Royal Bank of Canada v. LaHave Equipment Ltd.

Royal Bank of Canada v. LaHave Equipment Ltd. Court Supreme Court Date 2007-11-08 Citation 2007 NSSC 329 Docket SH 280400 Judge/Registrar/Adjudicator Davison, John M. (Honourable Justice) (SC) Document Type Decision Decision Content IN THE SUPREME COURT OF NOVA SCOTIA Citation: Royal Bank of Canada v. LaHave Equipment Ltd., 2007 NSSC 329 Date: 20071108 Docket: SH-280400 Registry: Halifax Between: Royal Bank of Canada Applicant v. LaHave Equipment Limited Respondent Judge: The Honourable Justice John M. Davison Heard: November 8, 2007, in Chambers, Halifax, Nova Scotia Written Decision: November 13, 2007 Counsel: John S. McFarlane, Q.C. and Sarah J. Dykema, for the applicant Michael K. Power, for the respondent Davison, J.: [1] This is an application advanced in chambers for an order approving the sale of a building and land owned by LaHave Equipment Limited (LaHave) situate in Bridgewater, Nova Scotia. Royal Bank of Canada (R.B.C.). also seeks a declaration that the consent of inspectors of the Estate of LaHave “be dispensed with”. [2] The application was made on Thursday, November 8th, 2007 and I granted an order, the operative parts of which are as follows: IT IS HEREBY ORDERED that the sale of the real property assets of the Respondent’s bankrupt estate to Bluenose RV or its assignee pursuant to the Agreement of Purchase and Sale dated August 17, 2007, as amended, shall be approved and that the Trustee in Bankruptcy shall provide a Trustee’s Deed to the Purchaser or its assignee to complete the Agreement of Purchase and Sale and that the consent of the inspectors of the estate of LaHave Equipment Limited in bankruptcy shall be dispensed with. [3] At that time I indicated I would file reasons at a later date. [4] R.B.C. and LaHave entered into an agreement dated July 25th, 2000 whereby R.B.C. loaned LaHave $2,000,000.00 subject to certain conditions. The security for this loan was assets of LaHave including the indicated land and a building in Bridgewater, Nova Scotia. [5] LaHave has been in the business of selling and servicing construction and forestry equipment in Bridgewater for fifty-seven years. The President of LaHave is George Kent who is the company’s majority owner. [6] Richard W. Cregan, Q.C. is a Registrar in Bankruptcy. R.B.C. applied for a receiving order before the Registrar which was heard on September 17 and 18, 2007. The Registrar filed a decision on October 1st, 2007 granting a Receiving Order to R.B.C. against LaHave. LaHave filed a notice of appeal of this decision on October 9th, 2007. It was believed by the parties that the proper court to hear the appeal was the Nova Scotia Court of Appeal. It was also believed by the parties the appeal was pursuant to s. 193 of the Bankruptcy and Insolvency Act (B.I.A.) which makes reference to an appeal to the Court of Appeal from “a judge of the court”. This section is under the heading “Appeals” which heading also has s. 195 which reads: Stay of proceedings on filing of appeal – Except to the extent that an order or judgment appealed from is subject to provisional execution notwithstanding any appeal therefrom, all proceedings under an order or judgment appealed from shall be stayed until the appeal is disposed of, but the Court of Appeal or a judge thereof may vary or cancel the stay or the order for provisional execution if it appears that the appeal is not being prosecuted diligently, or for such other reason as the Court of Appeal or a judge thereof may deem proper. [7] The parties were of the view there was an automatic stay of the Receiving Order and R.B.C. in its application to the Nova Scotia Court of Appeal requested the stay be lifted. [8] The application was heard in the Nova Scotia Court of Appeal Chambers and Justice Fichaud presided. [9] A receiving order was issued on October 3, 2007. LeHave had opposed the petition for the receiving order. The petition was advanced under Section 192(1) of the B.I.A. and heard by Richard W. Cregan, Q.C., who rendered a decision on October 1st, 2007 concluding R.B.C. was entitled to a receiving order against LaHave. [10] LaHave filed a notice of appeal from the decision of the Registrar under S. 192(4) of the B.I.A. which states: A person dissatisfied with an order or decision of a registrar may appeal therefrom to a judge. [11] Justice Fichaud concluded he had no jurisdiction to hear the application for the lifting of the stay of the receiving order. He pointed out that an appeal from a Registrar is dealt with in S. 192(4) to a judge. He further pointed out that under S. 195 “all proceedings under