Canada: Agricultural Law NetLetter - Sunday, February 7, 2016 - Issue 341

HIGHLIGHTS

* A Justice of the Ontario Superior Court of Justice has rejected the argument of an Ontario farmer, who maintained that a crop input supplier must first establish a debt was owing before it could apply to appoint a receiver to sell property pursuant to a General Security Agreement. The Court concluded that the farmer was insolvent; that the evidence of an independent investigator disclosed a substantial debt by the farmer to the input supplier and other creditors, and that s. 243(1) of the Bankruptcy and Insolvency Act authorized the appointment of a receiver. If the farmer wished to contest the amount payable to the input supplier, he could do so when the sale proceeds of his assets were distributed. The farmer's case was exacerbated by the fact that he had transferred most of his assets to his wife through an arrangement the Court described as a "sham" and that he had ignored the provisions of two Court orders which had directed him to report any harvesting activities and to pay the proceeds from harvested crops into trust. (Vale v. St. Lawrence Grains & Farm Supply Ltd., CALN/2016-003, [2016] O.J. No. 178, Ontario Superior Court of Justice)

NEW CASE LAW

Vale v. St. Lawrence Grains & Farm Supply Ltd.;

CALN/2016-003,

Full text:[2016] O.J. No. 178;

2016 ONSC 320,

Ontario SuperiorCourt of Justice,

S.T. Bale J.,

January 13,2016.

Security Agreements -- Appointment of Receivers -- Insolvent Farmers -- No Necessity to First Establish Amount of Debt.

An Ontario elevator, St. Lawrence Grains ("Grains"), applied to the Ontario Superior Court of Justice for an order authorizing MNP Ltd. ("MNP") in its capacity as the Court appointed receiver to sell assets that an Ontario farmer, Harry Vale ("Vale"), had transferred to his wife.

Vale opposed the application and applied for an order discharging MNP as receiver, and for damages against Grains for the wrongful appointment of a receiver.

Grains had supplied crop inputs (seed, fertilizer and pesticide) to Vale on credit, through a system of debits and credits maintained by Grains.

In April of 2010, as a condition of extending further credit, Grains required Vale to provide security for his existing indebtedness as well as future indebtedness. Vale signed a promissory note confirming the balance owing and gave Grains security over all of his present and after-acquired property as well as a second mortgage over the home in which he and his wife lived.

In January of 2012, Vale and Grains entered into a new business arrangement under which Vale continued to farm the lands, but Grains covered all farming costs including rent for leased lands, and custom farming fees to be paid to Vale. Grains was entitled to all revenue from the sale of crops up to an amount required to cover its costs, with any profits thereafter being applied to Vale's outstanding indebtedness.

This arrangement ended in February of 2014, when Vale advised Grains that he was in dire financial straits and required additional financing in excess of $500,000.00 in order to maintain his farming operation. Grains was not prepared to provide the additional financing, and the parties terminated their business relationship at the end of February, 2014.

In April of 2014, Vale brought an application requesting an accounting and a forensic audit of Grains' accounts, as well as the repayment of overpayments alleged to have been made to Grains estimated in the sum of $589,473.77. In response, Grains claimed it was owed $781,929.34 by Vale.

On July 15, 2014, Grains served notices of intention to enforce its security under the Bankruptcy and Insolvency Act and the Farm Debt Mediation Act.

In August of 2014, an order was granted to Grains, appointing MNP to act as an interim receiver to provide the Court with an independent assessment of the state of accounts between the parties and to investigate Grains' concern that Vale's farming operation had been transferred to his wife. Vale and Grains were both directed to provide information to MNP.

The information obtained by MNP appeared to confirm Grains' concerns. On October 17, 2014, Grains applied to amend the appointment order to allow MNP to take possession of Vale's assets. The application was adjourned, but on the condition that the gross proceeds received from the sale of the 2014 crops be held in trust by MNP pending further order of the Court.

On May 18, 2015, an order was made directing that MNP be permitted to take possession of the Vale's assets, based upon evidence that the crop proceeds had been deposited in Mrs. Vale's bank account, and not remitted to MNP as required by the earlier Court order.

