Bron Media Corp. (Re)

2024 BCSC 289 Bron Media Corp. (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bron Media Corp. (Re), 2024 BCSC 289 Date: 20240117 Docket: S235084 Registry: Vancouver In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended And In the Matter of the Business Corporations Act, S.B.C. 2002, c. 57, as amended, and the Business Corporations Act, R.S.O. 1990, c. B16, as Amended And In the Matter of a Plan of Compromise or Arrangement of Bron Media Corp. and the entities listed at Schedule "A" Petitioners Before: The Honourable Justice Gomery Oral Reasons for Judgment In Chambers Counsel for the Petitioners: A. Iqbal D. Ward M. Gargaro, Articled Student Counsel for the Attendee, Grant Thornton Ltd. (Monitor): J.N. Birch F.D. Finn Counsel for the Attendee, Creative Wealth Media Lending: M. Shakra D. Gruber Counsel for the Attendee, Access Road Capital LLC: P. Bychawski Counsel for the Attendee, Three Point Capital Holdings: C. Hildebrand Counsel for the Attendee, Premium Properties Ltd. and Ad Hoc Group of Investors: P. Cho Counsel for the Attendee, Catalyst: J. Wadden Agent for the Attendee, Trustee in Bankruptcy: A. Dhanani B. Tannenbaum Counsel for the Attendee, Media Red Studio (by video): R. Schwill Place and Date of Hearing: Vancouver, B.C. January 16, 2024 Place and Date of Judgment: Vancouver, B.C. January 17, 2024 Introduction [1] The petitioners, collectively, "Bron",

are insolvent and have been operating under the protection of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. 36 [CCAA] since July 2023. The CCAA proceedings have been contentious. Contested applications were addressed in reasons for judgment issued by me and indexed at 2023 BCSC 1563 (pronounced July 28, 2023), 2023 BCSC 1906 (pronounced October 11, 2023), and 2023 BCSC 2109 (pronounced November 29. 2023 (the "November decision"). Bron's corporate and capital structure are complicated and, for present purposes, I need only touch upon the background and issues addressed at length in those decisions. [2] Bron carried on business developing films and video games through a multitude of project‑based entities in various jurisdictions. Management was centralized in an office in Burnaby, B.C. Bron financed many projects through project‑specific loans. The projects were individually risky, but held out the prospect of substantial rewards if the result were a successful film or video game. Most of the Bron entities did not prepare financial statements unless and until a project proved successful. There are well more than 100 Bron entities in total. All these features of Bron's business make it unusually difficult to value Bron's assets and assess the position of secured creditors. [3] At present, there are two secured creditors at the enterprise level: Creative Wealth Media

Lending LP 2016 ("Creative Wealth"), and Access Road Capital, LLC ("Access Road"). Creative Wealth is the interim or DIP lender and is the beneficiary of a priority charge to the extent of $6.2 million. [4] An Ad Hoc Group of Investor Creditors (the "Ad Hoc Group") claim as persons who made secured loans to Bron entities with the intention of participating in project tax credits or project revenues. These loans were financed through "lender entities" with security held by the lender entity in trust for the investor creditors. The lender entities were Creative Wealth Media Finance Corp ("CWMF"), Creative Wealth Lending LP 2016 ("CWML"), or a Bron entities with CWMF or CWML. The Ad Hoc Group say that they are owed collectively approximately US$23 million, not including interest. [5] In November 2023, following a process set out in a SISP (sales and investment solicitation process) order, Bron and the monitor brought forward a proposed sale of substantially all of Bron's assets to Creative Wealth. Access Road opposed the sale, as did the Ad Hoc Group. While I rejected many of their arguments, I dismissed the application because the approval and vesting order ("AVO") proposed would divest Access Road of its secured entitlement to a significant receivable from a third party, Media Res Studio LLC. In the November decision, I stated: [66] As Bron, the Monitor and Creative Wealth have

