Paystone: the bidder who has to help the other bidders

A company that comes to court with the deal already done is asking for approval, not for a process. Paystone asked for approval in June and was refused. What it got on July 10 is the process.

What a prepack is, and where this one failed

Justice Myers set out the mechanism before he ruled on it. A pre-packaged sale — a "prepack", or in receivership a "quick flip" — is where an insolvent debtor arrives with a restructuring outcome already in hand, having consulted affected stakeholders and agreed a way forward, and needs only formal approval. It can be granted quickly because the affected parties have already done the work, per Endorsement of Justice Myers, June 24, 2026, paras. 2–3.

The law is not lighter for being fast. "The law applicable to quick flips is not different than the regular applicable law. The timing is hurried. But the substance of the event — an asset sale in insolvency proceedings — is the same as usual," per Endorsement of Justice Myers, June 24, 2026, para. 4.

Here the proposed buyer was the debtor's own management, and that is where the reasoning turns. Non-arm's-length sales carry special provisions under the CCAA and attract special scrutiny against the risk of abuse. Then the sentence that decides it:

"In a balance sheet insolvency, by definition, the equity of the insolvent debtor has no value. With liabilities exceeding the realizable value of the debtor's assets, there is no room left to share value with shareholders."

So a non-arm's-length quick flip has those in charge of the debtor proposing a transaction under which they receive some value when their equity has none — and proposing it in a form that leaves little process or time in which to test whether creditors' positions were given due heed, per Endorsement of Justice Myers, June 24, 2026, paras. 5–8.

The debtor had not met the burden on it for approval of the sale, and the stay was extended to 11:59 p.m. EDT on June 30 instead, per Endorsement of Justice Myers, June 24, 2026, paras. 9–10.

July 10, and a courtroom that had already settled

Three weeks later the same parties were back with orders they had negotiated among themselves. The Monitor's counsel went out of his way to compliment the principal actors on the cooperation, and Justice Myers noted drily that "counsel could not resist reserving their clients' respective rights. So the potential downside is covered too," per Endorsement of Justice Myers, July 10, 2026, para. 1.

The sale process now before him was proposed by the Monitor, not by the debtor, and it was not opposed. BDC Capital and Sandton take consultation roles to keep the process transparent and value-maximising, per Endorsement of Justice Myers, July 10, 2026, paras. 2, 5.

He applied the criteria from Nortel Networks Corp. (Re), 2009 CanLII 39492 (ON SC) at paras. 48–49, and found them present — adding a reason specific to this file: a sale process matters "especially due to the stutter step caused by the prior unsuccessful effort by the debtor to approve a quick flip to its management," per Endorsement of Justice Myers, July 10, 2026, para. 7.

The conflict the order manages rather than removes

Management was not barred from bidding. It was made a supplier of information to the people bidding against it.

Justice Myers identified the difficulty directly: management may be in a conflict of interest in that the Monitor may be calling on them for information sought by other bidders. The initial order already obliges the debtor to give documents to the Monitor. Should the Monitor become concerned about the pace or flow of information "for any reason whatsoever", it may convene a case conference on short notice — and he served notice on every stakeholder that he expects to resolve such concerns summarily under Rule 50.13(6) of the Rules of Civil Procedure, per Endorsement of Justice Myers, July 10, 2026, para. 8.

Then the incentive, stated so that nobody could miss it: "it is in management's interest to be fully cooperative so that the fairness and integrity of the sale process is not criticized in the event that management's bid is brought forward for approval," per Endorsement of Justice Myers, July 10, 2026, para. 9.

That is the whole design. A management bid refused in June is welcome in August provided it survives a process management itself must help run fairly — and the cost of obstructing that process falls on the obstructer's own bid.

The Monitor received the additional powers it sought to run the process, with a reminder attached. Justice Myers cited Justice Farley in Confederation Treasury Services Ltd., Re, 1995 CanLII 7386 (ON SC) at para. 14: "The trustee is an impartial officer of the Court; woe be to it if it does not act impartially towards the creditors of the estate," per Endorsement of Justice Myers, July 10, 2026, para. 6.

One reservation, recorded rather than resolved

Justice Myers did not approve the process without saying what he did not like about it. He has concerns about Sandton — the DIP lender — having a right to credit bid after the process rather than as part of it. What reduced the risk was the elimination of Sandton's initial veto right over the Monitor accepting a proposed purchaser, per Endorsement of Justice Myers, July 10, 2026, para. 5.

A credit bid that arrives after bidding closes is a different instrument from one that competes inside it. The reservation is on the record, unresolved, and available to anyone who needs it later.

A charge with no duty to supply

The debtor also sought a $5 million charge in favour of The Bank of Nova Scotia, which processes its credit card sales. The Monitor's report puts the exposure being protected in scale: billing services could run up to $5 million per month, and BNS's exposure could be as high as approximately $15 million, per Fourth Report of the Monitor, July 6, 2026.

Justice Myers granted it and flagged what is unusual about it. Normally a charge of this kind comes with a matching obligation on the recipient to supply — that is the point of a critical supplier order, which exists to secure supply from someone not otherwise obliged to give it, often alongside payment of some pre-filing claims. "Here Scotiabank is not being required to supply. I am not finding that it has the right to refuse or to discontinue supply. That would be for another day if necessary." The debtor, the Monitor and Sandton were content that BNS would keep supplying in return for its priority, per Endorsement of Justice Myers, July 10, 2026, paras. 3–4.

The concession that made it work came from the DIP lender. To keep a critical supplier in place, Sandton was willing to step back from its priority even for its new DIP loan — which drew the driest line in the endorsement: "It seems that it is willing to take helpful steps to support the successful resolution of this proceeding (and its bark may be worse than its bite perhaps)," per Endorsement of Justice Myers, July 10, 2026, para. 4.

The calendar

The process is short. Bids are due August 4, 2026 at 5 p.m., an auction if one is needed falls on August 6, a successful bid and a back-up bid are selected by August 7 at 5 p.m., and the outside date for the successful bid is August 31, 2026 — the same day the stay now expires, extended from July 10, per Fourth Report of the Monitor, July 6, 2026 and SISP Approval Order, July 10, 2026.

Twenty-five days from approval to the bid deadline, on a business the court was asked in June to sell without any process at all. The orders were found fair and reasonable and signed as asked, per Endorsement of Justice Myers, July 10, 2026, paras. 10–11.