Canadian Imperial Bank of Commerce v. Foxtrot Farms ULC

2024 BCSC 1019 Canadian Imperial Bank of Commerce v. Foxtrot Farms ULC IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Canadian Imperial Bank of Commerce v. Foxtrot Farms ULC, 2024 BCSC 1019 Date: 20240515 Docket: S-243125 Registry: Vancouver Between: Canadian Imperial Bank of Commerce Petitioner And Foxtrot Farms ULC and Foxtrot Winery ULC Respondents Before: The Honourable Mr. Justice D.M. Masuhara Oral Reasons for Judgment In Chambers Counsel for the Petitioner appearing by videoconference: H.L. Williams Counsel for the Respondents appearing by videoconference: J.K. Yamashita Place and Date of Hearing: Vancouver, B.C. May 13, 2024 Place and Date of Judgment: Vancouver, B.C. May 15, 2024 [1] THE COURT: Foxtrot owns property on which they grow grapes, make wine, and bottle it for sale. The business is a boutique winery located in Naramata, B.C. [2] Canadian Imperial Bank of Commerce [CIBC] is the sole secured creditor of the debtor companies, Foxtrot Farms ULC and Foxtrot Winery ULC. I will refer to the two debtor companies as "Foxtrot". [3] Under a loan agreement, CIBC provided various credit facilities to Foxtrot, all of which were payable on demand, irrespective of whether a default had occurred. As security, CIBC was granted a mortgage over the lands owned by Foxtrot and general security over the property and undertaking of Foxtrot, assignment of the winery licence, trademark assignment of Foxtrot, and guarantees were also provided in relation to the loan agreements. [4] Foxtrot has committed multiple ongoing defaults under the credit facilities. The amount outstanding as of April 24, 2024, was $2,692,991.38. There have been no payments made towards the outstanding indebtedness. CIBC says that though it provided its consent for the sale of certain wine inventories on the condition that the monies received were to pay down Foxtrot's indebtedness, Foxtrot since has sought to have the monies used to pay for various unpaid wages, including Mr. Todd, the director of Foxtrot; to pay source deductions; and for vineyard management services. Information on various aspects was requested by CIBC in regards to the business, including vineyard management and services. Certain of the items were approved by CIBC and others not. [5] Mr. Todd responded on May 1, indicating that vineyard management required active, ongoing processes, including pruning and spraying on a daily or weekly basis during the growing season. Vine management for the remainder of the year was estimated to be in the range of $70,000 to $95,000. He later asked again about release of funds for pruning, indicating without this the vineyard would fester and degrade. [6] It is apparent from materials that effective communications between CIBC and Foxtrot have diminished. [7] CIBC says that the debtors have not presented any viable plan to maintain the assets, obtain refinancing, or otherwise alleviate its financial situation which is deteriorating. CIBC now says that it has lost faith in the debtor's management and has served notice of its intention to enforce security under s. 244 of the BIA, as well as notice of intent by a secured creditor under s. 21 of the Farm Debt Mediation Act, S.C. 1997, c. 21 [FDMA]. [8] The present matter before me is for the appointment of PWC as interim receiver over all the present and after‑acquired assets, undertaking, and property and related orders. The purpose of the interim receivership is said to be to preserve and protect the secured creditor's security and obtain information from the debtors while stabilizing the business. [9] Once all notice periods have elapsed, the lender will then seek the appointment of a full receiver under s. 243 of the BIA and s. 39 of the Law and Equity Act, RSBC 1996, c. 253. [10] In response to the application, Foxtrot submits, that this proceeding is a nullity by operation of ss. 21 and 22 of the FDMA, arguing that the step taken here is to enforce a remedy against the property of the farmers who will be deprived of control over the farm and assets with the appointment of an interim receiver; and is a proceeding for the recovery of debt and realization of security which is a procedural step taken to preserve assets for recovery by the secured creditor. [11] Alternatively, Foxtrot submits that the appointment of an interim receiver is not necessary for the protection of the debtor's estate and the interest of the lender as required under s. 47(3) of the BIA. Foxtrot argues that CIBC has not met the burden of establishing necessity. It further argues that when the pending transactions for the sale of the business and land are completed, CIBC will have full recovery of its secured interest, as well as allow for the payment of unsecured creditors. It also argues that the appointment of an expensive interim receiver would cause significant costs to be incurred and put at risk the pending sales transactions that have now come to light. [12] Foxtrot says that vineyard management is being managed by a company that has expertise in the area, including pruning; that the winemaking process is under management; that Mr. Todd continues to oversee and manage the business; and that offers for the purchase of the business, brands, and inventory has led to a letter of intent being signed with a major public company who is well known to have deep knowledge of the business. The closing date is set for May 31, 2024. Also, that the land has been listed for some time for $2.65 million and a confidential offer has been received, stated to be "reasonably close to the asking price", conditional on financing and sale of the offeror's own property. Condition removal dates are June 14, 2024, and June 28, 2024. Foxtrot says that it should be able to negotiate an acceptable price. [13] Foxtrot deposes that the imposition of an interim receiver could seriously disrupt the sale of the business and property. Further, contrary to the assertion by CIBC that Mr. Todd will not manage the business