Executive summary: key legal and evidentiary issues

• National Bank of Canada petitioned to appoint a receiver over VFC Corporate Wings Aviation Ltd.'s assets, claiming breaches of the mortgage commitment letters and sublease obligations.

• VFC vigorously opposed the petition, asserting no financial default existed, all lease and mortgage payments were current, and the company remained solvent and profitable.

• The Bank's primary evidence relied heavily on inadmissible hearsay, including letters from the Victoria Airport Authority whose assertions were contradicted by VFC's documented evidence and prior compliance acknowledgments.

• A stop-work order was issued after VFC deviated from a building permit by constructing concrete stairs instead of wood, though VFC was actively working to rectify the issue through new permit applications.

• The Consent to Mortgage provided the Bank with substantial protections, including 60-day cure periods and the right to obtain a new sublease on the same terms if the original were terminated.

• Receivership was deemed an extraordinary remedy inappropriate in the circumstances, particularly where breaches were hotly contested and the debtor was financially stable.

Background and the parties involved

The case of National Bank of Canada v. VFC Corporate Wings Aviation Ltd., 2026 BCSC 126, arose from a dispute over approximately 8.5 acres of land situated on the edge of the Victoria International Airport in British Columbia. VFC Corporate Wings Aviation Ltd., a company whose principal is Jim McLaren, a 90-year-old who has been involved in the real estate development business for 70 years and was, until recently, an avid pilot, held a sublease over the property dating back to 1993. Over the decades, VFC had developed the land extensively, constructing multiple aircraft hangars, including a 32,000 square-foot 22-hangar building known as Hangar A, a 13,000 square-foot 10-hangar building known as Hangar B, an 11,000 square-foot Hangar C, and a two-storey mixed-use office building. The property hosted aviation-related air-side businesses, including aviation storage and operations, and had direct taxiway access. Mr. McLaren has been assisted with respect to VFC in recent years by Mr. Peulen, who is married to Mr. McLaren's granddaughter.

The sublease and its evolution

VFC's interest in the property originated from a lease dated January 1, 1993, by which the federal government leased VFC a portion of the site for a term ending June 30, 2036. A supplemental agreement dated April 1, 1993, increased the leased area to 2.91 acres. In 1997, the federal government leased the Victoria International Airport site to the Victoria Airport Authority under an 80-year lease expiring in 2077, and the VAA became responsible for airport operations. In 2006, through a series of transactions, the federal government assigned its interest in the VFC lease to the VAA, VFC surrendered its lease, and the VAA issued a new sublease to VFC. That sublease, as amended, continues to govern the relationship between VAA and VFC. In 2006, it provided a leased area of 6.28 acres with a term expiring June 30, 2036, but with rights of renewal that could extend it to 2077. The sublease also required VFC, at its expense, to complete construction of two additional aircraft hangar buildings as well as additional office space. The sublease was registered in the Land Title Office on April 15, 2009. In December 2017, the sublease was amended to increase the size of the leased area to just under 8.5 acres and to provide that VFC would be granted an extension of the lease term to 2077 upon completion of construction of a new wing of the office building and the obtaining of an occupancy permit. On April 30, 2021, a further amendment confirmed in its recitals that VFC had been issued its occupancy permit and was in compliance with the terms of the sublease. The extension of term was reflected in a Modification of Sublease registered in the Land Title Office on December 2, 2022, signed by an authorized officer of VAA on November 23, 2022, which confirmed the term had been extended to March 30, 2077.

Key sublease provisions

Several sublease provisions featured prominently in the dispute. Section 4.5 required that no construction take place unless proper plans had been submitted to and approved by the VAA, and that VFC conform to rules and regulations with respect to demolition, construction, and improvement matters, including any permitting process mandated by VAA. Section 6.1(a) required VFC to promptly observe and comply with all provisions of law, including requirements of all governmental authorities and all police, fire, and sanitary regulations. Section 6.2 required VFC to conduct its business in an efficient, businesslike, lawful, and ethical manner and not to carry on or permit any noisome or offensive trade or business. Section 12.2(a) set out default triggers, including the sublessee's failure to observe and perform the covenants of the sublease, the appointment of a receiver or receiver-manager in respect of any property of the sublessee, and the sublessee becoming bankrupt or insolvent, any of which could lead to accelerated rent and the sublessor's right to re-enter and forfeit the sublease.

