In PricewaterhouseCoopers Inc v 1905393 Alberta Ltd, 2019 ABCA 433, the Alberta Court of Appeal recently clarified the test that a receiver must satisfy when seeking approval of a sale of assets, and reiterated the role of a court in reviewing a receiver's proposed sale.
In July 2018, PricewaterhouseCoopers Inc. (the "Receiver") was appointed receiver over all of 1905393 Alberta Ltd.'s (the "Debtor") current and future assets, undertakings and properties. The Debtor's primary assets included a partially constructed hotel ("Development Hotel") and an extended stay hotel on the same parcel of land (collectively, the "Hotels").
After consulting with:
- an independent construction consultant on the costs to complete the Development Hotel;
- a major international hotel franchise brand on the design of the Development Hotel;
- an appraiser; and
- a national real estate broker
the Receiver decided to sell the Hotels on an as-is basis using a structured sales process with no list price. The sales process involved:
- contacting over 1,290 prospective purchasers;
- discussions with national hotel chains and others in the industry;
- conducting site visits;
- receiving and considering feedback from prospective purchasers; and
- providing confidential information to interested parties that executed a confidentiality agreement.
The sales process yielded three offers that were close in respect of their stated purchase price, and one offer that was significantly lower than the others. Despite requests from the Receiver to resubmit better offers, none of the prospective purchasers varied their offers in any meaningful way. The Receiver ultimately accepted an offer (subject to court approval) that was substantially less than the appraised value of the Hotels.
The Alberta Court of Queen's Bench approved the Receiver's sale in May of 2019, notwithstanding opposition from the Debtor, its shareholders, guarantor and others (collectively, the "Appellants") that the sale should be rejected because the purchase price was insufficient and on the basis that the Appellants should be given more time to secure alternative financing.
The Alberta Court of Appeal Decision
The issue before the Court of Appeal was whether the Chambers Justice applied the correct legal test or erred in her application of the test. The Court of Appeal upheld the Chambers Justice's decision and dismissed the appeal.
On the first issue, the Court of Appeal rejected the Appellants' submissions that the Chambers Justice applied the incorrect legal test by failing to consider four factors enumerated by the Alberta Court of Appeal in its 2010 decision Bank of Montreal v River Rentals Group Ltd (2010 ABCA 16 at para 13) ("River Rentals"), namely:
- whether the offer accepted is so low in relation to the appraised value as to be unrealistic;
- whether the circumstances indicate that insufficient time was allowed for the making of bids;
- whether inadequate notice of sale by bid was given; and
- whether it can be said that the proposed sale is not in the best interests of either the creditor or the owner.
The Court of Appeal held that the correct legal test is the test found in Royal Bank of Canada v Soundair Corporation ( OJ No 1137 at para 16) (the "Soundair Test") which requires a court to consider the following factors:
- whether the receiver has made a sufficient effort to get the best price and has not acted improvidently;
- whether the interests of all parties have been considered, not just the interests of the creditors of the debtor;
- the efficacy and integrity of the process by which offers are obtained; and
- whether there has been unfairness in the working out of the process.
The Court of Appeal agreed with the Receiver that the four factors in River Rentals do not modify the Soundair Test. Rather, the River Rental factors may be considered by a court when it is determining the first factor of the Soundair Test (whether a receiver failed to get the best price and has not acted providently).
On the second issue, the Court of Appeal disagreed with the Appellants' submission that the Chambers Justice applied the test incorrectly. First, the Court of Appeal rejected the Appellants' suggestion that the reviewing court's function is to consider whether a receiver has failed to get a price close to an asset's appraised value. The Court held that a receiver must act in a commercially reasonable manner with a view to obtaining the best price, having regard to competing interests.
The Court also clarified that the role of a reviewing court is not substitute its view of how the marketing process should have been conducted. To do so would call into question a receiver's expertise and authority, thereby compromising the integrity of the sales process and undermining commercial certainty.
The Court also commented on the utility of appraisals, noting that, at some point, a property is only worth what buyers are willing to pay.
The Court of Appeal's decision is an important reminder of the duties of a receiver and a court reviewing a receiver's sale. A receiver is not required to obtain the best price for an asset, nor is a court entitled to substitute a receiver's commercially reasonable sales process with its own view regarding the sales process. A receiver's role includes considering competing interests and acting in a commercially reasonable manner with a view to obtaining the best price in the circumstances.
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