Estate/ Court File No. 32-1942339

Estate/ Court File No. 32-1942339
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
(COMMERCIAL LIST)
IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A
PROPOSAL OF KARRYS BROS., LIMITED, KARRYS SOFTWARE LTD.
AND KARBRO TRANSPORT INC., CORPORATIONS WITH A HEAD
OFFICE IN THE CITY OF MISSISSAUGA IN THE PROVINCE OF
ONTARIO
Applicants
FACTUM OF THE APPLICANTS
(Motion Returnable May 22, 2015)
Date: May 20, 2015
STIKEMAN ELLIOTT LLP
Barristers & Solicitors
5300 Commerce Court West
199 Bay Street
Toronto, Canada M5L 1B9
Elizabeth Pillon LSUC#: 35638M
Tel: (416) 869-5623
Email: [email protected]
Patrick J. Corney LSUC#: 65462N
Tel: (416) 869-5668
Email: [email protected]
Fax: (416) 947-0866
Lawyers for the Applicants
TO: SERVICE LIST
Estate/Court File No. 32-1942339
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
(COMMERCIAL LIST)
IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A
PROPOSAL OF KARRYS BROS., LTD, KARRYS SOFTWARE LTD. AND
KARBRO TRANSPORT INC., CORPORATIONS WITH A HEAD OFFICE IN
THE CITY OF MISSISSAUGA IN THE PROVINCE OF ONTARIO
SERVICE LIST
Karrys Bros. Ltd.
180 Courtney Park Drive East
Mississauga, On L5T 2S5
Steven Karrys
Tel: (905) 565-4900
Fax: (905) 565-5584
Email: [email protected]
Applicant
Karrys Software Ltd.
180 Courtney Park Drive East
Mississauga, On L5T 2S5
Steven Karrys
Tel: (905) 565-4900
Fax: (905) 565-5584
Email: [email protected]
Applicant
Karrys Transport Inc.
180 Courtney Park Drive East
Mississauga, On L5T 2S5
Applicant
Steven Karrys
Tel: (905) 565-4900
Fax: (905) 565-5584
Email: [email protected]
Stikeman Elliott LLP
5300 Commerce Court West
199 Bay Street
Toronto, ON M5L 1B9
Liz Pillon
Tel: (416) 869-5623
Fax: (416) 947-0866
Email: [email protected]
Lawyers for the Applicants
Kathryn Esaw
Tel: (416) 869-6820
Fax: (416) 947-0866
Email: [email protected]
Patrick Corney
Tel: (416) 869-5668
Fax: (416) 947-0866
Email: [email protected]
Core-Mark Inc.
3509 Hulen Street, #108
Fort Worth, Texas 76107
Scott McPherson
Senior Vice President, Corporate Development
Tel: (972) 713-2901
Email: [email protected]
Core-Mark International, Inc.
395 Oyster Point Blvd., Suite 415
So. San Francisco, CA 94080-1928
Greg Antholzner
Vice President, Finance & Treasurer
Tel: (650) 589-9445
Email: [email protected]
Goodmans
Bay Adelaide Centre
333 Bay Street, Suite 3400
Toronto,ON
M5H 2S7
Stephen Bloom
Tel: (416) 597-4179
Fax: (416) 979-1234
Email: [email protected]
Lawyers for Core-Mark Inc.
Brendan O'Neill
Tel: (416) 849-6017
Fax: (416) 979-1234
Email: [email protected]
PricewaterhouseCoopers Inc.
PwC Tower
18 York Street, Suite 2600
Toronto, ON M5J OB2
Michelle M. Pickett
Tel: (416) 815-5002
Fax: (416) 814-3210
Email: [email protected]
Proposal Trustee
Tracey Weaver
Tel:(416) 814-5735
Fax: (416) 814-8378
Email: [email protected]
Holly Thompson
Tel:(416) 941-8383 ext. 13185
Email: [email protected]
Blakes Cassels & Graydon LLP
Suite 4000, Commerce Court West
199 Bay Street
Toronto, ON M5L 1A9
Linc Rogers
Tel: (416) 863-4168
Fax: (416) 863-2653
Email: [email protected]
Lawyers for the Proposal Trustee
Jenna Willis
Tel: (416) 863-3348
Fax: (416) 863-2653
Email: [email protected]
Bank of Montreal
Special Accounts Management Unit
1ST Canadian Place, 7th Floor
SAMU
100 King Street West
Toronto, ON M5X 1A1
Greg Fedoryn
Tel: (416) 643-1623
Fax: (416) 643-1653
Email: [email protected]
Capitalink Advisors Inc.