The bank's mortgage and security arrangements

In the fall of 2020, VFC obtained financing from the Canadian Western Bank, which was later succeeded by the National Bank of Canada through amalgamation. The commitment letters, consisting of a commitment letter dated October 1, 2020, subsequently amended by letters dated February 8 and July 5, 2021, provided for a demand loan in the sum of $5,575,000, comprised of a principal sum of $5.5 million and a revolving credit facility in the amount of $75,000. Security was provided by way of a mortgage registered in the Land Title Office, a separate assignment of rents, a guarantee executed by Mr. McLaren, a Demand Promissory Note, and a General Security Agreement. A Form B mortgage of VFC's interest under the sublease was registered in the Land Title Office on July 30, 2021. A key security document was the Consent to Mortgage, dated July 26, 2021, a tripartite agreement among the VAA, the Bank, and VFC. Under this document, the VAA acknowledged the lease was in good standing, consented to the mortgage, and agreed to notify the Bank of any tenant default. The Bank was given a period of 60 days from receipt of such notice to cure the default, with reasonable extensions if the default could not be cured within that timeframe, provided all sums due under the lease were paid. If the sublease were forfeited, surrendered, or otherwise terminated, the VAA covenanted to grant the Bank a new lease of the lands at the same rent and on the same terms for a term equal to the then unexpired portion of the sublease, provided the Bank made a written request within 60 days after receiving notice of the termination.

Events leading to the dispute

In early 2025, Mr. McLaren asked Mr. Peulen, who is a licensed real estate agent, to help him find a buyer for VFC. In the spring of 2025, VFC decided to perform upgrades to its buildings in the form of three staircases and, on May 20, 2025, was granted building permits for replacement of interior spiral stairs in the original building, construction of new exterior stairs to the second floor of the new wing of the office building, and construction of new stairs to a mezzanine in Hangar C. With respect to the exterior stairs, Mr. McLaren stated that due to his miscommunications with the architect and his misunderstanding of the permit requirements, he upgraded the exterior stairs from wood to concrete, believing he was exceeding the requirements of the permit. On August 27, 2025, the VAA posted a stop-work order on the fence around the area of the exterior stairs. The VAA took the position that the stop-work order applied to all three projects, notwithstanding that they were in different buildings. Discussions between VFC and the VAA about how to move forward became antagonistic, and the VAA came to the conclusion that it did not want to deal with Mr. McLaren anymore. On September 19, 2025, the North Saanich Fire Department inspected the VFC buildings and noted that fire extinguishers, fire alarm systems, and fire sprinkler systems were all due for testing. VFC arranged for that testing on October 14, 2025, and it was successfully completed.

The bank's default notices and demands

The court inferred from the evidence that, at some point in the fall of 2025, the VAA began communicating information to the Bank, and that the Bank did not see any need to advise VFC of the information it was receiving or seek VFC's response. On September 29, 2025, the Bank's solicitor wrote to VFC alleging breaches including failure to comply with a postponement agreement by repaying shareholder debt without the lender's consent, failure to maintain the cash flow coverage ratio covenant, failure to provide required reporting for the fiscal year ending 2024, unauthorized construction on the lands, and failure to remedy multiple safety issues including the stop-work order and outstanding fire code violations. VFC was given seven days to cure. On October 23, 2025, the Bank's solicitor issued a formal demand for payment of $5,092,958.20 with a deadline of November 4, 2025. VFC's solicitor, Ms. Orr, responded on October 30, 2025, pointing out that VFC had never missed a payment under the mortgage, that the mortgage was in good standing, that an appraisal showed the property was worth well in excess of the mortgage value, and that the borrower was in a very healthy financial position. Ms. Orr requested at least 60 days to arrange alternative financing. The Bank's preliminary response on October 31, 2025, pointed to the stop-work order and fire violations as placing VFC in breach of the sublease and, in turn, its mortgage. A more formal letter followed on November 4, 2025, stating that unless the Bank received written confirmation from the VAA by November 4, 2025, that all outstanding defaults had been fully cured and waived, the Bank would proceed with enforcement. On November 10, Ms. Orr left a voicemail for the Bank's lawyer asking for a call, but the call did not occur. Instead, on November 13, 2025, the Bank's solicitor submitted a request to the court registry for an insolvency judge to hear the receivership application during the week of November 24, 2025.

Filing of the petition and the rushed timeline

On November 18, 2025, Crowe MacKay & Company signed a Receiver's Consent to Act. On November 19, 2025, Mr. Chan affirmed an affidavit in support of the petition, and it was filed in the court registry along with the petition. These documents were not immediately sent to Ms. Orr; they were emailed to her at 3:26 p.m. on Thursday, November 20, 2025. The next day, a notice of hearing was issued scheduling the hearing for 9:00 a.m. on Tuesday, November 25, 2025. VFC retained litigation counsel, Mr. Batkin, who objected that the petition had not been properly set down, could not be heard in 45 minutes, and that there was no urgency. Mr. Batkin noted that section 2 of the Consent to Mortgage provided that no steps with respect to the sublease could be taken by the VAA until, at the earliest, January 18, 2026. He also pointed out that the alleged breaches of the mortgage had been remedied by November 7, 2025, and the alleged breaches of the sublease had either been remedied or would be remedied within 30 days. After discussions between counsel, the hearing was adjourned, and a walkthrough of the VFC premises was scheduled for December 2, 2025. The hearing was ultimately rescheduled for January 7, 2026.

