If you are interested in submitting a bid to buy assets from a Court appointed receiver in Ontario and there is a Court approved sales process, then it is important to submit your bid as part of that Court approved sales process. A bid tendered outside the sales process time line and procedure (even if it turns out to be the highest bid) will generally end up being a losing bid. To outside observers the result seems counter-intuitive, but the Courts are extremely reluctant to undermine the result of a properly run sales process and compromise the integrity of the Court approved sales process.
The leading Ontario case is Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1 (C.A.). The decision in Soundair was recently affirmed in the decision of Mr. Justice Cumming in 1730960 Ontario Ltd. (Re) (2009) O.J. No. 3038. (Sup. Ct.) On August 10, 2009, the Ontario Court of Appeal dismissed a motion by the losing bidder to stay the approved sale transaction on the basis that (i) the losing bidder did not have standing to bring the appeal, and (ii) there was no basis to interfere with the discretion of Mr. Justice Cumming in approving the receiver’s recommendation, his approval of the winning bid and his finding no evidence of any unfairness in the sales process. (“173”).
In 173, Mr. Justice Cuming approved the sale of three properties to Pocrnic Realty Advisors Inc. (“Pocrnic”) for a total price of $3.5 million. After the terms of the Pocrnic purchase agreement were made a matter of public record, 2205305 Ontario Inc. (“220”) made a subsequent offer to purchase the properties for $3.8 million. Counsel for 220 attended the hearing to approve the Pocrnic offer and submitted a deposit cheque in respect of 220’s offer to counsel for the receiver.
220 obtained an adjournment to enable it to file an affidavit in support of its position that its offer should be approved and the Pocrnic agreement to purchase should not be approved by the Court. The issue before the Court was whether the agreement to sell the three properties to Pocrnic for $3.5 million should be approved given 220’s subsequent offer to purchase the properties for $3.8 million.
Cumming J. granted the receiver’s motion and approved Pocrnic’s $3.5 million agreement to purchase. In approving that agreement, Cumming J. found that:
(i) the receiver had properly and diligently considered the interests of all stakeholders in recommending approval of the Pocrnic offer;
(ii) the receiver made a significant effort to obtain the best price for the properties and had not acted improvidently;
(iii) there was no evidence of unfairness in the process and the integrity of the sales process would be maintained by approval of the Pocrnic offer;
(iv) 220’s offer, being only $275,000 or about 8 per cent higher than the offer of Pocrnic, was not a materially higher offer than the Pocrnic offer. Therefore, it did not suggest that the Pocrnic offer was not fair market value.
Further, Cumming J. was cognizant that approving a late bid on the “Court house steps” risked undermining the integrity of the Court approved sales process system and would weaken the receivership process.
The message is clear: if you want to buy assets in a court approved sales process, you should submit your best bid prior to the bid deadline. Courts are very reluctant to permit a last minute attempt to out-bid a bidder who followed the process.