Freshstone: the CEO's credit bid and the RVO evidence the judge asked for

Freshstone Brands Inc. is, in its own affidavit's word, the umbrella over a group of prepared-food businesses assembled through business combinations: Tiffany Gate, which makes fresh salads, cooked grains, sous vide vegetables, entrées and dips for grocers and foodservice customers in Canada and the United States; Johnston's, which has made coleslaw, potato, pasta and bean salads, mainly in the Maritimes, for more than 75 years; Keybrand; Dip-A-Chip; and Kingsway, which makes dips, dressings and functional vitamins for the dairy industry. Its customers include Costco Canada, Tim Hortons, Loblaws, Subway, Kroger and Sysco, and in May it had 338 non-union employees, 235 of them at its office and plant at 195 Steinway Boulevard in Etobicoke, per the Affidavit of Frank Burdzy, June 8, 2026, paras. 16–18, 22, 33.

On June 18, 2026, at the comeback hearing in its CCAA proceeding, Justice W.D. Black of the Ontario Superior Court of Justice (Commercial List) approved a sale process built around a stalking-horse subscription agreement with its chief executive, Frank Burdzy, who is also the company's only pre-filing secured creditor. He then told counsel "it is not immediately evident to me that the circumstances in this case are in keeping with circumstances that would typically lend themselves to an RVO," said he was not prejudging the point, and warned that "proper and sufficient evidence will have to be provided in that regard," per the Endorsement of Justice W.D. Black, June 18, 2026, para. 14.

No one outbid Mr. Burdzy; the August 14 deadline for letters of intent passed without one. On September 11 Freshstone filed its evidence, a motion for an approval and reverse vesting order returnable October 2 that gives four reasons the corporation itself should survive, and that would move every liability the buyer is not keeping into a new company the monitor could put into bankruptcy, per the Notice of Motion, Sept. 11, 2026, paras. 1, 8–9, 14.

A bank paid out, and a chief executive lending

Freshstone attributes its difficulty to inflation in raw materials, labour and logistics, arriving with weaker and more price-sensitive consumer demand. It reported net comprehensive losses of $11,816,198 for 2024 in audited statements and $33,320,048 for 2025 in unaudited ones, per the Affidavit of Frank Burdzy, June 8, 2026, paras. 8, 40–41. At the end of 2024, $37,136,513 was outstanding on a CIBC term loan that had financed acquisitions, per the audited financial statements, Burdzy Affidavit Ex. "C", note 9, p. 98.

With Origin Merchant Partners, Freshstone marketed its Kitchen Partners division to 173 parties and received seven non-binding letters of intent. That sale closed on May 8, 2026 and repaid CIBC in full, apart from obligations under two letters of credit backed by $510,978.02 in cash collateral. The affidavit does not name the buyer, for whom Freshstone still collects receivables and provides transitional services, per the Affidavit of Frank Burdzy, June 8, 2026, paras. 36, 54–58, 75–78.

Freshstone sought more financing from "various parties, including existing stakeholders (other than myself)" without success, Mr. Burdzy swore, so he lent it $1.15 million at 20% a year on July 10, 2025; $2 million on October 28, 2025, with a $2 million "new money fee" fully earned on January 1, 2026; and $2 million at 25% on May 8, 2026, the day Kitchen Partners closed. On June 4, four days before the application, he agreed to advance $2,750,000 more at 5%. Secured by a general security agreement, the four notes totalled $10,149,133.47 at June 5, per the Affidavit of Frank Burdzy, June 8, 2026, paras. 59–70. An independent opinion prepared by the proposed monitor's counsel concluded, with customary qualifications, that the security is valid and perfected, and the pre-filing report describes Mr. Burdzy as "an investor in the Applicant, its Chief Executive Officer and a member of its board of directors" as well as its largest creditor, per the Pre-Filing Report of the Monitor, June 8, 2026, paras. 17–18, 48 and n. 2.

Suppliers and other unsecured creditors were owed approximately $29,690,290 at May 26, per the Affidavit of Frank Burdzy, June 8, 2026, para. 73. Justice Black granted the initial order on June 9, appointing Deloitte Restructuring Inc. as monitor and approving interim financing from Garrington Financial Services Inc., with Mr. Burdzy, as the only secured creditor, supporting the charges, per the Endorsement of Justice W.D. Black, June 9, 2026, para. 20(f)–(i). On June 18 the judge extended the stay to October 16, 2026 and raised the administration charge to $650,000, the directors' charge to $2,000,000 and the DIP limit to $7,000,000, per the Endorsement of Justice W.D. Black, June 18, 2026, paras. 2, 5–9.

