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ADMINISTRATION OF ESTATE - Receivers - Duties and powers

Thursday, March 14, 2019 @ 8:54 AM  


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Appeal by the guarantors from a decision vacating an earlier order approving the sale of the debtor’s assets and approving a new agreement between the receiver and a nominee of the main secured creditor for the purchase of the debtor’s assets. The only material asset of the debtor company was a parcel of land and a building. The first sales transaction did not close. The primary creditor was financing the Receiver’s costs. To bring the receivership to a quick close, the creditor arranged for a numbered company it controlled, its nominee, to be the purchaser. An asset purchase agreement was prepared and executed by the creditor and the Receiver. The total debt was defined to be the Receiver’s current costs and the purchase price was also this amount. The total debt was in fact $1.3 million higher than the purchase price and continued to accrue with interest and costs. The Receiver obtained an approval and vesting order approving the first asset purchase agreement. The first asset purchase agreement did not close. The Receiver and the creditor then entered into a second asset purchase agreement, which reduced the purchase price. The second agreement was approved by the chambers judge. She found that she was not precluded from vacating the first order and issuing another. The chambers judge also found that the Receiver and the creditor terminated the first asset purchase agreement since they had, by error, failed to revise the purchase price in the agreement in accordance with earlier correspondence. The chambers judge found that the parties met the requirements for mutual mistake.

HELD: Appeal allowed. The evidence did not establish mutual mistake and it was a palpable and overriding error for the chambers judge to conclude that the test was met. The evidence established that the day the first asset purchase agreement was signed, the parties might have had different understandings about the purchase price and the Receiver’s understanding of the purchase price was incorporated into the agreement. A different understanding was not a common misapprehension as to the facts. The Receiver’s evidence about what transpired after the first purchase agreement was signed was not satisfactory. Because the Receiver was seeking to vacate an earlier court order, some information about why the order needed to be vacated was required. The Receiver’s materials on their own did not provide the evidentiary basis to support the relief it was seeking. The termination of the first asset purchase agreement was also left unexplained by the Receiver. The circumstances surrounding the termination of the first asset agreement ought to have been canvassed as this remained a court-supervised sales process where the Receiver owed fiduciary duties to the parties to act fairly. The process should be transparent. It should enable the court and interested parties to make an informed decision as to whether the sale could be considered fair and reasonable in the circumstances. Given the significant questions left unanswered by the Receiver, the court had serious concerns about the efficacy, fairness and integrity of the process the Receiver followed between signing the first asset purchase agreement and the hearing of the application to approve the second asset purchase agreement.

Jaycap Financial Ltd. v. Snowdon Block Inc., [2019] A.J. No. 134, Alberta Court of Appeal, B.K. O'Ferrall, B.L. Veldhuis and R. Khullar JJ.A., February 4, 2019. Digest No. TLD-March112019008