Stantive: a valuation agreed, then a referral to CRA headquarters

When its chairman and chief executive, Douglas Girvin, swore an affidavit on November 14, 2018, Stantive Technologies Group Inc. of Kingston, Ontario, owed Salesforce approximately US$259,222.50 and, by his account, had until the end of that day to pay it. OrchestraCMS, the company's product, was built entirely on Salesforce's platform. Salesforce, the affidavit says, had warned it would start the process to decertify OrchestraCMS unless paid in full that day, with what Mr. Girvin called "potentially calamitous consequences for Stantive." Payroll was due the next day as well. Stantive filed a notice of intention to make a proposal that morning and asked the court to approve DIP financing whose primary purpose, Mr. Girvin swore, was to fund the payroll and pay Salesforce, per the Affidavit of Douglas Girvin, Nov. 14, 2018, paras. 1–3, 7, 21–24, 28.

Bridgeline Digital, Inc. bought the business in a sale that closed on March 13, 2019, per the Eleventh Report of the Monitor, Jan. 11, 2024, para. 11. The company that sold it, now 1576517 Ontario Inc., was still under the CCAA on July 28, 2026, when Justice Jana Steele extended its stay of proceedings from July 31, 2026 until and including January 31, 2027. "No one opposes the relief sought," the endorsement reads. "The stay extension is required due to the continued pursuit of an appeal of a CRA Assessment to CRA (Appeals Division). Additional time is needed for the appeal process to unfold," per the Endorsement of Steele J., July 28, 2026, paras. 2, 4 and the Order (Re: Stay Extension), July 28, 2026, para. 1.

Justice Steele had granted an earlier extension in January 2024 and wrote then: "There is an ongoing dispute with Canada Revenue Agency that is holding up the final distributions," per the Endorsement of Steele J., Jan. 30, 2024, para. 2. The monitor's fund tables, the latest running to July 13, 2026, show no distribution to unsecured creditors, whose resolved claims the monitor puts at approximately $8.2 million. On July 13, 2026 the monitor held $1,407,567.18; its reports say the remaining funds will satisfy the company's pre- and post-closing obligations and pay professional fees, and "the balance, to fund a distribution to unsecured creditors," per the Eleventh Report, Jan. 11, 2024, paras. 13–14, 18 and the Fifth Supplement to the Eleventh Report of the Monitor, July 16, 2026, para. 10.

The sale, and what the trustee expected from it

Mr. Girvin attributed the company's difficulties to "its debt structure" and swore that new funding under negotiation would not be available in time for the Salesforce deadline or the payroll, per the Affidavit of Douglas Girvin, Nov. 14, 2018, paras. 18–20. The court approved a sale process on December 20, 2018, with a stalking horse agreement from 2671682 Ontario Inc., an affiliate of the DIP lender. On the February 8, 2019 bid deadline the proposal trustee, Ernst & Young Inc., received a bid from Bridgeline, which it and Stantive identified as a Superior Offer; asked whether the stalking horse purchaser had any interest in improving its agreement, its counsel declined. Bridgeline's price was $6,680,858 in cash plus the assumption of certain liabilities, and it would offer employment to all of Stantive's existing employees on closing, per the Fourth Report of the Proposal Trustee, Feb. 21, 2019, paras. 17, 22, 29, 32.

Bridgeline also required the software held by three subsidiaries that were not in the NOI proceedings, one of them an Alberta corporation, so the company asked to continue under the CCAA, per the Fourth Report of the Proposal Trustee, Feb. 21, 2019, para. 47. Justice Penny's order of February 25, 2019 did so, bringing in the subsidiaries, per the Eleventh Report, Jan. 11, 2024, para. 2. The trustee's sale report anticipated "sufficient cash proceeds to provide a recovery to the lowest ranking secured creditor and provide some recovery to the unsecured creditors," per the Fourth Report of the Proposal Trustee, Feb. 21, 2019, para. 31. A week after closing, the monitor reported that "there will be funds available for distribution to unsecured creditors," and the company sought a stay to June 25, 2019 in part "to calculate a distribution to the remaining secured creditor and the unsecured creditors," per the First Report of the Monitor, Mar. 20, 2019, paras. 34–35.

An order of February 25, 2019 authorized the monitor to make certain distributions from the sale proceeds, per the Distribution Order, Feb. 25, 2019, paras. 5–11. To January 4, 2024, the monitor's table shows US$1,158,293.78 paid to Ranger Direct Lending Fund, PLC, and C$3,967,273.66 in Canadian-dollar distributions, among them C$994,383.10 to the DIP lender; C$1,108,728.73 and three payments of C$337,228.67 to the four individuals Mr. Girvin had described as "the principals behind the DIP Lender entities"; C$388,892.73 to OneKey; C$291,152.60 to CRA; C$112,493.97 to Forest Lane Holdings Limited; and C$55,717.40 to the landlord for cure costs, per the Eleventh Report, Jan. 11, 2024, paras. 12–13 and the Affidavit of Douglas Girvin, Nov. 14, 2018, para. 15.

By December 2019 the unsecured distribution was waiting on CRA. The agency had filed an unsecured claim of approximately $471K in addition to a deemed trust claim, said it could not finalize the claim until it had reviewed the company's records, and, the monitor reported, "has refused to agree on a reserve to allow an interim distribution prior to finalizing its review," per the Third Report of the Monitor, Dec. 10, 2019, paras. 23–25. In March 2020 the monitor reported a claim from a debt holder for $1,885,003, received recently though "the Claims Bar Date was over a year ago," and said it intended to allow it "because there has been no distribution to unsecured creditors," per the Fourth Report of the Monitor, Mar. 18, 2020, para. 19.

The capital dividends of 2017

The tax claim grew out of the company's earlier efforts to raise capital. As part of them, the monitor reports, it "undertook a number of complicated financing transactions," some involving the sale of internally generated software to entities in exchange for combinations of cash, shares and promissory notes; those entities became the wholly owned subsidiaries that joined the CCAA. The software was used as tools in the business and "did not relate to the OrchestraCMS platform"; management advised that only one tool remained in use, helping manage the company's customer licences globally, per the Eleventh Report, Jan. 11, 2024, paras. 20–21.

On March 5, 2020, CRA issued a preliminary assessment proposing Part III tax of $7,043,711 against the company. The tax arises, the monitor reports, from its election to issue $11,794,997 of capital dividends in 2017 "that CRA contends were in excess of what was available for issuance." In CRA's position as the monitor sets it out, no value arising from the software sales was transferred to the subsidiaries, which effectively eliminated the capital dividends the company could issue as a result of those sales. The monitor answered with a submission in July 2020, and on December 24, 2020, CRA said it would not alter its position, per the Eleventh Report, Jan. 11, 2024, paras. 23, 26–29.

On January 12, 2021, CRA contacted the monitor to say there was "an error in calculating the capital dividend account." "Apparently," the monitor wrote, "there are missing T2054 election forms for two of the three transactions," and capital dividends of approximately $9 million elected by the company would therefore be considered taxable dividends. CRA revised its pre-assessment to claim Part III tax only on $2,794,999 of elected capital dividends instead of $11,794,997, and assessed $1,558,819 instead of $7,043,711. Had the company filed late T2054 forms and had CRA accepted them, CRA indicated, Part III tax would be assessed as proposed, per the Eleventh Report, Jan. 11, 2024, para. 30.