Team: Matthew Nied
On April 4, 2018, the Supreme Court of British Columbia issued a decision in Forjay Management Ltd. v. 0981478 B.C. Ltd. directing a receiver to disclaim presale agreements in the context of a real estate receivership. The decision clarifies the analytical framework to be applied when considering whether to disclaim contracts in a receivership and offers an example of circumstances in which a court will not defer to a receiver’s recommendation.
The receivership concerned a 92-unit strata condominium development known as “Murrayville House”, located in Langley, British Columbia. The development was owned by a single-purpose development company with no other significant assets. The receivership was precipitated by ballooning debt caused by cost overruns, lengthy delays, the filing of various legal claims and certificates of pending litigation, and allegations of financial misconduct on the part of the debtor.
At the time of the receivership order, all of the units in the development had been made the subject of presale agreements with individual purchasers. Subsequent to the execution of the presale agreements, the value of the units increased by 46%. In light of this value lift, the receiver was faced with the decision of whether to complete the presale agreements, or, alternatively, remarket the units at current market prices in order to maximize the realization for the benefit of the creditors.
The receiver decided that it should complete the presale agreements and brought an application seeking directions from the Court confirming that decision. The application was heard over five days in March 2018 and was opposed by the mortgagees and the Debtor.
The Court ultimately determined that the contracts should be disclaimed. In reaching that conclusion, the Court adopted and applied a new analytical framework for determining whether to disclaim contracts in a receivership. That analytical framework was substantially advanced by one of the mortgagees, represented by Matthew Nied of Cassels Brock. In addition, the Court accepted Mr. Nied’s suggestion that the purchasers should be given a right of first refusal in the remarketing process.