Bankruptcy No. 155 J.C. R. IN THE QUEEN'S BENCH PROVINCE OF SASKATCHEWAN IN BANKRUPTCY IN THE MATTER OF THE PROPOSAL OF GUSTAFSON PONTIAC BUICK CADILLAC GMC LTD. AND IN THE MATTER OF AN APPLICATION PURSUANT TO SS. 58 and 59 OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, as am. S.C. 1992, c. 27 Kevin A. Clarke for Gustafson Pontiac Buick Cadillac GMC Ltd. Diana K. Lee for Oak Bluff Estates Ltd. Clark Sullivan on behalf of the trustee, Deloitte Touche Inc. JUDGMENT MALONE J. February 23, 1995 This is an application pursuant to ss. 58 and 59 ofthe Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as am.S.C. 1992, c. 27 (the "Act"), for the approval of a proposalmade pursuant to s. 50 of the Act by Gustafson Pontiac BuickCadillac GMC Ltd. ("Gustafson") to its various creditors. Theapplication is opposed by one of the creditors, namely, OakBluff Estates Ltd. ("Oak Bluff"). At the meeting of the unsecured creditors to approve the proposal, six unsecured creditors voted against the approval representing approximately $430,000 of the indebtedness of the Gustafson. Forty-four unsecured creditors voted in favour of the proposal, representing approximately $1,800,000 of the indebtedness and thus the statutory requirement for the approval of the proposal was met. Only Oak Bluff, representing approximately 3% of the indebtedness, appeared in opposition to the application for Court approval. The grounds for its opposition are set out in letter to counsel for the Gustafson dated December 1, 1994, as follows: At the moment, we anticipate opposing the application on the following grounds: 1.That, under the proposal, GM and GMAC, were separate class of unsecured creditors and, as that class did not approve the proposal, the proposal was not properly approved by the creditors in accordance with Section 54(2)(d) of the Bankruptcy and Insolvency Act, or alternatively, that the proposal fails to treat all of the unsecured creditors equally. 2.The proposal is primarily calculated to benefit Prairie Security Fund and the guarantors of the secured creditors of the corporation and not the general body of creditors. 3.The fact that any payment to the unsecured creditors is dependant upon successful negotiations with the Bank of Montreal, Prairie Security Fund and an outside investor means the proposal is effectively nothing more than "holding proposal". 4.Insufficient evidence has been presented to the unsecured creditors of the fairness of the transfer prices under the proposal to Prairie Security Fund. 5.That without the favourable vote of Prairie Security Fund for its unsecured indebtedness, the proposal would have been defeated. 6.The proposal does not comply with the requirements of the Bankruptcy and Insolvency Act because it does not provide that all monies payable under the proposal, specifically those monies payable to GM and GMAC, shall be paid to the trustee as required by Section 60(2) of the Bankruptcy and Insolvency Act. With respect to the first and sixth grounds of objection, note the trustee described GM and GMAC as "franchise creditors" in his report to the unsecured creditors. This is an unfortunate description as the Act contemplates only three categories of creditors preferred, secured and unsecured. Nevertheless, am not prepared to withhold approval to the proposal on this basis. GM and GMAC are presumably in position to terminate their relationship with Gustafson at any time which would effectively put an end to Gustafson's ability to sell or lease GM products. They have not chosen to do so. assume therefore that if they had been categorized as unsecured creditors, they would have voted in favour of the proposal with the other approving creditors. Furthermore, counsel for Gustafson points out that objections one and six, as well as four, deal with the valuation of security or the classification of creditors and as such should have been raised at the meeting of creditors pursuant to s. 135 of the Act for disposition by the trustee and not upon this application. Support for this proposition is found in the cases of Re Toronto Permanent Furniture Showrooms Co. (1960), 1959 CanLII 261 (QC CS), C.B.R. (N.S.) (Ont. S.C.); Re Light's Travel Service Ltd. (1985), 1985 CanLII 614 (BC SC), 56 C.B.R. (N.S.) 175 (B.C.S.C.) and Darabaner v. Banque Imperiale du Can. et Lefaivre, C.B.R. (N.S.) 88 (Que.Q.B.). With