Roderick McIsaac
Tel: 416-318-7533
Fax: 416-488-8328
Email: [email protected]
Karim Mashnuk
Tel: 647-993-3516
Fax: 416-488-8328
Email: [email protected]
Aird & Berlis
Brookfield Place
Suite 1800, Box 754
181 Bay Street
Toronto, Ontario M5J 2T9
Canada
Lawyers for Bank of Montreal
Karrys Holdco Inc.
Steven Graff
Tel: 416.865.7726
Fax: (416) 863-1515
Email: [email protected]
Aaron Collins
Tel: (416) 865-3412
Fax: (416) 863-1515
Email: [email protected]
180 Courtney Park Drive East
Mississauga, On L5T 2S5
Steven Karrys
Tel: (905) 565-4900
Fax: (905) 565-5584
Email: [email protected]
Peter Karrys
[email protected]
Joel Kissack
Joel Kissack
Tel: (905) 849-5635
Fax: (905) 849-5632
Email: [email protected]
Barrister and Solicitor
405-277 Lakeshore Road East
Oakville, ON L6J 6J3
Lawyer for Peter Karrys
Canada Revenue Agency
5800 Hurontario Street
Mississauga, Ontario
L5R 4B4
Independent Tobacco Wholesalers Limited
440 Railside Drive
Brampton, ON L7A 1L1
McCarthy Tetrault
Suite 5300, TD Bank Tower
Box 48, 66 Wellington Street West
Toronto ON M5K 1E6
Barbara Boake
Tel: (416) 601-7557
Fax: (416) 868-0673
Email: [email protected]
Lawyers for ITWAL
Rothmans, Benson & Hedges Inc.
1500 Don Mills Road
Toronto, ON M3B 3L1
Gwenno Lloyd
Tel: (416) 442-5532
Fax: (416) 449-9601
Email: [email protected]
Davies Ward Phillips & Vineberg LLP
Robin Schwill
Tel: (416) 863-5502
Fax: (416) 863-0871
Email: [email protected]
155 Wellington Street West
Toronto, ON M5V 3J7
Lawyers for Rothmans, Benson & Hedges Inc.
[Personal Information Redacted]
[Personal Information Redacted]
[Personal Information Redacted]
[Personal Information Redacted]
Ti.U.
Colony Ford Lincoln Sales Inc.
300 Queen Street East
Brampton, ON L6V 1C2
De Lage Landen Financial Services Canada Inc.
3450 Superior Court, Unit 1
Oakville, ON L6L 0C4
G.N. Johnston Equipment Co. Ltd.
5990 Avebury Road
Mississauga, ON L5R 3R2
Mercedes-Benz Financial Services Canada
Corporation
2680 Matheson Blvd. East
Suite 500
Mississauga, ON
L4W 0A5
CIT Financial Ltd.
5035 S. Service Road
Burlington, ON L7L 6M9
Ryder Truck Rental Canada Ltd.
2233 Argentia Rd, Suite 300, Mississauga, ON
L5N2X7
Z.Was,S3.:
David Kerr
Tel: (905) 595-3680
Email: [email protected]
Faseeh Ahmad
Tel: 1-855-732-2818
Fax: 1-866-318-3447
Email: [email protected]
Sean Duffy
Tel: (416) 300-5543
Email: [email protected]
Dan Purdy
Tel: (416) 662-9158
Email: [email protected]
Isobel Fraser
Tel: (905) 533-2097
Email: [email protected]
Lina Trennert
Email: [email protected]
Carlo Rodriguez
Email: [email protected]
Trailcon Leasing Inc.
Alan Boughton
Tel: (905) 670-9061
Email: [email protected]
6950 Kenderry Gate
Mississauga, ON L5T 2S7
:-
Canadian Tire Corporation Limited
Caroline Khachehtoori
Tel: (416) 480-8157
Email: [email protected]
2180 Yonge St., PO Box 770, Stn. K
Toronto, ON, M4P 2V8
Roadnet Technologies Inc.
Laura Hughes
Tel: (410) 847-1974
Email: [email protected]
PO Box 123329, Dept #3329, Dallas, TX 75312-3329
Extender Products Limited
R. A. (Bob) Hill
Tel: (416) 231-0200
Fax: (416) 231-0290
Email: [email protected]
106 Princess Margaret Blvd
Etobicoke, ON M9B 2Z3
McLaughlin Bros.
