Looking a Stalking Horse in the Mouth: Sale Process Approval Criteria Across Canadian Jurisdictions

ut vulgare proverbium est, noli equi dentes inspicere donati

- St. Eusebius Jerome, A Commentary on the Epistle of St. Paul to the Ephesians

Stalking horse bid procedures have been a feature of the Canadian insolvency and restructuring landscape for almost two decades,¹ but there is no national consensus on what criteria courts should consider in approving such processes. The jurisprudence was nudged further from consensus by the 2022 decision of the British Columbia Supreme Court (the “BCSC”) in Re Freshlocal Solutions Inc. where the BCSC approved a sales and investment solicitation process but declined to approve the debtor-in-possession (“DIP”) lender stalking horse bid around which the process was originally built.² As evidenced by a recent endorsement of the Ontario Superior Court of Justice (the “OSCJ”) in the Companies’ Creditors Arrangement Act (the “CCAA”) proceedings of DCL Corporation, the impact of Freshlocal is beginning to be seen in Ontario.³

While a dominant line of stalking horse cases grew quickly from the 2009 OSCJ decision in Re Nortel Networks Corp.,⁴ the seed of a separate line had already been planted in the 2007 Re Boutique Euphoria Inc. decision of the Quebec Superior Court (the “QCSC”).⁵ Boutique Euphoria initially had limited impact on stalking horse jurisprudence as it was only ever followed in one other reported Quebec decision, an off-point plan funding agreement approval decision by the same judge.⁶ The Boutique Euphoria line was, however, effectively revived by Freshlocal and brought into a separate line of cases arising from the 2014 BCSC decisions in Leslie & Irene Dube Foundation Inc. v. P218 Enterprises Ltd.⁷

The cause of the split in the stalking horse case law can be reduced to one factor. Where the Nortel line, for the most part, treats a stalking horse approval as approval of a sales process and not final approval of the stalking horse bid itself, the Boutique Euphoria/P218 Enterprises line focuses at least as much on approval of the bid, as it does on approval of the process.    

The Nortel Line

Because it treats approval of a stalking horse as approval of a sale process without final approval of the stalking horse agreement, the Nortel line of cases recognizes that the criteria for approval of an actual sale in section 36 of the Companies’ Creditors Arrangement Act (the “CCAA”), section 65.13 of the Bankruptcy and Insolvency Act (the “BIA”) or, in a receivership, Royal Bank of Canada v. Soundair Corp.⁸ are not the primary criteria for approving a stalking horse sale process.⁹ Without being constrained by the CCAA section 36, BIA section 65.13 or Soundair criteria, the Nortel cases focus on the stability that is created by a stalking horse bid early in a proceeding by reassuring stakeholders, including employees, customers and suppliers, that the business will continue and by assuring creditors that a floor price will be achieved.¹⁰ The Nortel line decisions are therefore open to treating break fees as akin to insurance premiums and, as such, more than just cost reimbursements.¹¹ Often a break fee and a separate expense reimbursement will be approved.¹² In all of this, the Nortel line tends to defer to the business judgment of the debtor’s management and to the court officer regarding the appropriateness of the stalking horse bid as a stalking horse.¹³ 

Cannapiece Group Inc v. Carmela Marziliis is a recent example of an OSCJ stalking horse approval decision in the Nortel line, notable in that it came after Freshlocal.¹⁴ The stalking horse agreement purchase price is described as a “baseline price” and there is no discussion of section 36 of the CCAA in either the decision or the applicants’ factum.¹⁵ Although the stalking horse agreement was specifically approved, it appears the focus of such approval was on the increased interim financing facility that the agreement provided through use of the purchase price deposit for operational expenses. There are cursory references in the decision and the factum to prior efforts to find debt financing, but no discussion of prior efforts to market the assets for sale. The Court also paid deference to the applicants’ business judgment, stating that the reasonableness of the break fee was subject to such business judgment so long as it fell within a certain range.¹⁶ In addition to the break fee, the agreement also provided for a reimbursement of the stalking horse’s professional fees.¹⁷ The sale process was then approved on application of the Nortel criteria summarized in Brainhunter: (i) whether a sale transaction is presently warranted; (ii) whether the sale will benefit the whole “economic community”; (iii) whether any creditor has a bona fide objection to a sale; and (iv) whether there is a better viable alternative.¹⁸

