-137743 No. S Vancouver Registry IN THE SUPREME COURT OF BRITISH COLUMBIA

No. S-137743
Vancouver Registry
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF THE
R.S.C. 1985, c. C-36, AS AMENDED
AND
IN THE MATTER OF THE CANADA BUSINESS CORPORATIONS ACT
R.S.C., 1985, c. C-44 AS AMENDED
AND
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT
SBC, 2002, C-57 AS AMENDED
AND
IN THE MATTER OF LEAGUE ASSETS CORPORATION AND THE
(COLLECTIVELY
34th REPORT TO COURT
(Fort St John Mortgage Receivable Settlement Agreement)
May 6, 2015
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
TABLE OF CONTENTS
1.
INTRODUCTION ....................................................................................................... 2
2.
BACKGROUND.......................................................................................................... 3
3.
NORTH POINT ACQUISITION .................................................................................. 5
4.
THE SETTLEMENT AGREEMENT............................................................................. 7
5.
RECOMMENDATION ................................................................................................ 9
APPENDICES
A.
Updated List of Petitioners
B.
Site Map
C.
Settlement and Assignment Agreement
1
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
1.
INTRODUCTION
1.1
Filing Date
Corporation and those
Company
Initial Order
Arrangement Act
PwC
Monitor
1.2
Gorders:
1.2.1
League
Court
CCAA
G-8
Approving the registration of subdivision and easement plans for certain lands
owned by G-8
FSJ , a Petitioner, has first
and third mortgages; and
1.2.2
New Lot A
subdiv
1.3
North Point
In order to facilitate this sale and subdivision, and in order to resolve all issues regarding
a settlement agreement between G-8, North Point, FSJ
an
Morbank
been reached subject to court approval. The purpose of this report is to provide
recommendation with respect to its approval.
1.4
Unless otherwise stated, all monetary amounts noted herein are expressed in Canadian
dollars. Capitalized terms not otherwise defined herein are as defined in previous reports
of the Monitor.
1.5
The Monitor has set up a website at:
www.pwc.com/car-leagueassets
1.6
All prescribed materials filed by League and the Monitor relating to this CCAA proceeding
are available to creditors, Investors, and other interested parties in electronic format on
2
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
creditors, Investors, and interested parties are kept current and to add prescribed
materials as required.
2.
BACKGROUND
Origination of FSJ Mortgages
2.1
G-8 is the registered owner of five parcels of land in the City of Fort St. John
Lands .
G-8
2.2
The total area of the G-8 Lands is approximately 218 acres comprising five separate
parcels. Parcels 1 4 total 164.53 acres and together are commonly referred to as Lot 2.
The fifth parcel is referred to as Lot B. A diagram of these lands is attached at Appendix
B.
2.3
The lands are amenable to mixed use development including retail, commercial, multifamily residential use and other uses. Accordingly, G-8 intended to create a mixed-use
community development anchored by a retail power centre, with service commercial,
hotel and motel developments and a mix of multi-family, duplex and single family
residential housing.
2.4
In 2007 G-8 entered into a contract of purchase and sale as amended (the PSA to sell
48.4 acres of Lot 2 to RSR Development Group RSR for the purposes of the
construction of a retail power centre. The 48.4 acres subject to the PSA was to be
subdivided from Lot 2.
2.5
In January 2008 FSJ
interest in the PSA. FSJ paid a deposit under the
PSA of $4.15 million
Deposit , which constituted approximated fifty percent of the
agreed purchase price of $8.26 million.
2.6
The Deposit is secured by two mortgages $1.65 million (1st ranking) and $2.5 million (3rd
ranking) registered against the 4
FSJ Mortgages .
2.7
Morbank has the second ranking mortgage over the 4 parcels comprising Lot 2 and a first
ranking mortgage over the fifth parcel (Lot B) to which FSJ has no legal interest.
3
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
2.8
The mortgages and their key terms are summarized as follows:
Priority
Mortgagee
1st
Fort St John GP Inc.
Amount
outstanding*
Interest
Rate
$4,269
15%
(general partner of FSJ)
2nd
Morbank Financial Inc.
$2,885
15%
3rd
Fort St John GP Inc.
$6,468
15%
(general partner of FSJ)
TOTAL
$13,622
* Approximate amount includes principal and interest only as at May 1, 2015
2.9
FSJ funded its investment in the FSJ Mortgages by borrowing $1.0 million from Edward
Frank Walters and $3.0 million from IGW REIT GP in addition to raising $3.0 million in
equity from its limited partners.
