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Houlden and Morawetz On-Line Newsletter | First Mortgage

The Ontario Superior Court of Justice granted the motion to approve the sale of a golf course with a first mortgage under receivership.

Houlden and Morawetz On-Line Newsletter

By: L.W. Houlden and Geoffrey B. Morawetz

Business Development Bank of Canada v. Marlwood Golf & Country Club Inc.

BDO Canada Limited ("BDO" or the "Receiver"), moved for approval of a sale transaction in which a golf course property under receivership in Wasaga Beach, Ontario was sold to a purchaser, the Smardenka Group and then assigned to T.P.C. Marlwood Inc. The approval was opposed by the respondent, the first mortgagee of the property, who wished to redeem the first mortgage and brought a motion for that relief.

The order appointing BDO as receiver authorized it to market the property. BDO determined that if it marketed the property quickly, it might be able to complete a sale of the assets by early June, allowing a purchaser to operate the course during the busiest summer months of July and August. BDO undertook a sales process. Newbould J. was satisfied that it was a reasonable sales process and that the property was sufficiently exposed to the market for a reasonable period of time to enable prospective bidders to assess the property and bid for it. Marlwood contended that the sale was an improvident sale. Newbould J. could not so find based on the evidence.

Marlwood also complained that it did not have access to the sale agreement or to the appraisals obtained by BDC and BDO. Marlwood moved for an order permitting it to redeem the first mortgage. On June 9, 2015, BDC provided a mortgage discharge statement stating that the amount outstanding was $2,129,477, inclusive of principal, interest and costs. However, in all the circumstances, Newbould J. declined to permit the first mortgage to be redeemed, stating that the essential reason was that it would upset the integrity of the sales process undertaken by the receiver.

Justice Newbould noted that immediately after the appointment of the receiver, the principals of Marlwood told the receiver that it wished to redeem the BDC mortgage. However, no redemption at that time took place. Justice Newbould went on to refer to a number of instances where the principals of Marlwood had interfered with the receiver and the sales process. Justice Newbould noted that a mortgagee has no automatic right to redeem in these circumstances.

Justice Newbould also noted that while the primary concern in receivership is protecting the interests of creditors, a secondary but important consideration is the integrity of the process by which the sale is affected. In this case, Newbould J. concluded the sales process was properly run. Redemption of the mortgage by Marlwood in the circumstances would interfere with the integrity of that process. He also found that the respondent had not acted in good faith. In the result, Newbould J. concluded that it was appropriate that the sale to the Smardenka Group and assigned to T.P.C. Marlwood Inc. be approved. The motion by the respondent Marlwood to redeem the first mortgage was dismissed.

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