Court approves RVO for Atlas Global Brands against CRA’s objections

October 10, 2024 | Sarah Clark

Following the granting of creditor protection earlier this year, a court approved a reverse vesting order (RVO) on October 7 for Atlas Global Brands, a company behind a handful of cannabis brands in Canada.

The move comes over the “emphatic” objections of the Canada Revenue Agency (CRA), which it argued were “extraordinary.” The CCAA in June was issued by the Ontario Securities Commission, and steps were taken by CRA following Atlas’s failure to remit source deductions, among other issues.

A list of Atlas Subsidiary AgMedica’s creditors as of June 20, 2024, shows an amount owing of $24.2 million, including nearly $5.4 million owed to the CRA for source deductions and excise tax. AgMedica owns Canadian cannabis brands like D*gg Lbs, GreenSeal, and Electric Lettuce.

While the Court heard the Crown’s objections (representing the CRA) to the RVO, it sided with AgMedica, who argued that the CRA’s claims did not take precedence over the claims of its lender and first mortgagee (the AgriRoots mortgage of $16.5 million and the Shalcor DIP Facility).

In its response to these arguments, the Crown used “colorful and emphatic terms” to argue that such a move would “send a signal to the market” and render the court “beholden to the tyranny of the market.”

The court ultimately disagreed, arguing that they see this not as “succumbing to the tyranny of the market, but rather adhering to and enforcing the legislation as written.” Instead, the court said that any claims against the directors and officers in respect of unpaid taxes can be channelled to insurance, leaving the CRA in “no worse position than it would be in a bankruptcy scenario.”

The reverse vesting order decision, said the court, will allow AgMedica Purchased Entities to carry on its business activities as a going concern, to the benefit of employees, vendors, suppliers, and its customers. The court also extended the current stay to the end of October 2024.

AgMedica owns a production and distribution facility in Chatham-Kent, Ontario and primarily operates on the international market.

The AgMedica Transaction for which the ARVO was sought is based on a bid from Shalcor (the DIP Lender) on behalf of the LP Purchaser, and 2596690 Ontario Inc. (AgriRoots, the first mortgagee) on behalf of the Facility Purchaser (together the “AgMedica Purchasers”) to acquire AgMedica, Greenseal Nursery, Ltd. (“Nursery”), a licensed cannabis nursery in Stratford that owns and manages over 1000 cannabis plants’ genetics, and 5047346 Ontario Inc. (“504”), which owns the Chatham Facility (together the “AgMedica Purchased Entities”).

The RVO allows a purchaser to vest out the target’s liabilities and unwanted assets and to acquire shares of a new entity created for the transaction.

h/t to Insolvency Insider