Date: 20220310  
Docket: CI 20-01-26627  
(Winnipeg Centre)  
Indexed as: White Oak Commercial Finance, LLC v. Nygård Holdings  
(USA) Limited et al.  
Cited as: 2022 MBQB 48  
COURT OF QUEEN’S BENCH OF MANITOBA  
BETWEEN:  
) APPEARANCES:  
)
WHITE OAK COMMERCIAL FINANCE, LLC,  
) No one appearing  
) for the applicant  
applicant, )  
) Wayne Onchulenko,  
) Fred Tayar and Colby  
) Linthwaite  
- and -  
) for the respondents  
)
) Bruce Taylor, Ross McFadyen  
) Melanie LaBossiere and  
) A. Sherman  
) for Richter Advisory Group Inc.  
)
) Timothy Doyle  
) for Attorney General  
) of Canada  
NYGÅRD HOLDINGS (USA) LIMITED,  
NYGÅRD INC., FASHION VENTURES, INC.,  
NYGÅRD NY RETAIL, LLC, 4093879 CANADA  
LTD., 4093887 CANADA LTD., NYGÅRD  
INTERNATIONAL PARTNERSHIP, NYGÅRD  
PROPERTIES LTD., AND NYGÅRD  
ENTERPRISES LTD.,  
)
) Domenico Magisano  
respondents. ) for Edson’s Investment Inc.  
) and Brause Investment Inc.  
)
) Donald Douglas, JJ Burnell,  
) Jessica Wuthmann, Linda  
) Galessiere, M. Citak, and  
) S. Agarwal  
) for interested creditors  
)
) Judgment delivered:  
) March 10, 2022  
Page: 2  
EDMOND J.  
Introduction  
[1]  
On March 18, 2020, the court granted a receivership order (the “Receivership  
Order”) appointing Richter Advisory Group Inc. (the “Receiver”) as the Receiver  
respecting the assets, undertakings and properties (the “Property”) of Nygard Holdings  
(USA) Limited, Nygard Inc. (“NI”) Fashion Ventures Inc., Nygard NY Retail, LLC  
(collectively the “US Debtors”), Nygard Enterprises Ltd. (“NEL”), Nygard International  
Partnership (“NIP”), Nygard Properties Ltd. (“NPL”), 4093879 Canada Ltd. (“879”) and  
4093887 Canada Ltd. (“887”) and (collectively NEL, NIP, NPL, 879 and 887 the  
“Canadian Debtors”). The US Debtors and the Canadian Debtors together are referred  
to as the “Debtors”.  
[2]  
The application for the Receivership Order was made by White Oak Commercial  
Finance, LLC for and on behalf of the applicant and Second Avenue Capital Partners,  
LLC (the “Lenders”) pursuant to security held by the Lenders in the Property of the  
Debtors in connection with a certain loan transaction and revolving credit facility (the  
“Credit Facility”) governed by the terms and conditions of a credit agreement (the  
“Credit Agreement”). The capitalized terms in this decision are the same as the defined  
terms in the Receiver’s Twelfth Report and the Receivership Order.  
[3]  
Numerous orders have been made by this court approving the actions taken by  
the Receiver including, the liquidation sale of retail inventory and owned furniture,  
fixtures and equipment, approving the sale of certain real property in Canada, as well  
as granting orders to permit a Receiver’s Charge, Receiver’s Borrowing Charge and a  
Page: 3  
Landlords’ Charge creating prior charges on the Property and approving the settlement  
of certain claims.  
[4]  
The Receiver’s Twelfth Report provides details of the actions and activities of the  
Receiver since the filing of the Eleventh Report and contains recommendations  
respecting the treatment of the “Net Receivership Proceeds” (as defined in the Twelfth  
Report).  
[5]  
An Interim Statement of Receipts and Disbursements (Interim R & D) prepared  
by the Receiver is reproduced at paragraph 82 of the Twelfth Report. The Interim  
R & D shows net receipts of $121,416,000 and disbursements of $42,221,000. The  
amount distributed to the Lenders including the Receiver’s Borrowings, is $66,466,000.  
The cash on hand as at May 15, 2021, is shown as $12,803,000. The Receiver confirms  
that all amounts due under the Credit Agreement of approximately $36,000,000 and all  
Receiver’s Borrowings of approximately $30,000,000, subject to the Receiver’s  
Borrowing Charge, were distributed to the Lenders in full satisfaction of the secured  
amounts owing to the Lenders.  
[6]  
The Receiver notes that the Debtors and the Receiver will continue to incur go  
forward expenses related to the Receivership proceeding including the potential  
employee priority claims; additional unpaid rent claims subject to the Landlords’ Charge  
and other disbursements, which the Receiver conservatively estimates will total  
$2,000,000. In addition, the Receiver has identified a tax liability owing to Canada  
Revenue Agency (“CRA”) by NPL which is estimated to be approximately $3,000,000.  
Page: 4  
[7]  
CRA claims an interest in the Net Receivership Proceeds. The validity and  
priority of the CRA claim was not argued at the hearing and will be considered at a  
further hearing, unless the interested parties agree on the priority issue. NPL has  
acknowledged that there is a CRA claim and is prepared to agree to a reasonable  
holdback from the Net Receivership Proceeds as security for the CRA claim.  
[8]  
This decision addresses claims to the Net Receivership Proceeds. It also  
addresses a motion by the respondents seeking an order authorizing the sum of  
$1,150,000 be paid from the Preserved Proceeds held in trust pursuant to the NPL  
Proceeds Preservation Agreement and the Net Receivership Proceeds. Details of the  
funds held pursuant to the NPL Proceeds Preservation Agreement and the various  
claims to the funds being held are described in the Receiver’s Twelfth Report (see  
paras. 67 - 81). The Preserved Proceeds held pursuant to the NPL Proceeds  
Preservation Agreement represent net sale proceeds of the sale of two properties that  
were owned by NPL, described as the Falcon Lake Cottage Property and the Fieldstone  
Property which are not included as Property defined in the Receivership Order. The  
funds requested by the respondents are for legal fees and disbursements incurred or to  
be incurred by some of the respondents and Mr. Peter Nygard personally.  
[9]  
The Receiver seeks orders:  
a) Declaring that each of the Debtors is jointly liable for the debts and  
liabilities (the “Common Liabilities”) of each of the other Debtors, and the  
Debtors are joint Debtors with respect to Common Liabilities;  
Page: 5  
b)  
c)  
Declaring the assets (the “Common Assets”) of each of the Debtors shall  
be treated as “Common Assets” subject to the Common Liabilities;  
Declaring that the assets and liabilities of the Debtors are properly to be  
substantively consolidated for the purpose of addressing the claims of  
creditors of each of the Debtors;  
d)  
Authorizing the Receiver to file assignments in bankruptcy on behalf of  
each of the Debtors on a basis that reflects the Common Assets and the  
Common Liabilities, and requesting that the official receiver in bankruptcy  
appoint Richter Advisory Group Inc. as Trustee in bankruptcy respecting  
the estates of each of the Debtors;  
e)  
In the alternative, the Receiver is seeking an order:  
i) Authorizing the Receiver to file assignments in bankruptcy on behalf of  
the Debtors, other than NPL and NEL;  
ii) Authorizing the Receiver to file applications for bankruptcy orders in  
this court in relation to the Debtors, NPL and NEL, on a basis that  
reflects the Common Assets and the Common Liabilities and the  
substantive consolidation of the estates of the Debtors;  
iii) If necessary, lifting the stay of proceedings granted in the Receivership  
Order to permit bankruptcy applications to be made and directing that,  
for the purpose of such assignments and applications, the locality of  
the Debtors shall be Winnipeg, Manitoba and the Receiver shall be  
appointed as Trustee.  
Page: 6  
[10] The Receiver filed a separate motion dated December 16, 2021 seeking the  
advice and direction of the court regarding the additional use of the Preserved Proceeds  
held pursuant to the NPL Proceeds Preservation Agreement and the potential claim to  
the remaining balance of the Preserved Proceeds by unsecured creditors if the court  
grants the substantive consolidation of the estates of the respondents.  
[11] The Receiver also seeks orders approving the Twelfth Report, the Supplementary  
Twelfth Report and the Second Supplementary Twelfth Report and the conduct,  
activities and accounts of the Receiver and its counsel.  
[12] Seven of the nine respondents (excluding NEL and NPL) do not object to an  
order granting a substantive consolidation of the estates of the respondent  
corporations, such that the assets and liabilities of those corporations would be treated  
as common assets and liabilities. Seven of the nine respondents also do no object to an  
order assigning seven of the nine respondents into bankruptcy as sought by the  
Receiver.  
[13] Two of the respondents (NEL and NPL) contest the Receiver’s request for an  
order of substantive consolidation and an order that NEL and NPL should be assigned  
into bankruptcy. These respondents submit that they own assets and none of the other  
respondents, nor their creditors, have legally valid claims to those assets. These  
respondents further submit that NEL and NPL are solvent and were always maintained  
as legally and financially distinct from the business enterprise engaged in by the other  
seven respondents. As a result, these respondents submit that granting the orders  
Page: 7  
sought by the Receiver would seriously prejudice NEL and NPL, by divesting them of  
their assets and rendering them bankrupt.  
Documents and Relevant Evidence  
[14] There are approximately 245 court filings in this receivership proceeding  
including affidavits, Receiver’s reports, briefs and orders. While not all filings are  
relevant to decide the present issues they provide the background information and  
context to decide the present contested motions before the court. The primary court  
filings reviewed to decide the contested motions include:  
a)  
b)  
c)  
d)  
e)  
f)  
Affidavit of Robert Dean, affirmed March 9, 2020;  
Affidavit of Debbie Mackie, affirmed March 10, 2020;  
Affidavit of Greg Fenske, affirmed March 11, 2020;  
Affidavit of Jamie Jacyk, affirmed March 12, 2020;  
Affidavit of Greg Fenske, affirmed March 12, 2020;  
Affidavit of Robert Dean, affirmed March 17, 2020;  
Affidavit of Laura Leigh Buley, sworn March 17, 2020;  
Affidavit of Greg Fenske, affirmed March 18, 2020;  
Confidential Affidavit of Greg Fenske, affirmed March 18, 2020;  
Receivership Order dated March 18, 2020;  
g)  
h)  
i)  
j)  
k)  
l)  
Affidavit of Greg Fenske, affirmed April 8, 2020;  
The First Report of the Receiver dated April 20, 2020;  
Affidavit of Greg Fenske, affirmed April 24, 2020;  
The Supplementary First Report of the Receiver dated April 27, 2020;  
m)  
n)  
Page: 8  
o)  
p)  
q)  
r)  
The Second Report of the Receiver dated May 27, 2020;  
The Supplementary Second Report of the Receiver dated May 31, 2020;  
The Third Report of the Receiver dated June 22, 2020;  
Affidavit of Greg Fenske, affirmed June 24, 2020;  
Affidavit of Peter Nygard, sworn June 25, 2020;  
The Fourth Report of the Receiver dated June 27, 2020;  
The Supplementary Third Report of the Receiver dated June 29, 2020;  
The Fifth Report of the Receiver dated July 6, 2020;  
The Sixth Report of the Receiver dated August 3, 2020;  
The Seventh Report of the Receiver dated September 10, 2020;  
The Supplementary Seventh Report of the Receiver dated September 14,  
2020;  
s)  
t)  
u)  
v)  
w)  
x)  
y)  
z)  
Order of Edmond J., September 15, 2020 (E/B Settlement Approval  
Order);  
aa)  
bb)  
cc)  
dd)  
ee)  
Order of Edmond J., September 15, 2020;  
The Eighth Report of the Receiver dated September 28, 2020;  
Affidavit of Greg Fenske, affirmed September 29, 2020;  
Affidavit of Greg Fenske, affirmed October 6, 2020;  
The Supplementary Eighth Report of the Receiver dated October 12,  
2020;  
ff)  
Affidavit of Greg Fenske, affirmed October 20, 2020;  
The Ninth Report of the Receiver dated November 2, 2020;  
gg)  
Page: 9  
hh) Affidavit of Greg Fenske, affirmed November 5, 2020;  
ii)  
Affidavit of Joe Albert, affirmed November 5, 2020;  
The Supplementary Ninth Report of the Receiver dated November 10,  
2020;  
jj)  
kk)  
ll)  
Affidavit of Joe Albert, affirmed November 12, 2020;  
Affidavit of Peter Nygard, affirmed November 12, 2020;  
mm) The Second Supplementary Ninth Report of the Receiver dated December  
30, 2020;  
nn) The Tenth Report of the Receiver dated January 21, 2021;  
oo)  
pp)  
qq)  
rr)  
The Eleventh Report of the Receiver dated February 24, 2021;  
Affidavit of Greg Fenske, affirmed April 28, 2021;  
Affidavit of Robert Martell, affirmed April 28, 2021;  
Affidavit of Myron Dyck, affirmed April 28, 2021;  
Affidavit of Steve Mager, affirmed April 29, 2021;  
Affidavit Derrick Sigmar, affirmed April 29, 2021;  
ss)  
tt)  
uu) Affidavit of Aaron Wojnowski, affirmed April 29, 2021;  
vv) Affidavit of Peter Nygard, affirmed May 3, 2021;  
ww) Twelfth Report of the Receiver dated June 4, 2021;  
xx)  
Notice of Motion of the Receiver dated June 4, 2021 with attached draft  
form of Net Receivership Proceeds Order;  
yy)  
zz)  
Affidavit of Greg Fenske, affirmed September 7, 2021;  
Supplementary Affidavit of Greg Fenske, affirmed September 14, 2021;  
Page: 10  
aaa) Affidavit of Joe Albert, affirmed October 29, 2021 (“Albert affidavit”);  
bbb) Affidavit of Debbie Mackie, affirmed October 29, 2021;  
ccc) Supplementary Twelfth Report of Receiver;  
ddd) Second Supplementary Twelfth Report of Receiver;  
eee) Affidavit of Brian Greenspan, affirmed December 9, 2021 (“Greenspan  
affidavit”); and  
fff)  
Notice of Motion of respondents, dated December 10, 2021.  