2.10
FSJ provided a first
(the
Walters Mortgage
GP over the FSJ Mortgages as security for those loans. The interest of the Walters
Mortgage is subject to the registration of a Judgement against Mr. Walters in favour of
First Accredit Mortgage Corporation. The key terms of these mortgages are summarized
as follows:
Priority
Mortgagee
1st
Edward Frank Walters
2nd
IGW REIT GP Inc.
Amount
outstanding*
$
Interest
Rate
$949
20%
$7,676
14%
* Approximate amount includes principal and interest only as at May 1, 2015
4
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
G-8 Litigation
2.11
In December 2008, FSJ terminated the PSA and sought the return of the Deposit on the
basis that, among other things, G-8 had failed to achieve the subdivision of the property
for the construction of the retail power centre within the specified time period.
2.12
Following the termination of the PSA by FSJ, protracted litigation between G-8 and FSJ
G-8 Litigation
:
2.12.1
G-8 asserted that FSJ was in breach of the PSA for various reasons and that the
Deposit should be forfeited. FSJ disagreed and sought the return of the Deposit
through enforcement of the FSJ Mortgages.
2.12.2 The Court found that FSJ was not entitled to terminate the PSA but still found
that the FSJ Mortgages were enforceable despite the breach by FSJ of the PSA.
An Order Nisi was made with a 6 month redemption period ending August 21,
2011 and setting the repayment obligation at $4,697,399.77 plus interest.
2.12.3 G-8 appealed the
British Columbia Court of Appeal (the
Appeal Court and FSJ counter appealed. The appeal was heard in August
2013 and the Appeal Court held that FSJ was entitled to give notice of
termination and therefore could seek return of the Deposit. The Appeal Court
acknowledged other issues advanced by G-8 which were not addressed by the
Court, and the case was remitted back to the Court to enable G-8 to advance
further arguments on the other issues.
2.13
3.
Since the A
decision in August 2013, FSJ has not pursued further court
action in part due to the CCAA proceedings. Rather FSJ participated in settlement
discussions facilitated by the Monitor in early 2015.
NORTH POINT ACQUISITION
3.1
G-8 entered into a sale and purchase agreement for the sale of Lot B Lot B PSA
purchaser assigned its rights in the Lot B PSA to North Point, who completed the
purchase on March 31, 2015.
5
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
3.2
As a term of the Lot B PSA, G-8 is obliged to:
3.2.1
Transfer an area described as New Lot A which comprises 1.23 hectares, or
slightly more than three acres, to North Point. The New Lot A currently forms
part of Lot 2 and is subject to the FSJ Mortgages and the Morbank mortgage; and
3.2.2
Consent to the dedication of certain roads and arterial highway access and
easement areas on the Lot 2 lands.
3.3
In order to register the subdivision plan and necessary easement documentation required
to meet its obligations under the Lot B PSA, G-8 requires the consent of all charge
holders, including FSJ and IGW REIT GP Inc.
3.4
In order to fulfill its obligations under the Lot B PSA, G-8 filed an application to the Court
seeking an order from the Court:
3.4.1
Approving the registration of the subdivision and easements required to form
New Lot A and facilitate the construction of a road interchange with the Alaska
Highway which would give road access to the G-8 Lands;
3.4.2
Approving the sale of the lands comprising New Lot A to North Point; and
3.4.3
Directing FSJ and IGW REIT GP Inc. and any affected creditors of theirs to
discharge any financial charge or encumbrance registered as against those parts
only of the New Lot A to allow G-8 to transfer the New Lot A to North Point free
of financial encumbrances.
3.5
In return for FSJ releasing the land comprising New Lot A from its mortgages, G-8
proposed that $0.5 million
Holdback
placed in trust for the benefit of the parties with charges against Lot 2.
3.6
FSJ and the Monitor believed the Holdback offered was not sufficient to compensate for
the removal of the 1.23 hectares from
security and were opposed to Gapplication.
6
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
4.
THE SETTLEMENT AGREEMENT
4.1
North P
New Lot A
and the necessary approvals to commence construction of the road interchange during
the spring/summer of 2015.