The Boutique Euphoria/P218 Enterprises Line

By treating approval of a stalking horse process as both approval of a sales process and approval of a specific sale agreement, the Boutique Euphoria line of cases implicates CCAA section 36, BIA section 65.13 and Soundair criteria and, specifically, the consideration of reasonableness and sufficiency of the process that leads to the stalking horse bid.¹⁹ There is, therefore, a focus on the “accuracy” of the stalking horse bid, both in terms of purchase price and the overbid margin necessitated by the break fee and minimum bid increment, in order to ensure the subsequent sale process is competitive.²⁰ To ensure such accuracy, these decisions have looked for a competitive process leading up to the stalking horse bid, rather than relying on the business judgment of the debtor or court officer.²¹ The focus on accuracy is tied to an emphasis on the value of a stalking horse lying primarily in its utility as a due diligence shortcut for subsequent bidders who, it is assumed, will rely on the stalking horse bid price as an accurate function of the stalking horse’s robust due diligence.²² With the focus on the value of a stalking horse bid being generated by the foundation of due diligence on which it stands, break fees are generally regarded as properly limited to expense reimbursements.²³ While the possibility that a stalking horse could create stability was among the Boutique Euphoria criteria, no actual value in terms of a break fee premium was placed on that benefit.

The logic of the Boutique Euphoria case line can be parsed as follows:

1. approval of the stalking horse bid must be obtained at the outset, in addition to approval of the stalking horse sale process as a whole;

2. in order to be approved on application of CCAA section 36, BIA section 65.13 or Soundair criteria, the stalking horse bid must be accurate and thus must be the result of a competitive process;

3. the unspoken premise: if the stalking horse bid is accurate and the result of a competitive process, no other potential purchasers can be expected to bid more than the already accurate stalking horse bid price unless the stalking horse provides them with specific value, namely by allowing them to save due diligence costs;

4. therefore, the overbid increment by which subsequent bidders must exceed the stalking horse bid price must be commensurate with a subsequent bidder’s due diligence costs savings and thus accurate in the sense that it only covers a break fee that does not include a risk premium.

Put another way, if a stalking horse bid satisfies Soundair criteria because it is accurate and the result of a competitive process, then the expense and transactional risk of conducting a subsequent stalking horse sale process can only be justified if there is a reasonable expectation that at least one higher bid will be received, and there can only be such expectation if the break fee and overbid increment are limited as above. The problem is that the risk of delaying a closing due to running a stalking horse sale process (as opposed to simply consummating the stalking horse bid at the outset) cannot be justified if the overbid increment and the break fee cancel each other out, leaving the estate only in the same economic position as it would have been with the stalking horse bid, or worse, given the inevitable additional professional costs of running the process. The courts in the Boutique Euphoria line of cases only avoid this self-inflicted dilemma by consistently finding that stalking horse bids do not satisfy Soundair criteria and thus by refusing to approve the bids. 

The requirement in Boutique Euphoria that a stalking horse bid be specifically approved as part of a larger approval of a stalking horse process appears to have arisen partly from a then very shallow pool of available stalking horse jurisprudence, partly from caution in the face of the novelty of the stalking horse concept and partly from bad facts. The QCSC noted in Boutique Euphoria that it had only three Canadian stalking horse decisions to consider: the OSCJ’s 2004 decision in Stelco,²⁴ the OSCJ’s 2005 decision in Re Tiger Brand Knitting Co.²⁵ and a 2005 decision in the BCSC A. & B. Sound Ltd. CCAA proceeding (“A. & B. Sound”).²⁶ Of those, Tiger Brand was the authority cited in Boutique Euphoria for requiring a stalking horse bid to result from a competitive process. In Tiger Brand, a court-approved (non-stalking horse) sales process had previously resulted in a selected bid that did not have the confidence of major stakeholders and which, as a result, had been turned into a stalking horse bid in the hopes of attracting higher offers.²⁷ Tiger Brand was not, however, a precedent for approval in advance of a stalking horse bid because the decision came at the end of the stalking horse sale process, when the stalking horse was declared to be the winning bidder. In addition, the competitive process that had resulted in the stalking horse bid was never held to be a precondition to approval of the stalking horse bid or sale procedure and, at the time the stalking horse procedure was approved, the stalking horse bid was clearly not regarded as “accurate” in the Boutique Euphoria sense.   