In June of 2015, an application was made before Bale, J. for an order granting MNP authority to sell the Vales' assets. Bale, J. granted the order and dismissed Vale's application that MNP be discharged for reasons to follow. Reasons were given on January 13, 2016.

Decision: Bale, J. granted the order allowing MNP to sell Vale's assets and dismissed Vale's application [at para. 38].

Bale, J. relied upon the following information obtained by MNP:

- On March 13, 2014, less than 2 weeks after Grains and Vale had terminated their relationship, Vale incorporated "Harry Vale Farms 1984 Ltd." Vale was the sole director. Vale and his wife were the sole officers.

- Vale had previously relied upon loans from Agricultural Credit Corporation ("ACC"). On May 1, 2014, Mrs. Vale obtained a loan from ACC in her own name which was guaranteed by Mr. Vale.

- Value subleased 3,000 acres of farmland to Mrs. Vale in 2014 for nominal consideration.

- Mrs. Vale signed an agreement on May 1, 2014 with Vale whereby Vale custom farmed the land that he had sublet to Mrs. Vale.

- Vale's crop insurance was transferred to Mrs. Vale.

- A winter wheat crop belonging to Grains, which was to be harvested in the spring of 2014, was harvested and sold without payment being made to Grains.

- In 2015, a number of large pieces of equipment were sold. $50,000.00 in equity was paid to Vale or third parties at his direction.

- Vale failed to notify MNP of the fact that he had harvested the 2014 crops in violation of an order granted by Ferguson, J.

- Vale failed to direct payment of the gross proceeds of sales of all crops to MNP in trust, as required by the October 17, 2014 order. Instead, the proceeds were deposited into Mrs. Vale's account.

Bale, J. rejected Vale's argument that Grains must first commence separate proceedings and obtain a judgment establishing a debt to Grains before a receiver could be appointed with the authority to sell Vale's property.

Bale, J. agreed the purpose of an interim receivership order should be to preserve and protect a debtor's assets pending final judgment, and that if a receiver is authorized to sell those assets prior to judgment, the Court may be prejudging the issues in the proceeding [at para. 28]. In this case, however, the Court held that the judgment requested by Grains included a final receivership order pursuant to the General Security Agreement and s. 243(1) of the Bankruptcy and Insolvency Act, which authorized the appointment of a receiver where a debtor is insolvent, and the secured creditor is in a position to enforce its rights against all or substantially all of the debtor's property [at para. 29].

Bale, J. concluded that in this case, Vale was insolvent by February of 2014 and that since July of 2014, when notices under the Bankruptcy and Insolvency Act and the Farm Debt Mediation Act were served, Grains was in a position to enforce its rights against Vale's property [at para. 30]. Bale, J. concluded that he was satisfied, based on MNP's forensic report, that Vale was substantially indebted to Grains and other creditors and that if Vale wished to dispute the amount claimed by Grains, he could do so at the hearing of MNP's motion for an order approving its proposed distribution.

Bale, J. observed that MNP's forensic report responded to discrepancies in an earlier forensic report obtained by Vale, which concluded that Grains owed Vale money.

Bale, J. concluded [at para. 35 to 37]:

[35] In my view, Mr. Vale's purported transfer of the farming operation to Mrs. Vale was a sham, intended to allow him to continue the operation, without dealing with his creditors, including SLG.

[36] The court appointment of a receiver is an equitable remedy, and the conduct of the parties is therefore relevant. The failure of Mr. and Mrs. Vale to comply with the orders of Ferguson and Lack JJ. does nothing to enhance their position, or their creditability.

[37] The parties spent some time arguing the law in relation to the test for the appointment of interim receivers. However, in light of the results of MNP's investigations, the fact that SLG is contractually entitled to the appointment of a receiver, and in the absence of any new evidence following the appointment orders of Ferguson and Lack JJ. which would support Mr. Vale's position, I see no basis upon which to order termination of the receivership.

CREDITS

This NetLetter is prepared by Brian P. Kaliel, Q.C. of Miller Thomson LLP, Edmonton, Alberta.

Download - Agricultural Law NetLetter

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions