FireSong: a receiver, three years after the bankruptcy

Sixty miles west of Meadow Lake, Saskatchewan, on the shore of Fowler Lake, there is a resort development with five fully constructed luxury cabins on it. The parcels are worth $40,000 apiece on their titles. Since April 2023 the people who own them have been bankrupt, the estates have had no money in them, and — on the proposal trustee's account — nobody has been minding the property at all, per Report of the Proposal Trustee in Support of Receivership Application, December 3, 2024, paras. 16, 19.

The application that finally addressed this was not brought by a mortgagee. It was brought by the professionals.

What was left after the proposals failed

Lori Runzer and Dean Runzer, together with Canadian Development Strategies Inc., 1143402 Alberta Ltd., Crossroads One Inc., 1216699 Alberta Ltd., Oak and Ash Farm Ltd. and 2061778 Alberta Ltd. — the FireSong group — each filed a notice of intention to make a proposal on September 29, 2021. MNP Ltd. consented to act as proposal trustee. MLT Aikins LLP acted for the debtors; W Law LLP ultimately acted for the trustee, per Report of the Proposal Trustee, December 3, 2024, paras. 1–2.

Each debtor filed a proposal and creditors' meetings were held. Each proposal failed, and the failures produced deemed bankruptcies. The date of bankruptcy for 1143402 Alberta Ltd. and the Runzers was declared to be April 19, 2023. MNP became trustee in bankruptcy of the same debtors it had been proposal trustee for, per Report of the Proposal Trustee, December 3, 2024, paras. 3–5, 18.

The proceeding had run nearly two years by then and generated ten trustee reports. The trustee's account of why the professional fees behaved the way they did is unusually direct for a document filed in court, and it is set out as four reasons: the convoluted, complicated and intertwined nature of the debtors and related entities; the Runzers' systematic failure to keep proper and adequate books and records; their inability to produce rudimentary financial information to satisfy the inquiries of creditors and the trustee; and their inability to adequately manage in good faith and with due diligence their businesses or to comply with the statutory requirements of the NOI proceedings. The fees, the trustee writes, escalated "at an alarming rate", per Report of the Proposal Trustee, December 3, 2024, para. 8.

MLT Aikins, MNP and W Law hold a first-ranking administrative charge over the debtors' property — other than 2061778 Alberta Ltd. and Oak and Ash Farm Ltd. — ranking in priority to all secured and unsecured creditors, granted in an initial maximum amount of $100,000 by an order of Justice N.G. Gabrielson on December 13, 2021. Against that charge the three of them are owed $491,030.30, of which $243,627.51 is MLT Aikins', per Report of the Proposal Trustee, December 3, 2024, paras. 6, 10.

Why nobody moved

Three mortgagees hold security on the Fowler Lake parcels: Neal Bird, Joel Lipchitz and Maureen Jackson, all represented by the same counsel at Cuelenaere LLP. Bird's mortgage appears on title at $400,000, registered September 26, 2019. There is also a tax lien in favour of the Rural Municipality of Loon Lake No. 561, registered January 26, 2022, per Land Titles Registry search, December 3, 2024, Schedule 1 to the Report of the Proposal Trustee and Supplementary Report of the Proposal Trustee, para. 4(a).

In 2023 the mortgagees did start. Their counsel filed commencement documents in the Court of King's Bench producing three mortgage enforcement actions — KBG-BF-00079-2023 for Jackson, KBG-BF-00080-2023 for Lipchitz and KBG-BF-00082-2023 for Bird. The proposal trustee filed demands for notice in each on September 19, 2023.

Then nothing. No further steps were taken in any of them, per Supplementary Report of the Proposal Trustee, paras. 4(b)–(d).

The trustee in bankruptcy could not fill the gap on its own account, and the report explains why in terms every insolvency practitioner will recognise. There were no funds in any of the estates. No mortgagee had proposed to fund the trustee to secure the property or otherwise assist. And the holders of the administrative charge — MLT Aikins, MNP and W Law, the very parties owed the money — said they were not prepared to pay MNP's fees as trustee in bankruptcy to realise on their own security, for two reasons: the additional cost, which they would not fund out of pocket without further security, and the application of the Superintendent of Bankruptcy's 5% levy in reduction of any recovery, per Report of the Proposal Trustee, December 3, 2024, paras. 19, 21.