Pretty Estates Ltd. (Re)

2016 BCSC 19 Pretty Estates Ltd. (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Pretty Estates Ltd. (Re), 2016 BCSC 19 Date: 20160107 Docket: S148656 Registry: Vancouver In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 And In the Matter of the Business Corporations Act S.B.C. 2002, c. 57 And In the Matter of Pretty Estates Ltd. Before: The Honourable Mr. Justice Burnyeat Reasons for Judgment (From Chambers) Counsel for Pretty Estates: B. Lewis‑Hand Counsel for Monitor: M.C. Verbrugge Counsel for First West Credit Union: T.C. Louman‑Gardiner Counsel for James Young: D.K. Fitzpatrick Place and Date of Hearing: Vancouver, B.C. December 14 and 15, 2015 Place and Date of Judgment: Vancouver, B.C. January 7, 2016 [1] There were a number of applications made on behalf of Pretty Estates Ltd. ("Pretty") including an application that James Young be replaced as D.I.P. Lender by Varsity Capital Corporation ("Varsity") and that the D.I.P. Facility be increased from $1,000,000 to $1,750,000.

BACKGROUND [2] The Initial Order in this proceeding was granted on November 10, 2014 and was extended by December 10, 2014, December 15, 2014, April 28, 2015, July 23, 2015, September 30, 2015, November 2, 2015 and December 7, 2015 Orders. In the Initial Order, the D.I.P. Lender was named as James Young, the D.I.P. Facility was set at $750,000, and the D.I.P. Lender's Charge was defined in paragraph 24 of the Initial Order. The D.I.P. Facility was increased to $1,000,000 by an April 28, 2015 Order. [3] James Young is not prepared to consider an increase in the D.I.P. Facility and accordingly, an alternate D.I.P. Lender was sought and obtained. Varsity is prepared to advance a total of $1,750,000 under the same terms and conditions as were set out in the D.I.P. Facility in the Initial Order. [4] Initially, the request made by Pretty was that the D.I.P. Lender's Charge be discharged and replaced with a new charge in favour of Varsity. I raised the concern that this might eliminate the priority for the funds already advanced by the previous D.I.P. Lender. [5] I am satisfied that there should be a substitution of both the amount of the D.I.P. Facility and the D.I.P. Lender. I am satisfied that Pretty would not be in a position to continue in operation while preparing and presenting its proposed Plan of Arrangement unless the amended amount requested is granted. I am also satisfied

that the additional D.I.P. financing is a necessary cost of insuring that there can be meaningful discussion about the restructuring plan. I find that the increased D.I.P. financing is required to safeguard the assets of Pretty for the benefit of its shareholders and its secured and unsecured creditors. The benefits clearly outweigh any potential prejudice to the secured creditors whose security is being eroded by the requested D.I.P. financing. Even if the restructuring contemplated in the application by Pretty is not acceptable, it is of significant importance that any shutdown be done in an orderly and controlled fashion to minimize harm to the assets of Pretty. [6] Regarding the ability of the Court to substitute a new D.I.P. Facility to replace and amend what was set out in the Initial Order, I rely on the decisions in Federal Gypsum Company (Re), (2007) 40 C.B.R. (5th) 80 (N.S.S.C.); and ScoZinc Ltd. (Re), (2008) 49 C.B.R. (5th) 226 (N.S.S.C.). [7] Regarding the concern that there might be a loss of priority for the funds already advanced under the previous D.I.P. Facility, I am satisfied that s.11.2 of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C‑36 contemplates the ability of the Court to grant priority to a replacement D.I.P. Facility. However, in order to protect those advances, to substitute Varsity for James Young as the D.I.P. Lender, and to allow

the D.I.P. Facility to be increased to $1,750,000, I order that the Initial Order and Schedule "C" of the Initial Order be amended nunc pro tunc on the following terms: Upon payment of the amount outstanding to the DIP Lender under the DIP Facility, as those terms are defined in the Initial Order and Schedule "C" thereto, the Initial Order shall be varied such that James Young shall be replaced as DIP Lender by Varsity Capital Corporation and in order to effect same, upon the receipt of such payment by James Young, the following amendments shall be made to the Initial Order, nunc pro tunc; (a) in Paragraph 31, "James Young" shall be deleted and replaced with Varsity Capital Corporation; (b) paragraph 32 shall be deleted in its entirety and replaced with the following: 32. Such credit facility shall be on the terms described in the commitment letter between the Petitioner and the DIP Lender dated as of December 10, 2015 (the "Commitment Letter"). (c) Schedule "C" shall be deleted in its entirety and replaced with a new Schedule "C" in the form appended hereto as Appendix "B"; (d) the authority granted to the Petitioner in Paragraph 33 shall be confirmed with respect to the commitment letter with Varsity Capital Corporation appended hereto as Appendix "B"; (e) the authority granted to the DIP Lender in Paragraph 35 shall be confirmed with respect to Varsity Capital Corporation as

the DIP Lender; and (f) all other references to the DIP Lender in the Initial Order shall refer to Varsity Capital Corporation. Upon repayment of the DIP Facility owing to James Young, James Young shall execute any and all documents required to transfer his rights under the charge registered on title to the Lands under charge number CA4105876, and the financing statement registered under Base Registration Number 3148041 in the Personal Property Registry (both of which were registered pursuant to Paragraph 42 of the Initial Order) to Varsity Capital Corporation. Notwithstanding anything to the contrary in the Initial Order, as amended, the proceeds .of the DIP Loan be used to repay James Young in respect of amounts owing to him as the prior DIP Lender. The DIP Lender's Charge, as defined in Paragraph 24 of the Initial Order (as amended), is hereby increased from $1,000,000 to $1,750,000... "Burnyeat J."