of a receiver to maximize the
    assets for the benefit of all interested stakeholders is no different from the
    duty of a trustee in bankruptcy to maximize the assets for the benefit of all
    creditors.

[28]

The
    motions judge approved the sale of the Action to 852 by credit bid. It could
    not be said that the credit bid by 852 deterred potentially interested parties
    from submitting a bid. The person most knowledgeable about the Action,
    Mr. Reider, bid only a nominal amount, and it could not be expected that
    unconnected and unrelated third parties would be interested in bidding on the
    litigation since they would need the full cooperation and participation of the
    principals of the company to pursue it successfully. The agreed sale process that
    provided for notice to be given just to parties on the service list was a
    reflection of that reality. The credit bid was acceptable, as whether 852 bid
    cash or credit, it would sustain a shortfall in the receivership.

[29]

After
    receiving written submissions, the motions judge awarded costs against Mr.
    Reider and in favour of 852 in the amount of $27,500, and in favour of the
    receiver in the sum of $6,000, plus HST. He rejected Mr. Reiders argument that
    costs should not be awarded against him personally but against Liquibrands, for
    whose benefit he claimed to be acting in bringing his motion and opposing the
    receivers motion.

H.

Analysis

[30]

The
    applicant acknowledges that the motions judges orders made in the course of
    the receiverships are entitled to deference. The applicant asserts that the
    proposed appeal raises important legal questions, and is
prima facie
meritorious. I note that in this case, the third part of the
Pine Tree
    Resorts
test is not at issue, as there is no question of delaying the
    progress of the substantially completed receiverships.

[31]

The
    applicant asserts that the proposed appeal raises two important issues of
    interest to insolvency practitioners and the administration of justice in
    general. The first concerns a directors residual right to pursue an action
    that belongs to a company in receivership. The second is whether a court-appointed
    receiver can sell an action by the company in receivership to a defendant to
    that action.

(1)

The First Issue

[32]

In
    order to advance an appeal on the issue respecting the residual authority of a
    director to pursue an action by a company in receiver, the applicant must
    overcome the conclusion that the receivers right to sell the Action was
res
    judicata,
as the December 2014 Orders were binding on him. That he cannot
    do. As such, there is no
prima facie
merit in Mr. Reiders proposed
    appeal on this issue.

[33]

The
    receivers right to sell the Action was determined by the December 2014 Orders,
    and provided for a specific and agreed upon sale process. The only issue left
    open was court approval of any sale, including the right to challenge 852 as a
    bidder and purchaser of the Action.

[34]

There
    is no merit to Mr. Reiders argument that the December 2014 Orders are not
    binding because the receiver never moved before the court for authority to sell
    the Action.

[35]

That
    argument, as well as several other points advanced by Mr. Reider, were
    addressed in the earlier motion for leave to appeal, including: that the Action
    could not be collateral or property used in the business of Sun Pac for the
    purposes of the receivership, that an action by a debtor against a lender does
    not form part of the lenders security, and whether the court erred in
    directing BDO to sell the Action.

[36]

Further,
    I agree with the motions judges rejection of Mr. Reiders argument based on
    the passage noted above from the decision refusing leave to appeal from the
    December 2014 Orders. Feldman J.A. noted that the parties (including
    Liquibrands) had
agreed
to the sale process, and that the dismissal of
    leave to appeal should not be interpreted as the courts
endorsement
of
    all aspects of the sale process. Her order refused leave to appeal the orders
    authorizing the receiver to deal with and to sell the Action. What was left
    open was not a further challenge to the entire sale process, but, a challenge
    to court approval of the sale (as per the terms agreed between the parties),
    including 852 as a bidder or purchaser.

[37]

Mr.
    Reider relies on provisions in the receivership orders that permit any
    interested party to apply to the court to vary or amend the orders, as well as
    the general ability of the court to review, rescind or vary any order under its
    bankruptcy jurisdiction, pursuant to s. 187(5) of the BIA.

[38]

What
    Mr. Reider is seeking goes far beyond the variation of an order, and amounts to
    an attempt to relitigate what was already decided. Mr. Reider is bound by the
    December 2014 Orders. He was fully involved in the receivership proceedings and
    had notice of everything that occurred. He had the opportunity to challenge the
    receivers right to sell the Action on whatever basis he saw fit to advance. As
    the companys only director, he was the deponent of the affidavits filed by
    Liquibrands in the earlier motions. Whatever the potential merits of Mr. Reiders
    new argument respecting his rights as a director in relation to an action commenced
    by a company in receivership, he lost the opportunity to make such arguments
    when the motions judge ordered the sale of the Action, and approved a sale
    process agreed to between the parties.

(2)

The Second Issue

[39]

The
    second proposed issue for appeal is whether a receiver can sell the debtors
    action to a defendant to that action, and whether the sale can be by way of
    credit.

[40]

The
    issue, as raised in this case, has no
prima facie
merit.

[41]

First,
    once the motions judge determined that the receiver had the right to sell the
    Action, the parties agreed to the sale process  essentially, they agreed that
    the Action would be auctioned after notice to the companies creditors. Mr. Reider
    does not object to the process, but only to the approval of a sale to 852.

[42]

The
    motions judge relied on case law that authorizes a court officer to sell a
    cause of action by a debtor against a creditor to such creditor, whether by
    credit bid or otherwise. Mr. Reider offers no principled reason why the motions
    judge erred in applying bankruptcy cases to the sale in a receivership of a
    court action to a defendant.

[43]

In
    this case, the sale process was agreed upon and approved in the December 2014
    Order. The question then was whether the court should approve the sale. No
    issue is taken by Mr. Reider to the motions judges consideration of the sale
    under the governing principles articulated in
Royal Bank of Canada v. Soundair
    Corp.
(1991), 4 O.R. (3d) 1 (C.A.).
The motions judge supported the receivers recommendation as a proper business decision.
    He considered the potential effect of 852 being a bidder, and the net benefit
    to the receivership resulting from a credit bid.

[44]

Further,
    Mr. Reider did not demonstrate any real interest in pursuing the Action. As
    early as April 2014, the receiver had inquired whether Liquibrands or Mr.
    Reider was interested in purchasing Sun Pacs interest in the Action, and had
    received no response. Likewise, for more than a year after the Action was
    commenced, and before BDO was appointed receiver of Liquibrands, Mr. Reider had
    done nothing to advance the Action. As such, there was nothing to suggest that
    Mr. Reiders bid for $100 was anything other than a reflection of his presumed
    value of the Action. For any different result, the court would have to be
    satisfied that there was some value to the Action beyond what 852 was owed.

[45]

In
    any event, the bulk of the arguments Mr. Reider raises in objecting to 852s
    purchase of the Action simply reiterate the earlier objections to the receiver
    dealing with and selling the Action. No other reasons are advanced for why a
    sale to 852 should not be approved.

I.

Disposition

[46]

For
    these reasons, the motion for leave to appeal the September 2015 Orders is
    dismissed.

[47]

As
    leave to appeal the September 2015 Orders is refused, there is no need to
    address Mr. Reiders request for leave to appeal the costs order dated November
    5, 2015. This too is dismissed.

[48]

The
    moving party, Mr. Reider, shall pay 852 its costs fixed at $15,000, and BDOs
    costs fixed at $10,000, both amounts inclusive of disbursements and applicable
    taxes.

K. van Rensburg J.A.


