factum of the applicants - fuller landau llp · 16/11/2015 · and the coronation project will be...

Court File No. CV-14-10800-00CL

ONTARIO

SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

IN THE MATTER OF THE COMPANIES’ CREDITORS

ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PROPOSED PLAN

OF COMPROMISE OR ARRANGEMENT OF

HUSH HOMES INC., HUSH INC., 2122763 ONTARIO INC., 2142301 ONTARIO INC.

and 2164566 ONTARIO INC.

(collectively, the “Applicants”)

FACTUM OF THE APPLICANTS

November 16, 2015

Miller Thomson LLP

Barristers and Solicitors

40 King Street West

Suite 5800

Toronto, ON M5H 3S1

Alfred Apps (LSUC # 27760I)

Email: [email protected]

Tel: (416) 597-8199

Fax: (416) 595-8695

Lawyers for the Applicants

Thornton Grout Finnigan LLP Barristers & Solicitors

Suite 3200, TD West Tower

100 Wellington Street West

P.O. Box 329, Toronto-Dominion Centre

Toronto, ON M5K 1K7

Kyla E.M. Mahar (LSUC #44182G)


Tel: (416) 304-0594

Fax: (416) 304-1313

Asim A. Iqbal (LSUC# 61884B)


Tel: (416) 304-0595/Fax: (416) 304-1313

Litigation Agents for the lawyers for the

Applicants

mailto:[email protected]



2


ONTARIO

SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

IN THE MATTER OF THE COMPANIES’ CREDITORS

ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PROPOSED PLAN

OF COMPROMISE OR ARRANGEMENT OF

HUSH HOMES INC., HUSH INC., 2122763 ONTARIO INC., 2142301 ONTARIO INC.

and 2164566 ONTARIO INC.

(collectively, the “Applicants”)


PART I - NATURE OF THE MOTION

1. The Applicants have brought a motion returnable on Wednesday November 18, 2015

seeking Orders, among other things:

(a) authorizing the filing of the Applicants plan or arrangement or compromise (the

“Plan”) filed as Exhibit “A” to the Affidavit of Naheel Suleman sworn on

November 13, 2015 (the “Suleman Affidavit”). Capitalized terms set out herein

and not defined shall have the meaning ascribed to them in the Plan;

(b) approving the form of materials to be made available to the Creditors;

(c) approving the manner in which the Creditors are to be provided with notice of the

Meeting, the Meeting Materials and the Court hearing seeking the sanctioning of

the Plan (the “Sanction Hearing”);

(d) approving the classification of Creditors for the purpose of voting on the Plan;

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(e) authorizing and establishing the procedure for the Applicants to call, hold and

conduct a meeting of Creditors to consider and vote on the Plan; and

(f) setting a return date for the Sanction Hearing in the event the Plan is approved by

the Required Majorities.

2. The Applicants submit that the relief sought is appropriate in the circumstances and

should be granted by this Court. The Applicants have worked diligently and in good faith

to prepare and present the Plan to its creditors and should be given opportunity to do so.

PART II - THE FACTS

3. On January 19, 2015, the Applicants were granted protection under the Companies’

Creditors Arrangement Act (the “CCAA”) pursuant to the Order of Mr. Justice Penny

dated January 19, 2015, as amended and restated on April 24, 2015 (the “Initial Order”).

Suleman Affidavit at para. 4.

4. The stay of proceedings has been extended by the Court on several occasions and

currently expires on November 20, 2015.


5. The Applicants have finalized its Plan on a partially consolidated basis and are seeking

the Court’s approval that the Plan be accepted for filing with the Court and that a Meeting

Order authorizing the calling of a meeting for the purpose of considering and voting on

the Plan be granted.


