Document 2535782

SERVICE LIST
TO:
PRICEWATERHOUSECOOPERS INC.
18 York Street, Suite 2600, PwC Tower
Toronto, ON M5J 0B2
Mica Arlette
Tel: 416.814.5834
Email: [email protected]
Tracey Weaver
Tel: 416.814.5735
Email: [email protected]
Receiver of SHS Services Management Inc. and SHS Management Limited
Partnership
AND TO:
McMILLAN LLP
181 Bay Street, Suite 4400, Brookfield Place
Toronto, ON M5J 2T3
Wael Rostom
Tel: 416.865.7790
Email: [email protected]
LSUC# 43165S
Brett Harrison
Tel: 416.865.7932
Email: [email protected]
LSUC# 44336A
Stephen Eddy
Tel: 416.865.7226
Email: [email protected]
LSUC# 62703F
Lawyers for the Receiver of SHS Services Management Inc. and
SHS Management Limited Partnership
2
AND TO:
WILSON VUKELICH LLP
60 Columbia Way, Suite 710
Markham, ON L3R 0C9
Attention: Douglas D. Langley LSUC#: 16909Q
Tel: (905) 940-8711 (ext. 2232)
Fax: (905) 940-8785
Email: [email protected]
Lawyers for 1233682 Ontario Inc., 1447000 Ontario Ltd., 1812731Ontario Inc.,
1847135 Ontario Inc., 2177059 Ontario Inc., 3543978 Ontario Inc.,484081 BC
Ltd., 70999 Alberta Ltd., 777911 Alberta Ltd., 977218 Ontario Inc., The Roaders
Holdings Co. Ltd., Stewarts Cleaning Service Inc., Gestion Cristofaro Ltee
AND TO:
CLIMITISATION ST. HUBERT INC.
3885 Montee St. Hubert
St. Hubert, QC J3Y 4J9
Attn: M. Mohamede Ouirzane
AND TO:
1681530 ONTARIO LTD.
o/a Total Home Comfort
458 Fairall Street, Unit 9
Ajax, ON L1S 1R6
Attn: Ivan Flood
AND TO:
INSTALLATION PRECISION
503 Aline Prud-Homme
Terrebonne, QC J6Y2B7
Attn: Stephane Desbiens
AND TO:
KULDIP SINGH MATTU
14465 60th Avenue
Surrey, BC V3S 1S4
Attn: Kuldip Mattu
AND TO:
IDEE A.L. CONFORT (9144-7821 Quebec Inc.)
1445 de L’Oiselet
Mascouche, QC J7L 4H9
Attn: Johanne Gagnon or Alain Laplante
3
AND TO:
ROOFING F/X LTD.
1165 40th Avenue N.E.
Calgary, AB T2E 6M9
Attn: William Hebert
AND TO:
BENNO GOTTFRIED TRINK
6 Rawlings Avenue
Hamilton, ON L8W 2N5
Attn: Ben
AND TO:
ADAM EXPRESS
1007 Blair Road
Ottawa, ON K1J 7M9
Attn: Mohanned Mohsen
AND TO:
ZYGMUNT PACZKOWSKI
327 Manitoba Avenue
Winnipeg, MB R2W 2E9
AND TO:
SUMMUM SALLE DE BAIN INC.
1-14e Avenue
Ste-Marthe-sur-le-lac, QC J0N 1P0
Attn: Norman Beaulac
AND TO:
CLOUTIER MAINTENANCE GENERALE
145 Boul. Carmel
Terrebonne, Q.C. J6Y 1T1
Attn: Berthier Cloutier
AND TO:
REGIONAL DOORS & HARDWARE (NIAGARA) LTD.
44 Scott Street West
St. Catharines, ON L2R 1C9
Attn: James Dove
AND TO:
LES ENTREPRISES HAMILTON INC.
40 Petit-Chirot
St-Eustache, QC J7R 4K3
Attn: Chantal Bouvrette
4
AND TO:
TOITURES IMPER EXPERT
116 Loiuis-Chaiden
Quebec, QC G1B 2S5
Attn: Bruno Levesque
AND TO:
ARIANA HEATING & AIR CONDITIONING LTD.
12409 214th Street
Maple Ridge, BC V2X 5E5
Attn: Hamid R. Hadilou
Tab 1
Schedule A
Schedule B
Tab 2
15
Court File No. CV-13-10370-00CL
SHS Services Management Inc. /
Gestion des Services SHS Inc.
SHS Services Limited Partnership
RECEIVER'S ELEVENTH REPORT TO THE COURT
February 6, 2015
16
Court File No. CV-13-10370-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
IN THE MATTER OF THE RECEIVERSHIP OF SHS SERVICES MANAGEMENT
INC. / GESTION DES SERVICES SHS INC. AND SHS SERVICES LIMITED
PARTNERSHIP
ELEVENTH REPORT TO THE COURT
SUBMITTED BY PRICEWATERHOUSECOOPERS INC.