A stalking horse without a break fee

Freshstone's board approved the June 12 subscription agreement unanimously "at a meeting at which Mr. Burdzy recused himself," after negotiations conducted in consultation with Deloitte, per the Notice of Motion, June 13, 2026, para. 31. The company's factum acknowledged that Mr. Burdzy "is not a party dealing at arm's length with the Applicant" and noted that the agreement carried no break fee, per the Factum of the Applicant, June 16, 2026, paras. 53–54. The agreement's only bid protection is a $50,000 cap on expense reimbursement, payable only if another bid wins, and a rival bid had to beat the subscription price by at least $250,000, per the Affidavit of Leigh Wilson, June 13, 2026, para. 8. Justice Black found the absence of a break fee appropriate "in order to counterbalance any concerns about potential prejudice to the Applicant's creditors," per the Endorsement of Justice W.D. Black, June 18, 2026, para. 13.

Freshstone, assisted by GlassRatner Advisory Canada Inc. as sale advisor and supervised by the monitor, sent a teaser to 139 prospective bidders, and 27 signed confidentiality agreements and entered the data room. No letter of intent arrived, before or after the August 14 deadline, and the stalking horse became the successful bid, per the Second Report of the Monitor, Aug. 19, 2026, paras. 31–32.

Meanwhile, an event of default under the DIP agreement, for two weeks outside the permitted variance, was waived on July 16. Receipts from filing to August 15 came in at $12,303,000 against a forecast of $16,566,000, a variance the monitor attributes to "supply related issues affecting production together with a customer set-off claim." Freshstone has surrendered five of its seven leased premises and now operates only from the Steinway plant and a Mississauga facility, and it had $173,000 in cash at August 15, per the Second Report of the Monitor, Aug. 19, 2026, paras. 17–18, 21–25.

Four reasons to keep the corporation

The monitor's First Report had given the investor's reasons for the structure in one sentence: to preserve "significant tax attributes in the Applicant" and to avoid delays in assigning contracts and in transferring or obtaining permits and licences, per the First Report of the Monitor, June 13, 2026, para. 36. Those were the references Justice Black said he had noticed. The September 11 affidavit of Leigh Wilson, Freshstone's chief development officer, expands them into four arguments, one built on a letter dated July 17.

Licensing comes first in the affidavit. The Steinway plant holds a CFIA licence, an SQF certificate of conformity and an FDA registration, and the Mississauga facility its own CFIA licence and SQF certificate; Freshstone understands none can be transferred, and expects that a buyer's new applications would take at least eight weeks, "and perhaps several more weeks with the FDA," judging by its experience in the Kitchen Partners sale, per the Affidavit of Leigh Wilson, Sept. 11, 2026, paras. 25–30.

The July 17 letter came from the Fruit and Vegetable Dispute Resolution Corporation, which companies trading fresh produce interprovincially or internationally must join, unless exempted, under the Safe Food for Canadians Regulations. A bankruptcy, it says, would end Freshstone's membership automatically, and the DRC would publish the names of the company's "responsibly connected persons," Mr. Burdzy among them; the affidavit says an ordinary asset sale followed by Freshstone's bankruptcy could impair "the Investor's ability to operate through any other entity." The letter adds that, depending on the outcome of the filing, Freshstone "will be required to post financial security in order to maintain its membership once the stay is lifted," per the Affidavit of Leigh Wilson, Sept. 11, 2026, paras. 34–39 and Ex. "L".

On tax, the investor has told Freshstone that his willingness to close depends in part on maximizing approximately $36.6 million in non-capital loss carryforwards from the 2024 return and more than $50 million estimated for 2025 and 2026, which, he has advised on the strength of discussions with his advisers, "cannot legally be assigned to a third party," per the Affidavit of Leigh Wilson, Sept. 11, 2026, paras. 41–43.

The last reason is contracts: approximately 20 to 25 active customer contracts and more than 100 supplier code-of-conduct agreements stay in place without assignment. The retained schedule keeps every active customer contract "save and except for any Contracts with the Campbell's Company," per the Affidavit of Leigh Wilson, Sept. 11, 2026, paras. 45–48 and Ex. "E", Sched. 1.1.61.

Ms. Wilson says the monitor told the investor during negotiations that the structure had to leave no stakeholder worse off than a traditional vesting order would. The investor will pay cure costs on retained contracts, with known cure costs of $338,204.22, and a companion order would declare the residual company a former employer under the Wage Earner Protection Program Act, so that the 125 employees terminated in the six months before filing and since can claim as they could after an ordinary sale, per the Affidavit of Leigh Wilson, Sept. 11, 2026, paras. 50–52, 69–77, and draft ARVO, Sched. "C".