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(a) Terms of the Plan

6. The Plan contemplates the realization of inherent upside value from the orderly build-out

and sale of the Applicants’ residential development projects for the benefit of their

creditors and provides for the financing to be arranged by MZ for such build-out to be

accomplished. It further provides a mechanism to allow the Monitor to receive such

build-out value in the HUSH Distribution Fund and distribute the HUSH Distribution

Fund (after Monitor Expenses secured by the Administration Charge) as follows:

(a) 75% of the HUSH Distribution Fund will be distributed to satisfy any Proven

Distribution Claims of the Under-Secured Creditors (as defined in the Plan); and

(b) 25% shall be distributed to satisfy the Proven Distribution Claims of Unsecured

Creditors.

Suleman Affidavit at para. 11-14 and 20.

7. The Plan contemplates that creditors will be classified for voting purposes into three

classes:

(a) the Claims of the Secured Creditors of CoronationCo shall be grouped into a class

(the “CoronationCo Secured Creditors Class”);

(b) the Claims of the Secured Creditors of SilverthornCo shall be grouped into a class

(the “SilverthornCo Secured Creditors Class”); and

(c) the Claims of the Unsecured Creditors of all of the Applicants shall be grouped

into a single class (the “Unsecured Creditors Class”).

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8. The Amount of a Secured Creditor’s Secured Claim under the Plan is determined by

reference to the value of such security as at the Filing Date having regard to the Current

Liquidation Value of the relevant Project and the priority of the properly registered and

valid security instrument. Current Liquidation Value for the Silverthorn Project and the

Coronation Project is determined based on the Silverthorn Appraisal and the Coronation

Appraisal undertaken by an independent appraiser.


9. Unsecured Creditors of each of the Applicants are consolidated into one Class for voting

purposes on the basis that these creditors would have no prospect for recovery based on

the Current Liquidation Value of the Applicants’ assets. The nature of these creditors

liabilities is the same i.e. unsecured. As a result, the Applicants are of the view that the

Unsecured Creditors of the Applicants are not prejudiced by being consolidated into one

Class.


10. Post Filing Claims, Administration Claims, amounts owing under the DIP Facility and

those claims falling within Section 6(3), 6(5) or 6(6) of the CCAA are Unaffected under

the Plan.


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11. The Plan contemplates that the first secured creditor on each of the Silverthorn Project

and the Coronation Project will be repaid through new financing commitments from MZ,

which also provide for financing of the build-out of these Projects.


(b) The Terms of the Meeting Order

12. The draft Meeting Order provides that the Applicants are authorized to convene a

meeting of the their Creditors to consider and vote on the Plan on Tuesday, December 8,

2015, at 11:00 a.m. to be held at the Monitor’s Office at 151 Bloor Street West, 11th

Floor, Toronto, Ontario, M5S 1S4.


13. The Meeting Order provides that the Monitor will undertake the following to ensure the

Creditors are provided notice of the Meeting and the Sanction Hearing:

(a) Posting a copy of the Plan, the Meeting Materials (which includes the form of

Proxy, Notice of Meeting and Sanction Hearing and the Information Statement)

and the Meeting Order on the Monitor’s Website by no later than November 19,

2015;

(b) Emailing a copy of the Meeting Materials, the Meeting Order and a link to the

Monitor’s Website to each Creditor at the email address listed on the Proof of

Claim submitted by the Creditor or such other email address subsequently

provided to the Monitor by such Creditor, or where such Creditor is represented

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by legal counsel in these CCAA Proceedings, to such Creditors’ legal counsel at

the email address listed on the Service List by no later than November 19, 2015;

(c) Mailing a copy of the Meeting Materials and the Meeting Order to each Creditor

that the Monitor does not have an email address for at the address listed on the

Proof of Claim submitted by such Creditor or to such address, if any, as may have

been subsequently provided to the Monitor by such Creditor by no later than

November 20, 2015; and

(d) Publishing the Notice of Meeting and Sanction Hearing for one Business Day on

or before November 24, 2015 in The Globe and Mail (Toronto Edition).