IN ITS CAPACITY AS RECErVER
TABLE OF CONTENTS
INTRODUCTION
2
DISCLAIMER AND TERMS OF REFERENCE
4
ACTIVITIES OF THE RECEIVER
5
RESULTS FROM THE LIEN AND TRUST CLAIMS RESOLUTION PROCESS
8
MOTION TO LITIGATE APPLICANTS OWING AMOUNTS TO SHS
14
RECEIVER'S STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
19
REQUEST FOR FEE APPROVAL
19
RELIEF SOUGHT
21
APPENDICES
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
Summary of prior orders of the Court and reports of the Receiver
Order of Justice Patillo, dated October 3, 2014 - the Lien Claims Resolution Order
Details of Remaining Disputed Claims
Order of Justice Wilton-Siegel, dated February 4, 2014 - the Licensee Respondent Order
February 14 Letter
September 15 Letter
October 14 Email
Details of Amounts Owed by the Licensee Respondents
Receiver's Statement of Cash Receipts and Disbursements
Wilson Affidavit
Rostom Affidavit
Summary of time costs by category
NOTICE TO READER: The prior reports of the Receiver and related materials filed with the
Court are available on the Receiver's website at www.pwc.com/car-shs. Links to key documents
are contained in the footnotes of this report.
17
INTRODUCTION
1.
By order (the "Appointment Order") of Mr. Justice Morawetz of the Ontario Superior Court
of Justice (Commercial List) (the "Court") dated December 13, 2013 (the "Date of
Appointment"), pursuant to section 47 of the Bankruptcy and Insolvency Act, R.S.C. 1985
c.B-3, as amended (the "BIA") and section 101 of the Courts of Justice Act, R.S.0.1990, c. C43, as amended, PricewaterhouseCoopers Inc. ("PwC") was appointed as interim receiver and
receiver (in both capacities referred to as the "Interim Receiver") of all of the assets,
undertakings and properties of SHS Services Management Inc. / Gestion des Services SHS Inc.
("SHS") and SHS Services Limited Partnership ("SHS LP," and collectively with SHS, the
"Company") acquired for, or used in relation to a business carried on by the Company,
including all proceeds thereof (the "Property"). These proceedings up to the Interim
Receiver's discharge on January 9, 2014 (as noted below) are referred to herein as the
"Interim Receivership Proceedings".
2.
The application for the Appointment Order was brought by the Company. The Company's
principal secured creditors are Sears Canada Inc. ("Sears") and Alaris Income Growth Fund
Partnership ("Alaris")1, pursuant to the terms of loan agreements with SHS.
3.
On January 9, 2014, by order (the "Receivership Order") of Mr. Justice Brown of the
Court, PwC was appointed as receiver (in such capacity, the "Receiver"), without
security, of the Property pursuant to section 243 of the BIA. The Receivership Order also
approved the activities of the Interim Receiver, and discharged PwC as Interim Receiver.
The proceedings subsequent to January 9, 2014, are referred to as the "Receivership
Proceedings".
4.
On July 30, 2014, an order (the "Lift Stay Order") of Mr. Justice Wilton-Siegel of the
Court was made to, inter alia, lift the stay of proceedings in the Receivership Proceedings
against each of SHS and SHS LP for the sole purpose of filing, serving and proceeding
with an application for orders (the "Bankruptcy Orders") adjudging each of the
Companies bankrupt and appointing PwC as trustee in bankruptcy (in such capacity, the
1
The Receiver has been advised by its counsel, McMillan LLP, that Alaris' security is either void or voidable
because it was received and is held by Alaris in violation of section 60(a) of the Partnership Act (Alberta), as noted
in paragraph 8 of the Receiver's Sixth Report to the Court dated July 14, 2014 (the "Sixth Report"),
http://wvvw.pwc.com/en_CA/CA/car/shs/assets/shs-130_071414.pdf.
18
"Trustee") of each of SHS and SHS LP. The Bankruptcy Orders were made on July 31,
2014. The Lift Stay Order provided that the Bankruptcy Orders would be suspended for
10 days for purposes of serving same on the Office of the Superintendent of Bankruptcy;
this period expired on August 10, 2014, and the bankruptcy orders were effective as of
August 11, 2014.
5.
The orders made to date in the Receivership Proceedings and the prior reports of the Receiver
are summarized in Appendix "A". These documents are available on the Receiver's website at
www.pwc.com/car-shs. together with the motion materials and other related materials from
the Interim Receivership Proceedings and the Receivership Proceedings.
P U R P O S E OF E L E V E N T H R E P O R T
6.