[15] I do not propose to summarize the facts which are relevant to the decision in this  
case. The facts are reviewed in detail in the numerous reports filed by the Receiver and  
the affidavits filed on behalf of the respondents. Instead, I propose to review the  
issues to be decided and the facts relevant to a determination of those issues.  
Issues  
[16] The material filed raises the following issues relevant to the Net Receivership  
Proceeds motion:  
a) What is a substantive consolidation and should it be applied in the facts and  
circumstances of this case?  
b) What is the proper allocation of revenues generated from the sale of assets  
during the receivership and receivership costs and expenses?  
c) What rights of subrogation apply to the respondents and what is the correct  
interpretation of the provisions of The Mercantile Law Amendment Act,  
C.C.S.M. c. M120 (the “Act”) (ss. 2 and 3)?  
Page: 11  
d) Should one or more or all of the respondents be assigned into bankruptcy,  
and if so, should the Receiver be appointed as the Trustee in Bankruptcy?  
[17] The issues relating to the respondents’ motion seeking an order authorizing  
$1,150,000 be paid from the proceeds from the sale of properties that were owned by  
NPL for legal fees and disbursements are:  
a) Should the court grant an order to release the balance of the Preserved  
Proceeds held pursuant to the NPL Proceeds Preservation Agreement to pay  
legal fees and disbursements and expert costs incurred by the respondents in  
connection with the Receivership Proceedings or a bankruptcy proceeding?  
b) Should the court grant an order to release a portion of the Net Receivership  
Proceeds to fund legal fees and disbursements that have been incurred or will  
be incurred in connection with the Receivership Proceedings or a bankruptcy  
proceeding?  
c) Can a portion of the Net Receivership Proceeds or the Preserved Proceeds  
held pursuant to the NPL Proceeds Preservation Agreement be used to fund  
legal fees and disbursements incurred to defend Mr. Nygard in connection  
with the criminal charges laid against him in Toronto, Ontario?  
Issues relevant to the Net Receivership Proceeds motion  
a) What is a Substantive consolidation and should it be applied in the  
facts and circumstances of this case?  
[18] The orders sought by the Receiver include what is referred to in authorities as a  
substantive consolidation” of the estates of the Debtors for creditor purposes. The  
Page: 12  
parties refer to the leading authority on substantive consolidation, Redstone  
Investment Corp. (Re), 2016 ONSC 4453, [2016] O.J. No. 5205 (QL).  
[19] In Redstone, Morawetz J. (as he then was), defines substantive consolidation  
as follows:  
7
Under a substantive consolidation, a number of affiliated legal entities,  
typically corporations, are treated as if they were one entity, resulting in the  
assets of the various debtors being pooled to create a common fund out of which  
claims of creditors of all the debtors are jointly satisfied. See: Janis Sarra,  
"Corporate Group Insolvencies: Seeing the Forest and the Trees" 2008) 24  
B.F.L.R. 63, at. p. 8.  
8
The authority for substantive consolidation of bankrupt estates in Canada  
lies under the equitable jurisdiction of the Superior Court of Justice granted by s.  
183(1) of the Bankruptcy and Insolvency Act ("BIA"). See: A. & F. Baillargeon  
Express Inc. (Trustee of) (Re), [1993] Q.J. No. 884 ("Baillargeon"), at para. 23);  
Nortel Networks Corporation (Re), 2015 ONSC 2987, at para. 216 and Bacic v.  
Millennium Education & Research Charitable Foundation, 2014 ONSC 5875.  
[20] In Redstone, the court reviewed the law respecting substantive consolidation of  
debtor estates in insolvency proceedings and stated:  
78  
The following general principles respecting the doctrine of substantive  
consolidation represent a summary of Canadian case law:  
(i) Are the elements of consolidation present, such as the intertwining of  
corporate functions and other commonalities across the group?  
(ii) Do the benefits of consolidation outweigh the prejudice to particular  
creditors?  
(iii) Is consolidation fair and reasonable in the circumstances?  
[21] The relevant authorities reference the test for substantive consolidation  
summarized in Bacic v. Millennium Educational & Research Charitable  
Foundation, 2014 ONSC 5875, [2014] O.J. No. 4914 (QL), at para. 113 as follows:  
Page: 13  
113 The test as to substantive consolidation requires the balancing of interest  
of the affected parties and an assessment whether creditors will suffer greater  
prejudice in the absence of consolidation and the debtors or any objecting  
creditors will suffer from its imposition. Regard must be had to the:  
(a) difficulty in segregating assets;  
(b) presence of consolidated Financial Statements;  
(c) profitability of consolidation at a single location;  
(d) commingling of assets and business functions;  
(e) unity of interests in ownership;  
(f) existence of intercorporate loan guarantees; and  
(g) transfer of assets without observance of corporate formalities  
(See also Atlantic Yarns Inc. (Re), 2008 NBQB 144, 333 N.B.R. (2d) 143; Northland  
Properties Ltd. (Re), [1988] 29 B.C.L.R. (2d) 257, [1988] B.C.J. No. 1210 (B.C. Sup.  
Ct.), affirmed in Northland Properties Ltd. v. Excelsior Life Insurance Co. of  
Canada, [1989] 34 B.C.L.R. (2d) 122, [1989] B.C.J. No. 63 (B.C.C.A.) and PSINet Ltd.  
(Re), [2002] C.B.R. (4th) 284, [2002] O.J. No. 1156 (Ont. Sup. Ct.) [Commercial List])  
[22] In Redstone, the court dismissed the motion brought by the Receiver for  
substantive consolidation of the estate’s three corporate entities. In reviewing the test  
noted above, the court found:  
a) The assets of the corporations were separate and easily identifiable;  
b) All financial statements, audited and unaudited, were prepared on an entity  
by entity basis;  
c) All three corporations had separate ownership structures; and  
d) There were no intercorporate loan guarantees of any third party financing.  
(See Redstone at paras. 80 - 85)  
Page: 14  
[23] Ultimately, the court in Redstone determined that there would be a significant  
prejudice to the creditors of one of the companies if substantive consolidation was  
ordered.  
[24] Morawetz J. stated at para. 88:  
88  
As Trainer J. explained in Northland, "it would be improper for the court  
to interfere with or appear to interfere with the rights of the creditors," and that  
such an appearance would be created if the estates are ordered merged for all  
purposes. This caution rings true in this case. To order substantive consolidation  
would require me to ignore written contracts and rely on subjective ex post facto  
evidence.  
[25] Cases where the courts have found that substantive consolidation is appropriate  
are in circumstances where the affairs of the debtor corporations were conducted with  
a disregard for the “niceties of corporate identity and separate juridical personalities”,  
assets were intermingled, and where, due to the manner in which the corporations  
were operated and the state of corporate records, the allocation of value and claims  
between the corporations would be burdensome for the receiver. (See Bacic at para.  
100; A. & F. Baillargeon Express Inc. (Trustee of) (Re), [1993] Q.J. No. 884  
(Que. Sup. Ct.)(QL), at paras. 5, 12 - 16; PSINet Ltd. (Re) at paras. 2 and 11)  
[26] Intermingling of assets, operations and liabilities of related corporations is a  
factor consistently examined. The facts to support such a finding include:  
a)  
Holding common bank accounts through which funds are paid and  
distributed to pay the expenses and obligations of each of the companies  
regardless of which entity is entitled to the funds and/or is responsible for the  
expense or obligation;  
Page: 15  
b)  
The presence of intercorporate loans between related companies without  
the observance of typical corporate formalities;  
c) The comingling of records of the related companies such that it is  
extremely difficult, if not impossible to identify which records belong to each  
company;  
d)  
e)  
f)  
The use of common head offices shared by related companies;  
One entity employing all employees for a group of companies; and  
Common ownership and/or control, either directly or indirectly, by one  
individual in a group of companies and/or each entity having substantially the  
same officers and directors. (See Bacic at paras. 100 and 116; A. & F.  
Baillargeon Express Inc., at paras. 12 - 16; PSINet Ltd. (Re), at paras. 2  
and 11)  
[27] NPL and NEL submit that they should not be subject to a substantive  
consolidation order. The effect of such an order is the claims of creditors against  
separate debtors become claims against a single entity. NPL was a real estate holding  
company and NPL’s real property has been sold during the course of the receivership.  
By virtue of its contribution to the Lenders, NPL submits that it now has a secured claim  
against the Borrowers and a secured claim against the unlimited Guarantors for  
contribution under the Credit Agreement. As a holder of the Lenders’ security, NPL  
submits that it has a first claim to the Net Receivership Proceeds and the substantive  
consolidation order sought would extinguish that claim.  
Page: 16  
[28] NPL submits that it is solvent, asset-rich and a secured creditor of the other  
respondents. NPL and its owner, NEL submit that the Receiver wants access to NPL’s  
assets to satisfy unsecured creditors’ claims of the other Debtors, specifically NIP. For  
example, employees of NIP and NI are unsecured creditors who will only recover if the  
Net Receivership Proceeds are available pursuant to a substantive consolidation order.  
Similarly, landlords, suppliers, vendors, gift card purchasers and taxing authorities who  
are owed debts by NIP, NI and other Debtors, will clearly be economically advantaged  
by a substantive consolidation order.  
[29] Courts in both the US and Canada have found that orders of substantive  
consolidation are an extraordinary remedy, based in part on the fact that secured  
creditors may be prejudiced in order to increase the overall return to other creditors,  
including unsecured creditors.  
[30] Applying the principles outlined in Redstone and the other authorities, I note  
that the Receiver conducted an extensive review of all of the relevant factors in the  
Twelfth Report (see paras. 131 200). The Receiver, after reviewing all of the  
applicable factors, concludes that “it is fair and reasonable to substantively consolidate  
the Debtors for the purposes of addressing claims of unsecured creditors, and that the  
overall benefit to stakeholders arising from such a consolidation outweighs the  
prejudice to any particular creditors.”  
[31] I do not intend to conduct an exhaustive review of the factors that are outlined  
in detail in the Twelfth Report. I am in substantial agreement with the analysis  
Page: 17  
undertaken by the Receiver. I do propose, however, to review the governing factors  
outlined in Redstone and the other relevant authorities noted above:  
a) Difficulty in segregating assets;  
b) Presence of consolidated financial statements;  
c) Profitability of consolidation at a single location;  
d) Comingling of assets and business functions;  
e) Unity of interests in ownership;  
f) Existence of intercorporate loan guarantees;  
g) Transfer of assets without observance of corporate formalities.  
a) Difficulty in segregating assets  
[32] NPL, a real estate holding company, held title to assets that can be segregated  
from the assets of the other respondents. NEL is the parent corporation of NPL. All of  
NPL’s real property has been sold during the course of the receivership. However, the  
Receiver correctly points out that “ … those assets cannot readily be segregatedfrom  
the substantial investments in those properties and costs thereof being borne by NIP  
and from the costs incurred by NIP in providing centralized services to NPL and NI (and,  
in the case of NI, funding certain of the inventory costs which resulted in (e.g.) NI  
accounts receivable), all without any cash changing hands or ultimate reconciliation of  
such contributions, investments and costs, to the benefit of stakeholders of NPL and NI,  
but to the detriment of stakeholders of NIP”. (See para. 195 of the Twelfth Report)  
Page: 18  
b) Presence of consolidated financial statements  
[33] The Nygard Group of Companies did prepare consolidated financial statements.  
NPL and NEL are not included in the consolidated financial statements and those two  
entities prepared their own financial statements. This is a factor that favours the  
respondents’ submission but in my view, it is not a significant factor. The primary  
questions are whether the elements of consolidation are present, such as the  
intertwining of corporate functions and other commonalities across the group of  
corporations and whether the benefits of consolidation outweigh the prejudice suffered  
by creditors as a result of granting a substantive consolidation order.  
c) Profitability of consolidation at a single location  
[34] NPL held title to the real estate which was used in the operation of the business  
of the Nygard Group of Companies. The principal business location for all of the  
Debtors, including NPL and NEL, was the head office located at the Inkster property in  
Winnipeg. While the respondents submit that NPL held real estate at various locations,  
and thus profitability was not consolidated at a single location, services for the Debtors  
including NPL was centralized and performed by employees of NIP at a single location.  
The services required for the Nygard fashion business as well as NPL’s business,  
including the business functions and accounting was completed primarily at the Inkster  
property by NIP’s employees.  
d) Comingling of assets and business functions  
[35] Other than as explained below, NPL’s assets were not necessarily comingled with  
the assets of the other respondents. NPL’s primary commercial assets including the  
Page: 19  
Inkster property, the Notre Dame property, the Broadway retail property and the  
Niagara property were used by NIP and the Nygard Group of Companies to operate the  
fashion business.  