500 Hwy #3, P.O. Box 428
Tillsonburg, ON N4G 4H8
Ewart McLaughlin
Tel: (519) 842-3363
Fax: (519) 842-6689
Email: [email protected]
8834181 Ontario Ltd.
RR6, Perth, ON K7G 3C8
Sean Carson
Tel: (613) 812-1199
Email: [email protected]
Crestpoint Real Estate Inc./ Director Industrial
Holdings Limited
3700 Steeles Avenue W, Suite 800
Vaughan, ON L4L 8M9
Edward Cattana
Tel: (905) 850-8508 ext 251
Fax: (905) 850-6166
Email: [email protected]
-,
Westons Bakeries Limited
1425 The Queensway
Etobicoke, ON M8Z1T3
Heather O'Hagan
Tel: (416) 935-1623
Fax: (416) 503-7658
Email: [email protected]
Old Dutch Foods
1136 Russell St
Thunder Bay, ON P7B 5N2
Glen MacKinnon
Email: [email protected]
Paul Hutton
Email: [email protected]
Ministry of the Attorney-General (Ontario)
McMurtry-Scott Building
720 Bay Street, 11th Floor
Toronto, ON M7A 2S9
Ministry of Finance (Ontario)
33 King Street West
Oshawa, Ontario, Canada
L1H 8H5
Estate/ Court File No. 32-1942339
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
(COMMERCIAL LIST)
IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A
PROPOSAL OF KARRYS BROS., LIMITED, KARRYS SOFTWARE LTD.
AND KARBRO TRANSPORT INC., CORPORATIONS WITH A HEAD
OFFICE IN THE CITY OF MISSISSAUGA IN THE PROVINCE OF
ONTARIO
Applicants
FACTUM OF THE APPLICANTS
(Motion Returnable May 22, 2015)
1.
1153837 Ontario Inc., formerly Karrys Bros., Limited, ("Karrys Bros") brings this
motion for the "Final Extension Order": 1
(a)
extending the time for Karrys Bros to file a Proposal under the
Bankruptcy and Insolvency Act, RSC 1983 c B-3 (the "BIA") to June
12, 2015; and,
(b)
approving the Fourth Report of the Proposal Trustee (the "Fourth
Report").
PART I - THE FACTS
2.
On December 12, 2014, Karrys Bros, 1500140 Ontario Inc., formerly Karrys
Software Ltd. ("Software") and 4028082 Canada Inc., formerly Karbro Transport Inc.
I Capitalized terms used herein but not otherwise defined shall have the meaning attributed to them in the
Affidavits of Steven J. Karrys sworn April 1, 2015, and May 14, 2015.
2
("Karbro", and, together with Karrys Bros and Software, the "Karrys Entities") each
filed a Notice of Intention to File a Proposal under the BIA, in order to, amongst other
things, implement and complete the sale transaction (the "Sale Transaction") arising
pursuant to asset purchase agreement between the Karrys Entities and Core-Mark
International Inc. (the "Purchaser"), for all or substantially all of the Karrys Entities'
business.
May 14th Karrys Affidavit, Motion Record Tab 2, at para 8.
3.
The Sale Transaction closed on February 23, 2015 and substantially all of the
Karrys Entities assets were aquired by the Purchaser. Following closing, the Karrys
Entities completed name changes. Karrys Bros is now known as 1153837 Ontario Inc.
May 14th Karrys Affidavit, Motion Record Tab 2, at paras 1, 7, 9.
4.
Karrys Bros entered into a Transition Services Agreement and Sublease
Agreement to assist with the transition of the Business to the Purchaser.
May 14th Karrys Affidavit, Motion Record Tab 2, at paras 22-23.
5.
Orders extending the time for the Karrys Entities to file a Proposal pursuant to s.
50.4(9) of the BIA (the "Proposal Period") were granted on December 23, 2014, by
Penny, J., and on February 19, 2015, by Wilton-Siegel, J.
May 14th Karrys Affidavit, Motion Record Tab 2, at paras 12-13.
6.
On April 9, 2015, Conway J. granted an extension of the Proposal Period in
respect of Karrys Bros only. As Karbro and Software had no material assets and limited
(or related-party) creditors following closing of the Sale Transaction neither entity
3
sought an extension of its Proposal Period and both were deemed bankrupt as at April
10, 2015.
May 14th Karrys Affidavit, Motion Record Tab 2, at paras 13-15.
7.
As of May 19, 2015, all employees of Karrys Bros have been terminated. The
Sublease arrangements will conclude as at June 30, 2015.
Fourth Report.
8.