Although A. & B. Sound was not cited as authority alongside Tiger Brand, it is very similar. When a bid was selected as purchaser in a non-stalking horse sale process, objections – this time from other would-be bidders – resulted in the selected bid being transformed into a stalking horse for an extension to the sale process. Because very little time was allocated to the ensuing stalking horse phase of the process, new bidders were forced to rely on the due diligence already performed by the stalking horse.

In Stelco, the third precedent available to the QCSC in Boutique Euphoria, the stalking horse bid had resulted from a competitive process, but the OSCJ was explicit that the bid was not receiving final approval, was unconcerned about objections that the stalking horse bid might be too low (as if it were it would “easily be topped by most if not all of the other expected bid participants”), recognized the business judgment of the debtor and the court officer in selecting the stalking horse and expected that subsequent bidders would have to do their own lengthy due diligence.²⁸ 

Thus, despite the fact that all three available precedents involved stalking horse bids that had resulted from competitive processes, the QCSC in Boutique Euphoria had no precedent to rely on in requiring that the stalking horse bid before it result from a competitive process. The imposition of that precondition is best explained by the context and bad facts with which the QCSC was faced. The context was that Boutique Euphoria was not only the first time approval of a stalking horse had been sought in Quebec, but also that it appeared to be the first time such approval had been sought anywhere in Canada without some form of preceding competitive process. The QCSC, therefore, reasonably approached the issue with caution. The main bad facts before the QCSC were that the fulcrum secured creditor opposed the motion and that the break fee as a percentage of the purchase price was significantly higher than “market.”

The emphasis in Boutique Euphoria on the value of a stalking horse bid lying in the due diligence performed by the stalking horse bidder appears to come from a passage from Janis P. Sarra, quoted in the decision, which states that the “premise” of a stalking horse bid lies in the value of the stalking horse bidder’s due diligence to subsequent bidders.²⁹ This does not conform to practice; the authors have never encountered a bidder client willing to rely on another party’s due diligence, nor any counsel willing to advise a client to take the risk of such a shortcut.

In P218 Enterprises, the BCSC was presented with a receiver’s motion for approval of a stalking horse sale process and for an approval and vesting order in respect of the stalking horse bid, subject to the outcome of the sale process.³⁰ In explaining the concept of a stalking horse process, the BCSC, like Boutique Euphoria before it, stated that the “premise” of such a process is the value of the due diligence shortcut that the stalking horse provides to other bidders.³¹ The BCSC held that Soundair principles required a marketing and tender process to precede selection of the stalking horse bid.³² The precedent cited was the decision of the OSCJ in CCM Master Qualified Fund Ltd. v. blutip Power Technologies.³³ In CCM and subsequent decisions, Justice Brown, as he then was, developed his own Soundair-based criteria to be applied in approving a sale process.³⁴ Although the CCM criteria were derived from Soundair principles, they were not the same as the Soundair criteria. Unlike the Soundair criteria, the CCM criteria focused on the process to come, rather than on the process to that point. Nevertheless, P218 Enterprises cites CCM as authority for the proposition that the Soundair criteria themselves should be applied, including the consideration of whether sufficient effort was made to get the best price in the stalking horse bid or whether selection of the bid had been improvident.³⁵ This divergence from CCM can best be explained by the form of the motion before the BCSC, which sought not just approval of the stalking horse bid for purposes of the sale process, but requested an actual approval and vesting order in respect of the stalking horse agreement, conditional only on the outcome of the sale process. This forced the BCSC to focus on approving the stalking horse bid and not just the stalking horse sale process, in contrast to CCM wherein Justice Brown was explicit that a sale on the terms of the stalking horse agreement was not being approved.³⁶ Due in part to concern about lack of “accuracy” in the absence of any current asset appraisal or any marketing or tendering process preceding selection of the stalking horse bid, the BCSC dismissed the receiver’s motion for approval of a stalking horse sale process.³⁷ Another ground for the dismissal was a lack of evidence tying the break fee to the stalking horse’s actual costs.³⁸

In Farm Credit Canada v. Gidda, the BCSC was presented with a motion to approve a stalking horse bid at the end of receiver-run stalking horse process where the process had not been presented to the Court for approval at its outset.³⁹ Without citing any authority, the same judge who would decide Freshlocal held that a stalking horse agreement must be preapproved on application of the P218 Enterprises criteria.⁴⁰ It is an odd holding, given that there is, to the authors’ knowledge, no case law stating that a receiver-run sale process of any type must be preapproved and the BCSC Model Receivership Order, like others across the country, simply gives a receiver the power “to market any or all of the Property, including advertising and soliciting offers in respect of the Property or any part or parts thereof and negotiating such terms and conditions of sale as the Receiver considers appropriate,” only requiring a receiver to return to court for sale approval if the sales exceed certain dollar thresholds or if a vesting order is desired.⁴¹ 