The purpose of this report (the "Eleventh Report") is to inform the Court of:
a) The Receiver's activities since the Receiver's Ninth Report to the Court dated
September 12, 2014 (the "Ninth Report")2, inclusive of the activities set out in the
Receiver's Tenth Report to the Court dated October 30, 2014 (the "Tenth
Report")3;
b) The results of the Lien Claims Resolution Process, as defined in the order of the
Court dated October 3, 2014 (the "Lien Claims Resolution Order") approving
the Settlement Agreement and the Proposed Claims Resolution Process, both as
defined therein, among other things. A copy of the Lien Claims Resolution Order is
attached as Appendix "B";
c) The Receiver's motion to commence an action against a group of the Company's
licensees (the "Licensee Respondents") in respect of amounts owed to the
Receiver for work completed during the Interim Receivership Proceedings and
Receivership Proceedings, pursuant to certain license agreements (the "License
Agreements") with SHS;
Ninth Report: http://wvvvv.pwc.com/en_CA/CA/car/shs/assets/shs-158 091514.pdf
Tenth Report: http://www.pvvc.com/en_CA/CA/car/shs/assets/shs-l 76103114.pdf
19
d) The Receiver's statement of cash receipts and disbursements for period of the
Interim Receivership Proceedings and the Receivership Proceedings to January 31,
2015;
and to seek an order of the Court (the "Disputed Claims Resolution and Fee Approval
Order")
e) Approving the fees and disbursements of the Receiver and its counsel for the period
from September 1, 2014 to January 31, 2015;
f) Approving the activities of the Receiver as set out in the Tenth Report and this Eleventh
Report;
g) Deeming the Disputed Claims to be Resolved, fully determined and adjudicated
pursuant to the Notices of Revision or Disallowances issued to the Claimants by the
Receiver (capitalized terms as defined herein);
and to seek an order of the Court (the "Licensee Respondent Order")
h) Compelling the Licensee Respondents to remit the Amount Owed to the Receiver
for services performed during the Receivership Proceedings as outlined in the
Accounting for the Work Period (capitalized terms as defined herein).
DISCLAIMER A N D TERMS OF REFERENCE
7.
In preparing this report and conducting its analysis, the Receiver has obtained and relied
upon certain unaudited, draft and/or internal financial information of the Company, the
Company's books and records, and discussions with various parties including former SHS
employees
retained
on
an
interim
basis by the
Receiver
(collectively,
the
"Information").
8.
Except as otherwise described in this report:
a) The Receiver has not audited, reviewed or otherwise attempted to verify the accuracy or
completeness of the Information in a manner that would wholly or partially comply
with Generally Accepted Auditing Standards pursuant to the Chartered Professional
Accountants Canada Handbook - Assurance;
20
b) The Receiver has not conducted an examination or review of any financial forecast and
projections in a manner that would comply with the procedures described in the
Chartered Professional Accountants Canada Handbook - Assurance.
9.
Unless otherwise stated, all monetary amounts contained herein are expressed in Canadian
Dollars and exclude harmonized sales tax ("HST"). Capitalized terms not otherwise defined
are as defined in the Receivership Order.
ACTIVITIES OF THE RECED7ER
10.
The Receiver has reported on its activities in each of its prior reports, and its activities
have been approved by the Court for the period of the Receivership Proceedings to
September 12, 2014. The fees and disbursements of the Receiver and its legal counsel
have also been approved in the Receivership Proceedings up to August 31, 2014 by the
Court.
11.
Since September 12, 2014, the Receiver has been focused on the following principal
activities which have been discussed in previous reports to the Court:
a) Administering the Lien and Trust Claims Resolution Process, including mailing
and publishing notices, maintaining a register of all proofs of claim received,
completing initial checklists of missing or incomplete supporting documentation
to be provided, reviewing additional supporting documentation provided by
claimants, and quantifying the Proven Lien Claims and the Disputed Lien Claims
as outlined in the Lien Claims Resolution Process;
b) Responding to a motion for leave to commence a class action proceeding by the
moving party, Barry Patrick Kenny, against SHS, Sears and certain directors or
former directors of such entities, on behalf of former employees of SHS; and
c) Identifying and addressing a broad range of creditor claims made against the
Company, including claims pursuant to sections 81 and 81.1 of the BIA and
claims of former employees pursuant to section 81.4 of the BIA.
12.
Since the Ninth Report was issued on September 12, 2014, the Receiver has performed
additional activities incidental to its duties and powers under the Receivership Order and
21
the BIA, together with other operational and statutory requirements, including the
following:
a) Reviewing the status of the Company's orders that were purchased by third
parties to be completed, and receiving payment for such completed orders;
b) Communicating with Canada Revenue Agency ("CRA") and the various
provincial tax offices regarding completion of SHS's HST returns for the period
of the Receivership Proceedings to date;
c) Communications with CRA regarding completing a payroll audit;
d) Terminating contracts for certain services that are no longer required by SHS or
the Receiver, including utilities for the premises which have now been vacated,
and correspondence with the various utility companies regarding reconciling
and finalizing the accounts of SHS or the Receiver related to the Receivership
Proceedings;
e) Communicating with the Commission des normes du travail du Quebec (the
"CNTQ") and their legal counsel with respect to amounts owed to SHS's former
employees resident in Quebec and the claim asserted by CNTQ against SHS's
estate;
f) Evaluating CNTQ's proof of claim and issuing a notice of disallowance to
disallow, in part, CNTQ's proof of claim, pursuant to the provisions of the BIA;
g) Continuing the review and assessment of multiple proofs of claim filed by SHS's
former employees with respect to their entitlements pursuant to section 81.4 of
the BIA and, where appropriate, issuing notices of disallowance to those
employees who claimed in excess of the amounts owed to them according to
SHS's payroll records;
h) Communications with Service Canada regarding proof of claims filed by SHS's
former employees in connection with the Wage Earner Protection Program Act
("WEPPA") and continuing to record subrogation letters (the "Subrogation
Letters") as they are received from Service Canada with respect to payments
22
made to employees under the WEPPA program;
i) Finalizing the calculation of the amounts owed to SHS' former employees
pursuant to SHS's payroll records and provincial legislation for compliance with
WEPPA requirements, and corresponding with former employees of SHS
regarding WEPPA compliance and assisting employees with application process;
j)
Arranging payment of the amounts owed to SHS' former employees pursuant to
section 81.4 of the BIA, including paying Service Canada directly with respect to
the Subrogation Letters filed with the Receiver;
k) Responding to phone and e-mail inquiries from customers, former employees,
installers, contractors, third party licensees and various other interested parties;
and
1) Other administrative matters incidental to the administration of the estate,
managing the preservation of the Company's books and records, ongoing
banking and cash management.