emphasized, a strong consideration favouring the proposed orders is that the SISP has tested the market and no better transaction has emerged. The proposed sale of substantially all of Bron's assets to Creative Wealth would allow Bron's projects to carry on. Bron has terminated all of its employees, but there are contracting parties, including writers, actors, directors, and many others engaged in making films and video games under development by Bron, whose interests would be protected and secured. Creative Wealth would accede to Bron's position in connection with project loans such as those extended by the Ad Hoc Group, with the likely result that loans to successful projects would be repaid, just as would have been the case had Bron stayed in business. [ ] [68] Nevertheless, I am not persuaded that the AVO and assignment order are fair and appropriate. In my view, the fundamental difficulty is that approval of the AVO would cause a readjustment of priorities over a receivable from Media Res as between Access Road and Creative Wealth. This is not what the statute was intended to accomplish, and it would give rise [to] unfairness. [6] I concluded as follows: [88] In brief, I am not satisfied that the AVO and assignment order are fair and appropriate in the circumstances of this case. The dominant consideration is that the AVO would unfairly divest Access Road of its secured

entitlement to the Media Res receivable. On a balance of probabilities, I find that Access Road's secured entitlement has significant value. The Media Res receivable is an asset of substance. The claims in priority to Access Road's entitlement are most unlikely to exceed US$6.5 million and it is likely that only some portion of them will fall to be satisfied from the receivable. [7] Since my decision in November, Media Res, Access Road, Creative Wealth, and Bron, with input from the monitor, have negotiated an alternative transaction satisfactory to all of them. In broad outline: a) Media Res has settled its obligation to Bron and paid approximately US$8 million to the monitor to be held in trust pending this application; b) Creative Wealth, as the DIP lender, is to receive US$1.1 million of the funds paid by Media Res, and the balance will be paid to Access Road; c) In place of the AVO and assignment order proposed in November, there will be a pair of such orders in substantially similar terms, one providing for the disposition of certain Bron assets to Access Road, and the other providing for the disposition of the rest of Bron's assets to Creative Wealth as before; and d) The stay under the Amended and Restated Initial Order granted July 28, 2023, which amended the Initial Order granted July 19, 2023, is to be extended to March 29, 2024. [8] Both Creative Wealth and Access

Road are to acquire the assets they will receive by virtue of their security and the money that is owed to them by Bron entities. The appropriation of $1.1 million of the Media Res funds to pay down the DIP loan is supported by a detailed allocation analysis performed by the monitor. [9] The alternative transaction resolves the fundamental issue that led me to doubt that the earlier transaction was fair and appropriate. [10] However, the Ad Hoc Group renew their opposition and raise additional objections. They are supported by another group of investors who have, to this point, maintained only a watching brief and by the recently appointed trustee in bankruptcy of CWNF. Legal Framework [11] There is no dispute as to the legal framework, which is reviewed in my earlier reasons. I must exercise the statutory discretion conferred under ss. 11 and 13 of the CCAA and have regard to the considerations listed in s. 36(3). The cases stress consideration of the interests of all parties and the efficacy and integrity of the sale process; Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1, 1991 CanLII 2727 (C.A.). It is not simply a matter of obtaining the best price. The fundamental question is whether the proposed transaction is fair and appropriate. Analysis [12] The following is either uncontentious or flows from my November decision: a) The process leading to the proposed

transaction was reasonable in the circumstances. I addressed the reasonableness of the process undertaken under the SISP order in my reasons at para. 59, and the process since then has featured informed and arm's length commercial negotiations leading to an agreement that has resolved the substantial dispute. b) The monitor participated in and approved the process leading to the proposed transaction. c) The monitor's fifth report states its opinion that the proposed transaction would be more beneficial to the creditors than a sale or disposition under a bankruptcy. [13] There is some dispute as to the extent to which the Ad Hoc Group and other creditors were consulted. I think it is fair to say that Bron and the monitor have been paying the most attention to Access Road and Creative Wealth. This is a consequence of their status as secured creditors at the enterprise level and the history and complexity of these proceedings. Consultation with the Ad Hoc Group and other investors since November 2023 has been perfunctory. [14] On the other hand, these outside investors seem not to have pressed their claims until very late in the day. The position of the Ad Hoc Group only crystallized with the delivery of material on the night before this application was heard. Some of the complaints advanced now should have been pursued last November, or earlier. [15] One of the outside investors'