without assurance or compensation, Mr. Todd deposes that he has and will continue to manage the business, so long as an interim receiver is not put in place, at least until the closing of the transactions. [14] In respect to the argument of nullity advanced by Foxtrot, CIBC submits that s. 21(1) and (2) of the FDMA are not applicable because the present application is not one seeking to enforce a remedy against the property of a farmer or the recovery of debt, realization of the security, or the taking of any property of a farmer. CIBC submits that it is only taking steps to protect and preserve its security, and it is a future step in which it will seek a full receiver to which the notice period under s. 21(1) and (2) apply. Reliance is placed upon the Ontario case of Jacob's Hold v. CIBC, [2000] O.J. No. 5702; 52 O.R. (3d) 776. [15] Foxtrot relies upon the decision of Justice Joyce in Community Futures Development Corp. v. Litzenberger, 2006 BCSC 856, where Justice Joyce reviewed and summarized the purpose of the FDMA and the approach to be taken in applying the Act, the approach being that the Act is to be given "such fair, large and liberal construction and interpretation as best ensures the attainment of its objects" and that the "words used by Parliament must be interpreted not only in their ordinary sense but also in the context of the scheme and purpose of the legislation." [16] He noted the case of Corp. Les Produits de la Jardiniere v. National Bank of Canada, [1996] F.C.J. No. 460, which states at para. 14 in relation to the FDMA's predecessor act that: the Act sets out a set of temporary measures intended to enable farmers to continue operating while benefiting from a grace period before entering into arrangements with their creditors with the assistance of a panel of experts acting as a conciliator. [17] Foxtrot also relies upon the decision of Westminster Savings Credit Union v. Font, 2006 BCSC 1308, a decision of Justice Cullen (as he then was) in which he considered s. 21(1)(a), and held that the registration of a CPL "falls within the scope of s. 21 either as part of the enforcement of a remedy or the commencement of proceedings or action execution or other proceedings for the recovery of a debt or realization of security or taking of any property of a farmer". CIBC attempted to distinguish the Westminster case from the present by noting the differences between a CPL and a preservation order. [18] I am not persuaded that the distinction assists here given the context of the broad encompassing words "any remedy against property" and the liberal approach that is to be taken. The language encompasses, in my view, a procedural remedy such as a preservation order. This would be much more consistent with the scheme and language of the FDMA. [19] With respect to the case of Jacob's Hold, first, I am not bound by the Ontario decision of Jacob's Hold. Further, the decision does not address the broad scope of s. 21(1), thus the commentary does not assist me in the interpretation of s. 21(1). [20] In the result, the application is denied. The petitioner will have to wait until early June 2024 before taking the intended steps it has set out in the notice that it has served upon Foxtrot. [21] In terms of necessity, the evidence indicates that despite the defaults of Foxtrot, there are arrangements in place for the management of the vineyard, as well as for the winemaking process, and that Mr. Todd has and will continue to manage the business as he has deposed. There have been sales of inventory, there is a letter of intent for the sale of the business to a large public company, the property has been listed for sale and an offer has come in reasonably close to the asking price. I recognize there are conditions. [22] In these circumstances, and having regard for the purposes of the FDMA, I do not find it necessary for the appointment of the interim receiver, which is an extraordinary remedy. However, Foxtrot is to provide further particulars as to the arrangements they have with Premium Vineyard Management, who have been identified as the firm that would manage the vineyard, including the materials that document the relationship, that the service is to be provided by them, the schedule for the provision of such services, and the compensation for such services. Similarly, particulars as to the arrangement Foxtrot has with Pascal Madevon for overseeing the winemaking process, as well as the part‑time cellar labourer that has been identified in the materials assisting in the winemaking process are to be provided. [23] Mr. Todd is also to provide a schedule of his activities in managing the overall business and to provide, on a weekly basis, a detailed log of his activities in this regard. [24] That concludes my ruling. I will receive any submissions now. [25] All right, I take it there are no further submissions? [26] CNSL J. YAMASHITA: Just we'd seek party‑and‑party costs. [27] THE COURT: Sorry, who said ‑- I am sorry, I did not catch who said that. [28] CNSL J. YAMASHITA: I'm sorry, it's Jason Yamashita, counsel for the respondents. We would seek ordinary costs. [29] CNSL L. WILLIAMS: And we would oppose those on the basis that as the secured creditor seeking to enforce its rights under the ‑- the costs would be covered by the security. As such, if CIBC was ordered to pay costs, it would likewise add that to the debt. This was a reasonable step taken, given the ongoing and continuing defaults. I'd also seek leave that we could reappear should we ‑- should further information come to light of risk to the assets. [30] THE COURT: Okay. All right, in terms of costs, the costs of the proceeding will not be awarded. [31] Leave to reappear should further matters arise regarding the proper management of the operation and assets and should further risks be identified. [32] All right, have we covered all the issues? No further submissions. Okay, thank you. [33] CNSL L. WILLIAMS: Nothing. [34] CNSL J. YAMASHITA: Thank you. "The Honourable Mr. Justice Masuhara"