13.
The Receiver has also performed a wide range of operational activities incidental to the
Receivership Proceedings, as well as its duties and powers under the Receivership Order
and the BIA, in the period from September 1 to January 31, 2015, including the following:
a) Retaining, on behalf of the Company, certain staff on a term and task contract
basis;
b) Recovering proceeds from the sale of certain customer orders to third parties
which were payable as those orders were completed;
c) Safeguarding the Company's computer server and certain books and records in a
temporary rented office;
d) Maintaining a website (www.pwc.com/car-shs). maintaining the Receiver's
phone
hotline
(1-855-376-8474)
and
its
email
address
(shs.questions(S>ca.pwc.com) for creditors, former employees, customers and
other stakeholders to obtain further information on the Company and the
Receivership Proceedings. The Receiver continues to return calls and emails and
23
make regular updates to the website;
e) Liaising with Sears to assist in managing information requests from former SHS
customers seeking service and warranty work, which Sears was performing;
f) Communicating with Sears and Alaris and their counsel regarding the status of
the Receivership Proceedings, ongoing matters and providing requested
analyses;
g) Resolving claims of suppliers for the repossession of unpaid inventory pursuant
to section 81.1 of the BIA;
h) Communicating with Licensees regarding the termination of their agreements
with SHS, and recovering amounts owed to SHS, if any;
i) Completing records of employment, T4S and (where relevant) T2200 forms for
former SHS employees and corresponding with former SHS employees
regarding same;
j) Completing the Receiver's second interim statutory report pursuant to section
246 (2) of the BIA and filing same with the Office of the Superintendent of
Bankruptcy;
k) Arranging payment of the amount owed to Sun Life Financial to settle their
claim filed pursuant to section 81.6 of the BIA; and
1) Completing statutory and operational requirements; such as ongoing banking,
cash management, and managing the preservation of the Company's books and
records.
RESULTS FROM THE LIEN A N D TRUST CLAIMS RESOLUTION PROCESS
14.
Pursuant to the Lien Claims Resolution Order, the Receiver has now substantially
completed the Lien Claims Resolution Process (as defined therein). Capitalized terms
used and not defined in this section have the meaning given to them in the Lien Claims
Resolution Order and the Lien and Trust Claims Procedure Order (Identification of
24
Claims) dated March 11, 2014 (the "Claims Identification Order") <*.
15.
The chart below summarizes all of the Claims received in the Lien and Trust Claims
Process and the results of the Lien Claims Resolution Process:
Type of Claim
Lien Claim
Unspecified
Claim
Trust Claim
Total
16.
Disallowed /
Trust Claim ($)
934,325-9i
508,807.18
Proven
Lien Claim
Amount ($)
343,281.97
4,837-03
1,574,953-27
3,018,086.36
348,119.00
1,574,953-27
2,669,967.38
Number
of
Claimants
102
14
Total Claims
Received ($)
82
198
591,043.94
503,970.17
Pursuant to the Claims Identification Order, Claimants were to indicate whether their
Claim was a Trust Claim or a Lien Claim. Some of the Claimants failed to indicate if their
Claim was either a Trust Claim or a Lien Claim. These claims are referred to as an
unspecified claim ("Unspecified Claim") in the chart above.
17.
The Receiver notes a difference of $42,800.02 in the total Claims received as reported
above compared to the total Claims received as reported in the Fifth Report in the chart
after paragraph 63 therein, of $2,975,286.34. This difference was due to a correction of
the amount of a Claim as filed. The Receiver further notes that there were changes to the
classification of certain Claims between Trust Claims and Unspecified Claims, but these
amounts were not significant.
18.
On October 9, 2014, pursuant to the terms of the Lien Claims Resolution Order, the
Receiver issued a Notice of Revision or Disallowance to Claimants who filed Trust Claims
in the Lien and Trust Claims Process. All Claimants who had filed Trust Claims were
advised that the effect of the Bankruptcy Orders was to terminate all Trust Claims
asserted against the Property of SHS, and accordingly, all Trust Claims filed with the
Receiver pursuant to the Claims Identification Order were deemed to be disallowed in full
and finally adjudicated pursuant to the Lien Claims Resolution Order.
19.
