Computershare Trust Company of Canada v. Meadows Development Ltd.

2019 BCSC 1945 Computershare Trust Company of Canada v. Meadows Development Ltd. IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Computershare Trust Company of Canada v. Meadows Development Ltd., 2019 BCSC 1945 Date: 20190913 Docket: S54612 Registry: Vernon Between: Computershare Trust Company of Canada Petitioner And Meadows Development Ltd., David John Borden also known as Jack Borden, Elaine Borden, Interior Equities Corp., and David W. Regehr Holdings Ltd. Respondents Before: The Honourable Mr. Justice Grauer Oral Reasons for Judgment In Chambers Counsel for Petitioner: M.L. Teetaert Counsel for Respondents Meadows Development Ltd., David John Borden, and Elaine Borden: K. Burnham Counsel for Respondent Interior Equities Corp.: S.D. Dvorak Place and Date of Trial/Hearing: Vancouver, B.C. September 13, 2019 Place and Date of Judgment: Vancouver, B.C. September 13, 2019 [1] THE COURT: The petitioner, Computershare, holds a first mortgage and a General Security Agreement as security for the indebtedness of the respondent Meadows Development presently in the amount of approximately $2,700,000. [2] Computershare's security under the mortgage consists of lands and a building that I will call the Lodge. The building contains 57 assisted-living rental units. [3] Since the security was given in 2006, Meadows developed additional buildings and facilities on adjacent lands that, together with the Lodge, now comprise a retirement community consisting of various cottages, terraces and other residences. The respondent Interior Equities is the first mortgagee for this additional development and holds a second mortgage over the Lodge, securing a total of approximately $17 million. [4] Meadows has defaulted on its debt obligations to Computershare. Computershare obtained an order nisi of foreclosure on March 13, 2018, which application had been adjourned on terms from February 6, 2018. Those terms included an agreement to make a payment of three months' arrears, and ongoing monthly payments. Meadows has failed to abide by those terms. [5] The redemption period expired on August 6, 2018, and on August 29, 2018, Master Wilson (as he then was) pronounced an order granting Computershare exclusive conduct of the sale of the Lodge together with solicitor-and-client costs both before and after pronouncement of the order nisi. [6] Computershare has been unsuccessful in securing a sale of the Lodge for reasons I will shortly discuss. It now seeks an order appointing a receiver of "all of the assets, undertakings and property of the debtor, including all proceeds which are the subject matter of this proceeding including the lands and premises of the debtor [comprising the Lodge]." Computershare seeks, in other words, the appointment of a receiver not only over the Lodge, but of other parts of the retirement community not secured by its mortgage and over which Interior Equities has priority. [7] Why does Computershare seek such an order? The Lodge is not a separate business. The retirement community of which it is a physical part is managed as a whole, and services are provided out of the Lodge throughout the community. There is no separate accounting for the Lodge, or at least none that has been made available to Computershare. This has made it very difficult to ascertain what expenses of the business are properly attributable to the Lodge and what net income is properly attributable to the Lodge. Without accurate information of this kind, prospective purchasers quickly lose interest because they cannot ascertain the potential profitability and, hence, the value of the property. [8] Moreover, there are a number of concerning circumstances that, from Computershare's perspective, require explanation. The vacancy rate at the Lodge has increased rather dramatically over the past two years. Until recently, payments of net income from the business have been made to Interior Equities with no share going to Computershare. It now appears that no such payments of net income are made to anyone, and Computershare has no idea why. It has been unable to obtain the information it required to answer these questions. [9] In the meantime, Meadows has been trying to effect a sale of the community as a whole. It seems self-evident that such a sale would be in the best interests of all. Nothing I have seen suggests that selling piecemeal will result in a greater return. The opposite is more likely. [10] Indeed, when this matter first came before me on July 30, 2019, in Kelowna, I adjourned the hearing and seized myself of the matter because a conditional contract for the sale of the business as a whole had been negotiated with the subjects to be removed shortly. As it turned out, they were not removed, and