BMO defeats challenge to $8-million mortgage in Genesus receivership

Bank of Montreal has defeated a freight forwarder’s attempt to invalidate an $8-million second mortgage or move its own judgment ahead of the bank’s security in the receivership of Manitoba swine-breeding companies.

In Bank of Montreal v. Genesus Inc. et al., 2026 MBKB 87, released June 19, 2026, the Court of King’s Bench of Manitoba dismissed Sea Air International Forwarders Limited’s motion. Justice Chartier found that the mortgage was supported by a genuine benefit: BMO agreed to hold off enforcing its security while the companies sought time to sell the business.

The $8 million was the amount of the mortgage, not a new damages award. Sea Air’s separate $319,796.33 default judgment, plus costs, had been obtained in Ontario in 2023. The Manitoba ruling rejected its challenge to BMO’s security and awarded BMO costs of the motion, without fixing an amount.

Two creditors, different registration dates

Genesus Inc. and Can-Am Genetics Inc. bred and sold swine. BMO was the debtors’ primary secured creditor; Sea Air was an international freight forwarder that had supplied services to Genesus.

The bank became involved in managing the troubled accounts early in 2023. Repeated overdrafts, loan defaults and cash-flow concerns led BMO to demand repayment and issue enforcement notices that summer.

The companies then asked the bank for a forbearance agreement — a commitment to delay enforcement. Negotiations through lawyers began in July. In exchange for additional security, the agreement allowed them until January 15, 2024, subject to its conditions, before BMO would take further recovery steps. The companies acknowledged the debt and existing defaults, agreed to financial monitoring and reporting, and provided the $8-million second mortgage, behind existing first mortgages.

The agreement was signed September 30, 2023. Sea Air obtained its Ontario default judgment on October 3. BMO registered its mortgage against the companies’ Manitoba real estate on October 12; Sea Air registered its judgment against three Genesus properties on December 15.

BMO did not know of Sea Air’s lawsuit or judgment when it registered the mortgage, the judge found. BDO Canada Limited was appointed receiver of the debtors’ assets in June 2024.

Time to pursue a sale had real value

Sea Air argued that the mortgage was a fraudulent conveyance or preference, breached the federal insolvency law’s good-faith requirement, or should be ranked behind its judgment because of inequitable conduct. It maintained that the short enforcement delay gave the companies inadequate value for the additional security and primarily benefited the bank.

The court rejected that account of the transaction. Manitoba’s Fraudulent Conveyances Act required the relevant intent to defeat, hinder, delay or defraud creditors. Suspicious circumstances can help establish that intent, but must be assessed in context rather than with hindsight.

Here, the bank and companies were dealing at arm’s length. The negotiations were deliberate, conducted through lawyers and initiated by the debtors. Genesus was actively considering a sale and hoping to obtain a substantial tax credit. There was no unusual haste.

The companies also continued operating and using assets and available account funds secured to BMO to pay other creditors in the ordinary course of business. Meanwhile, Genesus did not reduce its bank debt, and unpaid interest continued accumulating.

Chartier found that the three-and-a-half-month reprieve offered a meaningful chance to sell the business rather than face liquidation. Holding off a lawsuit could provide valid consideration — something of value exchanged for the mortgage. Sea Air had not established the required fraudulent intent.

Receivership did not trigger the preference provision

The separate challenge under section 95(1)(a) of the Bankruptcy and Insolvency Act failed because there had been no bankruptcy or initial bankruptcy event involving the debtors. The judge rejected Sea Air’s assertion that the receivership order itself triggered that provision. He also found no indicators of fraud supporting that challenge.

The Act’s good-faith obligation did not change the outcome. Sea Air was attacking the earlier mortgage, not BMO’s decision to begin the receivership or its conduct during those proceedings. There was no allegation or evidence that BMO had commenced the proceedings for an improper ulterior purpose, and Sea Air had not established bad faith.

Finally, the court refused to subordinate BMO’s mortgage to Sea Air’s judgment. Chartier noted that the availability of equitable subordination in Canadian law had not been definitively resolved by the Supreme Court of Canada. Even assuming the doctrine existed, it required inequitable conduct. The evidence did not establish that conduct here.

The result leaves BMO’s mortgage intact against Sea Air’s challenge. It does not determine how much either creditor will ultimately recover from the receivership, or establish that every mortgage obtained during a borrower’s financial difficulties is immune from challenge.