complaints is that they have been left in the lurch by CWMF in its capacity as their trustee, to the extent that they have been unable even to obtain a clear picture of how their money was invested in Bron entities by CWMF. The fair and appropriate resolution of this proceeding should not depend on the state of the dealings between the investors and their trustee. [16] The outside investors ask for a delay in order that the trustee of CWMF might investigate its activities. I do not think that delay is justified. The trustee was appointed a month ago and, to date, has not obtained CWMF's books and records. In part, the trustee has been hampered by a lack of funding. Even if the funding problem is resolved, there are undoubtedly masses of records to review, the underlying business dealings were complex and go back years, and I doubt that clarity will come quickly. This CCAA proceeding has cost more than $9.4 million to date. Delay makes for additional costs. I am advised that that delay will put at risk Bron's ability to complete the transactions, because nine former employees now retained as contractors by the company will soon be gone. This is a real concern for Three Point Capital, which holds security over tax credits based on tax filings that have not yet taken place. [17] The outside investors submit that they will suffer adverse effects from the proposed transaction, because their security at the project level will be impaired. I addressed an equivalent argument in my November decision at para.

67. I stated: [67] The Ad Hoc Group objects that it is not clear that Creative Wealth is committing to repayment of their loans. In my view, this objection is mistaken. The effect of the AVO and assignment order are fairly described by the Monitor in its third report, as follows: 170. The majority of the proposed assignments involve [Creative Wealth] and the Permitted Assignee generally acquiring the overall rights of the relevant Petitioners to a series of productions at various stages of development. These assignments allow [Creative Wealth] and the Permittee to step into the shoes of the relevant Petitioners and to respect existing arrangements (including the entitlement of prior-ranking creditors to payment of monies owed to them on productions), rather than vesting out the interests of those parties/creditors. Accordingly, these assumptions benefit prior-ranking creditors [ ] who will retain their ability to receive payment in priority to the relevant Petitioners. [ ] 172. The Monitor does not believe that the requested assignments will create an unfair imposition upon or interference with third-party rights. In many cases, given that BRON is insolvent and unable to perform a number of the assigned contracts (such as those relating to productions that are at an early stage and which might never otherwise be developed), the proposed assignment to a known, operating industry

player will be of benefit to counter-parties. [18] The effects of the AVO and assignment now proposed are the same as in November. [19] The Ad Hoc Group submits that the consideration to be received by Bron is insufficient, in part because it consists of the forgiveness of secured indebtedness. It points to cases in which approval of such a transaction was refused in the absence of an appraisal. This repeats an argument advanced in November. Obtaining an appraisal was not a realistic option in the case because the assets of substance are intangible and contingent. The SISP process provides a reasonable assurance that the assets are not being undervalued. [20] The outside investors point to the involvement of Jason Cloth in the management of both CWMF and Bron as a factor tending to undermine the reliance that can be placed on the SISP process. I gave some credence to this argument in the November decision at paras. 64 and 87. The argument tempers but does not invalidate the inference that the assets are not undervalued by the proposed transaction. Notably, while the outside investors are well heeled enough to have invested many millions in Bron projects, none is now proposing to put up any money to acquire any of the assets proposed to be transferred to Creative Wealth and Access Road. [21] The outside investors point out that the waiver of secured indebtedness by Creative

Wealth cannot serve as reasonable consideration for the acquisition of 19 Bron entities to be brought into this proceeding in order that they may be made part of the transaction. Bron points to the cash consideration of $9,500 to be paid by Creative Wealth, and stresses that no one has offered anything more for these entities. These companies were offered for sale through the SISP. In the November decision, at para. 53, I found that they are insolvent because they are project‑based entities which have incurred significant expenses and are, in the absence of a solvent parent, without visible means to continue paying expenses as they come due. While $9,500 seems picayune in the context of this proceeding in which some of the many lawyers are charging fees at rates in the neighbourhood of $1,000 an hour, in the absence of evidence to the contrary, it is impossible to say that it is too little to pay for 19 insolvent companies. [22] One of the outside investors, Bayshore Capital Advisors, LLC, points to documentation from which it appears that its interest in two film projects, The Nightingale and Needle in a Timestack, may have been sold twice. Bron and Creative Wealth have offered to exclude these two projects and a third project from the transaction. The transaction documents should be amended to reflect that concession. [23] Counsel for Catalyst and other outside investors, Mr.