Further background detail can be found in the affidavits of Steven J. Karrys
sworn May 14, 2015, April 1, 2015, February 12, 2015, and December 15, 2014 (together,
the "Karrys Affidavits").
PART II - ISSUES
9.
The issues on this motion are whether the Court should:
(a)
extend the time for Karrys Bros to file a Proposal pursuant to s.
50.4(9) of the BIA to June 12, 2015; and,
(b)
approve the Fourth Report of the Proposal Trustee.
PART III - LAW AND ARGUMENT
A. THE EXTENSION OF THE PROPOSAL PERIOD SHOULD BE GRANTED
10.
The Proposal Period is set to expire at 11:59pm on May 24, 2015.
May 14th Karrys Affidavit, Motion Record Tab 2, at para 16.
11.
Karrys Bros Proposal is almost complete. In the event that Karrys Bros' Proposal
Period is not extended, the automatic assignment of Karrys Bros into bankruptcy will
-4
have a significant deleterious effect on its stakeholders as, among other things, the
potential contributions available to Karrys Bros under a Proposal would not be
available to its estate in a bankruptcy.
May 14th Karrys Affidavit, Motion Record Tab 2, at paras 19, 29.
12.
The remaining post-closing matters are most effectively addressed - and will
thus allow for the greatest maximization of value - outside of a bankruptcy:
(a)
Karrys Bros requires additional time finalize post-closing issues as
more fully described at paragraph 17 of the May 14th Karrys
Affidavit and as contemplated in the Transition Services
Agreement and the Sublease Agreement;
(b)
A determination of additional contributions to be available under
the Proposal including (i) final reconciliation and payments from
Petro-Canada regarding the sale-back of certain proprietary
inventory, (ii) ITWAL receivables, (iii) the final LAWTI share
redemption value, (iv) recovery of vendor receivables, and (v) a
potential contribution from Karrys Bros directors' and officers'
insurer;
(c)
Karrys Bros requires additional time to find a buyer for certain
proprietary inventory for which, as of the date of the last stay
extension Order, was thought to be sold back to the relevant
Karrys Bros' supplier; and
(d)
an extension of the stay over Karrys Bros will facilitate the orderly
assessment of pre- and post-filing claims into Karrys Bros estate.
May 14th Karrys Affidavit, Motion Record Tab 2, at para 17-25.
Fourth Report.
-5
13.
Allowing Karrys Bros to deal with the post-closing matters prior to making a
Proposal or outside of a bankruptcy will expedite matters when Karrys Bros submits a
Proposal to its creditors, or is assigned into bankruptcy should the Proposal fail.
May 14th Karrys Affidavit, Motion Record Tab 2, at para 18.
14.
Accordingly, Karrys Bros requires that the stay of proceedings regarding Karrys
Bros be extended until June 12, 2015, in order to (i) finalize the Proposal to be
submitted to its creditors and (ii) satisfy the commitments Karrys Bros made to the
Purchaser under the Transition Services Agreement and the Sublease Agreement.
Karrys Bros anticipates that it will submit a Proposal to its creditors on or before June
12, 2015.
May 14th Karrys Affidavit, Motion Record Tab 2, at para 25.
BIA, ss. 50.4(8), (9), 69.1.
15.
This Court has authority to grant the requested extension under section 50.4(9)
of the BIA, which states that such an extension may be granted where the Court is
satisfied that:
(a)
the insolvent person has acted, and is acting, in good faith and
with due diligence;
(b)
the insolvent person would likely be able to make a viable
Proposal if the extension being applied for were granted; and
(c)
no creditor would be materially prejudiced if the extension being
applied for were granted.
BIA, s. 50.4(9).
-6
16.
In this instance, each of these factors has been met:
Good Faith and Due Diligence
(a)
Karrys Bros has been diligently seeking to maximize contributions
to its Proposal. Certain potential sources of funding for the
Proposal remain under discussion, including (i) final reconciliation
and payments from Petro-Canada regarding the sale-back of
certain proprietary inventory, (ii) ITWAL receivables, (iii) the final
LAWTI share redemption value, (iv) recovery of vendor
receivables, and (v) a potential contribution from Karrys Bros
directors' and officers' insurer. Further, Karrys Bros is attempting
to sell certain proprietary inventory that it believed was sold at the
time of its last attendance before this Court.