As had been the case in P218 Enterprises, in Institutional Mortgage Capital Canada Inc. v. 0876242 BC Ltd., the BCSC was again asked to grant an approval and vesting order in respect of a stalking horse bid, subject to the outcome of a stalking horse sale process.⁴² This time the Court granted the vesting order. The BCSC focused on the appropriateness of the conditionality of such an order, rather than on the problem we previously raised of how the stalking horse bid could satisfy Soundair principles if the ensuing bid process was expected to yield a better result.

The distinction between the Nortel line and the Boutique Euphoria/P218 Enterprises line is somewhat blurred because there are Ontario decisions, like Stelco and Tiger Brand, that have taken preceding marketing efforts into account when approving a stalking horse process and/or that have specifically approved a stalking horse agreement on Soundair principles at the outset of a stalking horse process. In these cases, however, the preceding marketing efforts were typically not conducted to find a stalking horse bidder, and any final approval of the stalking horse bid was due to that relief being sought by the moving party and rather than it being a necessary condition to approval of the sale process. In Callidus Capital Corp. v. Xchange Technology Group LLC, the OSCJ approved a “pre-pack” stalking horse credit bid on application of Soundair principles at the outset of a receivership because a recent, extensive refinancing solicitation process had generated no offers to refinance and only one offer to purchase at a price substantially lower than the amount owing to the secured creditor/stalking horse bidder.⁴³ Although the OSCJ approved the stalking horse bid, the order approving the stalking horse process required the receiver to return to court at the end of the process for any vesting order in favour of the stalking horse.⁴⁴ In PCAS, the OSCJ considered investment solicitation efforts conducted prior to commencement of CCAA proceedings, but only as justification for the short length of the credit-bid stalking horse sale process.⁴⁵ The CCAA company would have to return to court for any approval of the stalking horse bid itself.⁴⁶ In Re Crate Marine Sales Ltd., the OSCJ, at the request of a receiver, approved a stalking horse bid alongside a stalking horse sale process. But as the Court only applied the criteria set out in Brainhunter (rather than Soundair), the bid approval was qualified as being for purposes of conducting the stalking horse process and the stalking horse bid, should it have ultimately been selected as the winning bid, would have had to be brought back for approval as such.⁴⁷

Freshlocal

In contrast to P218 Enterprises, the CCAA companies in Freshlocal only sought approval of the stalking horse agreement for purposes of the stalking horse process. The form of order originally sought was explicit that approval of a sale to the stalking horse bidder (if it was determined to be the winning bidder) would require a subsequent motion to the Court following completion of the sale process. But, as in P218 Enterprises and Boutique Euphoria, the BCSC was faced in Freshlocal with the bad facts of strong opposition from creditors, in this case from the fulcrum pre-filing secured creditor and the next ranking secured creditor, and an “off-market” stalking horse compensation structure.

Like Boutique Euphoria and P218 Enterprises before it, Freshlocal surveyed a number of OSCJ decisions, including cases from the Nortel line such as Brainhunter, CCM and Danier Leather. The BCSC ended up, however, applying four criteria applied by the QCSC in Boutique Euphoria, plus two additional considerations resembling some of the criteria from Brainhunter.

1. As did the QCSC in Boutique Euphoria, the BCSC looked at the circumstances giving rise to the stalking horse agreement and, in particular, whether it had been the result of a competitive process, which it had not. Of the four cases canvassed by the BCSC⁴⁸ in support of the proposition that a stalking horse bid must be the result of a competitive process, only one decision, Boutique Euphoria, actually stands for that ratio. While Danier Leather did involve a competitive process for selection of the stalking horse, nothing in the decision states that such process was necessary.⁴⁹ The OSCJ in Danier Leather primarily considered the criteria set out in Nortel and Brainhunter for approval of a process. When it did turn to consider the BIA section 65.13 criteria, including the section 65.13(a) requirement that a Court consider the reasonableness of the process leading to a proposed sale, the OSCJ only states that “in addition to satisfying the Nortel criteria, the SISP will result in a transaction that is at least capable of satisfying the 65.13 criteria.”⁵⁰ In PCAS, the pre-filing competitive process was only discussed by the OSCJ in considering the appropriateness of the short time frame of the stalking horse sale process and the stalking horse bid was not the result of that competitive process.⁵¹ Mecachrome was concerned with approval of a plan funding agreement, not a stalking horse process.⁵²