During October 2014, the Receiver completed its initial review (the "Initial Review") of
the Lien Claims filed by Claimants. This review included examining the supporting
documentation (the "Supporting Documentation") initially submitted by the
Claimants with their Proof of Claim). The Receiver's review included all Late Claims (as
Claims Identification Order: http://wvvw.pwc.com/en_CA/CA/car/shs/assels/shs-087__031214.pdf
25
defined in the Eighth Report). Pursuant to the Claims Identification Order, a Proof of
Claim submitted for a Lien Claim was to include the following
Supporting
Documentation:
a) a copy of the contract or subcontract including any change orders, amendments,
purchase orders or other related documents on which the claim is asserted;
b) the names of the parties to the contract or subcontract;
c) the contract price and/or agreed billing rates for personnel and machinery and a
statement of account, including the dates and amounts of payments received;
d) copies of any written notice of lien, registered Lien Claim, Statement of Claim or
other process commenced in respect of the Claim;
e) evidence of the last day services and/or materials were supplied by the Claimant to
the Customer's premises including, but not limited to time sheets, delivery slips or
similar evidence;
f) a copy of the applicable Certificate of Completion;
g) any other documents or information as the Receiver may reasonably request for the
purpose of assessing and determining any claims in accordance with the Claims
Identification Order; and
h) documentary evidence that its Lien Claim has been properly preserved and
perfected in accordance with the provisions of the applicable Lien Legislation,
together with proof of service of any process (if applicable) upon the Customer and
all named defendants to such process.
20. Upon completion of the Initial Review, the Receiver determined that almost all of the
Claimants who had filed Lien Claims had not provided adequate
Supporting
Documentation necessary to prove their asserted Lien Claim. As a result, as permitted by
the Lien Claims Resolution Order, the Receiver issued to certain Claimants a Request for
Supporting Information, which provided such Claimants an opportunity to provide to the
Receiver any missing Supporting Documentation by the Supporting Information Deadline
set by the Lien Claims Resolution Order.
10
26
21.
Subsequent to the Supporting Information Deadline, the Receiver completed its review of
any additional Supporting Documentation provided by the Claimant in order to
determine the valid Lien Claims.
22.
Not all Claimants that were sent a Request for Supporting Information submitted
additional Supporting Documentation or provided any response to the Receiver.
Similarly, not all Claimants that were sent a Request for Supporting Information
submitted sufficient Supporting Documentation that was adequate to prove their asserted
Lien Claim.
Many of these Claimants had not registered a lien pursuant to Lien
Legislation or failed to take necessary steps to properly preserve and perfect a Lien Claim.
As a result, these Claimants did not have a valid Lien Claim but had, at best, a Trust
Claims pursuant to Lien Legislation.
During October to early December, all such
Claimants who had failed to provide adequate Supporting Documentation to prove a Lien
Claim were issued a Notice of Revision or Disallowance by the Receiver, pursuant to the
terms of the Lien Claims Resolution Order, advising that the Receiver had rejected all or
part of such Claimant's Lien Claim or Trust Claim.
23.
The Receiver's review and analysis of the remaining asserted Lien Claims included the
review of the services and/or materials that were supplied by a Claimant in respect of an
asserted Lien Claim to determine if the services and/or materials supplied were eligible
under the applicable Lien Legislation to have a Lien Claim filed in respect thereof.
24.
In December 2014, following the completion and review of the remaining asserted Lien
Claims and in consultation with its legal counsel, as appropriate, the Receiver determined
the value of the Proven Lien Claims. Where appropriate, the Receiver issued a Notice of
Revision or Disallowance to the Claimants who had asserted a Lien Claim pursuant to the
Claims Identification Order which was rejected in whole or in part by the Receiver,
providing the reasons for the revision or rejection of the Lien Claim to the Claimant.
DISPUTE NOTICES RECEIVED
25.
Following issuance of the Notices of Revision or Disallowance a total of 23 Claimants filed
Dispute Notices with the Receiver, totaling $227,836 (the "Disputed Claims").
26.
In an effort to resolve the disputes with these Claimants the Receiver contacted a number
of the Claimants and issued further correspondence to the Claimants to explain the
11
27
reasons for the disallowance of their Claim, including the disallowance of Trust Claims
pursuant to the Lien Claims Resolution Order.
27.
As a result of these efforts, eight Claimants with Disputed Claims totaling approximately
$109,419 withdrew their Dispute Notices. Accordingly, as at the date of this report, there
remains 15 Disputed Claims with a value of $118,417 (the "Remaining Disputed
Claims"), made up as follows:
Type of Claim
Number of
Claimants
(a) Trust Claim
(b) Unspecified Claim
(c) Lien Claim
Total
Amount ($)
83,090-69
26,739-29
8,587-24
15_
118,417.22
28. A complete detail of the Remaining Disputed Claims, including the name of the Claimants
and the reason for the disallowance of their claim by the Receiver is attached as Appendix
"C".
29.
Included in the total of the Remaining Disputed Claims are five claims for which Dispute
Notices which were received by the Receiver more than 15 days after the Receiver had
issued the Notice of Revision or Disallowance to the Claimant, as detailed in Appendix
"C". These claims are outside of the timeframe set by the Lien Claims Resolution Order
for receipt of Dispute Notices by the Receiver. Notwithstanding this, the Receiver has
reviewed the Dispute Notices which were received late.