(b)
Karrys Bros has acted, and continues to act, in good faith and with
due diligence in addressing issues arising pursuant to the Sale
Transaction. Courts have found that the pursuit of a sale of assets
in an attempt to maximize value for stakeholders is an indicator of
good faith and due diligence. As described more particularly at
paragraphs 21-24 of the May 14th Karrys Affidavit, Karrys Bros is
in the process of completing the transition of its business to the
Purchaser pursuant to the Transition Services Agreement and the
Sublease Agreement, which will maximize the value available for
distribution to Karrys' stakeholders.
(c)
Karrys Bros has acted, and is continuing to act, in good faith and
with due diligence in managing other aspects of the Proposal
Proceedings as described more particularly in the Karrys
Affidavits dated April 1, 2015, and May 15, 2015, including in
7
managing its customers, suppliers, employees and other
stakeholders.
Likelihood of a Viable Proposal
(d)
Karrys Bros is finalizing its Proposal to creditors. Karrys Bros
anticipates that it will file a Proposal on or before June 12, 2015.
No Prejudice to Creditors
(e)
Karrys Bros' creditors will not be prejudiced by the requested
extension. The cash flow statement prepared by the Proposal
Trustee indicates that Karrys Bros has sufficient cash flow to fund
operations through to July 4, 2015.
(f)
All of Karrys Bros post-closing obligations have been paid or are
scheduled to be paid. The Proposal Trustee is not aware of any
creditor who would be materially prejudiced if Karrys Bros'
Proposal Period is extended.
(g)
The extension of the Proposal Period will allow Karrys Bros to deal
with post-closing matters which will assist not only the Purchaser
but also maximize the value of Karrys Bros' Proposal or estate.
Re Colossus Minerals, 2014 ONSC 514, Applicants' Factum Tab 1, at paras 37-43.
May 14th Karrys Affidavit, Motion Record Tab 2, at paras 17-14, 29.
Fourth Report.
17.
In addition to the above factors, the Proposal Trustee supports the relief
requested.
Fourth Report.
-8
PART IV ORDER REQUESTED
-
18.
Karrys Bros requests the Extension Order be granted in order to manage
ongoing post-closing matters and to finalize its Proposal to creditors.
ALL OF WHICH IS RESPECTFULLY SUBMITTED this 20th day of May, 2015.
-
7( Le eotoie,
Stikeman Elliott LLP
Lawyers for the Applicants
SCHEDULE "A"
LIST OF AUTHORITIES
TAB
1
DOCUMENT (in order of
appearance)
Re Colossus Minerals, 2014 ONSC 514
SCHEDULE "B"
RELEVANT STATUTES
Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3
50.4
(8) Where an insolvent person fails to comply with subsection (2), or where the trustee
fails to file a Proposal with the official receiver under subsection 62(1) within a period
of thirty days after the day the notice of intention was filed under subsection (1), or
within any extension of that period granted under subsection (9),
(a) the insolvent person is, on the expiration of that period or that extension, as
the case may be, deemed to have thereupon made an assignment;
(b) the trustee shall, without delay, file with the official receiver, in the
prescribed form, a report of the deemed assignment;
(b.1) the official receiver shall issue a certificate of assignment, in the prescribed
form, which has the same effect for the purposes of this Act as an assignment
filed under section 49; and
(c) the trustee shall, within five days after the day the certificate mentioned in
paragraph (b) is issued, send notice of the meeting of creditors under section
102, at which meeting the creditors may by ordinary resolution,
notwithstanding section 14, affirm the appointment of the trustee or appoint
another licensed trustee in lieu of that trustee.
Extension of time for filing Proposal
(9) The insolvent person may, before the expiry of the 30-day period referred to in
subsection (8) or of any extension granted under this subsection, apply to the court for
an extension, or further extension, as the case may be, of that period, and the court, on
notice to any interested persons that the court may direct, may grant the extensions, not
exceeding 45 days for any individual extension and not exceeding in the aggregate five
months after the expiry of the 30-day period referred to in subsection (8), if satisfied on
each application that
(a) the insolvent person has acted, and is acting, in good faith and with due
diligence;
(b) the insolvent person would likely be able to make a viable Proposal if the
extension being applied for were granted; and
(c) no creditor would be materially prejudiced if the extension being applied for
were granted.
-2
69.1
(1) Subject to subsections (2) to (6) and sections 69.4, 69.5 and 69.6, on the filing of a
proposal under subsection 62(1) in respect of an insolvent person,
(a) no creditor has any remedy against the insolvent person or the insolvent
person's property, or shall commence or continue any action, execution or other
proceedings, for the recovery of a claim provable in bankruptcy, until the trustee
has been discharged or the insolvent person becomes bankrupt;
(• •)
Limitation
(2) The stays provided by subsection (1) do not apply
(...)