an order or judgment appealed from shall be stayed” unless the Court of Appeal or a judge of a court of appeal varies or cancels the stay. The issues are set out in paragraph 10 of Justice Fichaud’s decision which reads: LaHave submits that its appeal from the decision of the Registrar to the Nova Scotia Supreme Court creates an automatic stay under s. 195 of the BIA. The Royal Bank responds by making this application for an order under s. 195 that I cancel that stay. [12] Justice Fichaud concludes: ...I have no jurisdiction to hear this application. Section 195 is under the heading “Appeals” which immediately proceeds s. 193. Section 193 defines such an appeal as follows: ...an appeal lies to the Court of Appeal from any order or decision of a judge of the court ... The “appeal” contemplated by s. 195 is an appeal under s. 193 to the Court of Appeal from a decision of a judge. There is no such appeal here. So there is no automatic stay under s. 195. An appeal from a Registrar to the Supreme Court of Nova Scotia is dealt with in s. 192(4), and Rule 30 under the BIA. Nothing in that proceeding triggers the automatic stay of s. 195 or any jurisdiction of a chambers judge of the Court of Appeal... [13] The result is that there is no automatic stay of the receiving order against LaHave and the receiving order is and has been in full force and effect since October 3, 2007. [14] Mr. Power on behalf of LaHave opposed the order which approves the sale of the real property to Bluenose R.V. and one of the reasons advanced was the sale would eliminate LaHave’s right to appeal the decision of the Registrar. At the time of the hearing on November 8th the closing of this sale of property is to take place on November 20th, 2007 and the appeal had been set down for two days after November 20th, 2007. It is my understanding that the date for the hearing of the appeal has been changed to Wednesday, November 14th, 2007. [15] To argue the sale cannot take place because LaHave loses the right to appeal the decision of the Registrar which was set for dates after the date of the closing of the sale is effectively the statutory stay in the B.I.A. being replaced with a procedural stay. To respond favourably to the argument advanced by Mr. Power would invite a further delay if the decision of the Supreme Court is appealed to the Court of Appeal. [16] Both parties cite the case of National Capital Region, Ottawa Rough Riders Professional Football Club Ltd. Re, 1995 CarswellOnt. 56; (1995), 31 C.B.R. (3d) 136. There are issues and facts similar to the case before me. [17] Relevant legislation in the B.I.A. is S. 19 which reads: 19.(1) Legal advice or action before first meeting – The trustee may prior to the first meeting of creditors obtain such legal advice and take such court proceedings as he may consider necessary for the recovery or protection of the property of the bankrupt. (2) In case of emergency – In the case of an emergency where the necessary authority cannot be obtained from the inspectors in time to take appropriate action, the trustee may obtain such legal advice and institute such legal proceedings and take such action as he may deem necessary in the interests of the estate of the bankrupt. [18] Justice Chadwick Sr. States in the Rough Riders Case at paras. 16 and 17: 16 The normal procedure would be for the creditors to appoint their inspectors at the first meeting of creditors and for the trustee to present the proposed purchase and sale to the creditors and the inspectors for their approval. Unfortunately this cannot be done and the trustee has moved pursuant to ss. 18 and 19 of the Bankruptcy and Insolvency Act on the basis that this is an urgent situation and further the property will depreciate rapidly in value if the transaction is not completed. 17 Section 19 of the Bankruptcy and Insolvency Act provides that the trustee may prior to the first meeting of creditors obtain such legal advice and take such court proceedings as he may consider necessary for the recovery or protection of the bankrupt. [19] Justice Chadwick Sr. has this to say about the issue before him: 20 I agree with Mr. Halpin that the matter for consideration before the Court is the bankrupt company and what the effects of the sale will be upon the creditors of the bankrupt estate. In considering this matter the Court has to determine whether the sale would be in the best interest of all of the creditors of the bankrupt company. 