XTM: Pateno withdraws from the merchant recovery program before closing

On October 17, 2026, counsel for Pateno Payments Inc., XTM's DIP lender and the approved purchaser of its assets, told the applicants and the monitor that Pateno "had elected to withdraw from the Merchant Recovery Program and directed that no further work be undertaken in connection with it." That is the sworn account of Naveed Z. Manzoor, a managing director of FAAN Advisors Group Inc. who has led its mandate as the applicants' chief restructuring officer since April, in the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, paras. 1, 27. The program, as Manzoor describes it, was a framework "to facilitate recoveries for Merchants with valid shortfall claims against XTM and/or its directors and officers that would be funded by Pateno/DC Bank," set out in a non-binding term sheet from Pateno and Digital Commerce Bank, per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, para. 25. The monitor attached the term sheet to its Sixth Report of August 28, and it was reported here on September 2.

The program was meant for merchants with shortfall claims on XTM Inc.'s EveryDay Platform, which merchants used to send funds, typically tips, to workers in real time; as of November 30, 2025, according to the monitor's factum in the Court of Appeal, approximately 3,600 merchants, primarily in hospitality, personal care, retail and services, were using it to pay approximately 120,000 workers. Over time, the factum says, the applicants accumulated a deficit in the merchants' funds, and by September 30, 2025 it totalled approximately $18.75 million, per the Factum of the Monitor (Motion for Leave to Appeal), Oct. 13, 2026, paras. 7–10.

The sale the program accompanied, approved by Justice W.D. Black on September 1, is now expected to close on or about October 22, and "Upon the closing of the Sale Transaction, the Applicants will no longer have any active business," Manzoor deposes in the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, paras. 20, 22, 24.

What the program would have done

The term sheet was non-binding until definitive documents were signed and the court approved them, and approval was to include "comprehensive releases and injunctions in favour of the Program Sponsor and professionals engaged in the administration of the Merchant Recovery Program." Approval was not sought in August; the Sixth Report said the parties would give merchants time to consider the program and expected to return to court for approval on a future date, per the Sixth Report of the Monitor, Aug. 28, 2026, paras. 38–39, 42.

As the Sixth Report described it, the monitor would have validated each merchant's shortfall claim through a reverse claims process, adjusted for amounts the merchant had already received, including amounts charged back. Merchants with claims under $5,000 would have been paid in full in cash out of a $1.5 million upfront fund, their claims estimated at approximately $470,000, and the balance of the fund would have been shared pari passu among the other merchants who opted in. Opting in meant an irrevocable election, a new merchant services agreement with Pateno, and an assignment to the sponsors of the merchant's claims against third parties, per the Sixth Report of the Monitor, Aug. 28, 2026, paras. 41, 43–45, 47, 50. A participant still in good standing under the new agreement would then have received 50% of what remained of its claim, in instalments at 24, 36, 48 and 60 months, and the monitor estimated that, with every merchant taking part, those merchants would recover approximately 54% of their claims. The report described the program as sponsored by Pateno and DC Bank to facilitate recoveries and to support "the continuation of Merchant relationships with the Program Sponsor," per the Sixth Report of the Monitor, Aug. 28, 2026, paras. 40, 48–49.

Pateno's reasons, as Manzoor was told them

Manzoor gives Pateno's reasons second-hand: "I am advised by representatives of Pateno, and do verily believe, that Pateno's decision was informed by a number of factors, including the delay resulting from the operational demands associated with preparing to assume control of the business following closing of the Sale Transaction, the timing required to obtain Court approval of the Merchant Recovery Program given the potential for opposition, and the costs and complexity associated with administering a claims process to determine the merchant shortfall claims and implementing the Merchant Recovery Program." The same paragraph adds that the uncertainty arising from "concerns that had been expressed by certain stakeholders regarding the proposed structure" of the program, and the delays anticipated from them, "has increased the costs associated with and impacted the feasibility of the Merchant Recovery Program," per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, para. 28. The affidavit does not identify the stakeholders or describe their concerns.

Rather than pursue the program "through a Court-approved process," Pateno's representatives told Manzoor, "they are considering how Pateno can advance incentives directly to the Merchants upon re-entry into the Everyday Program." Pateno and DC Bank, the affidavit continues, "have advised that they intend to commit the same amount of funds as were anticipated to have been spent on the Merchant Recovery Program," and that this "may also result in improved recoveries as certain professional fees that would be allocated to the Court approval of the Merchant Recovery Program will be able to be distributed to Merchants," per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, para. 29. The representatives also told Manzoor that Pateno intends to engage directly with merchants after closing "in an effort to re-establish commercial relationships and rebuild confidence in the business," and the affidavit adds that Pateno concluded this "is the most practical and commercially reasonable path forward for positioning the business for future growth," per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, para. 30. The affidavit states no dollar figure, formula or timetable for the incentives.

The monitor's own account of the withdrawal is not in the record. The motion materials describe its Seventh Report as "to be filed," and Manzoor swears that the monitor worked with the parties on the program "up until Pateno determined it would not proceed with it," per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, paras. 35, 38.

Nothing left to run after closing

Under the purchase agreement and the Bank of Canada's requirements, XTM and Pateno each had to give the Bank notice of a significant change for a payment service provider at least five business days before closing, and Manzoor swears both have done so, per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, para. 23. The asset purchase agreement had set an outside date of September 30, 2026, per the Sixth Report of the Monitor, Aug. 28, 2026, para. 30. An amending agreement between XTM and Pateno replaces it with "October 30, 2026 or such later date and time as the Parties may agree to in writing," per the Amending Agreement, Ex. "C" to the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, s. 2.

The stay expires on October 23. The applicants' motion, returnable that day at 9:00 a.m. before Justice Black by video conference, seeks an extension to November 30 and approval of the Sixth Report, its September 1 supplement and the monitor's activities described in them, per the Notice of Motion, Oct. 19, 2026, para. 1. The extension, Manzoor deposes, "will allow the Applicants to attend to post-closing matters and the winding up of the Applicants and these CCAA Proceedings," and "The Applicants intend to return to Court before the expiry of the extended Stay Period for an order authorizing the bankruptcy of XTM and termination of these CCAA Proceedings," at the earliest available date in November. Manzoor also understands that a cash-flow forecast to be appended to the Seventh Report will show the applicants have enough liquidity to fund their obligations and the costs of the proceedings "throughout the proposed extended Stay Period," and that the monitor supports the extension, per the Affidavit of Naveed Z. Manzoor, Oct. 19, 2026, paras. 31, 33–36.