Late-Breaking Offers: Court of Appeal Revisits Soundair Principles in Receiverships
For real estate investors looking to purchase commercial real estate through a receivership sale, a recent decision from Ontario’s highest court offers a critical warning. Entering into an Agreement of Purchase and Sale (APS) with the Receiver might not be the finish line. In Cameron Stephens Mortgage Capital Ltd. v. Conacher Kingston Holdings Inc., the Court of Appeal confirmed that even an executed APS can be set aside if a substantially higher offer emerges at the last minute.
For those targeting distressed assets, the ruling clarifies when a court will refuse to approve a signed deal in favour of a better price. Here are the key principles you need to know.
Late-Breaking Offers and the “Substantially Higher” Threshold
In a typical real estate transaction, a signed agreement binds the parties. A receivership sale is more complicated because it requires court approval. When reviewing a Receiver’s sale recommendation, the Court’s primary concern is the fairness and integrity of the sale process. Courts consider four principles established in Royal Bank of Canada v. Soundair Corp.:
- Whether the Receiver made sufficient efforts to obtain the best price and has not acted improvidently.
- Consideration of the interests of all parties.
- Consideration of the efficacy and integrity of the process by which the offers were obtained.
- Whether there was unfairness in the process.
These principles frame the central tension between process integrity and maximizing recovery for creditors. Courts generally place significant weight on process and are reluctant to re-open a sale to consider a late offer that is only marginally better than the accepted offer. Late-breaking offers can disrupt the process, undermine predictability, and reduce value for creditors.
Historically, courts have re-opened a sales process only where the Receiver failed to make sufficient efforts to obtain the best price or acted in a manner that compromised the integrity of the sale.
The Exception: When Price Outweighs Process
Cameron Stephens confirms that the Court may reconsider a signed deal if a late-breaking offer is substantially higher. In this case, the late offer was 37 per cent higher than the signed deal. The Court of Appeal held that it would be improvident for the Receiver to ignore such a large premium and ordered a short, focused auction process to allow both the original bidder and the new bidder an opportunity to submit their final and best offers.
The key takeaway is that, while a late offer that is only marginally higher is unlikely to disturb a signed deal, an offer that creates a significant gap in value may be able to supplant even an executed APS, as it prioritizes the financial interests of creditors.
The Bottom Line
While the decision in Cameron Stephens should serve as a warning to real estate investors that the Court will not automatically approve a Receiver’s recommended sale, it does not represent a major shift in how receivership sales are reviewed. The Court of Appeal emphasized that the facts of this case were "unique, likely singular, and unlikely to be replicated in the future". The Court also deferred to the Receiver’s business judgement, noting that the Receiver itself presented the potential of a re-auction as a commercially reasonable alternative solution to an immediate sale approval to shore up creditor recovery. The Soundair principles remain the governing framework for receivership sales, and this decision reinforces their continued application.
HOW WE CAN HELP
RAR Litigation represents stakeholders in complex insolvency proceedings, receiverships, and commercial disputes. If you are a purchaser looking to protect your bid or a creditor seeking to maximize recovery, our lawyers can help you understand your rights and risks.
Contact us to discuss how RAR Litigation can support you and your business.