In Calicom Solutions Inc. v. Sunil, the Superior Court of Justice considered whether to grant summary judgment in favour of creditors that had sued defendants for liability arising under personal guarantees. One of the arguments raised by the defendants in opposing the motion was that a receiver appointed by court order had undertaken an improvident sale of certain property and, as a result, the amount of their liability was an issue requiring trial.
The plaintiffs in Calicom Solutions had advanced a loan to a numbered company in the principal amount of almost $6 million, enabling that company to complete the purchase of a gas station and restaurant in Coboconk. Each of the defendants was either an officer, director, or shareholder of that numbered company or a family member of one of those individuals. The loan was primarily secured by a mortgage on the Coboconk property, but as additional security, some of the defendants provided a personal guarantee, guaranteeing the debt of the numbered company to the plaintiffs. As security for that guarantee, some of the defendants also provided a collateral mortgage over various residential properties.
The mortgages went into default in 2023. A written demand was subsequently made on the defendant guarantors regarding the debt owed under the personal guarantee. In March 2024, the defendants were served with a Notice of Sale under Mortgage for the Coboconk property.
Soon after, the plaintiffs also brought an application for the appointment of a receiver and manager of the property of the debtor numbered company. After that appointment, the receiver undertook a marketing and sales process for the Coboconk property.
The sale of the property was subsequently approved by an Approval and Vesting Order of the court. At the hearing on that issue, the defendants appeared and raised the issue of improvident sale, relying on certain appraisals of the Coboconk property that had been prepared in 2021 and 2023. The judge approved the sale of the Coboconk property but also noted that the defendants could assert whatever defences were available to them in the guarantee action.
The sale closed in late 2024, but the proceeds were insufficient to satisfy the debt owing by the numbered company to the plaintiffs. Litigation ensued, and the plaintiffs brought a motion for summary judgment against the guarantor defendants.
The defendants argued that summary judgment was not appropriate because the sale of the Coboconk property was an improvident sale giving rise to a factual dispute that required trial.
In determining whether the sale of the Coboconk property had been improvident, the Superior Court of Justice referred to a 2013 case, Centurion Farms Ltd. v. Citifinancial Canada Inc. In that case, the Court of Appeal stated that the test is whether the selling party “has taken reasonable precautions to obtain the true market value of the property as of the date of the sale.”
The burden of proof on such a defence was discussed in Bank of Montreal v. Zaffino. In that case, the Superior Court of Justice indicated that a defendant has the burden of proving the defence of improvident sale on a motion for summary judgment. This requires putting evidence before the court “demonstrating … a triable issue as to whether the sale was improvident.” The Court in that case also noted that criticizing a receiver’s “marketing efforts” or putting forward only a theory are insufficient.
Further guidance on the topic of improvident sales can be found in HSBC Bank Canada v. Kupritz, a British Columbia case that was expressly referenced by the Court in Calicom Solutions. In that case, the B.C. Supreme Court indicated that evidence from a valuation expert is generally required. The defendant must “establish both that the secured party departed from industry norms, and that a higher price would have been obtained if the secured party had done what is considered to be reasonable in that particular sector or industry.” Such evidence would not be required, however, in cases where it is obvious the secured party departed from “commercial common sense.”
It is also important to note that in Calicom Solutions, the sale of the Coboconk property by a court-appointed receiver had already been approved by a judge. That judge had determined the “reasonableness and adequacy” of the receiver’s sales process after applying the four factors set out in Royal Bank of Canada v. Soundair Corp (the “Soundair factors”). Those factors are:
The Defendants’ argument failed at this stage. Specifically, the Court in Calicom Solutions noted that the former appraisals had been attached to the affidavit of one of the defendants, which was insufficient as expert evidence. As the Court noted, there was “no expert affidavit that [opined] that the Receiver could have obtained the appraised price when the Coboconk property was sold.”
Further, since the Coboconk property had been sold by a receiver appointed by the court, as opposed to one that had been privately appointed, any shortfall arising out of an improvident sale had to be claimed against the receiver after obtaining leave of the court. The Court specifically referred to case law holding that a creditor could not be held responsible for the conduct of a receiver that had been court-appointed.
For these reasons, the Court in Calicom Solutions found no genuine issue requiring trial in relation to the argument that there had been an improvident sale.
Disputes over personal guarantees and allegations of improvident sales can quickly become complex, especially when receivership proceedings and court approvals are involved. If you are facing litigation related to loan defaults, guarantees, or receiver-conducted sales, it is essential to obtain strategic legal advice from experienced commercial litigation counsel. Contact Milosevic & Associates at (416) 916-1387 or reach out online to discuss your situation and learn how we can help protect your financial and legal interests.
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