Executive Summary: Key Legal and Evidentiary Issues

• Bear Creek Contracting Ltd. sought marshalling and subrogation to recover its $2.5 million unpaid debt from surplus funds held by the Receiver (MNP) of the Universal Group.

• PwC, as Trustee in Bankruptcy, opposed the application arguing that the Universal Group and Lakelse were separate debtors, and that unsecured creditors would be materially prejudiced.

• The Court determined that the Universal Group and Lakelse operated as a single, consolidated economic entity based on common ownership, management, and consolidated financial statements.

• Marshalling criteria under Wolfe et al v. Taylor et al, 2020 MBCA 44 were satisfied: two creditors (the Bank and Bear Creek) shared a single common debtor (the Universal Group), with the Bank as senior creditor having a claim against two of the debtor's funds while Bear Creek had recourse to only one.

• No bars to marshalling existed, as the Bank had already recovered all amounts owed and Bear Creek's claim as a secured creditor was superior to the unsecured creditors' claims.

• Subrogation was applied to substitute Bear Creek in place of the Universal Group, entitling it to the surplus funds estimated at $350,000–$400,000.

The background of the dispute

Bear Creek Contracting Ltd. ("Bear Creek") is led by its President and sole Director, Ian Munson, who resides in Terrace, British Columbia. In 2018, Universal Helicopters formed Lakelse Partnership to acquire 12 aircraft and two helicopter base properties from Lakelse Air, whose shares were owned by Bear Creek. Bear Creek concluded the Lakelse Acquisition with a Purchase Agreement on August 31, 2018, in which Universal Helicopters agreed to pay Bear Creek $14.25 million for the Lakelse Assets, Shares and Business. The Universal Group was a helicopter company based in Goose Bay, Newfoundland and Labrador, comprising a constellation of partnerships and corporate entities all sharing common directors, officers, and ownership, with Shane Cyr serving as President, CEO, and directing mind of every entity within the group. The financial statements of the Universal Group were prepared on a consolidated basis, and all banking decisions were made by the officers of the Universal Group.

Financing arrangements and the Intercreditor Agreement

The Lakelse Acquisition was financed in part by the Canadian Western Bank (the "Bank"), which provided financing totalling $11 million to the Universal Group in 2018. The Bank took security over all of Lakelse's present and after-acquired property, and all entities of the Universal Group fully guaranteed the financing and signed cross-default agreements. The remaining $2.5 million of the purchase price was financed through a promissory note that Lakelse LP issued to Bear Creek, supported by a General Security Agreement ("GSA") and an Aircraft Security Agreement ("ASA"), both dated September 8, 2018, granting Bear Creek security over all of the debtor's present and after-acquired property and over the aircraft described in Schedule "A." In September 2018, Bear Creek, the Bank, and Lakelse entered into an Intercreditor Agreement by which Bear Creek subordinated both its Promissory Note and its security in the assets to the Bank's loans. This Intercreditor Agreement provided that the first $10 million recovered under the Bank's General Security Agreements would go to the Bank and the next $2.5 million would go to Bear Creek. The Bank had also loaned the Universal Group $8.5 million in November 2017 to refinance existing debt and the Universal Group gave the Bank a first charge on its fleet of helicopters and other assets to secure that loan. In June 2019, the Bank, without informing Bear Creek, issued a further loan facility to Lakelse, for which the Universal Group confirmed that all of the security the Universal Group extended to the Bank for the initial loan would apply to the new facility.

