Bearcat Explorations Ltd. (Bankrupt), Re, 2004 ABQB 601

Bearcat Explorations (Bankrupt), Re (2004), 368 A.R. 339 (QB)

MLB headnote and full text

Temp. Cite: [2004] A.R. TBEd. SE.008

In The Matter Of the Proposal of Bearcat Explorations Ltd.;

And In The Matter Of the Proposal of Stampede Oils Inc.

(Bk 01 84659; Bk 01 084660; 2004 ABQB 601)

Indexed As: Bearcat Explorations Ltd. (Bankrupt), Re

Alberta Court of Queen's Bench

In Bankruptcy

Judicial District of Calgary

Romaine, J.

August 10, 2004.

Summary:

Knox L.L.C. sought to petition Stampede Oils Inc. and Bearcat Exploration Ltd. into bankruptcy, when they failed to repay loans. Stampede and Bearcat claimed that they were not insolvent and applied to have the loan agreements declared illegal based on usurious interest rates. Just before the judge was about to give his oral decision, Stampede and Bearcat announced they had filed Notices of Intention to Make a Proposal. The judge nevertheless gave an oral judgment granting the receiving orders, staying them pending the outcome of the proposals, and appointing an interim receiver. The judge also made conclusions respecting the legality of the interest rate, the principal amounts owing, etc. The judge later supplemented his oral reasons on the illegality issue with written reasons - see [2003] A.R. Uned. 599. Despite these decisions, no orders were entered with respect to illegality, severance, principal, interest or security. Stampede and Bearcat appealed, arguing that the judge should not have granted the receiving orders or appointed an interim receiver. Knox cross-appealed, arguing that in light of the filing of the Notices of Intention, the decision to grant the receiving orders was moot. Knox also challenged the findings of the trial judge respecting the illegality of the interest rates charged, etc.

The Alberta Court of Appeal, in a decision reported 339 A.R. 376; 312 W.A.C. 376, dismissed the appeals by Stampede and Bearcat respecting the receiving orders on the ground of mootness (i.e., by issuing the Notices of Intention, Stampede and Bearcat conceded their insolvency). Further they had no appeal as of right from the granting of the receiving orders, nor had they applied for leave to appeal. The court allowed the cross-appeal by Knox only to the extent necessary to clarify that the judge's conclusions about illegality, severance, principal amounts, interest rates and security were obiter and beyond the jurisdiction of a bankruptcy court hearing a petition and were, therefore, not binding. Knox filed proofs of claim in the proposals. Faced with the decisions of the bankruptcy judge and the Court of Appeal, the bankruptcy proposal trustee disallowed Knox's claim against Bearcat and Stampede. Knox appealed.

The Alberta Court of Queen's Bench, In Bankruptcy, allowed the appeal from the disallowance of Knox's s claim by the proposal trustee. The court dismissed the applications of Bearcat and Stampede to have the loan agreements declared illegal and unenforceable, to have interest declared to be in breach of the Interest Act, and to declare that the security interest of Knox was not a present security interest.

Bankruptcy - Topic 3921

Secured creditors - What constitutes a secured creditor - General - Knox agreed to loan money to Bearcat and Stampede to develop oil wells - The loan agreement provided that "the companies ... are in agreement that the principal will be secured by their combined interests in the ... 4-13 ..., the 11-12 ... and the ... 8-21 wells, and any other ... interests and all other assets held by Bearcat and Stampede" - An issue arose as to whether Knox was a secured creditor of Bearcat and Stampede and to what extent - Bearcat and Stampede submitted that the agreement meant that security would be provided in the future, and that it in fact never was, and therefore, Knox was not a secured creditor - The Alberta Court of Queen's Bench, In Bankruptcy, held that in the context of the whole agreement and having regard to the behaviour of the parties surrounding this and previous agreements, that the agreement granted security to Knox and no further documentation was required, or intended, to give effect to the grant of security (i.e., Knox was a secured creditor) - The court noted that no particular wording was required to create a security interest, and if the words in substance effected that purpose, they were sufficient - See paragraphs 144 to 151.

Criminal Law - Topic 1744

Criminal interest rate - Effective rate of interest - In the context of an appeal from a disallowance of proofs of claim by a bankruptcy proposal trustee, an issue arose as to whether the interest rates on certain loans offended s. 347 of the Criminal Code - The Alberta Court of Queen's Bench, In Bankruptcy, examined the loan agreements and determined that they were not in breach of s. 347(1)(a) since the agreements did not expressly impose or require an annual rate of interest above 60% - The court stated that if it was wrong in this conclusion, this was an appropriate case to notionally sever the interest rate to be, in effect, no more than 60% - See paragraphs 85 to 131.

Interest - Topic 3002

Statutory interest - Interest Act - Application of - In the context of an appeal from a disallowance of proofs of claim by a bankruptcy proposal trustee, an issue arose as to whether s. 4 of the Interest Act applied to a commercial loan transaction involving a sophisticated borrower - Section 4 provided that the interest rate on a loan could not exceed five percent unless the rate of interest was expressly stated - The Alberta Court of Queen's Bench, In Bankruptcy, held that s. 4 did not apply to this loan agreement which was negotiated between two sophisticated parties - The borrower was well aware of the annual interest rate and was primarily responsible for the preparation of the agreement - This was found to be a case where legislation that was meant to apply to consumer loans was relied upon by a sophisticated borrower merely to attempt to escape from an otherwise valid loan provision - See paragraphs 85 to 143.

Cases Noticed:

Garland v. Consumers' Gas Co., [1998] 3 S.C.R. 112; 231 N.R. 1; 114 O.A.C. 1, refd to. [para. 85].

Boyd v. International Utility Structures Inc. (2002), 171 B.C.A.C. 269; 280 W.A.C. 269; 216 D.L.R.(4th) 139 (C.A.), refd to. [para. 86].

Degelder Construction Co. v. Dancorp Developments Ltd. et al., [1998] 3 S.C.R. 90; 231 N.R. 122; 113 B.C.A.C. 1; 184 W.A.C. 1, refd to. [para. 90].

Great America Leasing Corp. v. Yates (2003), 180 O.A.C. 130 (C.A.), refd to. [para. 93].

618469 Ontario Ltd. v. Szanto, [1990] O.J. No. 2407 (Gen. Div.), refd to. [para. 93].

Transport North American Express Inc. v. New Solutions Financial Corp. (2004), 316 N.R. 84; 183 O.A.C. 342 (S.C.C.), refd to. [para. 129].

Thomson (William E.) Associates Inc. v. Carpenter (1989), 34 O.A.C. 365; 61 D.L.R.(4th) 1 (C.A.), refd to. [para. 130].

Mason (V.K.) Construction Ltd. v. Bank of Nova Scotia et al., [1985] 1 S.C.R. 271; 58 N.R. 195; 8 O.A.C. 381; 16 D.L.R.(4th) 598; 35 R.P.R. 118, refd to. [para. 137].

Elcano Acceptance Ltd. et al. v. Richmond, Richmond, Stambler & Mills (1991), 49 O.A.C. 17; 3 O.R.(3d) 123 (C.A.), refd to. [para. 138].

Niagara Air Bus Inc. v. Camerman (1991), 49 O.A.C. 7; 3 O.R.(3d) 108 (C.A.), refd to. [para. 142].

356447 British Columbia Ltd. et al. v. Canadian Imperial Bank of Commerce (1998), 104 B.C.A.C. 138; 170 W.A.C. 138; 157 D.L.R.(4th) 682 (C.A.), refd to. [para. 147].

Statutes Noticed:

Criminal Code, R.S.C. 1985, c. C-46, sect. 347 [para. 85].

Interest Act, R.S.C. 1985, c. I-15, sect. 4 [para. 136].

Authors and Works Noticed:

Cuming, Ronald C.C., and Wood, Roderick J., Alberta Personal Property Security Act Handbook (4th Ed. 1998), p. 135 [para. 147].

Counsel:

Joseph G.A. Kruger and Derek R. Vermette, for Knox L.L.C.;

Donald W. Dear and Alexis Moulton, for Stampede Oils Inc. and Bearcat Explorations Ltd.

This matter was heard on April 5-30, and June 14-16, 2004, by Romaine, J., of the Alberta Court of Queen's Bench, In Bankruptcy, Judicial District of Calgary, who delivered the following reasons for judgment on August 10, 2004.