[36] As to the business functions the evidence establishes:  
i) Most of the business functions were carried out by substantially the same  
directors and officers of all the Debtors.  
ii) At the material times, Mr. Nygard exercised general authority and direction  
over all of the Debtors and their business affairs and functions.  
iii) The Debtors including NPL generally operated using NIP bank accounts.  
iv) The creditors of each of the Debtors were tracked and managed centrally on  
one consolidated accounts payable sub-ledger, regardless of which Debtor  
procured or benefited from the goods or services obtained.  
v) NIP incurred and directly paid substantially all expenses on behalf of the  
Debtors, regardless of which Debtor procured or benefited from the goods or  
services obtained. The Receiver notes that these expenses were generally  
captured for accounting purposes, but not on a consistent basis, as  
intercompany transactions. These transactions were not necessarily on  
reasonable commercial terms that would be expected with separate arms-  
length corporations.  
vi) The Receiver also noted that the intercorporate transactions between Debtors  
rarely involved cash actually changing hands and intercompany accounts  
Page: 20  
were often not settled or paid, as you would typically expect among separate  
arms-length corporations.  
vii)NIP advanced substantial funds or paid specific amounts in relation to the  
development and maintenance of NPL’s real property assets, including:  
Approximately $8 million for the development and maintenance of the  
Falcon Lake Cottage Property, including approximately $2.6 million in  
labour expenses;  
Approximately $5.6 million in capital improvements and maintenance  
costs for the Inkster property; and  
Approximately $1 million in capital improvements and maintenance  
costs for the Notre Dame Property.  
viii) Substantially all accounting and payable functions, decision-making,  
communication functions, marketing and pricing decisions, new business  
development initiatives, negotiation of material contracts and leases, retail  
and third party suppliers/services decisions, design and merchandising,  
and production and distribution functions were managed centrally from  
the Inkster property head office in Winnipeg.  
ix)  
The Debtors employed approximately 1550 people, 1450 of which were  
employed by NIP and 100 of which were employed by NI. NIP funded  
most of the employee costs, notwithstanding that employees provided  
services and performed functions for the other Debtors including NPL.  
Page: 21  
x)  
The IT system for all of the respondents was centralized and used by the  
Debtors and the broader Nygard organization to maintain the books and  
records of each of the Debtors.  
xi)  
The records of the Debtors are comingled within the IT system and  
records which were maintained primarily at the Inkster property.  
e) Unity of interests in ownership  
[37] NPL is owned by NEL, which does not directly own any of the other named  
respondents, except 879. While this arguably supports a finding that there is no unity  
of interest in ownership, the evidence satisfies me that at the material times, NPL and  
all of the respondents were controlled, directly or indirectly, by Mr. Nygard and he had  
general authority and direction over all of the Debtors.  
f) Existence of intercorporate loan guarantees  
[38] The Receiver reported that the Debtors recorded in excess of $87 million in  
aggregate intercompany loans as among the Debtors. The Credit Agreement was  
guaranteed by a number of the respondents, including NPL, who provided a limited  
recourse guarantee in the amount of $20 million US, plus costs and expenses. Other  
respondents provided unlimited guarantees to secure the Credit Facility. The operation  
of the Nygard business generated intercompany loans which are also relevant to NPL’s  
and NEL’s submission that they should be excluded from a substantive consolidation  
order. NPL has an intercompany loan owing to NIP in the approximate amount of  
$2,500,000 and an intercompany loan owing to 887 (one of the partners of NIP) of  
Page: 22  
approximately $200,000.  
NEL (NPL’s parent company) has an outstanding  
intercompany loan owing to NIP in the approximate amount of $18,100,000.  
g) Transfer of assets without observance of corporate formalities  
[39] The Receiver noted that there were certain written intercompany agreements  
between the respondents respecting their business arrangements. However, the  
payment terms were not regularly complied with. As an example, lease agreements  
were alleged to have been entered into between NPL and NIP and between NPL and  
Mr. Nygard respecting the Inkster property. Although there is a lease agreement  
between NPL and NIP, there is no evidence that any lease payments were actually  
made. In the case of Mr. Nygard, the evidence of a lease agreement is referenced in  
his affidavit affirmed June 25, 2020 (see also affidavit Greg Fenske, affirmed June 24,  
2020).  
[40] In a previous decision delivered June 30, 2020, I made the following finding  
regarding Mr. Nygard’s assertion that he was a tenant pursuant to a verbal lease  
agreement at the commercial property operated by the Nygard Group of Companies at  
1340 Notre Dame Avenue:  
There is no evidence of a written tenancy agreement, a lease term, rent paid,  
renewal terms, utilities, repairs, security or damage deposit paid or any other  
terms and conditions that are ordinarily agreed to by parties entering into  
residential tenancy agreements. NPL and Mr. Nygard are sophisticated parties  
who would be expected to follow the law and document agreements. While it is  
possible to enter into a verbal tenancy agreement, other documents such as e-  
mails, expense reports, or other documents prepared in the ordinary course of  
business ought to have been produced to evidence the formation of the  
residential tenancy agreement, and the payment of rent or security deposits. Mr.  
Nygard produced no such documents or information other than references to the  
fact that he resided at 1340 Notre Dame, which was where the Nygard group of  
companies carried on business prior to the receivership order. The evidence  
establishes that to the extent there was an agreement, it was an accommodation  
Page: 23  
to Mr. Nygard while he was performing duties for and on behalf of the Nygard  
Group of Companies to use the space on a temporary basis only, not a residential  
tenancy agreement.  
[41] Based on my review of all of the evidence, I agree with the Receiver that “[t]he  
approach taken by the Nygard Group of Companies is consistent with the operation of  
the Debtors as a common enterprise and cannot be considered to have involved  
independent arms’-length parties with independent directors acting in the best interests  
of their respective corporations.” (See Twelfth Report of Receiver, at para. 195)  
[42] In addition, other factors are referenced by the Receiver and its counsel  
including:  
a) At the time the application for the Receivership Order was made the  
respondents, and specifically the Canadian Debtors, took a consolidated  
approach in relation to the original NOI proceedings, advancing the position  
that the Canadian Debtors were insolvent and intended to make a proposal in  
bankruptcy on behalf of all Canadian Debtors, including NPL;  
b) Throughout the receivership proceedings, the affidavit evidence filed on  
behalf of the Debtors consistently refers to the “Nygard Group of Companies”,  
“Nygard Group Assets” and/or “Nygard Group Resources”;  
c) The respondents filed evidence from one primary affiant, Mr. Fenske on  
behalf of the Debtors. Appendix M attached to the Twelfth Report, is a  
summary of the evidence filed by the Debtors, which I considered in  
assessing the factors noted above.  
Page: 24  
[43] Ultimately, the court must weigh the various factors and apply the general  
principles outlined by the court in Redstone at para. 78. Applying the general  
principles and weighing the potential prejudice to the affected parties, I find as follows:  
a) While I accept that some of the factors outlined above do not support  
granting an order of substantive consolidation of the estates of the  
respondents, a review of all of the factors and the detailed evidence  
presented in the unique circumstances of this case satisfies me that the  
elements required to order a substantive consolidation are present;  
b) In my view, the benefits of substantive consolidation outweigh the prejudice  
to particular creditors, including NPL pursuant to its potential right of  
subrogation. I place a great deal of confidence in the evidence presented  
and opinion provided by the Receiver, as an officer of the court, particularized  
in the consolidation analysis and the consolidation summary in the Twelfth  
Report (see paras. 131 200). I agree that CRA and unsecured creditors of  
NPL may be economically advantaged by substantive consolidation of the  
Debtors for creditor purposes. If I accept NPL’s submission that it is a  
secured creditor and has a priority interest in the Net Receivership Proceeds  
then I agree that NPL may be prejudiced as a result of a substantive  
consolidation order. The prejudice that may be suffered by NPL, and its  
parent corporation NEL, must be weighed against the claims of the  
employees, landlords, suppliers and other vendors, gift card purchasers and  
taxing authorities who are owed debts by NIP, NI and other Debtors who are  
Page: 25  
economically advantaged by substantive consolidation of the Debtors for  
creditor purposes.  
c) In my view, all of the Debtors, including NPL, carried on a common enterprise  
and benefited from the centralized manner in which the Nygard fashion  
business was operated, including the work performed by NIP’s employees,  
centralized administrative services and funding provided by NIP. I agree with  
the Receiver that treating the Debtors and in particular NPL as separate  
entities for creditor purposes would result in inequitable treatment for  
creditors and unfairly deprive them of the benefit of pooled assets and  
resources of the Nygard Group of Companies.  
[44] The respondents submit that the court in Redstone, refused to grant the order  
for substantive consolidation and the facts in Redstone are very similar to the facts  
before the court in this case. The respondents submit that one creditor, in this case,  
NPL, has a secured claim that would be eliminated by a substantive consolidation order.  
In my view, the facts and circumstances in Redstone are distinguishable from the facts  
in this case. While I accept that NPL is a separate corporation within the Nygard Group  
of Companies, in Redstone, Morawetz J. found that the elements of consolidation were  
not present and specifically stated “ … there would also be significant financial prejudice  
to the creditors of RCC if substantive consolidation were ordered” (at para. 90). His  
reference to creditors of RCC is a reference to third party investors/creditors who would  
have suffered a significant financial prejudice. In this case, the alleged significant  
financial prejudice is being suffered by one of the affiliated corporations within the  
Page: 26  
Nygard Group of Companies that carried on the fashion business as a common  
enterprise. While I agree NPL’s potential secured claim would be eliminated by a  
substantive consolidation order, that prejudice must be weighed against the prejudice  
of all of the other creditors of the respondents that remain unpaid who advanced  
products, services and resources to the Nygard Group of Companies.  
[45] NPL’s real property holdings have been sold during the course of the receivership  
and NPL does not own real estate and actively carry on business at this time. Its only  
asset is a claim to the Preserved Proceeds and the Net Receivership Proceeds.  
[46] I am satisfied that in the unique circumstances of this case, the benefits of  
substantive consolidation outweigh the prejudice to particular creditors including NPL  
and its parent corporation, NEL.  
[47] Based on the recommendation of the Receiver, I agree that it is fair and  
reasonable to substantively consolidate the Debtors for the purpose of addressing  
claims of all creditors and that the overall benefit to the stakeholders arising from such  
a consolidation outweighs the prejudice to any particular creditor.  
b) What is the proper allocation of revenues generated from the sale of  
assets during the receivership and receivership costs and expenses?  
[48] The respondents and in particular, NPL and NEL, challenge the allocation of costs  
and revenue generated during the receivership. NPL submits that the allocations made  
by the Receiver are arbitrary, unfair and in effect, means that NPL does not have the  
rights of subrogation accorded by the Act.  
Page: 27  
[49] In assessing the claims to the Net Receivership Proceeds, the Receiver points out  
at paragraph 87 of the Twelfth Report that the claims to the Net Receivership Proceeds  
depend upon whether claims are determined on a stand-alone “separate corporation”  
basis or on the basis that the Debtor should be substantively consolidated for creditor  
purposes. The Receiver undertakes a review of claims on a separate corporation basis,  
in part, because NPL has asserted that it has a priority claim to all or a substantial  
portion of the Net Receivership Proceeds. The Receiver points out that NPL has tax  
liabilities that are being advanced as a result of the sale of NPL’s real property and NPL  
may have other tax liabilities that may accrue in relation to dispositions of the Falcon  
Lake Cottage Property and Fieldstone Property.  
[50] In light of my finding made regarding substantive consolidation of the estates of  
the Debtors for creditor purposes, it is unnecessary to review the Receiver’s separate  
corporate analysis. However, if my finding regarding substantive consolidation is  
incorrect, I agree an assessment of the separate corporate analysis is required and  
therefore the Receiver’s allocations must be reviewed.  
[51] The Receiver explains at paragraph 89 that the determination of claims on a  
separate corporation basis requires a complex analysis involving:  
(a) identification of receivership proceeds attributable to the realization upon  
assets of affected Debtors. In this case, only NIP, NPL and NI had assets which  
were included as Property in the receivership and which were sold or otherwise  
realized upon by the Receiver;  
(b) allocation of expenses incurred by the Receiver as against the proceeds  
attributable to NIP, NPL and NI asset realizations in the course of the  
receivership;  
(c) allocation of priority claims and court-ordered charges, including statutory  
priorities, the Receiver’s Borrowing Charge, the Receiver’s Charge and the  
Page: 28  
Landlords’ Charge, as against the proceeds attributable to NIP, NPL and NI asset  
realizations in the course of the receivership;  
(d) allocation of repayment of the Credit Facility from proceeds of NIP, NPL and  
NI asset realizations, and determination of related subrogation rights, if any; and  
(e) reliance upon the Nygard Group financial information in relation to  
intercompany obligations as among the Debtors and other matters.  
[52] The Receiver conducted a comprehensive separate corporation analysis at  
paragraphs 92 130 of the Twelfth Report. During the course of the Receivership, the  
Receiver received proceeds from the realization of the assets of NIP, NI and NPL as  
follows:  
Realizations  
by Debtor (in  
$000s)  
NIP  
NI  
50,917  
11,831  
28,579  
NPL  
[53] The Receiver made allocations of expenses based on considerations outlined in  
the Twelfth Report. The Receiver also made allocations respecting the repayment of  
the Credit Facility. Rather than attempt to summarize the allocations made and analysis  
conducted by the Receiver, I have attached as Schedule A to this decision a portion of  
the Twelfth Report which sets out the Receiver’s analysis regarding the Net  
Receivership Proceeds.  
[54] The respondents submit that the sale of NPL properties generated $28,579,000.  
The Receiver allocated the sum of $14,192,000 of that amount for distribution to the  
Page: 29  
Lenders in payment of the Credit Facility. The respondents dispute the allocation and  
argue that it is arbitrary and unreasonable. NPL submits it ought to receive credit for  
the full amount realized and because that amount exceeds its liability under the limited  
recourse guarantee, rights of subrogation apply.  