30. In summary, as detailed on Appendix "C", the Receiver has disallowed the Remaining
Disputed Claims for the following reasons:
(a) nine disputed Trust Claims were disallowed pursuant to paragraph 6 of the Lien
Claims Resolution Order;
(b) three disputed Unspecified Claims were disallowed as the Claimants did not provide
adequate documentation to prove a Lien Claim, and in particular these Claimants
did not have registered liens pursuant to Lien Legislation; and
(c) three disputed Lien Claims were disallowed for the following reasons:
i.
two claims were disallowed as the Claimants did not provide adequate
12
28
supporting documents to prove a Lien Claim, and in particular these
Claimants did not have registered liens pursuant to Lien Legislation; and
ii.
one claim relates to a Claimant who had provided adequate Supporting
Documentation, but the lien registration documents evidenced that the lien
was registered outside of the time frame set by Lien Legislation. As result,
this Claimant did not properly preserve their lien pursuant to Civil Code of
Quebec, SQ 1991, c 64, s 2727, being the applicable Lien Legislation.
31.
Pursuant to paragraph 14 of the Lien Claims Resolution Order, the Receiver seeks the
advice and direction of the Court with respect to the Disputed Claims to be Resolved. The
Receiver respectfully submits that the Disputed Claims to be Resolved are not Proven Lien
Claims, as discussed above and further outlined in Appendix "C", and requests that the
Court issue the Disputed Claims Resolution Order, deeming the Remaining Disputed
Claims as fully determined and adjudicated pursuant to the Notices of Revision or
Disallowances issued to the Claimants by the Receiver. These Claimants are being served
notice of this application.
P R O V E N L I E N CLAIMS A N D D I S P U T E D L I E N C L A I M S
32.
In accordance with the Lien Claims Resolution Order, the Receiver has determined the
following Proven Lien Claims and Disputed Lien Claims:
Type of Claim
(a) Proven Lien Claim
(b) Disputed Lien Claim
Total
33.
Number of Claimants
11
6
17
Amount ($)
348,119.00
35,326.53
383,44553
Pursuant to the Settlement Agreement and the Lien Claims Resolution Order, the
Receiver has provided Sears with written notice prior to accepting any Lien Claim in
excess of $50,000 and has provided Sears with all documentation filed by the Claimants
in support of such claim or other documentation in the possession of the Receiver and
relevant to the determination of the Lien Claim by the Receiver. Sears did not object to
the Receiver's determination of these claims.
13
29
SETTLEMENT W I T H S E A R S A N D P A Y M E N T OF P R O V E N L I E N C L A I M S
34.
Pursuant to the Settlement Agreement, on January 23, 2015, the Receiver notified Sears
in writing of the quantum of the Proven Lien Claims Amount and the aggregate amount of
the Disputed Lien Claims.
35.
The Receiver and Sears completed the payments as outlined in the Settlement Agreement
in January 2015, including the receipt by the Receiver of the Sears Primary Settlement
Payment (as defined in the Settlement Agreement) to fund the Lien Claim Cash Pool for
distribution to holders of Proven Lien Claims. Accordingly, the Receiver is in the process
of completing payments to Claimants with Proven Lien Claims in accordance with the
Lien Claims Resolution Order.
APPLICATION FOR LICENSEE RESPONDENT ORDER
36.
The Receiver is seeking to recover amounts owed by the Licensee Respondents (as defined
below) for work performed during the Receivership Proceedings, and seeks the Court's
approval of the Licensee Respondent Order.
37.
As discussed in the Receiver's second report to the Court dated January 7, 2014 (the
"Second Report")5, the Receiver had sought to resume certain carpet/upholstery and
duct cleaning services (collectively, the "PSP Jobs") that were performed by licensees
(the "Licensees") pursuant to the terms of a license agreement (the "License
Agreement") that was assigned to SHS by Sears prior to the Receivership Proceedings.
Only one of the forty-seven Licensees agreed to sign a confirmation agreement (the
"Confirmation Agreement") with SHS to, among other things, acknowledge the terms
under which work was being performed during the Interim Receivership Proceedings and
Receivership Proceedings.
38.
During the Receivership Proceedings, the Receiver understands that the Licensees
continued to receive customer leads directly by phone and continued to rely on certain
other benefits pursuant to the terms of the License Agreement, such as the use of brand
names and trademarks. The contact numbers for the Licensees could be found in local
' The Second Report: http://www.pvvc.com/en_CA/CA/car/shs/assets/shs-045 010814.pdf
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phone listings paid for by Sears or SHS, or on Sears' website, which would connect
customers with the Licensee assigned to their respective area. Customers could engage a
Licensee in this way to perform services that were covered by the License Agreements,
such as; carpet, duct, and upholstery cleaning, among other things.
39.
On or about December 13, 2013, the Receiver suspended all Licensees' access to certain
SHS software that the Licensees used prior to the Date of Appointment for obtaining call
in leads from customers that were made to SHS' third party customer service call centre.
In addition, this software was used to process certain credit card transactions. Access to
this software was to be fully reinstated once a Licensee entered into a Confirmation
Agreement with the Receiver.
This did not, however, curtail all of the Licensees'
operations, and many of the Licensees continued to perform services, including the
License Respondents.