What the shares cost, and what goes to ResidualCo 2

The subscription price is a sum of estimates as of September 11: the credit bid notes, approximately $7,733,270; priority payables under the court-ordered charges, approximately $1,530,250; an administrative reserve of about $250,000; and retained liabilities, including approximately $4,561,130 relating to retained employees and plans, $1,565,149 in post-filing liabilities, $1,090,960 in unremitted source deductions, vacation pay and other employee priority claims, and Mr. Burdzy's fourth promissory note at approximately $2,806,705. All existing equity is cancelled "without consideration," per the Affidavit of Leigh Wilson, Sept. 11, 2026, para. 16. Homestyle Selections LP holds the common shares, and Quattro Amigos Management Inc. and Treliving Private Holdings Ltd. the exchangeable shares, per the Affidavit of Frank Burdzy, June 8, 2026, para. 15.

A fourth amendment signed September 11 left the price unchanged, replaced the schedule of excluded assets with one that reads, in full, "Nil," and designated a list of equipment as retained, running from kettles, blanchers and X-ray units to 30 banker's boxes of files. Any amount the CRA may claim under s. 296(1)(b) of the Excise Tax Act out of its audit of input tax credits for June 1 to 9 is an excluded liability, per the Affidavit of Leigh Wilson, Sept. 11, 2026, para. 16 n. 4 and Ex. "E".

ResidualCo 2 takes everything else: every liability not retained, every contract not on the retained schedule, including the Kitchener, Delisle, Charlottetown and Albion Road leases and the temporary-staffing contract with 786 Employment Inc., and any employees the investor designates up to five business days before closing, per the Affidavit of Leigh Wilson, Sept. 11, 2026, Ex. "E", Sched. 1.1.31. That staffing firm's $2,289,793 is the largest claim on the June creditor list, per the List of Creditors, June 9, 2026, p. 1. Under the draft order, claims against ResidualCo 2 keep "the same rights, priority and entitlement" they had against Freshstone, claims attach to the cash portion of the price with their former priority, and the monitor is empowered to assign the residual companies into bankruptcy, per the draft Approval and Reverse Vesting Order, Sept. 11, 2026, paras. 9, 16, 22. Freshstone says the deal pays its secured debt and priority payables and assumes or pays "certain unsecured claims which would not receive any recovery in a bankruptcy scenario," per the Affidavit of Leigh Wilson, Sept. 11, 2026, para. 20(d).

Director, lender, bidder

Section 36(4) of the CCAA lets a court approve a sale to a related person, a class that s. 36(5) says includes a director or officer, only if satisfied that good-faith efforts were made to sell to unrelated persons and that the consideration beats any other offer made in the process, as reproduced in the Factum of the Applicant, June 16, 2026, Sched. "B". Ms. Wilson's affidavit follows both limbs, saying 139 prospective bidders were solicited and that the consideration is superior to any other offer "since no such other offer was made." Without Mr. Burdzy "either as a director and officer of Freshstone, secured creditor or as a bidder," she says, the business would have been compromised, "with the only alternative outcome being a bankruptcy liquidation," per the Affidavit of Leigh Wilson, Sept. 11, 2026, paras. 21, 64.

The draft order separates those roles in its release of Freshstone's directors and officers, which covers "Mr. Burdzy, acting qua director and officer of the Company, but excludes him acting qua secured creditor and qua Investor," and carves out fraud, wilful misconduct and claims s. 5.1(2) of the CCAA does not allow to be released, per the draft Approval and Reverse Vesting Order, Sept. 11, 2026, para. 20. Freshstone says it knows of no claim against its directors and officers, and that without a release they would require a claims process taking several weeks, per the Affidavit of Leigh Wilson, Sept. 11, 2026, para. 65.

The monitor's view of the transaction is not yet in the record. Its Second Report said it would report separately on the approval motion, and the September 11 motion lists a Third Report "to be filed," which Ms. Wilson understands will recommend approval, per the Second Report of the Monitor, Aug. 19, 2026, para. 33 and the Notice of Motion, Sept. 11, 2026, p. 19, and Affidavit of Leigh Wilson, para. 78. The motion is returnable by video conference at 10:00 a.m. on October 2, 2026, and asks to extend the stay from October 16 to November 30, 2026; the agreement's outside date is November 27, per the Notice of Motion, Sept. 11, 2026, paras. 1(f), 26–27.