Executive Summary: Key Legal and Evidentiary Issues

• The debtor sought an extension of time and approval of DIP financing during insolvency proceedings under the Bankruptcy and Insolvency Act.

• The court approved the DIP loan but required removal of exclusivity clauses that would have unfairly restricted market participation.

• The requested administrative charge was denied due to insufficient notice and procedural deficiencies.

• Judicial expectations on attendance, filings, and procedural rigour were clarified, emphasizing local court rules.

• The applicant's counsel was cautioned for attempting to proceed by desk order inappropriately for contentious relief.

• An extension to file a proposal was granted, allowing restructuring efforts to continue under court supervision.

Background and procedural context

HealthHub Patient Engagement Solutions Inc., a Nova Scotia-based debtor, filed a Notice of Intention (NOI) to make a proposal under the Bankruptcy and Insolvency Act (BIA) and sought two forms of relief: an extension of time to file a proposal under section 50.4(9), and court approval of debtor-in-possession (DIP) financing under section 50.6. The Proposal Trustee, Grant Thornton Limited, supported both motions. The DIP lender, 1001285202 Ontario Inc. (related to Rally Enterprises & Communications Corporation), was the debtor’s principal secured creditor. A previous order had already approved an interim DIP loan of $100,000, and the debtor now sought to formalize a longer-term facility of $800,000, which was required to support ongoing operations during restructuring.

Concerns regarding DIP financing exclusivity

Justice Wood raised concerns about the terms of the DIP loan, particularly a clause that gave the DIP lender exclusivity over purchasing the debtor’s assets. This would have effectively shut out third parties from bidding or making inquiries. The court emphasized that such provisions, though common in private financing, must be scrutinized when included in court-approved insolvency orders. Justice Wood required the exclusivity language to be removed, making clear that while the DIP lender may ultimately acquire the business, it must do so through an open and transparent process that allows market participation.

Extension of time granted

The court found that the statutory test under s. 50.4(9) for an extension of time was met. HealthHub had acted in good faith and with due diligence, and the extension would likely result in a viable proposal to creditors. There was no creditor opposition to the extension, and the Proposal Trustee supported the request. As such, the court granted the full 45-day extension sought, allowing the restructuring process to continue.

Administrative charge request denied

HealthHub also requested approval of a $100,000 administrative charge in favour of its restructuring professionals. However, the court declined to approve the charge at this time, citing improper notice and procedural concerns. It stressed that the local court's Commercial Practice Directive requires proper affidavit evidence and notice to all affected parties. Because the debtor had attempted to bring this request as a desk order rather than a scheduled hearing, the court considered it procedurally deficient. Justice Wood invited the debtor to return with the request on notice, supported by detailed evidence, if they wished to pursue it further.

Judicial commentary on procedure and expectations

Justice Wood provided guidance on appropriate use of court resources in insolvency matters. He noted that counsel’s attempt to obtain relief by desk order for what was clearly a contested and substantive motion was inappropriate. He reiterated that contested matters must be heard in open court, especially when rights of other parties are affected. The decision emphasized the importance of transparency, fairness, and proper procedural adherence in insolvency cases, particularly where significant commercial interests are at stake.

Conclusion and outcome

The court granted HealthHub’s request for an extension of time to file a proposal and approved the DIP loan after removing restrictive exclusivity provisions. The request for an administrative charge was denied without prejudice. The decision underscores the need for procedural rigour, fair market access in asset sales, and judicial oversight in restructuring proceedings under the BIA. HealthHub was permitted to proceed with its restructuring process under court supervision, but with clear parameters set by the court to ensure fairness and openness.