[55] NEL and NPL challenge the alleged arbitrary allocation of the payments made to  
the Lenders’ and the Receiver’s explanation as set forth above in paragraphs 101 and  
102 of the Twelfth Report. The respondents also challenge the allocations of costs and  
expenses made by the Receiver and rely upon an expert report attached to the Albert  
affidavit.  
[56] Based on my review of all of the evidence, I agree with most of the assessments  
made by the Receiver and make the following findings:  
a)  
b)  
c)  
The Receiver’s allocation of receivership costs and expenses was made on  
a preliminary basis and is not a final analysis of the allocation of the costs  
and the proceeds recovered during the receivership from the asset  
realizations of NIP, NI and NPL;  
The Receiver recorded in excess of 17,000 transactions during the  
receivership proceedings and it would be time-consuming and complicated  
to assess each of those transactions and in my view, it is not in the best  
interests of the creditors to do so;  
Corporate overhead expenses incurred during the course of the  
receivership are not readily specifically allocable to a particular Debtor;  
Page: 30  
d)  
e)  
f)  
The Receiver’s Borrowings of approximately $30 million were incurred to  
fund receivership expenses. The Receiver’s Borrowing Charge established  
pursuant to the Receivership Order created a charge against the Property  
and the Receiver did not allocate Receiver’s Borrowings to any particular  
Debtor;  
The Receiver allocated repayment of the Credit Facility, referred to as  
Lender Debt, as set out in paragraph 101 and after taking into account  
funds received from a Borrower (NI), the Receiver split the remaining  
balance of Lender Debt between NIP and NPL asset realizations. The  
amount allocated to NIP and NPL is approximately $14.2 million each.  
The Receiver estimates the Net Receivership Proceeds allocated between  
NIP and NPL at paragraph 103 and provides a chart summarizing the  
separate corporation analysis at paragraph 104. (See attached Schedule  
A)  
g)  
h)  
The Receiver then applies the implications of intercompany balances  
between NIP, NI and NPL.  
I agree with the Receiver that repayments made to the Lenders from  
proceeds realized from the sale of NPL assets do not affect the historical  
intercompany debts of NPL to NIP, NPL to 887 and NEL to NIP and also do  
not create subrogated rights in favour of NPL as against NIP and its  
assets. The Receiver outlines the correct accounting treatment of the  
Credit Agreement transactions at paragraph 115 of the Twelfth Report.  
Page: 31  
[57] The respondents submit that the Receiver’s analysis amounts to allocations that  
allocate away NPL’s subrogated rights. The respondents attacked the Receiver’s  
allocations and specifically stated that the Receiver failed to provide an explanation for  
the $14.2 million allocation of payment to the Lenders attributable to NPL.  
[58] The respondents submit:  
a)  
The allocation is in breach of the Receiver’s duty to be impartial,  
disinterested and to deal with the rights of all interested parties in a fair and  
even-handed manner;  
b)  
The Receiver cannot legally allocate the proceeds of the sale of NPL’s  
property to the credit of an entity other than NPL, unless and until NPL has been  
made subject to substantive consolidation order;  
c)  
In contrast to the decision in Nortel Networks Corp. (RE), 2015 ONSC  
2987, [2015] O.J. No. 2440 (QL), leave to appeal refused 2016 ONCA 332, 130  
O.R. (3d) 481, in which the court made rulings that certain funds would be  
shared on a pro rata basis, that since NPL’s assets consisted of real properties  
owned by NPL alone and not the collective group of entities, the proceeds of  
sales of those properties belong to NPL’s estate.  
[59] I start my analysis of these submissions with a brief review of the applicable law  
governing allocations in receivership proceedings. In assessing the allocation of  
receivership costs, the authorities establish that allocation of costs amongst related  
corporations is an exercise of discretion and the result must be fair and equitable.  
Page: 32  
[60] The general principles of law, which govern the allocation of receivership costs is  
summarized in Royal Bank of Canada v. Atlas Block Co., 2014 ONSC 1531, [2014]  
O.J. No. 1099, (QL) as follows:  
43  
As to the allocation of the fees, the general principles governing the  
allocation of receiver's costs can be briefly stated:  
(i) The allocation of such costs must be done on a case-by-case basis and  
involves an exercise of discretion by a receiver or trustee;  
(ii) Costs should be allocated in a fair and equitable manner, one which does not  
readjust the priorities between creditors, and one which does not ignore the  
benefit or detriment to any creditor;  
(iii) A strict accounting to allocate such costs is neither necessary nor desirable in  
all cases. To require a receiver to calculate and determine an absolutely fair  
value for its services for one group of assets vis-à-vis another likely would not be  
cost-effective and would drive up the overall cost of the receivership;  
(iv) A creditor need not benefit "directly" before the costs of an insolvency  
proceeding can be allocated against that creditor's recovery;  
(v) An allocation does not require a strict cost/benefit analysis or that the costs  
be borne equally or on a pro rata basis;  
(vi) Where an allocation appears prima facie as fair, the onus falls on an  
opposing creditor to satisfy the court that the proposed allocation is unfair or  
prejudicial.  
45  
As to the allocation methodology for shared fees, the Receiver reported  
that as early as October 18, 2013, it had provided BDC with its allocation method  
for professional fees and expenses incurred in the estate. Its email to RBC of  
that date stated:  
The shared time will be allocated on realizations of the secured creditor assets so  
the exact breakdown of those fees will not be known until the assets are  
realized.  
The Receiver provided BDC with requested weekly reports allocating those fees  
amongst the three time categories. The Receiver responded to periodic inquiries  
about the fees and their allocation from BDC, and it was not aware that BDC  
took issue with the allocation until February 4, 2014.  
[61] In JP Morgan Chase Bank N.A. v. UTTC United Tri-Tech Corp., 2006 25  
C.B.R. 5th 156, [2006] O.J. No. 3048 (QL), the Ontario Supreme Court of Justice  
Page: 33  
considered a Receiver’s proposed allocation with respect to amounts secured by the  
Receiver’s charge. The court approved the proposed allocation and noted:  
42  
The obligation on a Receiver in allocating costs from an insolvency  
proceeding is to exercise its discretion in an equitable manner that does not  
readjust the priorities between creditors. The allocation:  
(a) should be fair and equitable; and  
(b) not ignore the benefit or detriment to any creditor.  
There is however no requirement that the Receiver be obliged to conduct a strict  
accounting on a cost-benefit basis as between the creditor classes: Hunjan  
International Inc. (Re) (2006), Carswell Ont. 2718 (Ont. S.C.) at p. 2 and p. 8.  
43  
The Receiver submits that the Proposed Allocation is reasonable and in  
accordance with general principles established by Canadian insolvency courts.  
44  
The Receiver submits that the allocation of the Fees is reasonable in the  
circumstances. Moreover, it has been held that "to require the Receiver to  
calculate and determine an absolutely fair value for its services for one group of  
assets vis-à-vis another would likely not be cost effective, would drive up the  
overall receivership cost and would likely be a fool's errand in any event:  
Hickman Equipment (1985) Ltd., [2004] N.J. No. 299 at p. 6.  
45  
Where as in this case, the Receiver was appointed for the benefit of  
interested parties to ensure that all creditors were treated fairly and to ensure a  
fair process to deal with the assets, there is no valid reason for a secured  
creditor to avoid paying its fair share of the receivership costs: Bank of Nova  
Scotia v. Norpak Manufacturing Inc., [2003] O.J. No. 4818 (Ont. C.A.) at p. 2.  
[62] In DBDC Spadina Ltd. v. Walton, 2015 ONSC 2550, [2015] O.J. No. 2023  
(QL), the Ontario Superior Court of Justice considered the proposed allocation of  
professional fees to each of the parties. Newbould J. found:  
28  
Each case is different. This case involves unusual complexity involving the  
Manager's responsibility for 31 Schedule B properties and several Schedule C  
properties, all of which were improperly run by the Waltons before the Manager  
was appointed. The Manager's task was made no easier by challenges raised  
from the beginning to the end. I accept that the Fee Allocation Methodology in  
this case allocates costs in a fair and equitable manner and that the discretion of  
the Manager has been exercised fairly. The fact that one or more interested  
Page: 34  
parties is unhappy with the allocation is perhaps understandable but no basis in  
this case to change what the Manager has proposed to allocate the costs.  
[63] Applying these principles to this case, I accept that a comprehensive review of  
over 17,000 transactions would be time-consuming, expensive and the creditors would  
ultimately bear the costs associated with that review as well as the costs of any  
associated further litigation.  
[64] While not perfect, I am satisfied the Receiver has undertaken a review process  
and allocation methodology that allocates costs in a fair and equitable manner. I am  
also satisfied that the Receiver has exercised its discretion fairly in the circumstances.  
It is understandable that NPL and NEL challenge the allocations of the proceeds of sale  
of NPL’s assets on the basis that the allocations prejudice NPL’s potential right of  
subrogation. I considered that factor, but in my view, that is not a sufficient basis to  
determine that the allocations are unfair. The Receiver explained the complex process  
of allocations in its reports and I am not satisfied that it is appropriate to interfere with  
the Receiver’s exercise of discretion and the allocation of costs and proceeds of sale in  
the unique circumstances of this case.  
[65] The respondents point out that the authorities relied upon by the Receiver deal  
with the allocation of costs of the receivership. In this case, some of the allocations  
that are challenged include the allocation of the proceeds of the sale of assets  
belonging to different entities.  
[66] The respondents referred the court to two decisions, namely Royal Bank of  
Canada v. Atlas Block Co. Ltd., 2014 ONSC 1531, [2014] O.J. No. 1099, and Nortel  
(Re). The Royal Bank of Canada case is often cited regarding the principles  
Page: 35  
applicable to cost allocations in receiverships. A portion of that decision dealt with the  
allocation of the proceeds of various asset sales, but did not set out any guiding legal  
test applicable to that allocation.  
[67] In Nortel (Re) the respondents reference the decision of Newbould J. who dealt  
with a complicated cross-border liquidation of the assets of multiple corporations within  
the Nortel Enterprise and the proper allocation of those proceeds as among the entities  
and their creditors. Concerning the proceeds of assets sold the court stated at para.  
202:  
202 This is an unprecedented case involving insolvencies of many  
corporations and bankrupt estates in different jurisdictions. The intangible assets  
that were sold, being by far the largest type of asset sold, were not separately  
located in any one jurisdiction or owned separately in different jurisdictions. They  
were created by all of the RPEs located in different jurisdictions. Nortel was  
organized along global product lines and global R&D projects pursuant to a  
horizontally integrated matrix structure and no one entity or region was able to  
provide the full line of Nortel products and services. R&D took place in various  
labs around the world in a collaborative fashion. R&D was organized around a  
particular project, not particular geographical locations or legal entities, and was  
managed on a global basis. The fact that Nortel ensured that legal entities were  
properly created and advised in the various countries in which it operated in  
order to meet local legal requirements does not mean that Nortel operated a  
separate business in each country. It did not.  
[68] In connection with proceeds referred to as the lockbox funds, the court stated  
that the funds should be distributed pro rata and stated:  
250 The allocation each Debtor Estate will be entitled to receive from the  
lockbox funds is the percentage that all accepted claims against that Estate bear  
to the total claims against all Debtor Estates.  
[69] Regarding the pro rata allocation, the court stated:  
214 A pro rata allocation in this case would not constitute a substantive  
consolidation, either actual or deemed, for a number of reasons. First, and most  
importantly, the lockbox funds are largely due to the sale of IP and no one  
Page: 36  
Debtor Estate has any right to these funds. It cannot be said that these funds  
in whole or in part belonged to any one Estate or that they constituted separate  
assets of two or more Estates that would be combined. Put another way, there  
would be no "wealth transfer" as advocated by the bondholders. The IFSA, made  
on behalf of 38 Nortel debtor entities in Canada, the U.S. and EMEA, recognized  
that the funds would be put into a single fund undifferentiated as to the Debtor  
Estates and then allocated to them on some basis to be agreed or determined in  
this litigation. Second, the various entities in the various Estates are not being  
treated as one entity and the creditors of each entity will not become creditors of  
a single entity. Each entity remains separate and with its own creditors and its  
own cash on hand and will be administered separately. The inter-company claims  
are not eliminated.  
. . . . .  
222 In considering these factors, it is clear beyond peradventure that Nortel  
has had significant difficulty in determining the ownership of its principle assets,  
namely the $7.3 billion representing the proceeds of the sales of the lines of  
business and the residual patent portfolio. This amount constitutes over 80% of  
the total assets of all of the Nortel entities. This issue has taken several years of  
litigation and untoward costs in the parties attempting to establish an  
entitlement to it. As the MRDA does not govern how the sales proceeds are to be  
allocated, there is no one right way to separate them. It cannot be said that  
there is no question which entity is entitled to the sale proceeds or in what  
amount. It is clear that these assets are in the language of Dr. Janis Serra "so  
intertwined that it is difficult to separate them for purposes of dealing with  
different entities".  
[70] I disagree with the respondents that these authorities assist to establish  
governing legal principles and specifically that they support a finding that the sale  
proceeds of NPL assets belong to NPL alone. The respondents’ submission is based on  
the incorrect assumption that all of the NPL asset sale proceeds in the amount of  
$28.579 million was paid to the Lenders pursuant to the Credit Facility. As the Receiver  
points out, that is contrary to what actually happened.  
[71] The Royal Bank of Canada case did not establish guiding leading principles to  
be employed in allocating sale proceeds. The decision in that case was based on the  
particular facts before the court. The court accepted the Receiver’s proposed allocation  
Page: 37  
of the sale proceeds amongst the debtors and there was evidence filed to support the  
allocations.  
