Executive Summary: Key Legal and Evidentiary Issues

• The anti-deprivation rule was applied, resulting in Article IV of the unanimous shareholders agreement being declared void because it removed value from Mayfield’s estate upon insolvency.

• Competing applications addressed whether the receiver should comply with the forced share sale provision or whether it was unenforceable due to the anti-deprivation rule.

• The timing and validity of shareholder notices under Article IV were examined, with the court finding that the shareholders missed the deadline to exercise their rights based on the alleged earlier triggering event.

• The interaction between the unanimous shareholders agreement and the Hypothecation Restriction Agreement was considered, but the forced buyback provision was still found void under the anti-deprivation rule.

• Mayfield’s application to stay the receivership order and pursue a CCAA application was dismissed for failing to meet the tripartite test, including lack of irreparable harm and balance of convenience.

• The receiver was authorized to proceed with the sales and investment solicitation process (SISP) for Mayfield’s assets, including its shares in 1995472 Alberta Ltd., despite shareholder objections.

Background and parties

Mayfield Investments Ltd. (“Mayfield”) is a company with direct or indirect interests in commercial real estate and businesses in Alberta, including the Camrose Resort and Casino, the Medicine Hat Lodge, and the Stage West Dinner Theatre. Mayfield employs more than 450 people. Mayfield and its personal guarantor, Howard Pechet, entered into credit facilities with ATB Financial (“ATB”), secured by various agreements. Mayfield defaulted on its obligations in March 2021 and, after a series of forbearance agreements and defaults, ATB demanded repayment of more than $38 million as of June 14, 2024. Despite negotiations and attempted refinancing, Mayfield failed to cure its defaults or secure the required commitment letter from Canadian Western Bank by October 15, 2024.

On September 6, 2024, Justice Lema granted a consent receivership order appointing Ernst & Young Inc. as receiver of Mayfield, with the receivership stayed until the earlier of October 31, 2024, or ATB filing a lender’s certificate. ATB filed the lender’s certificate on October 24, 2024, activating the receivership. The receiver took control of Mayfield’s assets and operations, including attending at the Medicine Hat Lodge, Camrose Resort and Casino, and Mayfield’s head office, and terminating the employment of Mayfield’s President, Jason Pechet, on October 24, 2024.

Receivership and stay application

Mayfield applied to stay the effects of the receivership order and the lender’s certificate until November 30, 2024, or until its Companies’ Creditors Arrangement Act (CCAA) application was decided. The court found that the receivership order was validly activated according to its terms and that Mayfield had consented to this mechanism. The court held that Mayfield was not estopped from seeking a stay but dismissed the application, finding that Mayfield failed to establish irreparable harm or that the balance of convenience favored a stay. The court noted that Mayfield had not established a concrete refinancing plan, had not delivered the required commitment letter, and that the receiver had already taken control of the business and assets. The court also found that Mayfield’s consent to the receivership order was binding and that there was no evidence of fraud or misrepresentation. The application was dismissed on October 30, 2024.

Shareholder agreement and the anti-deprivation rule

A key issue was Article IV of a unanimous shareholders agreement (“USA”) dated December 22, 2017, as amended September 18, 2018, governing shares of 1995472 Alberta Ltd. (“1995”), in which Mayfield held a 50% interest. Article IV provided that if a shareholder became insolvent or entered receivership, the other shareholders could purchase its shares at a 25% discount, payable over 36 months without interest. The receiver applied for a declaration that this provision was void under the anti-deprivation rule, which prohibits contractual terms that, upon insolvency, remove value from the insolvent’s estate to the detriment of creditors.

The court, applying the Supreme Court of Canada’s decision in Chandos Construction Ltd v Deloitte Restructuring Inc, found that Article IV was triggered by insolvency and had the effect of removing value from Mayfield’s estate. The court rejected arguments that the triggering event was not insolvency or that the provision could be enforced under other circumstances. The shareholders’ attempt to rely on an August 26, 2024, enforcement letter as the trigger for their rights failed, as the court found the deadline for providing a “Withdrawing Purchase Notice” had passed by October 15, 2024, and no such notice was provided until December 20, 2024. The court also found that the related Hypothecation Restriction Agreement did not alter the analysis, as the receiver was not disclaiming that agreement and, even if it worked in tandem with the USA, the forced buyback provision would still be void.

Sales process and shareholder objections

The receiver and ATB sought to include Mayfield’s shares in 1995 in a sales and investment solicitation process (“SISP”) approved on January 14, 2025. The shareholders objected, arguing that a sale to them—even without the discount—would generate greater value and that they had a right of first refusal under Article III of the USA. The court found that exposing the shares to the market was appropriate, given deficiencies in earlier sales efforts and the need to maximize value for creditors. The shareholders remained free to participate in the SISP or assert their right of first refusal if applicable.

Outcome

On January 31, 2025, the court declared Article IV of the USA void and unenforceable in the context of these receivership proceedings, granted the receiver’s application to market and sell Mayfield’s shares in 1995 in the SISP, and dismissed the shareholders’ application to compel a sale to themselves or to lift the stay. Mayfield’s earlier application to stay the receivership was also dismissed. If the parties could not agree on costs, they were permitted to submit briefs by February 14, 2025; otherwise, each party would bear their own costs.