the closing was extended. That extension passed without completion and has not been renewed. In the result, all efforts to sell the community as a whole have failed, as have all efforts to sell the Lodge individually. [11] Computershare has been frustrated in its attempts to obtain from the respondent Borden the information it needs to be able to provide to potential purchasers of the Lodge. Mr. Borden has not, for instance, ever provided more than a "guesstimate" concerning the breakdown of income and expenses between the Lodge and the balance of the business. Computershare has requested the information Mr. Borden has provided to potential purchasers of the business as a whole, and has not received it. [12] Computershare maintains that its only viable option at this point is to install a receiver with expertise in the field of running a retirement community business. This is necessary, Computershare says, in order to make sense of what expenses are properly attributable to the Lodge, how much income is properly attributable to the Lodge, what has happened to the net income that ought to have been coming in every month, to determine why there are so many units vacant and what must be done to fill them, and to look at the services provided throughout the community and the salaries paid in order to assess the proper attribution of costs. Without such information, Computershare submits its prospects of selling the Lodge for anything close to its appraised value of $2,700,000 are non-existent. Indeed, the length of time the property has been exposed to the market suggests that the appraisal is optimistic. [13] A receiver, Computershare asserts, will ensure that the property is maintained and occupied to maximize its value and will develop the financial information necessary to support a sale at market value. [14] Interior Equities opposes the application. It maintains that the remedy Computershare seeks is excessive and unnecessary. Computershare seeks to appoint a receiver of all the assets, undertakings and properties of Meadows, not just the Lodge. This has the effect of displacing Interior Equities' priority over the property subject to its first mortgage to the extent of the receiver's charges in circumstances where Interior Equities does not agree to the appointment of the receiver, sees no benefit to it, and where it is not necessary to accomplish Computershare's goals. In Interior Equities' submission, those goals can be accomplished by an appropriately crafted order for the disclosure of financial information. In the meantime, Interior Equities would rather that Mr. Meadows continue to operate the business than a receiver. [15] Interior Equities concedes that the court has jurisdiction to appoint a receiver as requested by Computershare, but that its discretion in that regard is limited to three situations as discussed in Integris Credit Union v. Mercedes-Benz Financial Services Canada Corporation, 2016 BCCA 231 at para. 40 as adopted in Terra Nova Management v. Halcyon Health Spa Ltd., 2005 BCSC 1017 at para. 30, from Robert F. Kowal Investments Ltd. v. Deeder Electric Ltd., 59 D.L.R. (3d) 492 at 496 (ONCA). These exceptions are, first, where a receiver has been appointed at the request, or with the consent or approval, of the holders of the security; second, where a receiver has been appointed to preserve and realize assets for the benefit of all interested parties, including secured creditors; and third, whether receiver has expended money for the necessary preservation or improvement of the property. [16] Interior Equities submits that none of these exceptions applies in this case. To impose a receiver in circumstances where the debt owed to Interior Equities is six times that owed to Computershare means that it is largely Interior Equities' security that becomes further impaired by the costs of the receiver, not Computershare's. [17] Computershare maintains that the second exception applies. In doing so, it effectively expands the basis upon which it sought the appointment of the receiver from obtaining the information necessary to effect the sale of the Lodge to undertaking the management of sale of the whole property. This aspect was always within the power sought, but not specifically relied upon before. Computershare relies upon the decision of Mr. Justice Graesser of the Alberta Court of Queens Bench in Royal Bank of Canada v. Reid-Built Homes Ltd., 2018 ABQB 124, affirmed 2019 ABCA 109. [18] In the submission of Meadows, the only real way out of this difficulty is to sell the business and property as a whole, which has so far proved difficult to accomplish. The prospects will certainly not be enhanced by the appointment of a receiver. The resistance to providing information before was, they say, due to pending