[72] The decision of the court in Nortel (Re) dealt with the unique fact situation that  
arose in connection with a very complex multi-jurisdictional insolvency proceeding.  
Based on the facts before the court, it was determined that the funds should be  
allocated to the credit of each of the debtor entities on a pro rata basis.  
[73] Other than establishing that each case is different, I am not satisfied those  
authorities assist the court with principles that apply in this case. In the unique facts of  
this case, the Receiver was tasked with allocating the realizations achieved from the  
sale of assets of NIP, NI and NPL.  
[74] The Receiver points out in the Second Supplementary Twelfth Report what  
actually happened upon the sale of the assets and states that none of the NPL asset  
sale proceeds were used to repay the Credit Facility and that approximately $11.9  
million of the NPL asset sale proceeds were used to repay the Receiver’s Borrowings. I  
agree with the Receiver that the allocation of the Receiver’s costs and the repayment of  
the Credit Facility recognizes the payment of such costs based on the actual timing of  
the receipt of receivership proceeds from various assets owned by NIP, NI and NPL. I  
disagree with the position advanced by the respondents that the allocation involves any  
transfer of assets or proceeds as between NI, NIP and NPL.  
[75] In my view, the legal principles applicable to allocations noted above, apply  
equally to the allocation of costs and the allocation of proceeds of the sale of assets.  
Page: 38  
[76] As I have explained, the assumption that all NPL asset sale proceeds (totaling  
$28.579 million) were paid to the Lenders to satisfy the Credit Facility is contrary to  
what actually happened during the course of the receivership. The Credit Facility was  
in fact satisfied prior to receipt of the net sale proceeds from the sale of the NPL  
properties.  
[77] It is also important to keep in mind that the Receiver’s Borrowing Charge  
secured the Receiver’s Borrowings pursuant to the Receivership Order and funded  
receivership costs and expenses including disbursements. The Receiver’s Charge and  
Receiver’s Borrowing Charge are charges against all of the Property and rank in priority  
to all encumbrances including the Credit Facility. The Receiver’s Borrowings during the  
course of the receivership exceeded $30 million and is captured within “corporate  
overhead” expenses in the separate corporation analysis conducted by the Receiver in  
the Twelfth Report. I accept the Receiver exercised its discretion in a reasonable  
manner to allocate the proceeds of sale of the assets received based on what actually  
occurred during the receivership and in my view, the allocations are fair and equitable  
in the circumstances.  
[78] As to the respondents’ submissions, the evidence supports the following findings:  
a)  
The allocations made by the Receiver were fair and equitable and cannot  
be characterized as in breach of the Receiver’s duty to be impartial, disinterested  
and to deal with the rights of all interested parties in a fair and even-handed  
manner; and  
Page: 39  
b)  
The Receiver allocated the proceeds of the sale of NPL’s property as part  
of the separate corporation analysis. I have found the allocations to be fair and  
equitable. If I am wrong, I have nevertheless found that the evidence in this  
case supports granting a substantive consolidation order and therefore the sale  
of NPL assets can be used to satisfy the common liabilities of the respondents.  
[79] I turn now to the other submissions advanced by the respondents based upon  
the Albert affidavit. Mr. Albert provides an opinion regarding the Receiver’s separate  
corporation analysis in the Twelfth Report. The report of Albert Gelman Inc. (“AGI”) is  
attached as Exhibit “B” to the Albert affidavit. The AGI report indicates that the report  
was requested for the following purposes:  
a) To assist counsel to the Canadian Debtors in analyzing the separate  
corporation analysis set out at page 36 of the Twelfth Report;  
b) To provide Debtors’ Counsel with an alternative separate corporation  
analysis which, in the opinion of AGI incorporates a more reasonable, fair and  
equitable allocation methodology.”  
[80] The qualifications or expertise of Mr. Albert or AGI to express an opinion that  
may assist the court in this matter was not challenged. Mr. Albert’s curriculum vitae is  
attached as Exhibit “A” to his affidavit and he is described as one of the founding  
principals of AGI with more than 30 years of experience. He is a chartered professional  
accountant and licensed insolvency trustee and has acted in numerous engagements as  
an officer of the court in such legal capacities as receiver, monitor, inspector,  
Page: 40  
investigative receiver and trustee in bankruptcy. I have no hesitation in accepting that  
he is qualified to provide opinion evidence within his area of expertise.  
[81] In its report, AGI challenges the following allocations made by the Receiver:  
a) The allocation of the Landlords’ Charge in the separate corporation analysis.  
The Receiver allocated the Landlords’ Charge equally in the amount of  
$1,293,000 to each of NIP and NPL. AGI expresses the opinion that the  
Landlords’ Charge should be allocated entirely to NIP on the basis that NPL  
was not a party to any of the leases that pertain to the Landlords’ Charge;  
b) The allocation of corporate overheads based upon the respective gross  
proceeds of realizations of NIP, NI and NPL. AGI describes the corporate  
overheads as primarily corporate payables and professional fees. Regarding  
payables, AGI disputes the allocation of 31% of the corporate payable to NPL  
on the basis that total property rent charged by NPL to NIP was  
approximately $1.3 million per annum and the amount allocated exceeds the  
total amount NPL earns as rental income per annum. AGI expresses the  
opinion that a reasonable methodology for allocating the corporate payable to  
NPL would be to consider the amount that would be charged by an arm’s-  
length property manager. AGI reached out to a commercial real estate  
broker who expresses the opinion that industrial property management fees  
charged range from 2.5% to 3% of gross rents. Accepting for the moment  
that this hearsay evidence is admissible, AGI allocates the sum of $39,000  
Page: 41  
based on 3% of rental income of $1.3 million versus the Receiver’s allocation  
to NPL; and  
c) The allocation of professional fees made by the Receiver based upon  
respective gross proceeds of realizations.  
AGI expresses the view a  
reasonable allocation of the professional fees to NPL is 10%.  
[82] In response to the opinion expressed by AGI, the Receiver filed a Second  
Supplementary Twelfth Report and at paragraphs 72 89, provided a detailed response  
to the opinion advanced by AGI. Based on my review of the reports, I prefer the  
opinion expressed by the Receiver. In my view, the Receiver is in the best position to  
analyze the costs and expenses and allocate them in a fair and equitable fashion as the  
Receiver is responsible, as an officer of the court, to do so pursuant to the Receivership  
Order. In my view, the Receiver acted responsibly and in accordance with its duties to  
allocate the costs.  
[83] I accept that the AGI proposed allocations may be appropriate if the costs were  
being allocated on the basis that the Nygard fashion business was carrying on in the  
ordinary course of business. However, I agree with the Receiver that AGI’s report and  
opinion ignores the reality of what actually happened during the course of the  
receivership. The allocations were made during a receivership when employees were  
terminated and all assets were being liquidated to satisfy the Debtors’ obligations under  
the Credit Facility. In my view, the Receiver’s allocations reflect the reality of what  
actually happened during the receivership and are reasonable.  
Page: 42  
[84] Of the opinions expressed by AGI, I accept that the opinion regarding “direct  
allocations” does have some merit. NIP leased the properties and the landlords have a  
claim against the primary tenant, NIP, not NPL. I agree NPL was not a party to the  
lease agreements relating to the LandlordsCharge. However, in order to gain access  
to the properties and proceed to the sale of the assets of all of the Debtors, the court  
granted the LandlordsCharge which provided a charge by the landlords against all of  
the Property (including NPL’s property) captured in the receivership. That decision was  
not appealed. The Receiver’s allocation reflects the fact that the Landlords’ Charge  
grants a prior secured interest against the Property including NPL’s property.  
[85] As to corporate overheads, I agree with the Receiver that what actually  
happened was that the NPL asset sale proceeds were used to pay Receiver’s  
Borrowings which included the funding of corporate overheads. I agree with the  
Receiver that AGI’s analysis is flawed for the reasons set forth in paragraph 78 of the  
Receiver’s Second Supplementary Twelfth Report.  
[86] As to professional fees, I accept the Receiver’s analysis and opinion that a  
significant part of the professional time involved in the Receivership Proceedings has  
been in connection with issues that have been raised by NPL. In my view, the  
allocation made by the Receiver is to be preferred and is fair and equitable in the  
circumstances.  
[87] The respondents challenge the position that Receiver’s Borrowings are not  
advances made pursuant to the Credit Facility and repayment of funding provided  
under the Receiver term sheet which is not guaranteed by any guarantee given in  
Page: 43  
relation to the Credit Facility. (See Receiver’s Supplementary Twelfth Report at para.  
60)  
[88] The respondents submit that the Receiver’s Borrowing Charge is not distinct from  
the security granted under the Credit Agreement. Further, the respondents submit that  
repayment of the Receiver’s Borrowing Charge is enforcement of the Lenders’ security  
is consistent with:  
a) The Credit Agreement;  
b) The Debenture executed by NPL in favour of the Lenders on December 30,  
2019 (the “Debenture”);  
c) The demand letter sent by counsel for the Lenders to the respondents;  
d) The affidavit of Robert L. Dean, affirmed March 9, 2020, filed by the Lenders  
in support of the Receivership Order; and  
e) The Receivership Order.  
[89] I agree that the relevant terms of the Credit Agreement and the guarantee  
require the Guarantors to guarantee “ … the due and punctual performance of the all  
Obligations of each other Loan Party.” (Clause 11.01 of the Credit Agreement) The  
NPL guarantee is limited as follows: “The Agent agrees that its recourse against …  
(“NPL”) pursuant to Mortgages on owned Real Estate of NPL shall be limited to a  
realized value after all costs and expenses, including enforcement costs of  
$20,000,000.” (the “NPL Guarantee”) (Clause 11.05 of the Credit Agreement, page  
122) (See Exhibit Dof the Dean affidavit)  
Page: 44  
[90] Definitions in the Credit Agreement are relevant to the interpretation of the NPL  
Guarantee including, “Obligations, Loan Parties, Guarantor, Limited Recourse  
Guarantors, Canadian Holdings, Debtor Relief Laws.” I agree with the respondents’  
submission that NPL guaranteed the repayment of Borrowers’ obligations, which  
included “fees, costs, expenses and indemnities that accrue after the commencement  
by or against any loan party or any affiliate thereof of any proceeding under any Debtor  
relief laws.” NPL is a limited recourse Guarantor and a key question to determine is  
how to properly interpret the wording of the NPL Guarantee.  
[91] The respondents submit that the NPL Guarantee guaranteed repayment of the  
Borrowers’ obligations subject to the $20 million US limit inclusive of the costs,  
expenses and indemnities of the Receiver. The Receiver submits that the proper  
interpretation of the of the NPL Guarantee is that the recourse pursuant to the  
mortgages on owned real estate of NPL is limited to a realized value after all costs and  
expenses. The reference to including enforcement costs is a reference to costs and  
expenses. In other words, the realized value limit of $20 million US is after all costs  
and expenses. Put another way, the proper interpretation of the NPL Guarantee is the  
value received on the sale of the NPL property plus all costs and expenses including  
enforcement costs.  
[92] The primary principle of contract interpretation is to determine the parties’  
intention from a plain, primary and actual meaning of the words that are used set out in  
the entire context of the whole contract. (See Thomas G. Heintzman, Bryan G. West &  
Immanuel Goldsmith, Heintzman and Goldsmith on Canadian Building Contracts, 5th ed  
Page: 45  
(Toronto: Thomson Reuters, 2019); Tercon Contractors Ltd. v. British Columbia  
(Minister of Transportation & Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; Eli  
Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129 (S.C.C.) (QL); Geoffrey L.  
Moore Realty Inc. v. Manitoba Motor League (c.o.b. CAA Manitoba), 2003  
MBCA 71, 173 Man.R. (2d) 300 (QL); Dunn v. Chubb Insurance Co. of Canada,  
2009 ONCA 538, 97 O.R. (3d) 701; Syncrude Canada Ltd. v. Hunter Engineering  
Co., [1989] 1 S.C.R. 426 (S.C.C.); Shumilak v. Shumilak, 2013 MBQB 54, 289  
Man.R. (2d) 208; and Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,  
[2014] 2 S.C.R. 633 (QL))  
[93] In Geoffrey L. Moore Realty Inc., the Court of Appeal summarized the  
principles at para. 26 as follows:  
26  
In brief summary then, to determine the intentions of the parties  
expressed in a written contract, one looks to the text of the contract as a whole.  
In doing so, meaning is given to all of the words in the text, if possible, and the  
absence of words may also be considered. If necessary, the text is considered in  
light of the surrounding circumstances as at the time of execution of the  
contract. The goal is to determine the objective intentions of the parties in the  
sense of a reasonable person in the context of those surrounding circumstances  
and not the subjective intentions of the parties. If, after that analysis, the text  
in question is ambiguous, extrinsic evidence may be considered.  
[94] The Supreme Court of Canada in the decisions of Eli Lilly & Co. and Sattva  
Capital Corp. make it clear that it is unnecessary to consider any extrinsic evidence at  
all when the written contract being interpreted is clear and unambiguous on its face.  
(See Eli Lilly & Co. at para. 55)  
[95] In Sattva Capital Corp., the Supreme Court of Canada dealt with interpretation  
of a written contractual provision and the factual matrix at para. 57 as follows:  
Page: 46  
57  
While the surrounding circumstances will be considered in interpreting  
the terms of a contract, they must never be allowed to overwhelm the words of  
that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal  
of examining such evidence is to deepen a decision-maker's understanding of the  
mutual and objective intentions of the parties as expressed in the words of the  
contract. The interpretation of a written contractual provision must always be  
grounded in the text and read in light of the entire contract (Hall, at pp. 15 and  
30-32). While the surrounding circumstances are relied upon in the interpretive  
process, courts cannot use them to deviate from the text such that the court  
effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel  
Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).  