2. The BCSC in Freshlocal also examined whether the stalking horse process afforded stakeholders any stability and concluded it did not, because no evidence was presented of any stakeholder supporting the stalking horse agreement and an efficient non-stalking horse sales process would serve the same end.

3. In considering the timing of the sale process, the BCSC focused not on whether the process afforded subsequent bidders enough time to bid (as had the QCSC in Boutique Euphoria), but rather on the fact that numerous potential bidders had already been in the data room by the time the stalking horse agreement was made. The BCSC quoted the same passage from Sarra as had been quoted in Boutique Euphoria, to the effect that the premise of a stalking horse bid is that it provides value to subsequent bidders in the form of a due diligence shortcut.⁵³ The BCSC found that the stalking horse did not provide such value because the other bidders were already in the data room doing their own due diligence.⁵⁴

4. The fourth Boutique Euphoria criteria applied by the BCSC in Freshlocal regarded the cost of the stalking horse agreement. The BCSC found these objectionable, not because the break fee and the expense reimbursement were higher than market, but because the expense reimbursement would be payable (by set-off against the purchase price) even if the stalking horse was the winning bidder and because both the break fee and the expense reimbursement would be payable even if the stalking horse transaction did not close after being selected as the winning bid.

In addition to the above four Boutique Euphoria criteria, the BCSC in Freshlocal also considered formulations of two criteria from Brainhunter.

5. The BCSC looked at who among the parties supported approval of the stalking horse bid, finding:

(a) that no secured creditors supported it and the second- and third-ranking secured creditors opposed it; and

(b) that the companies’ business judgment was “circumscribed” by the DIP loan agreement which made the stalking horse agreement a condition subsequent and dictated certain aspects of the pricing therein,

and, as a result, placed more value on the business judgment of the secured creditors who opposed the stalking horse agreement.

6. Finally, the BCSC considered whether other alternative arrangements were available, finding that a sales process independent of the stalking horse agreement would be a viable option.

The result of the BCSC’s decision in Freshlocal not to approve the stalking horse process was that an amended, non-stalking horse process was subsequently approved and conducted. That process generated no bids other than the credit bid of the (no longer stalking horse) DIP lender, whose winning bid this time provided for no recovery to any pre-filing secured creditors. It was a successful result for the DIP lender and an unfortunate result for the estate.

DCL Corporation

In DCL Corporation, the Order made by the OSCJ approved a stalking horse sale process and approved a stalking horse agreement as the stalking horse bid, but was explicit that the stalking horse bid was not being given final approval and any approval and vesting order in respect thereof would have to be sought on a subsequent motion.⁵⁵ In his endorsement, the judge applied CCM and Nortel criteria,⁵⁶ and noted that the criteria in section 36 of the CCAA applied to a sale approval motion rather than a sale process approval motion, such as that before him.⁵⁷ To that extent, DCL Corporation stays in line with the Nortel cases. However, the OSCJ also placed the Freshlocal criteria on equal footing with those of Nortel and CCM, and applied them accordingly.⁵⁸ In particular, the court considered how the stalking horse bid arose, thus engaging, at least in part, in a CCAA section 36 analysis.⁵⁹ Fortunately, the stalking horse bid had arisen from a pre-filing marketing process, so there was no harm done by invoking Freshlocal in this case. Nevertheless, the failure to distinguish Freshlocal from the Nortel line sets a risky precedent as it potentially gives the Boutique Euphoria/P218 Enterprises line a foothold in Ontario.

Lessons Learned

The market price discovery mechanism of the eventual sales process in Freshlocal revealed that the DIP lender in that case was originally not just a stalking horse, but actually something of a gift horse. That was, however, certainly an unpredictable exception such that the advice of St. Jerome quoted at the outset of this article cannot be generally applied in stalking horse process approvals. In the exercise of more sober caution toward such approvals, there are a number of practice takeaways to be gleaned from the almost consistent rejection of stalking horse sale processes in the Boutique Euphoria/P218 Enterprises line of decisions. 