21 There have been major revisions made to the Bankruptcy and Insolvency Act in 1992. The Bankruptcy and Insolvency Act has been described as a commercial statute and one that should not be subject to a narrow interpretation by courts. It has often been described as the businessman’s statute and as such the courts should pay attention to business decisions which make good business sense. [20] The judge states the only alternative to the proposed sale is total liquidation of the company and determines the case falls within the provision of s. 18 and 19 of the B.I.A. He refers to creditors being “naive if they think at this late date a potential purchaser is going to ride into Ottawa and rescue their bankrupt company”. The justice concludes in para. 51: Based upon all the evidence before me, I am satisfied that the proposed sale to Horn Chen is in the best interest of the unsecured creditors. Although I would like to see the unsecured creditors obtain more money by way of distribution, it does not appear to be possible. I am also satisfied there is no better deal to be had, that liquidation would result in very little if any recovery by the unsecured creditors. [21] I must look at the decision of the Registrar, not for the purpose of appeal but to determine what is in the best interests of the creditors, secured and unsecured. [22] The Registrar who is learned in the area of bankruptcy law wrote a clear and complete judgment and found significant facts from witnesses who testified before him. [23] The Registrar wrote about the financial difficulties encountered by LaHave over the last several years. LaHave became a representative, in 1995, of an organization he refered to as Case, a leading provider of heavy equipment. This organization was not satisfied with LaHave’s sale of its products and in 2001 terminated the dealership with LaHave. The Registrar stated this loss and the downturn in the forest industry caused LaHave to lose “a creditical portion of its business”. [24] It was said in the decision that Mr. Kent “realized the precariousness of LaHave’s finances” and engaged a business broker, Corporate Navigators, to find a sale for assets or shares. Mr. Cregan stated: Through 2006 the situation continued to deteriorate. LaHave has since gone out of business. It owes money to the Bank and to several creditors. The Bank urged Mr. Kent to accept Peter D. Wedlake, FCIRP, of Green Jain Wedlake Inc. as a monitor to assist in liquidating the assets. This appointment took place on March 7, 2007. Mr. Wedlake’s efforts primarily focused on selling the assets. Mr. Kent on the other hand was more concerned that efforts be put to selling the business as a going concern. He felt a strong responsibility to the staff and the community. [25] The Receiver obtained a sale for the property which was brokered through Cushman and Wakefield LePage described by Registrar Cregan as “a commercial real estate brokerage with an international presence”. Tom Gerard was the lead representative. [26] LaHave took the position the sale was unacceptable and the assets were worth considerably more than the current sale price [27] The Registrar reviewed the evidence of four people who spoke on valuation. These people were Ernest C. Smith who was engaged by R.B.C. in 2005 and described by the Registrar as “an accredited appraiser of long experience to prepare a valuation of the property”. Mr. Kent hired Mark Seamone’s firm, Exit Realty and he testified. Tom Gerard testified and his firm was engaged by R.B.C. and the Receiver. The fourth witness was George Kent. [28] With respect to the qualifications of the witnesses. He stated on page 12 with respect to Mark Seamone: He did not submit this figure as a valuation but rather as a reasonable asking price which would leave some “wiggle room”. He acknowledged that there were no comparable properties for sale in the area. He also acknowledged that, notwithstanding the building was of very good quality, it was designed for a specific function which might not be suitable to prospective new owners. Mr. Seamone had never listed a property of this size. His experience is mainly residential and small commercial. He has a broker’s license but no professional designation. He could not give any estimate of the time it would take to sell the property or of a likely final selling price. [29] With respect of the evidence of Ernest C. Smith who prepared a valuation of the property and prepared a re-evaluation update at the request of the Receiver. The Registrar stated: ...His report dated May 11, 2007 is strongly influenced by a downward shift in activity in the area, resulting in lower value for property in the area. He considered both the valuation of the building and of the land. Based on market evidence he concluded