Evidentiary concerns

The court identified significant evidentiary deficiencies in the Bank's case. Mr. Chan's affidavit, the primary evidence in support of the petition, noted the North Saanich Fire Department's inspection report of September 19, 2025, but made no mention of the fact that the issues identified in that report had been resolved more than a month before he made his affidavit. His allegations about unauthorized construction, including the installation of an unauthorized mezzanine level, lacked any indication of the basis on which he might have knowledge and were contradicted by the evidence of Mr. McLaren and Mr. Peulen. The VAA's letter of November 19, 2025, relied upon by the Bank, was characterized by the court as double hearsay that was more likely disguised triple or quadruple hearsay. Several allegations within the VAA's correspondence predated the 2021 and 2022 documents that confirmed VFC had been issued its occupancy permit and was in compliance with the terms of the sublease. A subsequent affidavit from Mr. Allan of Crowe MacKay, dated December 23, 2025, gave evidence only as to what he overheard being discussed between Code consultants at a walkthrough, and the court noted it appeared no effort was made to obtain an affidavit or report from the consultants themselves. A further reply affidavit tendered by the Bank on January 6, 2026, attached a letter from the VAA's lawyer raising new allegations, which VFC's counsel objected to as case-splitting.

Positions of the parties

The Bank argued that it was sufficient if even one item of default was established, and further asserted that because the commitment letter made clear this was a demand loan, demand could be made at any time even without establishing an actual default. The Bank relied on the VAA's statement that, absent the appointment of a receiver, the VAA would take steps to terminate the sublease, arguing this put its security at imminent risk. The Bank also pointed to its contractual right to appoint a receiver under the mortgage terms and submitted that a neutral third party was needed to assess sublease violations, address code issues, and engage with the VAA. The VAA made brief submissions stating it had no confidence in Mr. McLaren and that if a receivership order were not granted, its intended course would be termination of the sublease. VFC submitted that the petition was ill-founded, premature, and should be dismissed with costs. VFC emphasized that there had been no financial default whatsoever, that all lease and mortgage payments had been made, and that VFC was a solvent and profitable business. VFC disputed all alleged defaults other than the concrete stairs, stated it met the cash flow covenant based on current financial information, had provided financial statements up to date, and had been diligently working to resolve the stairway issue. VFC argued the Consent to Mortgage provided substantial protection to the Bank, such that even if the VAA successfully terminated the sublease, the Bank had the right to obtain a new sublease on the same terms that it could then market. VFC further submitted that many of the VAA's alleged grounds to terminate the sublease were demonstrably without merit, but that if a receivership order were granted, that would in and of itself provide the VAA with a basis for termination under section 12.2(a)(iv) of the sublease that was not subject to the same sort of controversy. VFC also argued that a receivership over all of its assets and undertakings would negatively impact its other business interests and that the stigma of a receivership would likely result in a lower price for the sublease.

The ruling and outcome

Justice Veenstra of the Supreme Court of British Columbia dismissed the Bank's petition with costs. The court accepted VFC's submission that section 243 of the Bankruptcy and Insolvency Act was not available, finding it clear that VFC was not insolvent, as all rent and mortgage payments had been paid in the ordinary course and the financial statements reflected a successful and financially stable business. The court found that the Bank's submission regarding demand loans missed the nature of the relief sought, noting the Bank was not asking to have its decision to make demand verified but was seeking a court order to appoint a receiver that would deprive VFC of control of its assets, cause tens if not hundreds of thousands of dollars of receiver and legal fees, and leave decisions about property improvements in the hands of someone with no knowledge of whether the work the VAA wanted done was actually legally required. The court found that none of the alleged non-sublease breaches had been established on a balance of probabilities, as Mr. McLaren's evidence either affirmatively showed the breaches had been corrected or called the more conclusory assertions into serious question, and the Bank did not respond to those questions. With respect to the sublease-related breaches, the court found there was no admissible evidence to establish any breach other than the installation of concrete stairs and the resultant stop-work order, and VFC was working diligently to correct those matters. Applying the factors from Maple Trade Finance Inc. v. CY Oriental Holdings Ltd., 2009 BCSC 1527, the court was not satisfied that irreparable harm might be caused if no receiver were appointed, was not satisfied that there was any significant risk to the Bank's security, and found the property was not at risk of waste. The court emphasized that the Consent to Mortgage was aimed at protecting the Bank and ensuring the adequacy of its security even in the event of a breakdown of the relationship between VFC and VAA, and that it could not see how the Bank could be seriously at risk in light of the extensive rights provided under that document. VFC had a signed letter of intent with a potential purchaser, dated for reference December 4, 2025, and signed on December 30, 2025, at a purchase price significantly higher than the amount owed to the Bank, as well as a listing agreement with Mr. Peulen's agency dated December 19, 2025, as a backup. The court held that the appointment of a receiver should not be used as an end-run around appropriate proceedings between a commercial landlord and a commercial tenant where breaches are hotly contested and there is no financial default by the tenant. A sealing order was granted over portions of Mr. McLaren's affidavit containing confidential information about the letter of intent, on condition that a redacted version be filed. The exact amount of costs awarded to VFC was not specified in the judgment.