Canada: Agricultural Law Netletter, December 21, 2016 Issue 362

HIGHLIGHTS

* A Justice of the Supreme Court of British Columbia has concluded that she has jurisdiction under the Companies' Creditors Arrangement Act (Canada) to override an inalienability designation made pursuant to the Bylaws of a land conservancy society which had acquired forested lands from individuals who practiced "eco-forestry" by selectively falling and harvesting trees to maintain the health of the forest. The Court approved a sale to a buyer which agreed to register a Restrictive Covenant and a deed of trust against the title to the land to continue the eco-forestry "vision" of the initial owners. [Editor's note: As more farm and ranch lands are acquired by nature conservancies, issues may arise with respect to what might happen to the land if the conservancy gets into financial difficulty. This case discusses some issues Courts may have to deal with.]. (TLC The Land Conservancy of British Columbia (Re), CALN/2016-030, [2016] B.C.J. No. 2634, British Columbia Supreme Court)

NEW CASE LAW

TLC The Land Conservancy of British Columbia (Re);

CALN/2016-030,

Full text:[2016] B.C.J. No. 2634;

2016 BCSC 2323,

British Columbia Supreme Court,

Land Conservancies -- Jurisdiction under the Companies' Creditors Arrangement Act to Sell Conservancy Lands notwithstanding Inalienability Covenants and Restrictions.

TLC The Land Conservancy of British Columbia Inc. ("TLC"), a British Columbia society which operates a land trust, commenced proceedings under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA") in October of 2013.

TLC applied to the Supreme Court of British Columbia for an order approving the sale of one of the properties held by it called the "Wildwood Property".

The "Wildwood Property" comprised of 77 acres of forested land near Nanaimo, British Columbia which had been owned by Merv and Grace Wilkinson (the "Wilkinsons") since 1938. The Wilkinsons had managed the forest on an "eco-forestry" basis which involved the selective felling of trees, which was intended to maintain the health of the forest while still sustaining a harvest.

In 2000 the Wilkinsons entered into an agreement to sell the Wildwood Property to TLC. A portion of the purchase price was gifted by the Wilkinsons in consideration of receiving a life estate in the Wildwood Property.

A Memorandum of Understanding was entered into between TLC and the Eco-Forestry Institute Society ("EIS") to continue to harvest trees from the Wildwood Property and continue to operate the Wildwood Property using eco-forest management practices.

In February of 2011, the TLC declared the Wildwood Property to be "inalienable" in accordance with its Bylaws for the purpose of protecting the property from being sold for profit, or being dealt with in any manner contrary to TLC's purposes. The Bylaws included provisions which:

  • Required TLC to take every measure possible to ensure the "protection in perpetuity" of the land.
  • Required the land to be protected by a Conservation Covenant under s. 219 of the Land Title Act (British Columbia).
  • Provided the land could not be sold or transferred unless TLC was being dissolved, and then only to another society having similar purposes.
  • Prohibited the land from being "released or sold".
  • Permitted transfer or assignment of the land "only to an organization having similar purposes to TLC, if TLC retains a reversionary interest in the land and the transfer is approved by a special resolution of TLC".

TLC did not place a Section 219 Land Titles Act Conservation Covenant on the title to the Wildwood Property in accordance with its Bylaws.

In December of 2014, TLC applied for an order amending its Bylaws to allow its Board to remove an inalienable designation where "appropriate", however this order was not granted.

In 2015, TLC developed a plan for the consideration of its creditors which allowed some of its properties to be sold with Court approval. On April 2, 2015, the Court approved the plan, which had been approved by TLC's creditors, subject to the condition that property sales would require Court approval if, among other things, there had been an inalienable designation pursuant to the Bylaws.

In July of 2015, the Court approved the sale of a number of TLC's properties to the Nature Conservancy of Canada, which is an organization similar to TLC.

In October of 2016, TLC filed a revised plan of compromise and arrangement in which it indicated it was continuing with efforts to sell its remaining marketable properties, including the Wildwood Property. EIS contested some aspects of this plan.

Two parties were interested in purchasing the Wildwood Property: Mark Randen (who worked with the Wilkinsons in the 1990's) and EIS. Both of these parties made bids on the property. Further sealed bids were permitted by the Court and on the date of the application Mr. Randen had increased his offer to $840,000.00 ($640,000.00 cash and $200,000.00 debt forgiveness) which represented a financial recovery to TLC of $689,600.00. EIS had increased its offer to $800,000.00 ($665,000.00 in cash and $135,000.00 in debt forgiveness), amounting to a financial recovery to TLC of $718,500.00. Both offers included a Conservation Covenant and a forestry management plan. The EIS offer included a deed of trust.

Decision: Fitzpatrick, J. approved the EIS offer [at para. 78].

Fitzpatrick, J. considered the following issues:

  1. Whether the Court had jurisdiction under the CCAA could override the inalienable designation under the TLC Bylaws.

Fitzpatrick, J. considered [at para. 40] the non-exhaustive list of factors to be considered with respect to the approval of sales under s. 36 of the CCAA which included:

  1. whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
  2. whether the monitor approved the process leading to the proposed sale or disposition;
  3. whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;
  4. the extent to which the creditors were consulted;
  5. the effects of the proposed sale or disposition on the creditors and other interested parties; and
  6. whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.

Leaving aside the inalienability issue, Fitzpatrick, J. concluded that these factors supported the sale of the Wildwood Property [at para. 41].

Relying on her earlier decision of TLC The Land Conservancy of British Columbia (Re), 2015 BCSC 1890, Fitzpatrick, J. concluded [at para. 48] that she had the jurisdiction under the CCAA to override the inalienable designation, and concluded that a number of factors supported Court approval despite this designation [at para. 51] including the following:

  • TLC does not have the financial ability to maintain the Wildwood Property while at the same time fulfilling its obligations to creditors and ensuring its ongoing viability.
  • The Wildwood Property has been actively marketed to persons who were both considered suitable potential stewards of the Wildwood Property.
  • The offers both respected TLC's commitment to honour the Wilkinsons' vision to ensure that eco-forestry practices continued.
  1. Which offer should be approved.

After weighing both offers carefully [at para. 55 to 76] Fitzpatrick, J. concluded that the EIS offer represented the best possible outcome for TLC, its creditors and other stakeholders.

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.

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