[96] The goal of the court is to determine the objective intentions of the parties in the  
sense of a reasonable person in the context of the surrounding circumstances.  
Applying these principles of contract interpretation, the objective intentions of the  
parties supports a finding that amounts loaned and amounts guaranteed are subject to  
the costs and expenses and enforcement costs. In my view, the words “after all costs  
and expenses, including enforcement costs” means the costs and expenses including  
enforcement costs are in addition to the value of the real property sold. The reference  
to $20 million US is a reference to the realized value after deducting all costs and  
expenses including enforcement costs. The reference to including enforcement costs in  
the NPL Guarantee is not, in my view, a reference to enforcement costs being included  
in the amount of the limited recourse guarantee of $20 million US. To read the NPL  
Guarantee in a manner consistent with the respondents’ submission would, in my view,  
give no meaning to the word “after” before the words “all costs and expenses, including  
enforcement costs.” Had the parties intended to limit the recourse to $20 million US  
inclusive of all costs and expenses and enforcement costs, the NPL Guarantee would  
have said that. The wording of the NPL Guarantee could simply have stated that NPL’s  
Page: 47  
guarantee is limited to $20 million US inclusive of all costs and expenses, including  
enforcement costs.  
[97] In my view, applying the objective intentions of the parties in the sense of a  
reasonable person in the context of the surrounding circumstances, the parties intended  
the NPL Guarantee to guarantee the Borrowers’ debt in the amount of $20 million US  
plus costs and expenses, including enforcement costs. In my view, the proper  
interpretation of the NPL Guarantee is that the $20 million US refers to the “realized  
value” and accordingly all costs and expenses, including enforcement costs are over  
and above the value recovered upon the sale of the NPL real property assets. It is  
therefore important for the Receiver to allocate all costs to determine if NPL paid an  
amount that exceeds the amount guaranteed and for the purpose of assessing the  
subrogation issues considered below.  
[98] I am not satisfied that the demand letter, the Dean affidavit or the terms of the  
Receivership Order assist the respondents’ submission. The Dean affidavit simply  
references the terms of the Guarantee and Credit Agreement and uses the same  
language found in the Credit Agreement in reference to the NPL Guarantee. Paragraph  
24 of the Receivership Order grants a charge over all of the Property which includes  
NPL’s property. The purpose of paragraph 24 is to establish a fixed and specific charge  
referenced as the Receiver’s Borrowing Charge as security for payment of the monies  
borrowed, together with interest and charges in priority to all other encumbrances. The  
wording of the Receivership Order favours the position advanced by the Receiver that  
the Receiver’s Borrowing Charge grants a priority over the Property. Paragraph 24 of  
Page: 48  
the Receivership Order also empowers the Receiver to borrow from the applicant in  
accordance with the terms of the Receiver term sheet.  
c) What rights of subrogation apply to the respondents and what is the  
correct interpretation of the provisions of The Mercantile Law Amendment  
Act, C.C.S.M. c. M120 (the”Act”) (ss. 2 and 3)?  
[99] In November 2020, NPL took the position that it had satisfied its guarantee  
obligation and therefore had rights of subrogation pursuant to s. 2 of the Act. NPL  
submits that the rights of subrogation provide it with security over the assets of the  
Borrowers and the unlimited Guarantors.  
[100] In reasons for decision previously delivered on November 19, 2020, I found that  
NPL and NIP “may have rights of subrogation to the extent that their payments to the  
Lenders were made on behalf of the Borrowers, as defined in the Credit Agreement.”  
[101] NPL submits that the sale of NPL’s assets produced $28,579,000 which exceeds  
NPL’s maximum liability on its guarantee ($20 million US) and therefore NPL has  
secured subrogated rights against the Debtors and Co-Guarantors. NPL’s subrogated  
claim cannot be subordinated to the unsecured claims against, or by, the Debtors or the  
Co-Guarantors.  
[102] The parties agree on the law of subrogation generally. They disagree on the  
proper application of the law to the facts and circumstances of this case.  
Law of Subrogation  
[103] The relevant sections of the Act provide as follows:  
Page: 49  
Surety entitled to assignment  
Every person who, being surety for the debt or duty of another, or being  
2
liable with another for any debt or duty, pays the debt or performs the duty, is  
entitled to have assigned to him, or to a trustee for him, every judgment,  
specialty, or other security that is held by the creditor in respect of the debt or  
duty, whether the judgment, specialty, or other security is or is not deemed at  
law to have been satisfied by the payment of the debt or performance of the  
duty; and that person is entitled to stand in the place of the creditor, and to use  
all the remedies, and, if need be, and upon a proper indemnity, to use the name  
of the creditor, in any action or other proceeding, at law or in equity, in order to  
obtain from the principal debtor, or any co-surety, co-contractor, or co-debtor, as  
in the case may be, indemnification for the advances made and loss sustained by  
the person who has so paid the debt or performed the duty, and the payment or  
performance so made by the surety is not pleadable in bar of any such action or  
other proceeding by him.  
Right to recover  
3
No co-surety, co-contractor or co-debtor is entitled to recover from any  
other co-surety, co-contractor or co-debtor by the means aforesaid, more than  
the just proportion to which, as between those parties themselves, the last  
mentioned person is justly liable.  
[104] In essence, once a surety or a guarantor makes payment of a Borrower’s debt,  
that person or entity becomes subrogated to the rights of the creditor as against the  
Borrower and any co-guarantor or surety. In this case, NPL may recover the full  
amount it paid to the Lenders from the Borrowers. A claim against a Co-Guarantor is  
limited to the proportion of the total debt for which each Co-Guarantor is justly liable.  
[105] The Canadian text book on Guarantee, Kevin McGuinness, The Law of  
Guarantee, 3rd ed (Markham: LexisNexis 213) comments on the Act as follows:  
§10.40 […] Under the present rule not only is a surety who pays off his  
principal’s debt entitled to a transfer of securities held by the creditor,  
but he or she is also in all respects entitled to all the equities which the  
creditor could have enforced.  
[…]  
§10.42 A surety is entitled to stand in place of the creditor, and to use all the  
remedies and, on proper indemnity, to sue in the name of the creditor in any  
Page: 50  
action or other proceeding in order to obtain from the principal debtor, or any  
co-surety, co-contractor or co-debtor, indemnification for the advances made or  
loss sustained by such person, and the payment or performance made by him is  
not a defence to such action or other proceeding by him. However, no co-surety,  
co-contractor or co-debtor is entitled to recover from any other co-surety, co-  
contractor or co-debtor more than a just proportion to which, as between  
themselves, the last mentioned person is justly liable. There is no statutory limit  
on recovery against the principal, since the principal is obliged to indemnify his  
sureties in full.  
[…]  
§10.44 […] A surety for a limited amount has in respect of that amount the same  
rights as the creditor. To the extent of his liability, therefore, the surety is  
entitled to the benefit of any security held by the creditor in respect of the whole  
debt.  
[106] The leading Canadian textbook on insolvency law by Lloyd W. Houlden, Geoffrey  
B. Morowetz and Janis P. Sarra, Annotated Bankruptcy and Insolvency Act, 4th ed  
(Canada: Carswell, 2009) at para. 59(1):  
If a guarantor pays in full the indebtedness of the principal debtor, the  
guarantor is entitled to any security held by the principal creditor and  
becomes a secured creditor. There is no necessity for any formal transfer of  
the security to the guarantor; the guarantor stands in the place of the creditor  
[citations omitted].  
(See also Windham Sales Ltd. (1979), 102 D.L.R. (3d) 459, 26 O.R. (2d)  
246; Alberta Treasury Branches v. Weatherlok Canada Ltd., 2011  
ABCA 314, 68 Alta. L.R. (5th) 400)  
[107] The general principles of law applicable to the right of contribution between co-  
guarantors are summarized in Gill v. Cheema, 2018 BCSC 1453, [2018] B.C.J. No.  
3082, as follows:  
41  
The right to contribution between co-guarantors is rooted in the  
principles of unjust enrichment.  
Page: 51  
42  
Paragraph 10.131 of McGuiness, The Law of Guarantee, 3rd ed  
(Markham: LexisNexis, 2013) sets out "five general principles which govern the  
rights of contribution among co-sureties" which include:  
*All co-sureties are bound prima facie equally to see to the performance  
of a guaranteed obligation, and must therefore bear their respective  
share of any claim made by the creditor equally (or in the proportion as  
agreed among themselves);  
*The right to contribution to which the co-sureties in the case of any  
particular guaranteed obligation are entitled may be varied by express or  
implied agreement;  
*In the absence of any such agreement, the obligation of each co-surety  
is determined by dividing the total obligation to which all are liable by  
the number of solvent sureties;  
*The right of any particular co-surety to recover contribution arises upon  
payment by the surety of more than his share;  
*However, even prior to the payment of the creditor, a surety may seek  
equitable relief (similar to the relief that is available in the case of the  
surety's right to enforce his or her right of indemnification against the  
principal)...  
There is no obligation on a surety who seeks contribution to sue all other co-  
sureties, but (except in the case of the insolvency of one of several co-sureties)  
the surety seeking contribution may recover from each of his co-sureties only an  
aliquot part of the total liability according to the number of sureties originally  
liable.  
[108] In Abakhan v. Halpen, 2008 BCCA 29, B.C.L.R. (4th) 267 (QL), the court dealt  
with a circumstance in which a debtor was assigned into bankruptcy and a lender made  
demand on three co-guarantors. One of the guarantors made payment to a lender  
under the guarantees and obtained an assignment of certain remnant debt and the  
security held by the lender including all of the guarantees of the three guarantors. The  
guarantor that made payment subsequently advanced a claim against the two other co-  
guarantors in relation to the amount paid.  
[109] The court in Abakhan precluded the guarantor from collecting the remnant debt  
from the co-guarantors interpreting s. 34 of the Law of Equity Act, R.S.B.C. 1996 c.  
253. The court limited the guarantor’s claim against the co-guarantors to the amount  
Page: 52  
paid over and above the proportionate share of the debt repaid to the lender under the  
guarantees. The guarantor was only entitled to recover one-third of the total amount  
paid under the guarantees from each co-guarantor. (See Abakhan at paras. 12-15,  
24)  
[110] The law of subrogation has been applied in previous cases during receivership  
proceedings. In Bank of Montreal v. Ladacor AMS Ltd., 2019 ABQB 985, [2019]  
A.J. No. 1748 (QL), the court addressed the claims of three companies in receivership  
(Ladacor, Nomads and 236). Dealing with the funds received during the course of the  
receivership, the court stated:  
24  
Since 236 was also put into receivership, the Receiver took steps to sell  
236's main asset, the Days Inn Hotel in Sioux Lookout. Of the roughly  
$5,000,000 sale proceeds, $4,000,000 were paid by the Receiver to BMO.  
25  
Ultimately, the time of the Fourth Report, the Receiver had paid off the  
secured debt to BMO, the Receiver's borrowings from BMO to enable it to carry  
on the Receivership, the WEPP claims, CRA and Service Canada trust/priority  
claims, along with its and its lawyer's fees and disbursements.  
26  
The supplemental report and Fifth Report update the figures. As at the  
time of that report, October 25, the Receiver was holding $10,398 for Nomads,  
$722,661 for Ladacor, and $637,241 for 236. The Receiver proposes to allocate  
all of the available proceeds currently in Ladacor's and Nomads' accounts to 236.  
. . . . .  
46  
BMO was a secured creditor, subject only to the superior WEPP claims  
and CRA source deduction claims, and the costs of the receivership. The  
Receiver argues on this application that guarantors (such as Nomads and 236)  
are entitled to be subrogated to the claims they have paid out on behalf of the  
principal debtor, Ladacor.  
47  
In this case, Nomads and 236 have paid off BMO's claims against  
Ladacor. Nomads and 236 are entitled to be subrogated to BMO's claim, and to  
stand in BMO's shoes with respect to any security BMO held against Ladacor.  
That means, according to the Receiver, that Nomads and 236 are now the  
primary secured creditors on any of Ladacor's remaining assets.  
Page: 53  
48  
Additionally, as between guarantors who have paid out on their  
guarantees, Nomads and 236 are entitled to be treated proportionately, so the  
debt paid off should be apportioned between them. Where guarantors are  
equally liable to the obligee, the guarantors are considered to be responsible for  
equal shares of the debt.  
49  
Here, that would mean that each of Nomads and 236 should have paid  
off half of the debt owed to BMO. Since 236 paid more than half of the BMO  
debt, there should be an adjustment as between Nomads and 236, in 236's  
favor.  
50  
The way the Receiver has accounted for this is that the excess of  
collections over required payments has left a surplus, some of which now stands  
to the credit of Ladacor. Because 236 paid more than its half of the obligation,  
236 is entitled to recover that excess from Ladacor.  
51  
Of the $5,834,882 paid to satisfy BMO's claims, $4,000,000 came from  
236. The remainder came from Nomads. Because of contribution principles  
between guarantors, each of the guarantors should have paid $2,917,441. 266  
overcontributed by $1,082,559. That amount is owed to it by Nomads.  
52  
The Receiver proposes to pay the funds remaining in the Nomads account  
and the Ladacor account (after holdbacks for further administration costs) in the  
approximate amount of $465,000 (Receiver's Fifth Report). 236 is expected to  
have approximately $517,000 in its account, so it will recover $982,001. It will be  
short by approximately $100,559. Because of it standing into BMO's security, it  
will be Nomads' only secured creditor to that extent.  