First, do not seek an approval and vesting order in respect of a stalking horse bid at the outset of the process. Rather, just seek to have the stalking horse bid approved for the narrow purposes of its role in the sale process. You will avoid forcing the Court to apply Soundair criteria or their CCAA or BIA counterparts, though there is no guarantee the Court will not do it anyway, as did the BCSC in Freshlocal. There is little downside to deferring an approval and vesting order until the end of the process. If the stalking horse is selected as the winning bidder at the end of a previously Court-approved sale process, the risk of the stalking horse bid not receiving approval at that point would be de minimus.

Second, as a corollary to the above, do not, in submissions, justify the stalking horse agreement or sale process on CCAA section 36, BIA section 65.13 or Soundair criteria as to do so will only invite the Court to focus on the reasonableness and sufficiency of the process that led to the stalking horse bid.

Third, do not treat assertions about benefits of, or need for, the stability provided by a stalking horse as mere platitudes. While the Nortel line does often seem to take it as given that a stalking horse bid will create needed stability, and so it may not be incorrect to simply assume the premise that a stalking horse equals stability, it is nevertheless prudent to back up that premise with evidence or at least reasoning.

Fourth, and in the same vein, do not expect blind deference to business judgment or the opinion of the court officer; like a grade school math test, you have to “show your work” in reaching conclusions. For example, if there has been any kind of recent marketing or investment solicitation process and the stalking horse bid compares favourably to the results, put such facts on the record as you would if you were seeking final approval of a sale transaction, though do so without raising Soundair or its CCAA or BIA counterparts. Similarly, the court officer recommending a stalking horse process should always provide a market comparison of the stalking horse pricing.⁶⁰

Fifth, if the stalking horse is also the DIP Lender and/or a pre-filing secured creditor, the lender should be present to the potential need to keep its two roles separate.⁶¹ The lender may think of its stalking horse bid as a protective bid and thus may reasonably view its bidding costs as just part and parcel of the general costs of realization on its security and thus, for the account of the debtor, recoverable in all circumstances. Caution should be exercised, however, not to make it difficult for a Court to approve a stalking horse compensation structure. In the grand scheme of things, taking into account the quantum of the outstanding debt at stake, fighting for a precedent on stalking horse compensation may not be wise. 

Finally, although it is not always possible, do not underestimate the importance of having pre-filing secured creditors on side. If this cannot be achieved, then certainly the record put before the Court must not take any shortcuts or take any premises for granted, and pause should be taken before seeking approval of stalking horse bid features that are out of the ordinary.

Fortunately for those seeking approval of a stalking horse process, the Nortel line remains by far the dominant vein of jurisprudence, as demonstrated in Cannapiece. Even DCL Corporation, on balance, falls into the Nortel line. Normally, Courts will not judge a stalking horse bid on Soundair criteria and thus will not require an insolvent estate to go the additional time and expense of running a competitive process for the stalking horse in advance of running the actual stalking horse sale process. As a result, a Court will generally defer to the business judgment of a debtor and to its court officer as to the selection of the stalking horse and the value of the process. The moving party and/or court officer simply need to avoid bid features or less-than-fulsome submissions that make it difficult for a Court to give its approval. 

Sam Babe is a partner and Matilda Lici is an associate in Aird & Berlis LLP’s Financial Services Group. Aird & Berlis regularly assists a broad range of stakeholders in connection with stalking horse procedures in restructurings and insolvencies. For more information, please contact a member of the Financial Services Group.

[2] Re Freshlocal Solutions Inc., 2022 BCSC 1616. [Freshlocal] Aird & Berlis LLP was counsel to the first-ranking pre-filing secured creditor to the applicants.

[3] Endorsement of Justice Osborne dated February 27, 2023, as amended March 2, 2023, Court File No. CV-22-00691990-00CL. [DCL Corporation]

[4] Re Nortel Networks Corp., [2009] O.J. 3169 (OSCJ [Commercial List]). [Nortel]

[5] Re Boutique Euphoria Inc., 2007 QCCS 7129, at para 20. [Boutique Euphoria]

[6] Mecachrome Canada Inc. (In the matter of the plan of compromise or arrangement of) c. Ernst & Young Inc., 2009 QCCS 6355, at para 45. [Mecachrome] Boutique Euphoria was also cited in a footnote in an order (rather than a decision) issued again by the same judge in AbitibiBowater inc. (Arrangement relatif à), 2010 QCCS 2556, at footnote 1.