(c) to prevent a secured creditor who gave notice of intention under
subsection244(1) to enforce that creditor's security from enforcing the security if
the insolvent person has, under subsection 244(2), consented to the enforcement
action;
TAB 1
Colossus Minerals Inc., Re, 2014 ONSC 514, 2014 CarswellOnt 1517
2014 ONSC 514, 2014 CarswellOnt 1517, 14 C.B.R. (6th) 261, 237 A.C.W.S. (3d) 584
'
- -
-
2014 ONSC 5 14
Ontario Superior Court of Justice
Colossus Minerals Inc., Re
2014 CarswellOnt 1517, 2014 ONSC 514, 14 C.B.R. (6th) 261, 237 A.C.W.S. (3d) 5 84
In the Matter of the Bankruptcy and Insolvency
Act, R.S.C. 1985, c. B-3, As Amended
In the Matter of the Notice of Intention of Colossus Minerals Inc., of the City of Toronto in the Province of Ontario
H.J. Wilton-Siegel J.
Heard: January 16, 2014
Judgment: February 7, 2014
Docket: CV-14-10401-00CL
Counsel: S. Brotman, D. Chochla for Applicant, Colossus Minerals Inc.
L. Rogers, A. Shalviri for DIP Agent, Sandstorm Gold Inc.
H. Chaiton for Proposal Trustee
S. Zweig for Ad Hoc Group of Noteholders and Certain Lenders
Subject: Insolvency
Table of Authorities
Statutes considered:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally - referred to
s. 50.4(1) [en. 1992, c. 27, s. 19] - considered
s. 50.4(8) [en. 1992, c. 27, s. 19] - considered
s. 50.4(9) [en. 1992, c. 27, s. 19] - referred to
s. 50.6(1) [en. 2005, c. 47, s. 36] - considered
s. 50.6(5) [en. 2007, c. 36, s. 18] - considered
s. 64.1 [en. 2005, c. 47, s. 42] - considered
s. 64.2 [en. 2005, c. 47, s. 42] - considered
s. 65.13 [en. 2005, c. 47, s. 44] - referred to
s. 65.13(1) [en. 2005, c. 47, s. 44] - considered
s. 65.13(4) [en. 2005, c. 47, s. 44] - considered
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
West aWNe X te, CANADA
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Colossus Minerals Inc., Re, 2014 ONSC 514, 2014 CarswellOnt 1517
2014 ONSC 514, 2014 CarswellOnt 1517, 14 C.B.R. (6th)
(3d) 584
Generally — referred to
APPLICATION by debtor for various orders under Bankruptcy and insolvency.
H.J. Wilton-Siegel J.:
1
The applicant, Colossus Minerals Inc. (the "applicant" or "Colossus"), seeks an order granting various relief under the
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"). The principal secured creditors of Colossus were served and
no objections were received regarding the relief sought. In view of the liquidity position of Colossus, the applicant was heard
on an urgent basis and an order was issued on January 16, 2014 granting the relief sought. This endorsement sets out the Court's
reasons for granting the order.
Background
2 The applicant filed a notice of intention to make a proposal under s. 50.4(1) of the BIA on January 13, 2014. Duff & Phelps
Canada Restructuring Inc. (the "Proposal Trustee") has been named the Proposal Trustee in these proceedings. The Proposal
Trustee has filed its first report dated January 14, 2014 addressing this application, among other things. The main asset of
Colossus is a 75% interest in a gold and platinum project in Brazil (the "Project"), which is held by a subsidiary. The Project
is nearly complete. However, there is a serious water control issue that urgently requires additional de-watering facilities to
preserve the applicant's interest in the Project. As none of the applicant's mining interests, including the Project, are producing,
it has no revenue and has been accumulating losses. To date, the applicant has been unable to obtain the financing necessary to
fund its cash flow requirements through to the commencement of production and it has exhausted its liquidity.
DIP Loan and DIP Charge
3
The applicant seeks approval of a Debtor-in-Possession Loan (the "DIP Loan") and DIP Charge dated January 13, 2014
with Sandstorm Gold Inc. ("Sandstorm") and certain holders of the applicant's outstanding gold-linked notes (the "Notes") in
an amount up to $4 million, subject to a first-ranking charge on the property of Colossus, being the DIP Charge. The Court
has the authority under section 50.6(1) of the BIA to authorize the DIP Loan and DIP Charge, subject to a consideration of the
factors under section 50.6(5). In this regard, the following matters are relevant.