40. On January 23, 2014, a notice of motion was filed by counsel for a group of Licensees (the
"Licensee Respondents") for an order (the "Licensee Order") lifting the stay
provisions in paragraphs 14 and 15 of the Receivership Order (the "Stay Provisions") as
against the Licensee Respondents. A copy of the Licensee Order is attached as Appendix
"D".
41.
On February 4, 2014, the Court made the Licensee Order, for the limited purpose of permitting
the Licensee Respondents to terminate any of their respective License Agreements with SHS.
Pursuant to paragraph 2 of the Licensee Order, each Licensee Respondent was to deliver to the
Receiver within ten days of the order, one of the following (collectively, the "Requests"):
a) (i) An accounting (the "Accounting"), in form and substance satisfactory to the
Receiver, acting reasonably, of the work performed under such License Agreement by
such Licensee Respondent from December 13, 2013, to the date upon which such
accounting is received by the Receiver (the "Work Period"); and (ii) funds payable to
SHS pursuant to such License Agreement on account of work performed during the
Work Period, subject to any valid right of set-off available to such Applicant; or
b) A statutory declaration that declares: (i) no services were performed by such Licensee
Respondent under the License Agreement during the Work Period; and (ii) no funds are
properly payable to SHS pursuant to such License Agreement.
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42.
The Receiver notes that the Licensees that did not execute a Confirmation Agreement and
were not one of the Licensee Respondents were also sent correspondence setting out the
Requests. Upon satisfaction of the Requests, the Receiver terminated those Licensee's
License Agreements.
43.
In a letter dated February 14, 2014 (the "February 14 Letter"), legal counsel to the
Licensee Respondents provided (for each of the Licensee Respondents): (i) an Accounting
related to the Work Period, and (ii) a calculation of the amount owed (the "Set-off
Amount") to the Licensee Respondent for work performed prior to the Date of
Appointment. A copy of the February 14 Letter is attached as Appendix "E". Copies of
each Licensee Respondents' Accounting and calculation of the Set-off Amount will be
brought to Court by the Receiver's counsel on the day of the hearing, as these materials
are voluminous.
44.
The February 14 Letter advised the Receiver that the Set-off Amount for each Licensee
Respondent was obtained from either their accounting records or from the Notice and
Statement of the Interim Receiver, dated December 20, 20136, in the event the Licensee
Respondent was unable to calculate the Set-off Amount from their accounting records.
45.
The Set-off Amount for each Licensee Respondent arose from pre-filing transactions with
the Company. The amounts owing from the Licensee Respondents which the Receiver is
seeking to recover are for post-filing transactions. Accordingly, the Receiver is of the view
that the Set-off Amount should not be set-off against the amounts owing to the Receiver.
46.
The February 14 Letter outlined further arguments as to why the Licensee Respondents
did not owe any amounts to SHS related to the Work Period, which were as follows:
a) When SHS breached the licensee agreements by failing to pay the Licensee
Respondents for their work, and then voluntarily put itself into receivership on
December 13, 2013, thus ending the performance by SHS of all of its obligations
pursuant to the licensee agreement, SHS repudiated the licensee agreements which
were thus at an end because of frustration and fundamental breach;
^Notice and Statement of the Interim Receiver, dated December 20, 2013:
http://wvvvv.pvvc.com/en__CA/CA/car/shs/assets/shs-025_ 122413.pdf
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b) No amount is owing because the Licensee Respondents have set-off claims in
excess of any amount which otherwise might have been owing under the Licensee
Agreements; and
c) In any event, if any amount is owed to SHS, the calculation does not include the
5V4 % for merchant fees and commission owed by SHS to Sears.
47.
In response to the February 14 Letter, the Receiver issued correspondence to the Licensee
Respondents dated September 15, 2014 (the "September 15 Letter"). A copy of the
September 15 Letter is attached as Appendix "F".
48.
The September 15 Letter addressed the arguments outlined above and provided the
Receiver's position thereon, which are as follows:
a) The receivership of SHS did not repudiate the License, and there was no frustration
or fundamental breach arising therefrom;
b) No valid right of set-off has been properly asserted by any of the Applicants. The
Applicants do not have a right of set-off against the Amount Owed for any prereceivership obligations of SHS. These amounts will be dealt with in the normal
course of the Receivership Proceedings; and
c) The Amount Owed, as determined by the Receiver, includes the 5x/4% merchant
fees and commission which is properly payable by each Applicant in respect of the
work performed and shall be remitted to Sears.
49.
The September 15 Letter included the Receiver's calculation of the amount owed (the
"Amount Owed") by each Licensee Respondent based on the Receiver's review of the
Accounting submitted for the Work Period, which was compared to SHS' books and
records and the License Agreement, to confirm the remittance amounts that were
applicable for PSP Jobs completed.
50. The September 15 Letter requested that the Licensee Respondents remit the Amount
Owed to the Receiver by October 15, 2014. The September 15 Letter further advised the
Licensee Respondents that the Receiver reserved its rights to seek the advice and
direction of the Court in respect of any failure to remit the Amount Owed.
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51.
None of the Licensee Respondents remitted the Amount Owed to the Receiver by October
15, 2014, or anytime thereafter.
52.