[7] Leslie & Irene Dube Foundation Inc. v. P218 Enterprises Ltd., 2014 BCSC 1855, at para 21. [P218 Enterprises] While Freshlocal does not actually cite P218 Enterprises, the Freshlocal judge had followed P218 Enterprises in other stalking horse or break fee decisions, including Gidda (infra, note 39) and Re Quest University Canada, 2020 BCSC 1845, the latter of which was quoted in Freshlocal.

[8] Royal Bank of Canada v. Soundair Corp., [1991] OJ No 1137 (ONCA). [Soundair] The Soundair criteria were applied in all proceedings prior to the coming in to force of CCAA section 36 and BIA section 65.13 in September of 2009, and remain the applicable criteria in receivership sales.

[9] Nortel, supra note 4, at 49, 53, 54; Re Brainhunter Inc., [2009] O.J. No. 5578 (OSCJ [Commercial List]), at paras 15-17 [Brainhunter]; Re Danier Leather Inc., 2016 ONSC 1044, at para 22 [Danier Leather]; Re Mustang GP Ltd., 2015 ONSC 6562, at para 36.

[10] Stelco, supra note 1, at para 7; Re Mondrian Hall Inc., 2009 CarswellOnt 9548 (OSCJ [Commercial List]), at para 14.

[11] Stelco, supra note 1, at para 7; Danier Leather, supra note 9, at para 41; Bank of Montreal v. Baysong Developments Inc., 2011 ONSC 4450, at para 44 [Baysong Developments]; In The Matter of A Plan of Compromise or Arrangement of Green Growth Brands Inc., 2020 ONSC 3565, at para 52; Choice Properties Limited Partnership v. Penady (Barrie) Ltd., 2020 ONSC 3517, at para 26.

[12] Stelco, supra note 1; Nortel, supra note 4; Danier Leather, supra note 9; Baysong Developments, supra note 11; Greengrowth, supra note 11; and Re Parlay Entertainment Inc., 2011 ONSC 3492 [Parlay]. An outlier among Ontario cases is American Iron v. 1340923 Ontario, 2018 ONSC 2810. Despite citing Parlay, which approved both a break fee and a separate expense reimbursement, the judge viewed a break fee to properly be limited to cost reimbursement, without citing any other authority to that effect.

[13] Brainhunter, supra note 9, at para 20; Danier Leather, supra note 9, at para 44. With regard to the level of deference to be paid to a court officer’s recommendation as to a sale process generally, see the decision of the Court of Queen’s Bench for Saskatchewan (as it then was) in 9286594 Canada Inc. v Advance Engineering Products Ltd., 2015 SKQB 196. The Court considered whether the Soundair deference that ought to be accorded to a court officer’s recommendation of a sale transaction should also be accorded to a court officer’s recommendation of a sale process (at paras 19 to 22). Although it considered P218 Enterprises, the Court was ultimately unwilling to “second guess” the CCAA monitor’s recommendation regarding the sale process (at paras 33 to 35).

[14] Cannapiece Group Inc v. Carmela Marzili, 2022 ONSC 6379. [Cannapiece]  It is notable that the Factum of the Applicants cited Freshlocal, and so the decision was considered by the OSCJ; Factum of the Applicants, returnable November 10, 2022, https://www.bdo.ca/BDO/media/Extranets/Cannapiece/Factum-(returnable-November-10)-dated-November-9,-2022.pdf.

[15] Cannapiece, supra note 14, at para 4. Factum of the Applicants, supra note 14;

[16] Cannapiece, supra note 14, at para 5. 

[17] Ibid, at para 2(b).

[18] Ibid, at para 7 to 10; Brainhunter, supra note 9, at para 13. 

[19] The first criterion of the Soundair test is “whether the receiver has made a sufficient effort to get the best price and has not acted improvidently” and the first criterion of each the CCAA and BIA tests is “whether the process leading to the proposed sale or disposition was reasonable in the circumstances.”

[20] Boutique Euphoria, supra note 5, at para 37.

[21] Ibid, at paras 60 and 65. 

[22] Ibid, at para 20; P218 Enterprises, supra note 7, at para 15. See also Janis P. Sarra, Rescue!: The Companies’ Creditors Arrangement Act, (Toronto: Carswell, 2007), at 118. [Sarra]

[23] Boutique Euphoria, supra note 5, at para 71; see also Mecachrome, supra note 6, wherein the QCSC applied a stalking horse analysis to approval of a plan funding agreement.