negotiations and no longer exists. In other words, Meadows and its principals maintain that they are now willing to provide whatever disclosure Computershare requires. They should, of course, have done so long ago. [19] The parties do not disagree about the general test applicable to the appointment of receivers as set out in cases such as Maple Trade Finance Inc. v. CY Oriental Holdings Ltd., 2009 BCSC 1527: see para. 25; Textron Financial Canada Limited. v. Chetwynd Motels Ltd., 2010 BCSC 477; and Bank of Montreal v. Gian's Business Centre Inc., 2016 BCSC 2348. There is a different line of authority championed by Mr. Justice Burnyeat: see Canadian Imperial Bank of Commerce v. Can-Pacific Farms Inc., 2012 BCSC 437, but this is neither the time nor the place to resolve the difference between the two lines. In the unusual circumstances of this case, I am satisfied, and the parties do not dispute, that the proper approach is that taken by Madam Justice Fitzpatrick in the Bank of Montreal case at para. 23: to review the matter holistically and decide whether, on the whole of the circumstances, it is in fact just and convenient to appoint a receiver. [20] The question then becomes whether, in the circumstances we have here, such a review is further restricted by the principles enunciated in the Integris Credit Union case to the parameters of the three exceptions there discussed. [21] It seems to me that if the exceptions mentioned in Integris Credit Union do not apply, then that must weigh in balancing whether it is just and convenient to appoint a receiver. If an exception is applicable, the holistic approach should still be followed. In doing so I conclude that the appointment of a receiver, at least at this stage, is not just and convenient. [22] In my view, a review of the factors set out in Maple Trade Finance leads to this result. Although Computershare has the right to appoint a receiver, the changes to the property since the security was granted, and the effect of the appointment of a receiver upon the parties, the prospects of sale and the security of Interior Equities, all weigh against the appointment of a receiver, particularly when viewed in the context of the risks to Computershare in relation to the value of its security. While I understand Computershare's real frustration, I consider that much of its concern can be addressed, as was the case in Maple Trade Finance, by an order for disclosure with which Meadows has undertaken to comply. At this stage the appointment of a receiver with all of the expense that would follow would be well beyond what the circumstances justify. This is quite different from the sort of situation considered in the Reid-Built Homes litigation, where a receiver was appointed by consent between the Royal Bank of Canada and the debtor in relation to a home construction business. [23] Accordingly, the application for the appointment of a receiver is dismissed. I order the respondents David John Borden, Elaine Borden and Meadows Development to provide all documents reasonably requested by the petitioner or on behalf of the petitioner, including but not limited to: 1. bank statements; 2. accounts receivable ledgers; 3. accounts payable ledgers; 4. expense listings; 5. historical financial statements over the last two years; 6. income tax returns; 7. listings of residents and terms and details of residents; 8. employee records and details; 9. contracts with residents; 10. any regulatory documentation regarding licensing and operations. [24] As I understand it, the respondents are content with this list, and in particular the respondents Meadows and the Bordens consent to it. These documents are to cover, as I understand it, the last two years. [25] Time for production. 21 days? [26] MR. BURNHAM: That should do it, thank you. [27] THE COURT: Are you content with that? [28] MS. TEETAERT: Sure. Thank you, My Lord. [29] THE COURT: These documents are to be produced within 21 days. If after reviewing the documents Computershare concludes that they give rise to grounds for the appointment of a receiver, it may renew its application. It may also do so in the event that the documents are not produced as and when ordered. [30] Now, is there any reason not to award Computershare its solicitor-client costs? [SUBMISSIONS RE COSTS] [31] THE COURT: The petitioner is entitled to its solicitor-client costs pursuant to the order of Master Bishop as against the respondents other than Interior Equities subject to such priority hearing as may be relevant. Interior Equities may have its costs of today as ordinary costs, not including any previous attendances and adjournments. I am grateful to counsel for your very helpful submissions. [32] MR. BURNHAM: Thank you, My Lord. [33] MS. TEETAERT: Thank you, My Lord. "GRAUER, J."