53  
This analysis and position is well supported by the Receiver's first brief for  
this application. The Receiver cites:  
Gerrow v Dorais, 2010 ABQB 560;  
Mercantile Law Amendment Act 1856, 19 & 20 Vict, c 97;  
Karen Matticks v B & M Construction Inc (Trustee of), 1992 CarswellOnt  
193 (ONCJGD);  
Andrews & Millett, Law of Guarantees, 7th Ed (London: Sweet & Maxwell, 2015)  
at para 11-017;  
Re Windham Sales Ltd, 1979 CarswellOnt 227 (ONSC in bankruptcy);  
Wong v Field, 2012 BCSC 1141;  
EC&M Electric Ltd v Medicine Hat General & Auxiliary Hospital &  
Nursing Home District N 69, 1987 CarswellAlta 25 (ABQB); and  
Page: 54  
Abaklhan v Halpen, 2006 BCSC 1979, aff'd 2008 BCCA 29.  
54  
J. Steenhof, as an unsecured creditor of 236, and 145 as an unsecured  
creditor of Nomads on the Hythe project, agree with this analysis, as does  
Liberty Mutual. Mr. Klisowsky raises no specific objection to this proposal on the  
part of the Receiver, but suggests that it is premature. He says that the proper  
contribution between Nomads and 236 can only be calculated once the assets  
and liabilities of Nomads and Ladacor (as between those entities) have been  
properly allocated.  
55  
I am satisfied that for the purposes of finalizing the Receivership  
accounts, the monies the Receiver holds to the account of Ladacor and Nomads  
should be transferred to 236's account as a function of a guarantor's right to  
subrogation and to contribution rights and obligations as between co-guarantors.  
(See also Wong v. Field, 2012 BCSC 1141, [2012] B.C.J. No. 1843 (QL), for a  
discussion regarding claims against co-guarantors, at paras. 20 - 28)  
[111] Applying these principles to the facts and circumstances of this case, it is  
important to recognize that pursuant to the Credit Agreement, each of NEL, NIP, NPL,  
879 and 887 is a joint and several Guarantor of the Borrowers’ obligations to the  
Lenders. The Lenders had full recourse against NIP, 879 and 887 as they are unlimited  
Guarantors. NEL and NPL were limited recourse Guarantors respecting the obligations  
and as noted above, recourse is limited to $20 million US, plus all costs and expenses  
including enforcement costs.  
[112] It is also important to recognize as stated by the Receiver in the Second  
Supplementary Twelfth report as follows: “NPL’s guarantee is not limited. Pursuant to  
the Credit Agreement and related documents, NPL guarantees repayment of the Credit  
Facility and secures its guarantee obligation by mortgaging certain real properties and  
pledging (the “Share Pledge”) certain shares of 887 in favour of the Lenders. The  
recourse of the Lenders to the mortgaged real properties is limited to USD$20 million,  
Page: 55  
plus costs and expenses including enforcement costs; there is no such limited recourse  
to the pledged shares. Accordingly, it was open to the Lenders to recover the full  
amount of any outstanding obligations under the Credit Agreement by means of  
realizing upon the Share Pledge, had the pledged shares been of sufficient realizable  
value. Accordingly, for the purposes of subrogation and the application of The  
Mercantile Law Amendment Act, I agree with the Receiver that NPL and NEL both  
participate as ‘co-sureties’ on the same proportionate basis as the other Guarantors of  
the Credit Facility; that is, 1/5th of the total of the guarantee obligations, as described in  
the Twelfth Report.(At para. 59)  
[113] NPL submits that it has more than satisfied the NPL Guarantee as a result of the  
sale of the NPL properties. Since I have accepted the allocations made by the Receiver  
as fair and equitable, the evidence does not satisfy me that the assumptions made by  
the respondents are correct. As previously stated, I do not accept that the entire  
amount of $28.579 million was paid to the Lenders pursuant to the Credit Facility. Each  
of the five Canadian Debtors are Guarantors respecting amounts owed by the US  
Debtors or Borrowers under the Credit Agreement. Applying the principles outlined  
above, each Guarantor’s obligation to contribute to the Lenders is limited to one-fifth  
(20%) of the total amount paid to the Lenders by the Guarantors, subject to a further  
qualification that the contributions by NEL and NPL cannot exceed the recourse limit (in  
this case $20 million US, plus costs and expenses, including enforcement under the  
Credit Agreement).  
Page: 56  
[114] Since I have accepted the Receiver’s allocations and specifically the repayments  
to the Lenders have been allocated equally to NIP and NPL, I agree that neither NIP nor  
NPL can seek contribution from the other under the Act. On the other hand, NPL and  
NIP could seek one-fifth contribution from each of the other Guarantors to the extent of  
those respective overpayments. As well, NPL and NIP are entitled to indemnity from  
each of the Borrowers.  
[115] I accept the evidence of the Receiver that the Borrowers and Co-Guarantors are  
insolvent and as a result there is no subrogated rights or right of contribution or  
indemnity to enforce.  
[116] In the motion brief of the respondents filed October 29, 2021, they submit that  
the application of the legal principles of subrogation between the Co-Guarantors should  
be applied as follows:  
49.  
The application of these principles to the facts before this Court is  
straightforward. Firstly, NPL has a secured claim for indemnity against the  
Borrowers in the amount of CDN $28,579,000. Secondly, it has secured claims  
against the Unlimited Guarantors (897, 887 and NIP). The maximum liability of  
the three Unlimited Guarantors is CDN $66,466,000 each, and for the limited  
guarantor (NPL) it is CDN $24,698,000 (US $20,000,000 at the October 28,  
2021 Bank of Canada exchange rate). The total of the maximum liabilities of  
these four companies is $224,096,000. The ratio of NPL’s maximum liability to  
the maximum liability of the Unlimited Guarantors is 11 percent ($24,698,000  
divided by $224,096,000). Accordingly, the amount for which NPL is responsible  
is $7,311,260 (11 percent of $66,466,000). Since the amount actually paid by  
NPL was $28,579,000, NPL overpaid by $21,267,740 ($28,579,000 less -27-  
$7,311,260). In the result, the three Unlimited Guarantors each owe NPL a  
contribution of $7,089,246.  
50.  
Since NPL’s subrogated claims against the Borrowers and the Unlimited  
Guarantors are secured, any (unsecured) inter-company debts owed by NPL(or  
NPL’s owner) to the other respondents are irrelevant to an assessment of NPL’s  
rights. This is to say that no matter the state of unsecured inter-respondent  
debt involving NPL and NEL, the Receiver cannot prevent NPL from executing  
on its security: in subrogation, set-off is not available, because the claims to be  
Page: 57  
set-off are not in the same right. At the least, any cash currently in the  
receivership should be paid to NPL.  
[117] As pointed out by the Receiver, the assumptions made by the respondents are  
incorrect and the analysis is flawed. The entire amount of proceeds received from the  
sale of NPL’s properties was not paid to the Lenders to satisfy the Borrowers’  
obligations. Further, even if the respondents are correct and all of the NPL sale  
proceeds were paid to the Lenders and applied against the Credit Facility, the analysis  
does not take into account the fact that the guarantee is in the amount of $20 million  
US plus costs and expenses. Further, the analysis must factor NEL in as a Co-  
Guarantor. In any event, I am not satisfied the outcome for NPL following a potential  
claims’ process would establish that the remaining Net Receivership Proceeds should be  
paid to NPL.  
[118] The respondents rely upon the Ladacor decision respecting that the process to  
equalize contributions between co-guarantors. It is important to note that the court  
approved the assignment of 236, Ladacor and Nomads into bankruptcy finding:  
139 I acknowledge that the Receiver's work in allocating assets and  
employees between Ladacor and Nomads may not have resulted in a perfect  
allocation. That is not because the Receiver's work was deficient or flawed.  
Rather, it was because of the corporate mess that existed at the time of the  
Receivership Order. The Receiver had to try to make sense of an undocumented  
and ill-conceived "takeover" of Nomads by Ladacor. The proposed method of  
allocation by Mr. Klisowsky is unworkable, especially as it is founded on the  
incorrect assumption that Nomads could assign its obligations to Ladacor in a  
manner that would be binding on its creditors.  
140 The reality is that any reallocation of assets would be moot. Putting more  
assets and liabilities into Ladacor would result in Nomads making a smaller  
contribution to paying off the BMO debt. That would simply increase the amount  
of 236's secured claim for contribution from Nomads. While it might leave fewer  
unsecured creditors for Nomads to have to deal with, the above analysis  
Page: 58  
indicates that Nomads' unsecured creditors are unlikely to make any recovery at  
all.  
141 As such, my conclusion is that no creditor is prejudiced by the allocations  
that were made by the Receiver between Nomads and Ladacor.  
142 The Receiver has, in my view, correctly applied the applicable principles  
of subrogation and contribution, such that it is appropriate to allocate all of the  
remaining cash of Ladacor and Nomads to 236.  
5. Approving the Receiver's proposal to assign the Debtors into  
bankruptcy in accordance with the Receivership Order  
143 What is left with the three debtor corporations is a paucity of assets and  
a mountain of claims against them. Only the Liberty Mutual claim involves all  
three corporations. Total claims (counting Liberty Mutual only once) exceed  
$7,000,000. None of the claims have been proven. There may be defences to  
some or many of the claims, and some of the claims may be excessive in  
amount.  
144 Getting to the bottom of all of this will be time consuming and very  
expensive. Litigation with Hythe has already commenced. Its result is uncertain.  
Success on that litigation would appear to be the only real chance of any  
collection for Nomads' unsecured creditors. The only effective way of dealing  
with the numerous claims is through a statutory process such as bankruptcy.  
While there are possible ways of dealing with claims in a receivership, no one  
other than Mr. Klisowsky is recommending that the receivership continue. The  
Receiver's recommendation is to use the bankruptcy process to deal with the  
few remaining assets and myriad of claims.  
[119] Accepting for the moment, some of the assumptions advanced by the  
respondents are correct, I agree with the Receiver’s findings and outcome addressed at  
para. 61 of the Second Supplementary Twelfth Report as follows:  
61.  
In the result, assuming (as was done in the Twelfth Report) that the total  
of the guarantee payment required to fully repay the Credit Facility was $28.4  
million and that Net Receivership Proceeds in the amount of approximately $9.9  
million are available for distribution, and further assuming (for the purpose of  
this analysis only) that all of $9.9 million in distributable Net Receivership  
Proceeds are NPL Asset Sale Proceeds, then the Net Receivership Proceeds in the  
hands of NPL would be subject to at least the following claims:  
(a) all of the guarantee payment was made by NIP, such that NIP has a  
subrogated claim (i.e. a claim pursuant to the provisions of The Mercantile Law  
Page: 59  
Amendment Act (Manitoba)) as against NPL in an amount equal to 1/5th of  
$28.4 million, which is $5.68 million;  
(b) intercorporate obligations of NPL are not impacted by use of NPL Asset Sale  
Proceeds to repay Receiver’s Borrowings, such that based on the Debtors’  
records (i) NIP has an intercompany claim for approximately $2.5 million and (ii)  
NIP has an intercompany claim against NEL (which is NPL’s parent corporation)  
in the amount of approximately $18.1 million and a subrogated claim as against  
NEL (i.e. a claim pursuant to the provisions of The Mercantile Law Amendment  
Act (Manitoba)) in an amount equal to 1/5th of $28.4 million, which is $5.68  
million, both of which are enforceable in due course against the assets of NPL;  
(c) NPL has an accrued tax liability to Canada Revenue Agency in the estimated  
amount of $3 million; and  
(d) NPL may have other third-party creditor obligations.  
62.  
The claims against NPL or to which the Net Receivership Proceeds would  
be, in due course, subject, are substantially in excess of the Net Receivership  
Proceeds and it is apparent that, on the basis of “what actually happened”, there  
is no “equity” in NPL or NEL that would enable Mr. Nygard to benefit from the  
Net Receivership Proceeds.  
[120] In my view, the findings made by Graesser J. in Ladacor, are apt in this case. I  
agree that the Receiver’s allocations of assets and costs and expenses between the  
respondents may not have resulted in perfect allocations. I disagree with the  
respondents that the Receiver chose to apply arbitrary allocations and “simply move  
numbers around to build a case against NPL’s right of subrogation”. I accept the  
explanations provided by the Receiver in the relevant reports, including the Second  
Supplementary Twelfth Report as reasonable and agree that the respondents’  
submissions are simply not correct for the reasons set out in the Receiver’s reports.  
[121] The Receiver’s allocations are not unfair or arbitrary. The Receiver was dealing  
with a complicated receivership respecting a number of corporations and in my view,  
made allocations that were fair and equitable based on the timing of numerous receipts  
and disbursements made in the circumstances. Getting to the bottom of the various  
claims would be time-consuming and very expensive and in my view, the most effective  
Page: 60  
and efficient way to deal with the claims going forward is through a bankruptcy  
proceeding.  
[122] I am satisfied based on the evidence of the Receiver that even if some of the Net  
Receivership Proceeds should be allocated to NPL, those funds are subject to claims of  
NPL’s creditors which, in all probability, exceed the proceeds available to satisfy those  
claims. If that finding is incorrect, I am satisfied the competing claims to the Net  
Receivership Proceeds are best left to be resolved and determined during a bankruptcy  
proceeding.  
d) Should one or more or all of the respondents be assigned into  
bankruptcy, and if so, should the Receiver be appointed as the Trustee in  
Bankruptcy?  