14. The draft Meeting Order provide for, inter alia, the following in respect of the

governance of the Meeting:

(a) A representative of the Monitor shall be the Chair of the Meeting;

(b) The only Persons entitled to attend the Meeting are Creditors with Proven Voting

Claims or Unresolved Claims or their respective proxyholders, representatives of

the Monitor, the Applicants, any legal advisors to the aforementioned parties, and

the Meeting secretary. Any other party wishing to attend the Meeting may only

do so upon invitation of the Chair;

(c) Any Creditor who is entitled to vote at the Meeting may appoint a proxyholder to

attend, act and vote for and on behalf of such Affected Creditor at the meeting by

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executing a Proxy and delivering it to the Monitor by no later than 2:00 p.m.

(Eastern Standard Time (“EST”)) on December 4, 2015;

(d) The quorum required at the Meeting shall be one Creditor in each Class with a

Proven Voting Claim present at the Meeting in person or by proxy;

(e) Only Creditors with Proven Voting Claims (or their duly appointed proxyholders)

and Creditors with Unresolved Claims (or their duly appointed proxyholders) are

entitled to vote at the Meeting;

(f) following the vote(s) at the Meeting, the Monitor will tabulate the vote(s) and the

Monitor shall determine whether the Plan has been accepted by the Required

Majority of each Class;

(g) The Monitor will tabulate the votes in respect of Unresolved Claims separately

and such votes will not be counted for any purpose unless, until and only to the

extent that such Unresolved Claim is ultimately determined to be a Proven Voting

Claim; and

(h) The result of any vote conducted at the Meeting shall be binding on all Creditors,

including any Creditor that was entitled to vote but did not attend and/or vote at

the Meeting in person or by Proxy.

Suleman Affidavit at para. 24-27; draft Meeting Order at Tab 3 of the Motion

Record.

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15. If the Plan is accepted by the required majority of Creditors in each Class as set out in the

CCAA, the Applicants propose the Sanction Hearing be held on Monday, December 14,

2015, at 10:00 a.m. (EST).


PART III - THE ISSUES

16. The following issues arise in respect of the Applicants’ motion:

(a) Is it appropriate to permit the Applicants to file the Plan and call the Meeting? and

(b) Is the proposed classification of creditors for voting purposes appropriate?

PART IV - THE LAW

ISSUE 1: Is it appropriate to permit the Applicants to file the Plan and call the

Meeting?

17. Yes, the Applicants submit that it is appropriate to permit the filing of the Plan and the

calling of the Meeting.

18. Sections 4 and 5 of the CCAA confer a discretion on the Court to accept the filing of

plans of compromise or arrangement and order the calling of creditor meetings upon a

motion being brought by the Applicants in a CCAA proceedings. In this case, the

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Applicants have proposed a Plan to the secured creditors of SilverthornCo and

CoronationCo (the Applicants with remaining secured creditors) and unsecured creditors

of all Applicants.

Sections. 4 and 5 of the CCAA.

19. The Applicants submit that the threshold to be satisfied for the filing of a plan and the

calling of a meeting of creditors is low. In Re Federal Gypsum Co, Justice MacAdam of

the Nova Scotia Supreme Court reviews a number of cases that leads His Honour to reach

this conclusion.

Federal Gypsum Co., Re, 2007 CarswellNS 630 at paras. 3-6 and 12 (S.C.).

20. Unless it is obvious that the Plan would not be approved by the Creditors, the Applicants

submit they should not be precluded from presenting the Plan at a Meeting to consider

and vote on it. In Re ScoZinc, the Nova Scotia Supreme Court articulated the standard

for the filing a plan as follows:

In my opinion it should not be up to the Court to second guess the probability of success

of a proposed plan of arrangement. Businessmen are free to make their own views known

before and ultimately at the creditors’ meeting. It seems to me that the Court should

only decline to give preliminary approval and refuse to order a meeting if it was of

the view that there was no hope that the plan would be approved by the creditors, or

if it was approved by the creditors, it would not, for some other reason, be approved by

the Court. [emphasis added]

Re ScoZinc, 2009 NSSC 163 at para 7.

