Urbancorp: The Promised Land (of Insolvency)?

The collapse of the Urbancorp group of companies has provided an opportunity for an unusual interplay of bankruptcy proceedings between Canada and Israel. The courts in both countries have had to address issues and demonstrate significant judicial cooperation between two countries with vastly different legal systems. This article provides a brief background around the companies and touches on three of the orders that are of interest to practitioners from an international perspective.

The Urbancorp group was a real estate development company in the Greater Toronto area. Alan Saskin was the directing mind of the group, which he founded in the early 1990s. As is typical in the real estate industry, each project had its own company. Eventually, in 2015, as the cash flows of the group became more challenging, Saskin incorporated a new company, Urbancorp Inc. (UCI), an Ontario corporation. UCI was to become the new parent company for many of the companies in the group. UCI would generate cash through a public bond-raising in Israel. The bond-raising appeared to be successful and generated approximately CAD$64 million in December 2015.

Less than four months later, the insurer for new home construction in Ontario, Tarion Warranty Corp., announced that it would no longer insure Urbancorp construction projects. Without Tarion, it is impossible to sell new housing in Ontario. The result was insolvency proceedings of the group — in fact, there ended up being five separate Canadian and one Israeli proceeding.

In Canada, one group of companies, known as the “Cumberland 1” group,[1] and a second set, known as the “TCC Bay” group,[2] each ended up filing under the Companies’ Creditors Arrangement Act (CCAA).[3] The bulk of the money that UCI raised had gone to companies in the Cumberland 1 group. KSV Kofman Inc. (KSV) was appointed as monitor in both of these proceedings.

Another group of subsidiaries, known as the “Cumberland 2” group, also ended up filing under the CCAA.[4] In this proceeding, The Fuller Landau Group Inc. was appointed as monitor. In addition, Saskin himself sought personal protection through the filing of a notice of intention to make a proposal[5] pursuant to the Bankruptcy and Insolvency Act (BIA).[6] Fuller Landau was also appointed as proposal trustee in this proceeding.

Meanwhile, in Israel, the District Court of Tel-Aviv/Jaffa (“Israeli Court”) had appointed Guy Gissin as the “functionary” over UCI.[7] Guy Gissin was also appointed the foreign representative of UCI for purposes of seeking recognition in Canada of the Israeli proceeding over UCI. The Israeli Court also gave Gissin the power to manage the assets of UCI and its subsidiaries. (As part of the bond-raising, UCI had agreed to be subject to the jurisdiction of the Israeli courts in the context of insolvency proceedings.) Money from the UCI bond-raising had ended up being advanced to companies in both Cumberland 1 and Cumberland 2. UCI was also supposed to receive an assignment of certain rights related to the TCC Bay group.

Gissin and KSV entered into a cooperation protocol to assist in resolving potentially competing rights. On May 18, 2016, the Ontario Superior Court of Justice (“Ontario Court”) granted an order[8] recognizing the Israeli UCI proceeding as a “foreign main proceeding” pursuant to Part IV of the CCAA (the Canadian equivalent to chapter 15 of the U.S. Bankruptcy Code). In its decision[9] granting the recognition, the Ontario Court acknowledged that UCI’s “centre of main interest” probably was not in Israel. Nevertheless, the Ontario Court decided that the protocol, which provided that KSV would manage the Canadian subsidiaries and allow Ontario to be the primary focus for the restructuring efforts, made the approval request a practical solution on this unique factual matrix. (A parallel protocol was entered into between Gissin and Fuller Landau.)

Another example of judicial cooperation arose in the context of addressing disputed claims against UCI. UCI had creditors in both Israel and Canada. Given that Israel was the foreign main proceeding, UCI, through Gissin, could have required all of UCI’s creditors to have their claims proven in Israel. Instead, the Israeli Court[10] sought the aid of the Ontario Court to deal with disputed claims of Canadian creditors (other than Saskin, who had expressly attorned to Israeli jurisdiction as part of the bond-raising process). The Israeli Court would deal with the disputed claims of Israeli creditors and Saskin himself. The Ontario Court agreed to accept the request to deal with the claims of Canadian creditors other than Saskin.

The Israeli Court authorized Gissin[11] to initiate claims against various parties, including Saskin personally. However, in deference to the stay of proceedings that existed in Saskin’s favor under Canadian law, the Israeli Court made Gissin’s authority to proceed against Saskin expressly conditional on the Ontario Court lifting the stay provided for in the BIA in favor of Saskin. The Ontario Court[12] agreed to lift the stay for the purpose of validation and quantification (with a stay on enforcement remaining if the Israeli Court granted judgment against Saskin).

While not all issues in the cases have run smoothly, the Urbancorp case has for the most part represented a practical approach to a potentially complex issue of competing cross-border rights. Instead of insolvency practitioners seeking maximum benefit from their “home” court, the case shows the ability, even with different legal systems and different languages, for courts to work cooperatively in an attempt to minimize jurisdictional fights. The case has many other examples where the courts have worked to cooperate and recognize that the “other” jurisdiction should be considered in making any rulings.

 

[1] Ont. Sup. Ct. CV-16-11389-00CL.

[2] Ont. Sup. Ct. CV-16-11549-00CL.

[3] R.S.C. 1985 c. c-36, as amended.

[4] Ont. Sup. Ct. CV-16-11541-00CL.

[5] Ont. Sup. Ct. File No. 31-2117602.

[6] R.S.C. 1985, c. B-3, as amended. Strictly speaking, certain of the Urbancorp companies also filed initially under the BIA, but all ended up being converted to CCAA proceedings eventually.

[7] Company Liquidation File 44348-04-16; Reznik Pav Nevos Ltd. v. Urbancorp Inc., Canadian Company 2471774, et al. (“Case 44348-04-16”).

[8] Ont. Sup. Ct. CV-16-11392-00CL.

[9] 2016 ONSC 3288.

[10] Decision Dated Feb. 26, 2017, Application No. 32 in Case 44348-04-16.

[11] Decision Dated May 31, 2017, Application No. 37 in Case 44348-04-16.

[12] 2018 ONSC 550.

 

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