respect to objections two and five, note that the vast majority of the creditors have not appeared to oppose the proposal and therefore assume, do not take exception to the advantage, if any, to be gained by Prairie Security Fund Ltd. With respect to objection three, the fact the proposal may be considered "holding proposal" is not, in my opinion, sufficient to withhold approval thereof. The case cited by counsel for Oak Bluff (Fisher Oil Gas Corporation and Peat Marwick Limited v. Guaranty Bank Trust Company (1982), 1982 CanLII 1791 (ON CA), 44 C.B.R. (N.S.) 225 (Ont. C.A.)) is not of assistance to her in this regard. The criteria to be followed by the Court on an application of this nature is set out in ss. 59(2) of the Act as follows: 59.(1) Where the court is of the opinion that the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors, the court shall refuse to approve the proposal If the proposal is approved, the parties agree that the unsecured creditors of Gustafson will receive approximately 10ï¿½ to 11ï¿½ on the dollar of the indebtedness owed. If it is not approved, Gustafson will be placed in bankruptcy and the creditors will receive nothing. In Houlden and Morawetz, Bankruptcy and Insolvency Law of Canada, 3rd ed., (Toronto: Carswell, 1993, updated Release 8, 1994) Vol. 1, p. 2-144.6, under the heading "Conditions that Must be Met Before the Court Will Approve Proposal" the authors state as follows: (a) Generally Under s. 59(2), the court before it can approve proposal must be satisfied; (a) that the terms are reasonable; (b) that the terms are calculated to benefit the general body of creditors; and (c) that the proposal is made in good faith. In determining whether to approve proposal, the court must consider not only the wishes and interests of creditors, but also the conduct and interests of the debtor, the interests of the public and future creditors and the requirements of commercial morality: Re Gardner (1921), C.B.R. 424 (Ont. S.C.); Re Sumner Co. (1984) Ltd. (1987), 64 C.B.R. (N.S.) 218 (N.B.Q.B.); Re Stone (1976), 22 C.B.R. (N.S.) 152 (Ont. S.C.); Re National Fruit Exchange Inc. (1948), 29 C.B.R. 125 (Que.S.C.); Re The Man With The Axe Ltd. (No. 2) (1961, C.B.R. (N.S.) 12 (Man. Q.B.). Further, at p. 2-144.8 the authors state: If, however, large majority of creditors, i.e., substantially in excess of the statutory majority, have voted for acceptance of proposal, it will take strong reasons for the court to substitute its judgment for that of the creditors: Re McIntyre (1922), C.B.R. 396 (N.B.K.B.); Re Landsmann Wexler (1936), 17 C.B.R. 240 (Que.S.C.); _cole Int. de Haute Esthetique Edith Serei Inc. (Receiver of) v. Edith Serei Int. (1987) Inc. (1989), 78 C.B.R. (N.S.) 36 (C.S. Qu,); Re Leger and Lamoureaux (1925), C.B.R. 280 (Que.S.C.); Re Slavik (1922), 12 C.B.R. (3d) 157 (B.C.S.C.); Re Slavik (1993), 1993 CanLII 1653 (BC SC), 21 C.B.R. (3d) 278 (B.C.S.C.). In my opinion, Gustafson has met the criteria set outin the Act and the authorities referred to in Bankruptcy andInsolvency Law of Canada, and accordingly the proposal asattached to the draft order filed herein is approved. make no order as to costs.
An application was brought under ss.58 and 59 of The Bankruptcy and Insolvency Act seeking approval for a proposal made by Gustafson Pontiac Buick. The proposal had received the necessary proportion of support from Gustafson's creditors. One unsecured creditor opposed the application. HELD: 1)Under s. 59(2), before it can approve a proposal, the Court must be satisfied; (a) that the terms are reasonable; (b) that the terms are calculated to benefit the general body of creditors; and (c) that the proposal is made in good faith. 2)In determining whether to approve a proposal, the court must consider not only the wishes and interests of creditors, but also the conduct and interests of the debtor, the interests of the public and future creditors and the requirements of commercial morality. 3)If, however, a large majority of creditors, i.e., substantially in excess of the statutory majority, have voted for acceptance of a proposal, it will take strong reasons for the court to substitute its judgment for that of the creditors. 4)Gustafson had met the criteria set out in the Act and the authorities referred to in Bankruptcy and Insolvency Law of Canada, and accordingly the proposal was approved.