21. The Applicants are of the view that the Plan is in the best interest of the Creditors and

that the Creditors should be given the right to consider and vote on the Plan. Moreover,

the Monitor supports the relief being sought by the Applicants.

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22. The Court in considering whether to accept a consolidated plan is to consider the test

between economic prejudice of continued debtor separateness versus the economic

prejudice of consolidation.

Northland Properties Ltd. v. Excelsior Life Insurance Co. of Canada, 1989

CarswellBC 334 at paras. 32-34 (C.A.).

23. In this case, the Applicants submit that consolidation of the unsecured creditors is

preferable as there is less economic prejudice than if separateness is continued. The

unsecured creditors, absent the Plan, would receive no recovery and therefore are not

economically prejudiced by being consolidated under the Plan. In fact, the Applicants

submit that the unsecured creditors only source of recovery is the creation of the HUSH

Distribution Fund under the Plan.

24. Pursuant to section 12 of the CCAA the Court may fix deadlines for the purposes of

voting on a Plan.

Section 12 of the CCAA.

25. The Applicants submit that there is sufficient notice being given to the Creditors under

the draft Meeting Order and that it is appropriate to fix December 8, 2015 as the Meeting

date. Having regard to the timelines for the holding of meetings of creditors in both the

bankruptcy and proposal context under the Bankruptcy and Insolvency Act, the

Applicants submit the date for the Meeting (being 20 days after the hearing of this

motion) is appropriate.

See sections 51(1) and 102(1) of the Bankruptcy and Insolvency Act, R.S. C. 1990 c.

B-3.

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26. The Monitor is of the view that the proposed procedures and timelines detailed in the

draft Meeting Order are reasonable and appropriate in the circumstances.

Tenth Report of the Monitor dated November 16, 2015 (the “Tenth Report”) at

para. 43.

27. The Applicants respectfully request that the Court accept the filing of the Plan and grant

granting the Meeting Order allowing for the calling of a Meeting on December 8, 2015.

ISSUE 2: Is the proposed classification of creditors for voting purposes appropriate?

28. Yes, the proposed classification of Creditors for voting purposes is appropriate.

29. Section 22(1) of the CCAA provides that:

A debtor company may divide its creditors into classes for the purpose of a meeting to be

held under section 4 or 5 in respect of a compromise or arrangement relating to the

company and, if it does so, it is to apply to the court for approval of the division

CCAA, Section 22(1).

30. Section 22(2) of the CCAA further provides that, for the purposes of Section 22(1),

creditors with a “commonality of interest” may be included in the same class. The

factors to be considered in determining whether creditors have a “commonality of

interest” have been codified in Section 22(2) of the CCAA:

(a) the nature of the debts, liabilities or obligations giving rise to their

claims;

(b) the nature and rank of any security in respect of their claims;

(c) the remedies available to the creditors in the absence of the

compromise or arrangement being sanctioned, and the extent to which the

creditors would recover their claims by exercising those remedies; and

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(d) any further criteria, consistent with those set out in paragraphs (a) to

(c), that are prescribed.

CCAA, Section 22(2).

31. The Applicants submit that Creditors must be classified with the underlying purpose of

the CCAA in mind – to facilitate successful restructurings. Fragmentation of classes that

would render it excessively difficult to obtain approval of a CCAA plan would be

contrary to the purpose of the CCAA and ought to be avoided.

Norcen Energy Resources Ltd. v. Oakwood Petroleums Ltd. 1988 CarswellAlta 319 at

paras. 32-47.

32. In this case, the Plan provides for three Classes, one secured creditor Class for

SilverthornCo, one secured creditor Class for Coronation Co (being the only two

Applicants with secured creditors remaining) and one unsecured Creditor Class for the

Applicants unsecured creditors. The Applicants submit that these classifications are

appropriate having regard to the factors set out in section 22(2) of the CCAA.