[24] Stelco, supra note 1.

[25] Re Tiger Brand Knitting Co., (2005) 9 CBR (5th) 315 (OSCJ). [Tiger Brand]

[26] A. & B. Sound does not appear to have been reported, but rather was only memorialized in a case write-up: Michael Fitch and Kibben Jackson, “Face the Music: The A. & B. Sound CCAA Proceeding - A Stalking Horse of a Different Colour,” in Janis Sarra, ed., Annual Review of Insolvency Law, 2005 (Toronto: Carswell, 2006).

[27]Tiger Brand, supra note 21, at paras 10 to 13.

[28] Stelco, supra note 1, at paras 5, 6 and 10.

[29] Sarra, supra note 17, at 118, as quoted in Boutique Euphoria, supra note 5, at para 20. The emphasis on due diligence in Boutique Euphoria may also have come, in part, from the high value of the stalking horse’s due diligence in A. & B. Sound.

[30] P218 Enterprises, supra note 7, at para 2, 19 and 21.

[31] Ibid, at para 15.

[32] Ibid, at para 21.

[33] CCM Master Qualified Fund Ltd. v. blutip Power Technologies 2012 ONSC 175, at para 6. [CCM]

[34] Ibid, at para 6; Re PCAS Patient Care Automation Services Inc., 2012 ONSC 2840, at para 17. [PCAS] Although these decisions dealt with approval of stalking horse sale procedures, the criteria developed applied to any sale procedure approval.

[35] P218 Enterprises, supra note 7, at para 21.

[36] CCM, supra note 33, at para 16.

[37] Ibid, at paras 33 and 34.

[38] Ibid, at paras 36 to 38.

[39] Farm Credit Canada v. Gidda, 2015 BCSC 2188. [Gidda]

[40] Ibid, at para 37. Not only does Gidda not cite any authority for the assertion that a stalking horse process must be pre-approved, it actually indirectly cites a counter-authority. In a quote from P218 Enterprises, Baysong Developments (supra, note 11) is cited as authority for the use of stalking horse processes in receiverships (Gidda, at para 36). In Baysong Developments, a stalking horse sale process was conducted by a private receiver without any prior court approval.

[41] https://www.bccourts.ca/supreme_court/practice_and_procedure/practice_directions/civil/Model_Receivership_Order.docx, at paras 2(k), (l) and (m). 

[42] Institutional Mortgage Capital Canada Inc. v 0876242 BC Ltd., 2022 BCSC 1520.

[43] Callidus Capital Corp. v. Xchange Technology Group LLC, 2013 ONSC 6783.

[44] See: Callidus Capital Corporation v McFarlane, 2016 ONSC 3451, at paragraph 13.

[45] PCAS, supra note 34, at paragraph 10.

[46] Ibid, at paragraph 12.

[47] Crate Marine Sales Limited, 2015 ONSC 1062, at para 12 and 14; Stalking Horse and Sale Process Order made February 18, 2015, at paras 6 and 9(d).

[48] Freshlocal, supra note 2, at paras 38 to 39.

[49] Danier Leather, supra note 9.

[50] Ibid, at paras 34 to 35.

[51] PCAS, supra, note 34.

[52] Mecachrome, supra, note 6.

[53] Freshlocal, supra note 2, at paras 30 and 54.

[54] Ibid, at para 55.

[55] DCL Corporation, supra note 3; Order (Approval of the Stalking Horse APA, Final Bidding Procedures and ancillary matters); made February 22, 2023, Court File No. CV-22-00691990-00CL, at paras 3 and 5.

[56] DCL Corporation, supra note 3, applying criteria from CCM (supra note 33) at paras 18 and 27 and applying criteria from Nortel (supra note 4) at paras 20, 25, 29 and 36.

[57] Ibid, at para 21.

[58] Ibid, at paras 26, 28, 30 to 36.

[59] Ibid, at para 26.

[60] Although not from the Boutique Euphoria/P218 Enterprises line, the OSCJ decision in Re MPH Graphics Inc., 2014 ONSC 947 underlines the need for such comparative analysis. 

[61] This, of course, was not done in Cannapiece, supra note 14, where a DIP facility was built right into the stalking horse agreement.