4 First, the DIP Loan is to last during the currency of the sale and investor solicitation process ("SISP") discussed below and
the applicant has sought an extension of the stay of proceedings under the BIA until March 7, 2014. The applicant's cash flow
statements show that the DIP Loan is necessary and sufficient to fund the applicant's cash requirements until that time.
5
Second, current management will continue to operate Colossus during the stay period to assist in the SISP. Because
Sandstorm has significant rights under a product purchase agreement pertaining to the Project and the Notes represent the
applicant's largest debt obligation, the DIP Loan reflects the confidence of significant creditors in the applicant and its
management.
6 Third, the terms of the DIP Loan are consistent with the terms of DIP financing facilities in similar proceedings.
7
Fourth, Colossus is facing an imminent liquidity crisis. It will need to cease operations if it does not receive funding. In
such circumstances, there will be little likelihood of a viable proposal.
8
Fifth, the DIP Loan is required to permit the SISP to proceed, which is necessary for any assessment of the options of
a sale and a proposal under the BIA. It will also fund the care and maintenance of the Project without which the asset will
deteriorate thereby seriously jeopardizing the applicant's ability to make a proposal. This latter consideration also justifies the
necessary adverse effect on creditors' positions. The DIP Charge will, however, be subordinate to the secured interests of Dell
Financial Services Canada Limited Partnership ("Dell") and GE VFS Canada Limited Partnership ("GE") who have received
notice of this application and have not objected.
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2014 ONSC
9
Lastly, the Proposal Trustee has recommended that the Court approve the relief sought and supports the DIP Loan and
DIP Charge.
10
For the foregoing reasons, I am satisfied that the Court should authorize the DIP Loan and the DIP Charge pursuant
to s. 50.6(1) of the BIA.
Administration Charge
11
Colossus seeks approval of a first-priority administration charge in the maximum amount of $300,000 to secure the fees
and disbursements of the Proposal Trustee, the counsel to the Proposal Trustee, and the counsel to the applicant in respect of
these BIA proceedings.
12
Section 64.2 of the BIA provides jurisdiction to grant a super-priority for such purposes. The Court is satisfied that such
a charge is appropriate for the following reasons.
13
First, the proposed services are essential both to a successful proceeding under the BIA as well as for the conduct of
the SISP.
14
Second, the quantum of the proposed charge is appropriate given the complexity of the applicant's business and of the
SISP, both of which will require the supervision of the Proposal Trustee.
15
Third, the proposed charge will be subordinate to the secured interests of GE and Dell.
Directors' and Officers' Charge
16
Colossus seeks approval of an indemnity and priority charge to indemnify its directors and officers for obligations and
liabilities they may incur in such capacities from and after the filing of the Notice of Intention (the "D&O Charge"). It is proposed
that the D&O Charge be in the amount of $200,000 and rank after the Administration Charge and prior to the DIP Charge.
17 The Court has authority to grant such a charge under s. 64.1 of the BIA. I am satisfied that it is appropriate to grant such
relief in the present circumstances for the following reasons.
First, the Court has been advised that the existing directors' and officers' insurance policies contain certain limits and
18
exclusions that create uncertainty as to coverage of all potential claims. The order sought provides that the benefit of the D&O
Charge will be available only to the extent that the directors and officers do not have coverage under such insurance or such
coverage is insufficient to pay the amounts indemnified.
19
Second, the applicant's remaining directors and officers have advised that they are unwilling to continue their services
and involvement with the applicant without the protection of the D&O Charge.
Third, the continued involvement of the remaining directors and officers is critical to a successful SISP or any proposal
20
under the BIA.
21 Fourth, the Proposal Trustee has stated that the D&O Charge is reasonable and supports the D&O Charge.
The SISP
The Court has the authority to approve any proposed sale under s. 65.13(1) of the BIA subject to consideration of the
22
factors in s. 65.13(4). At this time, Colossus seeks approval of its proposed sales process, being the SISP. In this regard, the
following considerations are relevant.
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2014 ONSC 514, 2014 CarswellOnt 1517, 14 C.B.R. (6th) 261, 237 A.C.W.S. (3d) 584
First, the SISP is necessary to permit the applicant to determine whether a sale transaction is available that would be
more advantageous to the applicant and its stakeholders than a proposal under the BIA. It is also a condition of the DIP Loan.
In these circumstances, a sales process is not only reasonable but also necessary.
23
24
Second, it is not possible at this time to assess whether a sale under the SISP would be more beneficial to the creditors
than a sale under a bankruptcy. However, the conduct of the SISP will allow that assessment without any obligation on the part
of the applicant to accept any offer under the SISP.