Wadden, submits that there is ambiguity in the wording of the proposed AVO to Creative Wealth because the AVO invalidates contractual covenants for the benefit of investors in the contracts affecting their investments, when the intent of the transaction is that another entity will step into the shoes of Bron entities to perform the contract. He refers to clause 5(d) of the order, which provides for the vesting of "all of the Vendors' [ ] right title and interests in and to the Purchased Assets described in the Sale Agreement" free and clear of a long list of interests and claims including, without limiting the generality of the forgoing: "(d) any other restrictions which may be applicable to the Purchased Assets". The Purchased Assets are listed in Schedule C of the Purchase Agreement and include named film projects and the contracts constituting those projects. [24] I think that clause 5(d) is unnecessary. Counsel for Bron advised that the intention was to capture transfer restrictions, not substantive contractual rights. "Transfer restrictions"--a defined term in the Purchase Agreement--are expressly included in the list of interests and claims that are expressly abrogated. Subclause (d) should be removed from clause 5 of the AVO. [25] The outside investors express concern that there may be issues as to what is and is not conveyed under the order and the Purchase Agreement.

The intent is clear. What is conveyed is the Bron entities' "right, title, and interest", and nothing else. If disputes arise as to what was and was not owned by Bron entities, and so was purchased by Creative Wealth, then they may have to be litigated. Those potential issues are not ripe for resolution in this proceeding, and it would not serve the interests of justice to delay determination of this application for them to ripen. [26] Taking everything into account, I am satisfied that the proposed transactions, with the modest changes I have indicated, are fair and appropriate. I am satisfied that Bron continues to exhibit good faith and to act with due diligence, and that Bron and its stakeholders will benefit from an extension of the stay period until March 29, 2024. Disposition. [27] The orders sought are granted, subject to: a) The order and purchase agreement in connection with the Creative Wealth transaction must be amended to exclude the three film projects from the transaction as discussed; and b) Clause 5(d) of the Creative Wealth AVO should be deleted. [28] Counsel, is there anything arising? [Submissions] [29] CNSL M. SHAKRA: Justice, it is Michael Shakra from Bennett Jones. I just had one point to raise and will take your direction on it. The three projects we had agreed to exclude were slightly different than what was referenced in your judgment. It was

Assassination Nation, Nightingale, and Leave No Trace. And I think there was confusion between Needle in a Timestack. That ‑‑ that was not ‑‑ one of the projects we ‑‑ we offered to ‑‑ to exclude. So I think there is a difference between what we had - referenced. [30] THE COURT: Is Ms. Book on the line? [31] UNIDENTIFIED MALE SPEAKER: I do not think so, Justice. [32] THE COURT: That is unfortunate. I did not have a proper note, I am glad to be corrected. There was an issue raised by Ms. Book in her correspondence about Needle in a Timestack. It is one of the projects which she says appears to have been sold twice. [33] CNSL M. SHAKRA: I agree she raised it. We ‑‑ we dispute that ‑‑ that fact, justice. We believe we have the entitlement to it. I ‑‑ I think what should cover it, though, is paragraph 5 in the AVO. To the extent it has been sold twice and her client is the rightful owner, I still believe they have protection from that. [34] THE COURT: I am going to leave it this way. The three that should be excluded are the three that were named in the offer, because I made that portion of the order on the basis of the offer, which Ms. Book wished to accept. [35] If there is an issue about Needle in a Timestack that you cannot sort out with Ms. Book, you can come back to me. [36] CNSL M. SHAKRA: Thank you, Justice. [37] THE COURT: But I would he need to hear from her, I think, if you cannot sort the issue out. I do not think I should say something in her absence. I may come to the conclusion that you are absolutely right about clause 5, but I do not want to do it without hearing from her. [38] CNSL M. SHAKRA: Understood. [39] THE COURT: All right. I think that concludes that application. "Gomery J."