4.2
North Point and Morbank engaged in settlement discussions with League which resulted
in the Settlement and Assignment Agreement dated May 6, 2015 (the Settlement
Agreement
-8, North Point and League. A copy of the unsigned Settlement
Agreement is attached as Appendix C.
Summary of the Settlement Agreement
4.3
FSJ will assign its right, title and interest in the FSJ Mortgages, the foreclosure
-8 to Morbank.
4.4
FSJ will also provide Morbank with registerable discharges or releases of the Walters
Mortgage, the IGW REIT LP mortgage and the First Accredit Judgements.
4.5
G-8 shall consent to the assignment of the FSJ Mortgages, the foreclosure proceedings
-8 and
Morbank. G-8 and FSJ will exchange full releases.
4.6
Morbank will pay to FSJ $4.25 million. $962,751.87 will be paid to discharge the Walters
Mortgage and the remainder will be paid to the Monitor. League and the Monitor have
reviewed the Walters Mortgage payout statement and are satisfied with the final payout
amount.
4.7
FSJ and IGW REIT GP Inc. will execute certain subdivision plan documents to be filed
with the City of Fort St. John and the Ministry of Transportation and Highways to
facilitate the earliest possible filing of the application for the subdivision plan.
4.8
The Settlement Agreement transaction is conditional upon the court authorizing and
approving the Settlement Agreement, and an order pronounced in the CCAA proceedings
vesting the FSJ Mortgages to Morbank and vesting the New Lot A to North Point free and
clear of all encumbrances and charges.
7
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
Conclusion
4.9
s plan to consummate the Settlement Agreement. This
conclusion is based on the following considerations:
4.9.1
FSJ is owed $10.7 million and League estimates that the value of Lot 2 exceeds
the total owing to FSJ and Morbank. As a result, absent the G-8 Litigation, FSJ
would have expected to recover the full amount of its loan.
4.9.2
With respect to the G-8 Litigation,
-8
Litigation and advised that there is significant uncertainty regarding the final
outcome of further court applications that would be required to enforce the FSJ
Mortgages. If FSJ was unsuccessful in these further court applications, the value
of the FSJ Mortgages may be nil.
4.9.3
Further court applications in the G-8 Litigation would be opposed and significant
time and costs would need to be incurred to obtain a final determination of the
matter.
4.9.4
In the event that FSJ was successful in the G-8 Litigation, additional time would
be required to market and conclude a sale of Lot 2 in order to monetize the value
from the FSJ Mortgages.
4.9.5
The Walters Mortgage has an effective annual cost exceeding 34% per annum and
ongoing delays in the resolution of the G-8 Litigation would erode any return to
FSJ. Further, the Morbank mortgage has an annual cost of 15% and interest is
accrued thereby increasing the obligation to Morbank. This increasing obligation
to Morbank may
third mortgage and may reduce the
recovery from the FSJ Mortgages in the event that they are considered valid and
enforceable by the Court.
4.9.6
League has determined that the costs and risk of continued litigation are not
warranted when compared to the anticipated recovery, after considering the
increasing obligations owing under the Walters Mortgage and the Morbank
mortgage.
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LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
4.9.7
involves an immediate payment from an asset that has been subject to ongoing
litigation sinc
important step towards the completion of the outstanding matters in these CCAA
proceedings.
5.
RECOMMENDATION
5.1
The Monitor recommends that the Court approve the Settlement Agreement and the
proposed Approval and Vesting Order, a copy of which is attached to the Settlement
Agreement as Appendix C.
This report is respectfully submitted this 6th day of May, 2015.
PricewaterhouseCoopers Inc.
Court Appointed Monitor of
League Assets Corporation, et al
Michael J. Vermette, CA, CIRP
Senior Vice President
Neil Bunker, CA, CIRP
Vice President
9
APPENDIX A
Updated List of Petitioners
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
List of Petitioners
Corporations
1.
0781591 B.C. Ltd.
2.
0811883 B.C. Ltd.
3.
0812307 B.C. Ltd.
4.
0827524 B.C. Ltd.
5.
0873201 B.C. Ltd.
6.
0891146 B.C. Ltd.
7.
0895249 B.C. Ltd.
8.
0895251 B.C. Ltd.
9.
0908150 B.C. Ltd.
10.
2128273 Ontario Inc.
11.
2146431 Ontario Inc.
12.
2148711 Ontario Inc.
13.
2164613 Ontario Inc.
14.
2164614 Ontario Inc.
15.