33. The Amount of a Secured Creditor’s Secured Claim under the Plan for voting purposes is

determined by reference to the value of such security as at the Filing Date having regard

to the Current Liquidation Value of the relevant Project and the priority of the properly

registered and valid security instrument. The Applicants submit that this most accurately

reflects the position of the Creditor as at the filing date if the Projects would have been

liquidated. To the extent that any Creditor holds security that has no value or a portion of

which has no value, they would be entitled to vote in the Unsecured Creditors Class for

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the amount that is unsecured based on this methodology. The Applicants submit that this

takes into account the nature and rank of any security in respect of their claims.


34. Since the Current Liquidation Value is based on the Appraisals it has an element of

arbitrariness. However, the Applicants submit that: (a) the Appraisals nevertheless

represent the best objective evidence of the actual security position of Creditors; and (b)

that the Plan has been prepared to ensure that those Creditors “on the cusp” of Current

Liquidation Value are not prejudiced by their classification for voting purposes.

35. As se out above, absent the Plan, it is a near certainty the Unsecured Creditors would not

receive any recovery based on the Current Liquidation Value of the Applicants’ assets.

As a result, the Applicants submit that there is no prejudice to putting the Unsecured

Creditors of each of the Applicants in one Class for voting purposes.


36. The Monitor is of the opinion that the classification of creditors is fair and appropriate

having regard to the factors set out in Section 22(2) of the CCAA.

Tenth Report at para. 48.

PART V - RELIEF REQUESTED

37. For the foregoing reasons, the Applicants request that the Plan be accepted for filing and

that the Meeting Order be granted in the form contained at Tab 3 of the Applicants’

Motion Record.

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SCHEDULE “A”

LIST OF AUTHORITIES

1. Federal Gypsum Co., Re, 2007 CarswellNS 630 (S.C.).

2. Re ScoZinc, 2009 NSSC 163.

3. Northland Properties Ltd. v. Excelsior Life Insurance Co. of Canada, 1989

CarswellBC 334 (C.A.).

4. Norcen Energy Resources Ltd. v. Oakwood Petroleums Ltd. 1988 CarswellAlta

319.

17

SCHEDULE “B”

RELEVANT STATUTES

Bankruptcy and Insolvency Act, R.S. C. 1990 c. B-3

Calling of meeting of creditors

51. (1) The trustee shall call a meeting of the creditors, to be held within twenty-one days after

the filing of the proposal with the official receiver under subsection 62(1), by sending in the

prescribed manner to every known creditor and to the official receiver, at least ten days before

the meeting,

o (a) a notice of the date, time and place of the meeting;

o (b) a condensed statement of the assets and liabilities;

o (c) a list of the creditors with claims amounting to two hundred and fifty dollars or more

and the amounts of their claims as known or shown by the debtor’s books;

o (d) a copy of the proposal;

o (e) the prescribed forms, in blank, of

(i) proof of claim,

(ii) in the case of a secured creditor to whom the proposal was made, proof of secured

claim, and

(iii) proxy,

if not already sent; and

o (f) a voting letter as prescribed.

First meeting of creditors

102. (1) Subject to subsection (1.1), it is the duty of the trustee to inquire as to the names and

addresses of the creditors of a bankrupt and, within five days after the date of the trustee’s

appointment, to send in the prescribed manner to the bankrupt, to every known creditor and to

the Superintendent a notice in the prescribed form of the bankruptcy and of the first meeting of

creditors, to be held within the twenty-one day period following the day of the trustee’s

appointment, at the office of the official receiver in the locality of the bankrupt, but the official

receiver may, when the official receiver deems it expedient, authorize the meeting to be held at

the office of any other official receiver or at such other place as the official receiver may fix.

Companies’ Creditors Arrangement Act, RSC 1985, c C-36

Compromise with unsecured creditors

4. Where a compromise or an arrangement is proposed between a debtor company and its

unsecured creditors or any class of them, the court may, on the application in a summary way of

the company, of any such creditor or of the trustee in bankruptcy or liquidator of the company,

18

order a meeting of the creditors or class of creditors, and, if the court so determines, of the

shareholders of the company, to be summoned in such manner as the court directs.