[123] Section 49(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3  
(the “BIA”) permits a Receiver, with leave of the court, to make an assignment in  
bankruptcy of an insolvent person’s property for the general benefit of the insolvent  
person’s creditors. The assignments “shall be offered to the official receiver in the  
locality of the debtor”. (See s. 49(3))  
[124] In light of my findings and decisions made in the past (see Order of March 13,  
2020) and the evidence in the Twelfth Report, I am satisfied that the assignments in  
bankruptcy should be filed in Winnipeg and heard in this court as the locality of the  
Debtors is the principal place where the Debtors carried on business. The Debtors’  
head office and management was located in Canada and substantially all of the  
Page: 61  
Debtors’ books and records were located at the head office in Winnipeg at the Inkster  
property.  
[125] The respondents do not contest the request that seven of the nine respondents  
are insolvent and may be assigned into bankruptcy. The respondents submit that NEL  
and NPL are not insolvent and NPL in particular has a claim to the Net Receivership  
Proceeds presently held by the Receiver.  
[126] In light of my findings and the opinion of the Receiver in the Twelfth Report, I  
accept that NPL and NEL are insolvent on a consolidated basis. Further, I accept the  
opinion of the Receiver that NPL may be insolvent on a separate corporation analysis  
depending on the outcome of a rigorous allocation of receivership expenses and the  
extent of NPL’s direct liabilities.  
[127] Other than legal arguments advanced on behalf of NPL and NEL, there is no  
expert evidence that has been filed that proves NPL and NEL are solvent.  
[128] At the time I granted the Inkster Approval and Vesting Order, I considered the  
first AGI Report, the Supplementary First AGI Report and the affidavit of Greg Fenske  
affirmed November 5, 2020. On the basis of my review of the evidence filed, I  
concluded: “There is insufficient evidence to establish that NEL and NPL are solvent  
entities, and I do not accept the opinion of AGI that they are solvent.” No further  
expert evidence has been filed to alter my previous finding.  
[129] The Receiver submits that on a consolidated basis, each of the Debtors are  
jointly liable for the Common Liabilities, which is estimated to be in the amount of  
Page: 62  
approximately $77 million. The Common Assets are identified in the Twelfth Report and  
clearly are not sufficient to satisfy the Common Liabilities.  
[130] The Receiver seeks alternative orders regarding bankruptcy. In my view, the  
preferred approach is to grant leave to the Receiver to file assignments in bankruptcy  
respecting all of the respondents, other than NPL and NEL, and to authorize the  
Receiver to file applications for bankruptcy orders in this court in relation to NPL and  
NEL, on a basis that reflects the Common Assets and the Common Liabilities and the  
substantive consolidation of the estates of the Debtors.  
[131] I grant an order lifting the stay of proceedings ordered in the Receivership Order  
to permit bankruptcy applications to be made and direct that, for the purpose of such  
assignments and applications, the locality of the Debtors shall be Winnipeg, Manitoba.  
Finally, given the Receiver’s intimate knowledge of the assets and liabilities of the  
Debtors, the most cost effective and expeditious way to proceed is to order that the  
Receiver be appointed as Trustee in bankruptcy.  
Issues relating to the respondents’ motion  
a) Should the court grant an order to release the balance of the  
Preserved Proceeds held pursuant to the NPL Proceeds Preservation  
Agreement to pay legal fees and disbursements and expert costs  
incurred by the respondents in connection with the Receivership  
Proceedings or a bankruptcy proceeding?  
[132] I previously granted orders approving payments from the Preserved Proceeds  
established pursuant to the NPL Proceeds Preservation Agreement to satisfy legal fees  
Page: 63  
and disbursements incurred by the lawyers representing the respondents in the  
Receivership Proceedings. The Receiver did not object to reasonable fees and  
disbursements being paid to the respondents for the purpose of satisfying professional  
statements of account generated as a result of the Receivership Proceedings. At the  
hearing on December 22, 2021, the Receiver did not oppose payment of statements of  
account for professional services that had been issued to the respondents in connection  
with the Receivership proceedings.  
[133] The general legal principle governing payment of a debtor’s legal costs is that  
the court has discretion to authorize an advance by the Receiver out of a debtor’s  
assets to pay legal costs required to defend an application providing the defence is not  
frivolous or vexatious. (See Lloyd W. Houlden, Geoffrey B. Morowetz and Janis P.  
Sarra’s Annotated Bankruptcy and Insolvency Act, 4th ed (Canada: Carswell, 2009) at  
para. 3.62; King Petroleum Ltd. (Re) (1973), 18 C.B.R. (N.S.) 270, [1973] O.J. No.  
1324 (Ont. Sup. Ct.) and Royal Bank of Canada v. West-Can Resource Finance  
Corp. Ltd., [1990] 77 Alta. L.R. (2d) 43 3 C.B.R. (3d) 55)  
[134] In my view, the submissions advanced by the respondents have not been  
frivolous or vexatious. The issues have been complex and the respondents deserve to  
be represented to advance their best legal position. I agree with the respondents that  
putting forth a defence would be hollow without an ability to retain and pay  
experienced legal counsel in insolvency matters to represent their interests.  
[135] The breakdown of the $1,150,000 requested by the respondents is described as  
follows:  
Page: 64  
a. Criminal Lawyers  
$350,000 to Mr. Brian Greenspan;  
$50,000 to Mr. Jeff Hartman;  
$50,000 to Mr. Richard Wolson;  
$50,000 to Mr. Jay Prober  
Total- $500,000  
b. Insolvency Lawyers  
$250,000 to Fred Tayar & Associates;  
$350,000 to Levene Levene Tadman;  
$50,000 to Albert Gelman Inc. (AGI)  
Total - $650,000  
[136] Counsel for the respondents submit that after distributing $150,000 that was  
authorized in court on December 22, 2021, the outstanding indebtedness to Levene  
Levene Tadman is approximately $50,000 and the outstanding indebtedness to Fred  
Tayar & Associates is approximately $31,000. Respondents’ counsel state that the  
balance of the Preserved Proceeds remaining in trust pursuant to the NPL Proceeds  
Preservation Agreement is $200,000.  
[137] In my view, there is no reason to depart from the general principle that the  
respondents are entitled to representation in the receivership and bankruptcy  
proceedings. Accordingly, subject to providing statements of account to the Receiver or  
Trustee in bankruptcy for approval on the basis the costs claimed are reasonable, the  
Preserved Proceeds may be used to satisfy legal fees and disbursements and  
Page: 65  
professional fees incurred in connection with the receivership and bankruptcy  
proceedings.  
b) Should the court grant an order to release a portion of the Net  
Receivership Proceeds to fund legal fees and disbursements that have  
been incurred or will be incurred in connection with the Receivership  
Proceedings or a bankruptcy proceeding?  
[138] The same governing legal principle as noted above applies in connection with the  
second issue. In my view, providing statements of account for legal fees and  
disbursements are submitted to the Receiver or Trustee in bankruptcy for approval and  
are reasonable, the fees and disbursements may be paid from the Net Receivership  
Proceeds. The respondents are entitled to mount a defence and advance legal  
positions challenging the Receiver and if they elect to do so, the respondents may  
proceed with an appeal of this decision. If the legal fees and disbursements exceed the  
remaining balance of the Preserved Proceeds, a portion of the Net Receivership  
Proceeds may be set aside to cover reasonable fees and disbursements incurred by the  
respondents.  
c) Can a portion of the Net Receivership Proceeds or the Preserved  
Proceeds held pursuant to the NPL Proceeds Preservation Agreement  
be used to fund legal fees and disbursements incurred to defend Mr.  
Nygard in connection with the criminal charges laid against him in  
Toronto, Ontario?  
Page: 66  
[139] In support of their position that a portion of the Preserved Proceeds and/or the  
Net Receivership Proceeds may be used to defend the criminal charges against  
Mr. Nygard, the respondents filed the Greenspan affidavit. Mr. Greenspan describes the  
charges and his representation of Mr. Nygard as follows:  
1. I am the lawyer representing Peter Nygard in respect of nine charges that  
have been brought against him in the City of Toronto. I further act as counsel  
with respect to the request for Mr. Nygard’s extradition to the United States for  
various charges relating to sex trafficking.  
2. There are six complainants in relation to the Toronto allegations. Three  
complainants allege both sexual assault and unlawful confinement relating to  
those occurrences. Three further complainants allege only sexual assault. All of  
the allegations occurred between 1987 and 2006.  
3. What is common to all the allegations is that the unlawful confinements  
and/or sexual assaults are alleged to have taken place at 1 Niagara Street,  
Toronto, the Toronto headquarters of Mr. Nygard’s business operations.  
[140] The Receiver submits that the order sought by the respondents is contrary to  
The Corporations Act C.C.S.M. c. C225 and legal authority. Section 19 of The  
Corporations Act sets out specific circumstances in which an officer or director of  
corporation (current or former) may be indemnified. It provides:  
Indemnification  
119(1)  
Except in respect of an action by or on behalf of the corporation  
or body corporate to procure a judgment in its favour, a corporation may  
indemnify a director or officer of the corporation, a former director or officer of  
the corporation or a person who acts or acted at the corporation's request as a  
director or officer of a body corporate of which the corporation is or was a  
shareholder or creditor, and his heirs and legal representatives, against all costs,  
charges and expenses, including an amount paid to settle an action or satisfy a  
judgment, reasonably incurred by him in respect of any civil, criminal or  
administrative action or proceeding to which he is made a party by reason of  
being or having been a director or officer of the corporation or body corporate, if  
(a) he acted honestly and in good faith with a view to the best interests  
of the corporation; and  
Page: 67  
(b) in the case of a criminal or administrative action or proceeding that is  
enforced by a monetary penalty, he had reasonable grounds for believing  
that his conduct was lawful.  
[141] Section 113(2)(e) of The Corporations Act also provides that directors who  
approve “a payment of an indemnity contrary to section 119 … are jointly and severally  
liable to restore to the corporation any amounts so distributed or paid and not  
otherwise recovered by the corporation.”  
[142] The duty of care of directors and officers is outlined in s. 117 of The  
Corporations Act and includes a duty to act honestly and in good faith and with a  
view to the best interests of the corporation; and to exercise the care, diligence and  
skill that a reasonably prudent person would exercise in comparable circumstances.  
[143] The Receiver submits that in accordance with the provisions of The  
Corporations Act, NPL is not permitted to indemnify Mr. Nygard in connection with  
any legal costs, expenses or charges incurred, however reasonable, to defend criminal  
charges.  
[144] The Receiver acknowledges that Mr. Nygard has publically denied all allegations  
against him and has not been found guilty of any of the criminal charges. There is no  
question that Mr. Nygard is presumed innocent unless the Crown proves beyond a  
reasonable doubt that he is guilty of the charges.  
[145] The Receiver submits that the present officers and directors of NPL may only  
make payment of an indemnity in respect of Mr. Nygard’s personal legal fees incurred  
to defend him in connection with the criminal charges if:  
a)  
Mr. Nygard was a director and/or officer of NPL at the material time;  
Page: 68  
b)  
c)  
d)  
Mr. Nygard is subject to the criminal charges by virtue of his tenure as a  
director and/or officer of NPL at the material time;  
Mr. Nygard reasonably incurred legal costs, charges or expenses as a  
result of the criminal charges;  
Mr. Nygard acted honestly and in good faith with a view to the  
corporations best interests in connection with the alleged conduct or  
giving rise to the criminal charges; and  
e)  
Mr. Nygard had reasonable grounds for believing the alleged conduct was  
lawful.  
[146] NPL submits that because Mr. Nygard is the ultimate owner of NPL, it is in NPL’s  
best interests that Mr. Nygard be acquitted of the criminal charges. If Mr. Nygard is  
convicted, NPL’s assets would likely be used to pay a judgment obtained by anyone  
who is successful in the prosecution of a civil claim after a successful criminal  
prosecution against Mr. Nygard. Further, NPL may be added to the civil proceedings  
and the work done in defence of Mr. Nygard will benefit NPL and NIP. (See Greenspan  
affidavit at para. 5)  
[147] As to the application of ss. 113, 117 and 119 of The Corporations Act, NPL  
submits those sections describe instances when a corporation can pay the legal costs of  
an officer, director or employee. Mr. Nygard is not currently an officer, director or  
employee of NPL, so it is not on this basis that NPL submits monies should be paid on  
his behalf. NPL submits Mr. Nygard was an officer of NPL and his conduct was in  
accordance with the company’s scope for his work. NPL submits it is unaware of any  
Page: 69  
conduct that was not within the scope of his employment or criminal and there is no  
evidence before this court to the contrary. The Receiver has the onus of establishing  
that Mr. Nygard did not act honestly and in good faith and it has not met the onus.  
[148] In the event s. 119 of The Corporations Act is applicable, the respondents  
referred the court to the leading Manitoba case on the indemnification provisions  
(Manitoba (Securities Commission) v. Crocus Investments Fund, 2007 MBCA  
36, 214 Man.R. (2d) 44 (“Crocus)). In Crocus, the Manitoba Court of Appeal applied  
the test set out by the Supreme Court of Canada in Blair v. Consolidated Enfield  
Corp., [1995] 4 S.C.R. 5, [1995] S.C.J. No. 29 (QL). The respondents referred the  
court to the three conditions that must exist "in order to receive indemnification for the  
costs of defending in litigation" at para. 36:  
(1)  
the person must have been made a party to the litigation by reason of  
being a director or an officer of the corporation;  
(2)  
(3)  
the costs must have been reasonably incurred; and  
the person must have acted honestly and in good faith with a view to  
promoting the best interests of the corporation.  
[149] The respondents submit these conditions have been met and there is a  
presumption that the officer acted honestly and in good faith.  
[150] Applying the principles noted above I am not satisfied the conditions to  
indemnify Mr. Nygard for legal costs incurred to defend criminal charges have been  
met. I fail to see how it is possibly in the best interests of NPL to successfully defend  
criminal charges