2246329 Ontario Limited
16.
2291088 Ontario Inc.
17.
2314845 Ontario Inc.
18.
473 Albert St. Office GP Inc.
19.
7667906 Canada Inc.
20.
8252220 Canada Inc.
21.
Arbutus Industrial Park Ltd.
22.
Colwood Belmont Developments Ltd.
23.
Colwood City Centre Corp.
24.
Colwood City Centre GP Inc.
25.
Colwood Jerome Developments Ltd.
26.
Colwood Sooke Developments Ltd.
27.
Colwood's Triumph GP Ltd.
28.
Cowichan District Financial Centre GP Inc.
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
29.
Cygnet Apartments GP Inc.
30.
Cygnet Properties GP Inc.
31.
Duncan City Centre GP Inc.
32.
Durham Portfolio GP Inc.
33.
Fort St. John Retail GP Inc.
34.
Gatineau Centre Development GP Inc.
35.
Gatineau Centre Real Estate Development Corporation
36.
IGW Cash Management Fund Ltd.
37.
IGW Diversified Redevelopment Fund GP Inc.
38.
IGW Energy Capital GP Inc.
39.
IGW Industrial GP Inc.
40.
IGW Mortgage Investment Corporation
41.
IGW Properties GP I Inc.
42.
IGW Public GP Inc.
43.
IGW REIT GP Inc.
44.
IGW Residential Capital GP Inc.
45.
Jesken Development GP Inc.
46.
Jesken Investment GP Inc.
47.
LAPP Global Asset Management Corp.
48.
League Acquisition Corp.
49.
League Assets Corp.
50.
League Assets GP Inc.
51.
League Assets International Inc.
52.
League Capital Markets Ltd.
53.
League Capital Partners Ltd.
54.
League Debt Corp.
55.
League Financial Partners Inc.
56.
League Founding Limited Partner Ltd.
57.
League Holdings Corp.
58.
League Investment Fund Ltd.
59.
League Investment Services Inc.
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
60.
League Opportunity Fund Ltd.
61.
League Realty Advisory Ltd.
62.
League Realty Services Ltd.
63.
League REIT Investco Inc.
64.
Londondale Shopping Centre GP Inc.
65.
Market Square Properties GP Inc.
66.
Member-Partners' Consolidated Properties GP Inc.
67.
North Vernon Properties Inc.
68.
Partners Equity Finance Inc.
69.
Residences at Quadra Village GP Inc.
70.
Sundel Square Ltd.
71.
Tsawwassen Retail Power Centre GP Inc.
72.
Tyee Plaza GP Inc.
73.
Village Green Holdings #2 Ltd.
74.
Village Green Holdings #3 Ltd.
75.
Zeus Energy Ltd.
Limited Partnerships
76.
473 Albert St. Office Limited Partnership
77.
Colwood City Centre Limited Partnership
78.
Colwood's Triumph Limited Partnership
79.
Cowichan District Financial Centre Limited Partnership
80.
Duncan City Centre Limited Partnership
81.
Durham Portfolio Limited Partnership
82.
Fort St. John Retail Limited Partnership
83.
Gatineau Centre Development Limited Partnership
84.
IGW Diversified Redevelopment Fund Limited Partnership
85.
IGW Energy Capital Limited Partnership
86.
IGW Industrial Limited Partnership
87.
IGW Properties Limited Partnership I
88.
IGW Public Limited Partnership
LEAGUE ASSETS CORPORATION, ET AL
th REPORT TO COURT
May 6, 2015
89.
IGW REIT Limited Partnership
90.
IGW Residential Capital Limited Partnership
91.
Jesken Development Limited Partnership
92.
Jesken Investment Limited Partnership
93.
League Assets Limited Partnership
94.
Londondale Shopping Centre Limited Partnership
95.
Market Square Properties Limited Partnership
96.
Member-Partners' Consolidated Properties Limited Partnership
97.
North Vernon Properties Limited Partnership
98.
Redux Duncan City Centre Limited Partnership
99.
Residences At Quadra Village Limited Partnership
100.
Tsawwassen Retail Power Centre Limited Partnership
101.
Tyee Plaza Limited Partnership
102.
Village Green Holdings Limited Partnership
Real Estate Investment Trusts
103.
League IGW Real Estate Investment Trust
APPENDIX B
Site Map
APPENDIX C
Settlement and Assignment Agreement