Default, receivership, and bankruptcy

In May 2020, the Universal Group defaulted on both loans with the Bank. The Bank appointed MNP as receiver of the assets of Universal Helicopters and Lakelse. At that time, the outstanding debts were as follows: the Bank was owed $7,600,000 on the 2017 Loan, $10,450,000 on the 2018 Loan, and $1,700,000 on the 2019 Loan, while Bear Creek was owed $2,500,000 under the 2018 Promissory Note — totalling $22,250,000. MNP took possession of the Universal Group's assets and, with Court approval, sold the assets off by March 2021, realizing approximately $18.88 million from the sale of the aircraft alone. Lakelse Partnership made an assignment in bankruptcy in January 2022, declaring total debt of $7.3 million, of which it owed $2.5 million to Bear Creek and $1.3 million to the Bank. As a result of the Bank's loans totalling $19,750,000, Bear Creek could not recover any of the debt that Lakelse owed to it from the proceeds of the Lakelse receivership. However, after the amount owing by Universal Helicopters was paid to the Bank, a surplus remained from the sale of the Universal Helicopters' assets, held by MNP. An affidavit from Wayne Horachek, Associate Vice-President of Credit Risk Management at the Bank, estimated the remaining total net surplus of realization proceeds from the Universal Entities at between approximately $775,592.97 and $1,512,592.97, though by the time of the hearing the surplus funds were estimated at between $350,000 and $400,000.

Bear Creek's application for marshalling and subrogation

On January 19, 2022, Bear Creek applied to the Supreme Court of Newfoundland and Labrador by Originating Application seeking orders to pierce the Universal Group's corporate veil and to marshal the assets of the Universal Group to recover from those assets as a subrogate. In a related judgment filed on June 20, 2024 (Bear Creek Contracting Ltd v. Canadian Western Bank, 2024 NLSC 92), MacDonald, J. refused Bear Creek leave to sue the Bank to pierce the corporate veil but did lift the stay to allow Bear Creek to seek recovery from Universal of the Surplus Funds based on the principles of subrogation and marshalling. Bear Creek then filed an Interlocutory Application on December 3, 2024, specifically requesting an order pursuant to the principles of marshalling and subrogation to require PwC to pay the surplus proceeds to Bear Creek and costs. Justice Handrigan heard this application on January 16, 2026.

PwC's opposition and the Court's analysis

PwC, which was appointed Trustee in Bankruptcy of the Universal Group on June 15, 2021, opposed Bear Creek's application on three grounds: that Bear Creek did not seek marshalling when MNP sold the assets; that the Universal Group and Lakelse are separate and distinct entities and the creditors of one are not creditors of the other, so that Bear Creek is not a creditor of Universal Group; and that allowing Bear Creek marshalling would materially prejudice Lakelse's unsecured creditors. The Court addressed each argument in turn. On the timing issue, Justice Handrigan noted that PwC offered no evidence to support its submission and was not engaged in the process when MNP sold off the Universal Group's assets, and that the relief sought is equitable in nature, making it fairer to decide the question on the equities in play. On the separate-entity argument, the Court found that the Universal Group was a tightly cohesive unit, whose operations were so inextricably entwined that even the Bank, its biggest creditor, regarded it as one entity — as confirmed by Mr. Horachek's affidavit stating that the Bank treated the Universal Group as a single, consolidated economic entity. On the prejudice question, Counsel for PwC advised the Court that $2,595,886 is owed to the unsecured creditors of the Universal Group, while $2,500,000 is owed to Bear Creek. The Court acknowledged that the unsecured creditors would suffer material prejudice from the Universal Group's bankruptcy, but concluded that Bear Creek would suffer greater prejudice. Citing Bread Man Inc., Re, the Court noted the principle that unsecured creditors of debtors should not be protected, as in the absence of a statutory provision, they should have no better right to the fund than the debtor himself. Bear Creek, as a secured creditor holding both a GSA and an ASA — subordinate only to the Bank, which is no longer in play — held a superior claim to the surplus funds.

The ruling and outcome

Justice Handrigan ruled in favor of Bear Creek Contracting Ltd., finding that all criteria for marshalling were satisfied and that no bars to the doctrine applied. The Court ordered MNP, the Receiver of the Universal Group, to pay the surplus funds into the Court to be distributed to Bear Creek. Bear Creek was also awarded its costs of the Interlocutory Application to be taxed on Column 3 of the Scale of Costs. The Court noted that Bear Creek will recover only about 15 percent of what is owed to it, as the surplus funds estimated at between $350,000 and $400,000 represent a fraction of the full $2,500,000 outstanding under the Promissory Note. The exact final amount depends on the final accounting of the surplus funds held by MNP.