25
Third, the Court retains the authority to approve any sale under s. 65.13 of the BIA.
26 Lastly, the Proposal Trustee supports the proposed SISP.
27
Accordingly, I am satisfied that the SISP should be approved at this time.
Engagement Letter with the Financial Advisor
28
The applicant seeks approval of an engagement letter dated November 27, 2013 with Dundee Securities Limited
("Dundee") (the "Engagement Letter"). Dundee was engaged at that time by the special committee of the board of directors
of the applicant as its financial advisor for the purpose of identifying financing and/or merger and acquisition opportunities
available to the applicant. It is proposed that Dundee will continue to be engaged pursuant to the Engagement Letter to run the
SISP together with the applicant under the supervision of the Proposal Trustee.
29 Under the Engagement Letter, Dundee will receive certain compensation including a success fee. The Engagement Letter
also provides that amounts payable thereunder are claims that cannot be compromised in any proposal under the BIA or any
plan of arrangement under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA").
Courts have approved success fees in the context of restructurings under the CCAA. The reasoning in such cases is
30
equally applicable in respect of restructurings conducted by means of proposal proceedings under the BIA. As the applicant
notes, a success fee is both appropriate and necessary where the debtor lacks the financial resources to pay advisory fees on
any other basis.
For the following reasons, I am satisfied that the Engagement Letter, including the success fee arrangement, should
31
be approved by the Court and that the applicant should be authorized to continue to engage Dundee as its financial advisor
in respect of the SISP.
Dundee has considerable industry experience as well as familiarity with Colossus, based on its involvement with the
32
company prior to the filing of the Notice of Intention.
33
As mentioned, the SISP is necessary to permit an assessment of the best option for stakeholders.
34 In addition, the success fee is necessary to incentivize Dundee but is reasonable in the circumstances and consistent with
success fees in similar circumstances.
35
Importantly, the success fee is only payable in the event of a successful outcome of the SISP.
36
Lastly, the Proposal Trustee supports the Engagement Letter, including the success fee arrangement.
Extension of the Stay
The applicant seeks an extension for the time to file a proposal under the BIA from the thirty-day period provided for
37
in s. 50.4(8). The applicant seeks an extension to March 7, 2014 to permit it to pursue the SISP and assess whether a sale or a
proposal under the BIA would be most beneficial to the applicant's stakeholders.
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Colossus Minerals Inc., Re, 2014 ONSC 514, 2014 CarswellOnt 1517
2014 ONSC 514, 2014 CarswellOnt 1517, 14 C.B.R. (6th) 261, 237 A.C.W.S. (3d) 584
38 The Court has authority to grant such relief under section 50.4(9) of the BIA. I am satisfied that such relief is appropriate
in the present circumstances for the following reasons.
39 First, the applicant is acting in good faith and with due diligence, with a view to maximizing value for the stakeholders,
in seeking authorization for the SISP.
40 Second, the applicant requires additional time to determine whether it could make a viable proposal to stakeholders. The
extension of the stay will increase the likelihood of a feasible sale transaction or a proposal.
Third, there is no material prejudice likely to result to creditors from the extension of the stay itself. Any adverse effect
41
flowing from the DIP Loan and DIP Charge has been addressed above.
Fourth, the applicant's cash flows indicate that it will be able to meet its financial obligations, including care and
42
maintenance of the Project, during the extended period with the inclusion of the proceeds of the DIP Loan.
Lastly, the Proposal Trustee supports the requested relief.
43
Application granted
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IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF
KARRYS BROS., LIMITED, KARBRO TRANSPORT INC., AND KARRYS
SOFTWARE LTD, CORPORATIONS WITH A HEAD OFFICE IN THE CITY OF
MISSISSAUGA IN THE PROVINCE OF ONTARIO
Estate/ Court File No. 32 1942335
-
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
(COMMERCIAL LIST)
Proceeding commenced at Toronto
FACTUM OF THE APPLICANTS (MOTION
RETURNABLE MAY 22, 2015)
STIKEMAN ELLIOTT
LLP
Barristers & Solicitors
5300 Commerce Court West
199 Bay Street
Toronto, Canada M5L 1B9
Elizabeth Pillon LSUC#: 35638M
Tel: (416) 869-5623
Email: [email protected]
Patrick J. Corney LSUC#: 65462N
Tel: (416) 869-5668
Email: [email protected]
Fax: (416) 947-0866
Lawyers for the Applicants