What happened: The BC Supreme Court has granted the owner of Steve Nash Fitness World and Sports Clubs more time to file a proposal to creditors.
Why it matters: SNFW Fitness B.C. Ltd. now has until midnight on August 3 to file a proposal under federal bankruptcy and insolvency legislation.
The BC Supreme Court today granted SNFW Fitness B.C. Ltd. an additional 45 days to file a proposal to its creditors, which are collectively owed upwards of an estimated $44 million.
The company – which operates more than two dozen fitness clubs in B.C. under Steve Nash, UFC Gym and Crunch Fitness brands – is more than two months into insolvency proceedings that began April 3, when the company filed a notice of intention to file a proposal to creditors under federal bankruptcy and insolvency legislation.
After an initial extension, the company’s deadline for filing a proposal was June 17 at midnight. Had an extension not been granted and a proposal not filed, the company would have been deemed bankrupt.
In brief oral reasons, Madam Justice Shelley Fitzpatrick concluded that no creditor will suffer material prejudice as a result of the extension.
“In all the circumstances, I’m satisfied that the extension is appropriate,” she noted.
The application heard Wednesday acknowledge that SNFW Fitness is unlikely to file a proposal to creditors, but that "proposal proceedings still have value" to certain groups of unsecured creditors, informer employees, pre-paid members and landlords – all of which are unsecured creditors.
SNFW Fitness being declared bankrupt ahead of a finalized deal to sell the company would add unnecessary costs to the process, and would ultimately result in less recovery for creditors, the company argued.
"SNFW wishes to be entirely transparent that it would prefer not to file such a proposal, or be deemed bankrupt at this point, as neither is necessary to complete the sales process and bring the benefit to the unsecured class of creditors."
The company officially announced on Tuesday that a group of investors has agreed to acquire the company. The deal has not yet been finalized, nor has it been approved by the BC Supreme Court.
Two groups of former employees, represented by Victory Square Law Office LLP, objected to the extension request. The groups argued that SNFW Fitness engaging in the proposal process with no clear intention of filing a proposal constitutes not acting in good faith.
"SNFW’s proposal is unprecedented, illogical and obstructs the purpose of the [Bankruptcy and Insolvency Act]," states the employee groups' response to the extension application by SNFW Fitness.
"Its current proposal is designed to circumvent important legislative protections for employees in a manner that dramatically advantages another creditor."
That other creditor is the Bank of Montreal, which is owed $32 million by SNFW Fitness and has supported the company's court-approved sales process.
Madam Justice Fitzpatrick rejected the claim that former SNFW Fitness employees will be materially impacted by the deadline extension, and said she found no evidence to support the suspicions former employees have about how the company has approached its sales process.
“The [Bankruptcy and Insolvency Act] has evolved ... to recognize that sales are an appropriate means of enhancing and preserving stakeholder value for the benefit of the stakeholders generally," she said, noting that it would be "extremely unusual" for employees to have been included or looped into the sales process at this stage.
She added that the court will continue to have "significant oversight" of the company's insolvency and sale proceedings.
All legal actions against SNFW Fitness are stayed over the 45-day extension.