Compromise with secured creditors

5. Where a compromise or an arrangement is proposed between a debtor company and its

secured creditors or any class of them, the court may, on the application in a summary way of the

company or of any such creditor or of the trustee in bankruptcy or liquidator of the company,

order a meeting of the creditors or class of creditors, and, if the court so determines, of the

shareholders of the company, to be summoned in such manner as the court directs.

Stays, etc. — initial application

11.02 (1) A court may, on an initial application in respect of a debtor company, make an order on

any terms that it may impose, effective for the period that the court considers necessary, which

period may not be more than 30 days,

o (a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken

in respect of the company under the Bankruptcy and Insolvency Act or the Winding-up and

Restructuring Act;

o (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or

proceeding against the company; and

o (c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or

proceeding against the company.

Stays, etc. — other than initial application

(2) A court may, on an application in respect of a debtor company other than an initial

application, make an order, on any terms that it may impose,

o (a) staying, until otherwise ordered by the court, for any period that the court considers

necessary, all proceedings taken or that might be taken in respect of the company under an

Act referred to in paragraph (1)(a);

o (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or

proceeding against the company; and

o (c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or

proceeding against the company.

Burden of proof on application

(3) The court shall not make the order unless

o (a) the applicant satisfies the court that circumstances exist that make the order appropriate;

and

19

o (b) in the case of an order under subsection (2), the applicant also satisfies the court that the

applicant has acted, and is acting, in good faith and with due diligence.

Restriction

(4) Orders doing anything referred to in subsection (1) or (2) may only be made under this

section.

Fixing deadlines

12. The court may fix deadlines for the purposes of voting and for the purposes of distributions

under a compromise or arrangement.

Company may establish classes

22. (1) A debtor company may divide its creditors into classes for the purpose of a meeting to be

held under section 4 or 5 in respect of a compromise or arrangement relating to the company and,

if it does so, it is to apply to the court for approval of the division before the meeting is held.

Factors

(2) For the purpose of subsection (1), creditors may be included in the same class if their

interests or rights are sufficiently similar to give them a commonality of interest, taking into

account

(a) the nature of the debts, liabilities or obligations giving rise to their claims;

(b) the nature and rank of any security in respect of their claims;

(c) the remedies available to the creditors in the absence of the compromise or arrangement

being sanctioned, and the extent to which the creditors would recover their claims by exercising

those remedies; and

(d) any further criteria, consistent with those set out in paragraphs (a) to (c), that are prescribed.

https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-36/latest/rsc-1985-c-c-36.html#sec4_smooth

https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-36/latest/rsc-1985-c-c-36.html#sec5_smooth

IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT OF HUSH HOMES INC., HUSH INC., 2122763

ONTARIO INC., 2142301 ONTARIO INC. and 2164566 ONTARIO INC. (collectively, the “APPLICANTS”)


ONTARIO

SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)

Proceedings commenced at Toronto


(NOVEMBER 16, 2015)

Miller Thomson LLP

Barristers and Solicitors

40 King Street West

Suite 5800

Toronto, ON M5H 3S1

Alfred Apps (LSUC # 27760I)


Tel: (416) 597-8199

Fax: (416) 595-8695

Lawyers for the Applicants

Thornton Grout Finnigan LLP Barristers & Solicitors

Suite 3200, TD West Tower

100 Wellington Street West

P.O. Box 329, Toronto-Dominion Centre

Toronto, ON M5K 1K7

Kyla E.M. Mahar (LSUC #44182G)


Tel: (416) 304-0594

Asim A. Iqbal (LSUC# 61884B)


Tel: (416) 304-0595/Fax: (416) 304-1313

Litigation Agents for the lawyers for the

Applicants




factum of the applicants - fuller landau llp · 16/11/2015 · and the coronation project will be...

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