On October 14, 2014, counsel for the Licensee Respondents sent an email (the "October
14 Email") to the Receiver advising that the balance of the Licensee Respondents that he
still represented intended to oppose any such motion in respect of the Receiver pursuing
the Amount Owed by each individual Licensee Respondent. A copy of the October 14
Email is attached as Appendix "G".
53.
The October 14 Email further outlined that certain of the Licensee Respondents had since
gone out of business, had not provided their counsel with any direction or had chosen to
deal with the Receiver directly.
54.
The Receiver respectfully submits that the Amount Owed by the Licensee Respondents is
fully payable to the Receiver in respect of services performed by the Licensee Respondents
during the Receivership Proceedings. Accordingly, the Receiver now seeks the approval of
the Court of the Licensee Respondent Order, compelling the Licensee Respondents to
remit to the Receiver the Amount Owed. A schedule detailing the Licensee Respondents
and their respective Amount Owed is attached as Appendix "H".
55.
The aggregate Amount Owed by the Licensee Respondents is $292,705.23, which includes
the applicable provincial sales taxes, in accordance with the License Agreements.
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RECEIVER'S STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
56. The Receiver's statement of cash receipts and disbursements for the period from the Date
of Appointment to January 31, 2015 is detailed in Appendix "I" and is summarized as
follows:
STATEMENT OF RECEIPTS A N D DISBURSEMENTS
For t h e p e r i o d f r o m D e c e m b e r 13, 2 0 1 3 t o J a n u a r y 31, 2 0 1 5
in $ ooo's
Total receipts
6,923
Disbursements:
Receiver's fees and disbursements (includes legal counsel)
Sales tax paid on disbursements and remittances
Employee costs
Sears BCA and Transition Service Agreement payments
Installer payments
Section 81 Priority Payments
2,263
727
557
470
349
156
Transfer to Trustee's Account
Sears Administrative Priority Payment
Other operating costs
99
458
Rent / lease payments
315
59
Total d i s b u r s e m e n t s
5,452
N e t c a s h flow
1,470
Opening cash swept by Receiver
1,205
Net cash flow
Funds received under Receiver's Borrowings
1,470
688
Funds held in reserve
(706)
Repayment of Receiver's Borrowings (includes interest thereon)
(752)
Cash h e l d i n t r u s t - J a n u a r y 31, 2 0 1 5
1,905
REQUEST FOR FEE APPROVAL
57. The Receiver and its counsel, McMillan LLP ("McMillan") have maintained detailed
records of their professional time and disbursements since the Date of Appointment.
58. Pursuant to paragraphs 15 to 17 of the Receivership Order, the fees and disbursements of
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the Receiver and the fees and disbursements of its legal counsel are authorized to be paid
on a periodic basis subject to any final approval as ordered by the Court.
59.
The Court previously approved the fees of the Receiver and McMillan for the period from
the Date of Appointment to August 31, 2014. The Receiver is now seeking approval of the
Court of the Receiver's fees and McMillan's fees for the period from September 1, 2014 to
January 31, 2015, in connection with the performance of their duties in the Receivership
Proceedings (the "Receivership Fee Period").
60. The Receiver and its counsel have agreed to provide a ten percent discount on their total
professional fees. Accordingly, the Court's approval is being sought for the fees of the
Receiver during the Receivership Fee Period amounting to $187,209.45, together with
disbursements in the amount of $121.42, and for the fees incurred by McMillan for the
Receivership Fee Period amounting to $117,191.70, together with disbursements in the
amount of $3,694.05.
61.
The time spent by Receiver's personnel during the Receivership Fee Period is more
particularly described in the Affidavit of Cameron Wilson of PwC (the "Wilson
Affidavit"), sworn in support hereof and attached as Appendix "J". The Wilson Affidavit
includes a summary of the personnel, hours, and hourly rates charged by the Receiver in
respect of the Receivership Fee Period.
62.
The time spent by McMillan personnel during the Receivership Fee Periods is more
particularly described in the Affidavit of Wael Rostom of McMillan (the "Rostom
Affidavit"), attached as Appendix "K".
63.
The table at Appendix "L" provides an indicative summary of the time and costs incurred
in the Receivership Fee Period by category according to the purposes for which time costs
were incurred.
64. The Receiver respectfully submits that the Receiver's fees and disbursements and the fees
and disbursements of McMillan, are reasonable in the circumstances and have been
validly incurred in accordance with the provisions of the Receivership Order.
Accordingly, the Receiver now seeks the approval of the Court of the Receiver's fees and
disbursements and McMillan's fees and disbursements for the Receivership Fee Period.
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RELIEF SOUGHT
65.
The Receiver respectfully requests that this Court grant:
a) The Disputed Claims Resolution Order and Fee Approval Order;
and
b) The Licensee Respondent Oder.
All of which is respectfully submitted on this 6th day of February, 2015.
PricewaterhouseCoopers Inc.
In its capacity as Receiver of SHS Services Management Inc. / Gestion des Services SHS Inc. and
SHS Services Limited Partnership
m
Mica Arlette
Senior Vice President
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Appendix A
Appendix B
Appendix C
Appendix D
Appendix E
Appendix F
Appendix G
Appendix H
Appendix I
Appendix J
Appendix K
Appendix L