A judge has approved a motion to extend the stay of proceedings between Final Bell and BZAM, and has been again postponed, this time to January 13, 2025. The court ruled that Final Bell’s equity claim falls behind the claims of all other creditors.
The court also approved a motion to authorize the bankruptcy filing of cannabis cultivator 9430-6347 Québec Inc. to file an assignment in bankruptcy. The company’s federal cannabis licence was listed as revoked on request earlier this year.
The monitor in the case involving the dispute between BZAM and Final Bell Holdings, Cortland Credit Lending Corporation, had asked the court for a declaration that the claims of Final Bell against BZAM are subordinate to Cortland’s claims against BZAM.
Cortland argued, and the court agreed, that the trial of Final Bell’s claim will likely be moot “as there will be no cash proceeds available to which the constructive trust could attach.”
Final Bell had opposed that motion and argued that it should have been entitled to the opportunity to prove its fraudulent misrepresentation claim. Final Bell says that BZAM made fraudulent misrepresentations to it that Final Bell relied on when the company entered into a share exchange agreement with BZAM. It also alleged that Cortland was aware of those fraudulent misrepresentations.
The judge rejected these claims, siding with the monitor.
The case surrounds BZAM’s announcement in late 2023 that it would be acquiring Final Bell, which was quickly followed by BZAM filing for and receiving CCAA protection a few months later in February 2024. Final Bell argues the CCAA filing contradicts assurances BZAM had given the company before signing the agreement.
That deal saw BZAM acquiring Final Bell Canada by issuing $13.5 million in equity in BZAM and granting Final Bell $8 million in promissory notes. At the time, the deal was said to make BZAM the fifth-largest Canadian LP.
Final Bell reacted to BZAM’s announcement at the time by saying it believes that the company’s initiation of CCAA Proceedings constituted an “improper use of creditor protection legislation to evade its creditors, defraud shareholders, and facilitate a related party going private transaction at an unjustified discounted value in order to circumvent a customary going private transaction requiring shareholder and creditor approval.”
“There is a second principal reason that Final Bell’s claim, even if ultimately successful, cannot rank in priority to the super priority DIP Lender’s Charge of Cortland,” writes the judge. “The claim of Final Bell is an “equity claim” as defined in the CCAA. As such, the claim of Final Bell ranks behind the claims of all creditors, not just creditors with court-ordered priority charges.”
“In asserting its late-breaking claim for a constructive trust, Final Bell is seeking to elevate what is inescapably an equity claim into a claim of not only a creditor, but a first-ranking creditor with priority over the Court-ordered super priority DIP Lender’s Charge. Such is expressly not permitted under the CCAA, within which the definition of “equity claims” should be given an expansive interpretation.”
However, the judge was also careful to note that he was not making any determination about the merits of Final Bell’s fraudulent misrepresentation claim against BZAM, but that if such a claim were successful, there would be no assets left over to address any findings in their favour.
As Cortland’s motion was successful, it is entitled to its costs of $150,000 inclusive of fees, disbursements, and HST, to be paid by Final Bell within 30 days of December 2, 2024.
