Aug 17, 2011
Receiver's Stalking Horse Land Sale Upheld
On the heels of a very successful Receiver's liquidation of a large residential subdivision of over 1,500 lots in Bowmanville in early 2011, Madam Justice Carole Brown recently upheld the propriety of a power of sale process completed by a privately appointed Receiver, utilizing a "stalking horse" bid to set the minimum purchase price for bidders. Her decision granting summary judgment to the Bank of Montreal and CIBC (the "Lenders") was released on August 17, 2011.
David Taub successfully obtained a Judgment against the borrower and guarantor. The lenders realized on their security for the deficiency resulting after applying the net sale proceeds of a gross sale price of $17,700,000 against their outstanding indebtedness. At issue in the summary judgment motion brought by the plaintiffs, was the propriety of a $400,000 breakage fee paid to a stalking horse bidder. That bidder had previously guaranteed the Lenders an excellent sale price, by making an unsolicited offer prior to the receiver formally seeking any bids. In order to keep the bid alive while it pursued other offers, the Receiver agreed to the breakage fee. With the stalking horse bid in hand, the Receiver, in its bidding process, could negotiate for a much higher purchase price with another purchaser than that of the stalking horse offer and accordingly, the breakage fee was paid.
The court agreed that the Receiver's use of the stalking horse bid process as insurance before the marketing process began was reasonable including the payment of the breakage fee as a result. The court therefore granted a deficiency judgment for nearly $500,000 plus costs of almost $100,000 in favour of the 2 Lenders. The case is noteworthy because this was the first time that the stalking horse bid process was used in a private receivership of the sale of land and its use was upheld by the court.