that the building had held the value at $800,625, but that the land value had declined to $780,000, resulting in a rounded value of $1,580,000. There had not been the follow through with development anticipated in the enthusiasm of 2005. There were changes in demand and changes in supply. There were changes in the configuration of the adjacent roads. The promised services had not been completed. Such is the basis for Mr. Smith’s reduced valuation. ... Counsel for LaHave questioned him on a number of small points. However, I am quite satisfied that his reports are proper and done to high professional standards. I take them as proper determinations of the value of the property on their respective dates. [30] With respect to Tom Gerard the Registrar stated: Mr. Gerard has been in the commercial real estate business since his graduation in Economics from Dalhousie University in 1987. He has the professional designations of SIOR and CCIM. They relate to expertise in commercial, office and industrial real estate. [31] The Registrar concluded valuation with these words: Mr. Kent had been trying to sell the business as a going concern from the time of the termination of the Case dealership in 2001. The business closed early this year. It costs money to maintain it. Meanwhile the Bank is not being paid. It is losing interest. What does it do? It has an appraisal from 2005. It has it updated. It engages a reputable commercial broker. Its work results in two competitors in the recreation vehicle business bidding it up and settling at $1,500,000. The value stated is slightly short of the recent revised valuation, but more than the Forced Sale Estimate. This is all in the context of a repressed market for property in the area and of the building being very trade specific, most likely requiring extensive renovation for any other business. It is suggested that, rather than renovate such a building, it would be cheaper for a business to buy raw land of which there is plenty available in the area and build to its own requirements. Apparently this was the reasoning behind Leisure RV withdrawing its offer. Mr. Kent has no specific suggestions which could lead to a better sale in the reasonably near future. I have no difficulty in finding that the Receiver and the Bank have acted reasonably in accepted the Bluenose offer. The valuation then of the Bank’s security is reasonable. It is thus established that LaHave at the time of the petition was and still is indebted to the Bank for a least one thousand dollars which is not secured. [32] In Bankruptcy and Insolvency Houlden & Morawetz, Carswell 2007 at p.72: Provided the price is adequate, proper efforts have been made to get offers, and there is no other good reason to reject an offer, the court should approve the sale”. [33] The authors go on to say at p. 72: If it is in the best interest of the bankrupt estate, the court has the power, prior to the first meeting of creditors and the appointment of inspectors, to authorize the sale of assets. [34] The Registrar found that R.B.C. acted reasonably. His findings are definitive and to a large extent based on findings of fact. [35] Retained earnings and sales decreased over recent years and “through 2006 the situation continued to deteriorate” and LaHave went out of business. [36] On March 7th, 2007 Mr. Kent accepted Peter D. Wedlake as a monitor to assist in liquidated assets and about this time the total indebtedness to R.B.C. was $1,327,794.00 with estimated security of $1,272,022.00 leaving a deficiency of $55,772.00. R.B.C. filed with the court on May 1, 2007 a petition for a receiving order. [37] The petition claimed an indebtedness of $1,305,284.77 with security of $1,198,476.97 leaving an unsecured claim of $106,807.80. The Receiver obtained a sale for the property and it is scheduled to close on November 20th, 2007. The decision of the Registrar sets out the sale and states in para. 22, 23 and 24: This sale was brokered through Cushman & Wakefield LePage, a commercial real estate brokerage with an international presence, with Tom Gerard being the lead representative. Prior to listing the property for sale the Bank had the benefit of two appraisals prepared by Ernest C. Smith, an accredited appraiser with At-Tech Appraisal Consultants Ltd. Both these gentlemen gave evidence at the hearing. LaHave contends that this sale is unacceptable. It says that the property is worth considerably more than that stated in the appraisals and reflected in the current sale price. It says that the real value is enough to pay the Bank and the other creditors in full, and possibly leave something for the shareholders. It submits that the present agreement should not stand and that time should be allowed to find what it considers a more appropriate price. [38] As stated, Ernest C. Smith, who was engaged by R.B.C. and who was described by the Registrar as “an accredited appraiser of long experience”, prepared a re-evaluation update. The Registrar stated in this decision at paras. 