CONNECT FIRST v ELITE STORAGE NORTH EDMONTON LP

The Applicant/Defendant (the “Applicant”) sought amendment of a Consent Receivership Order (the “Order”) that appointed Alberta Finance & Mortgage Corporation as a receiver (the “Receiver”) to handle the assets of entities defined as “Debtor” in the Order (the “Application”). Specifically, the Applicant requested to remove BCCQ Global Holdings Ltd. (“BCCQ”), where the Applicant owned 50% of voting shares (through his company), as a Debtor.

Although BCCQ was listed as a Debtor in the Order, it was in fact acting as a guarantor under an agreement after the guarantee company had defaulted on the initial loan agreement (the “Forbearance Agreement”). For this reason, and because the Forbearance Agreement did not state that there should be security interests over BCCQ’s assets, the Applicant sought to amend the Order to remove BCCQ as a Debtor. The Receiver argued that the Applicant/Defendant was not authorized to bring the Application because of internal issues in BCCQ that was subject to arbitration, and that the Receiver had the discretion to add any party it considered a Debtor as evidenced by a blank space in the Order.

After a careful analysis of the case, Marion J. found that the Applicant, as co-owner and director of BCCQ, was an interested party in the matter and could seek an amendment. On the issue of the definition of a Debtor, the Court interpreted the provisions of the Forbearance Agreement, the surrounding circumstances, as well as the objective intentions of the parties when executing the agreement, to reject the Applicant’s position that the Order was only intended to apply to the guarantee company as BCCQ did not grant security for the loan under the Forbearance Agreement. The Court reasoned that the Applicant’s position ignored material facts such as the significant amount owed to the Plaintiff, and that BCCQ was indebted to the Plaintiff as guarantor regardless of whether they granted security or not.

Nonetheless, Justice Marion held that while the Receiver had the discretion to include anyone on the blank space in the Order as a Debtor, it was to be exercised with caution and in good faith. The Court then found that per the Forbearance Agreement, the Plaintiff was required to provide BCCQ a notice of default (the “Notice”) before it sought the Order, and in failing to do so, breached the Forbearance Agreement. Further the court held that in the absence of evidence proving the Notice would be prejudicial to the Plaintiff’s business, the Order should be varied to exclude BCCQ as a Debtor and that the remainder of the Order be as is.