29, 30, 31 and 32: At the request of the Receiver earlier this year Mr. Smith prepared a Re-evaluation Update. His report dated May 11, 2007 is strongly influenced by a downward shift in activity in the area, resulting in lower value for property in the area. He considered both the valuation of the building and of the land. Based on market evidence he concluded that the building had held the value at $800,625, but that the land value had declined to $780,000, resulting in a rounded value of $1,580,000. There had not been the follow through with development anticipated in the enthusiasm of 2005. There were changes in demand and changes in supply. There were changes in the configuration of the adjacent roads. The promised services had not been completed. Such is the basis for Mr. Smith’s reduced valuation. In the later report Mr. Smith offered a “Forced Sale Estimate” of $1,300,000. If the property had to be disposed of through foreclosure, bankruptcy, or receivership, there would not be the time for it to be exposed to the market long enough to invite the interest and the negotiations characteristic of the normal market. With time being critical, a forced sale can be expected to fall short of that which would result when there is otherwise time for a proper exposure to the market. Counsel for LaHave questioned him on a number of small points. However, I am quite satisfied that his reports are proper and done to high professional standards. I take them as proper determinations of the value of the property on their respective dates. [39] With respect to the reasonable asking price prepared by Mark Seamone at the request of Mr. Kent had an approximate value of $2,700,000.00 for the property. With respect to his evidence the Registrar wrote at paras. 36 and 37: He acknowledged that there were no comparable properties for sale in the area. He also acknowledged that, notwithstanding the building was of very good quality, it was designed for a specific function which might not be suitable to prospective new owners. Mr. Seamone had never listed a property of this size. His experience is mainly residential and small commercial. He has a broker’s licence but no professional designation. He could not give any estimate of the time it would take to sell the property or of a likely final selling price. [40] R.B.C. and the receiver engaged Cushman and Wakefield LePage to prepare a listing proposal. That concern’s representative was Tom Gerard who has professional designations of SIOR and CCIM which according to the Registrar “relate to expertise in commercial, office and industrial real estate”. [41] There was negotiation with Bluenose R.V. Centre which has accepted on August 20th at the sum of $1,500,000. The Registrar acknowledges that Mr. Kent has a strong exception to the valuations of Mr. Smith and Mr. Gerard but Mr. Kent acknowledged Cushman had not received a better offer. [42] On valuation the Registrar concluded: I have no difficulty in finding that the Receiver and the Bank have acted reasonably in accepting the Bluenose offer. The valuation of the Bank’s security is reasonable. [43] He points out Mr. Kent has no specific suggestions which could lead to a better sale in the reasonably near future. [44] The Registrar refused to grant a stay of the Receiving Order with these words at para. 74 and 77: It would seem to me that granting a stay to allow or maybe force the Receiver to renege on the sale in hope of finding a better sale, where there is no real evidence that such is likely, is too much to ask the court to do. There will be a lost sale, substantial holding expenses and lost interest. A stay would put the matter into limbo for longer than is fair to the Bank and the other creditors. The costs mount daily. The likelihood of advantage arising from the stay is small. A stay will not be allowed. [45] In my view the Registrar was correct when he determined the proper value of the property and I further believe the best alternative for the unsecured creditors of LaHave will be attained by the sale to Bluenose R.V. I have approved the sale pursuant to the Agreement of Purchase and Sale dated August 17, 2007, all in accordance with the order I signed on November 8th, 2007. J.