Executive Summary: Key Legal and Evidentiary Issues

• Mercy Falls BC Inc., a film production company, became insolvent after Mercy Falls Films, LLC ("Studio") failed to meet its funding obligations under the Production Services Agreement

• Default judgment was granted in favour of the petitioner against Studio, with damages summarily assessed in the amount of $4,736,455

• A significant Tax Credit Refund of $3,950,128.26 was received from the CRA, enabling the petitioner to repay its senior secured creditor, National Bank of Canada, in full

• Enforcement of the Default Judgment Orders is actively underway in the Superior Court of California, including a motion to appoint a receiver over Studio's property

• The Monitor confirmed sufficient liquidity through the extended stay period, with an estimated closing cash balance of $75,000 as of November 30, 2026

• The Court granted the unopposed application, extending the CCAA stay of proceedings to November 30, 2026

The background and the Production Services Agreement

Mercy Falls BC Inc. is an entity incorporated to produce and complete a film adaptation of the novel "Shiver." In July 2024, Mercy Falls Films, LLC ("Studio"), a limited liability company incorporated under the laws of Wyoming, USA, that owns the copyright, motion picture rights, and licences required to produce the film, engaged the petitioner's services to produce the film in British Columbia. The arrangement was documented in a Production Services Agreement dated July 25, 2024, under which Studio agreed to advance to the petitioner the funds necessary for it to complete the production of the film. Studio further provided a guarantee letter on August 19, 2024, in which Studio agreed to honour and guarantee payment of all approved amounts owed by the petitioner to fund the production.

Studio's breach and the onset of insolvency

By November 2024, Studio had fallen several million dollars behind on its funding obligations pursuant to the Production Services Agreement and the Guarantee, which halted the production. Studio's failure to meet its funding obligations led to the petitioner's insolvency and the commencement of these proceedings. On May 16, 2025, the Supreme Court of British Columbia granted the initial order under the Companies' Creditors Arrangement Act (CCAA), a ten-day stay of proceedings, and the appointment of MNP Ltd. as monitor. An amended and restated initial order was granted on May 26, 2025, which provided for a stay extension to August 25, 2025. The stay period was subsequently extended: on August 12, 2025, to September 8, 2025; on September 8, 2025, to December 5, 2025; and on December 4, 2025, to April 30, 2026.

The Contract Claim and Default Judgment Orders

The petitioner brought a breach of contract claim against Studio for the loss and damage caused by that breach. On September 8, 2025, the petitioner sought and obtained leave to adjudicate the Contract Claim within the CCAA proceedings. The Court also ordered, among other things, that the petitioner may proceed against Studio for default judgment if Studio fails to file an application response, and approved an increase to the interim facility and the interim lender's charge to a maximum principal amount of $1.1 million. On October 23, 2025, the petitioner applied for default judgment regarding the contract claim. The Court granted judgment in favour of the petitioner against Studio, including orders that the petitioner is granted default judgment with damages summarily assessed in the amount of $4,736,455, and that the petitioner shall be at liberty to apply for a further summary assessment of damages for amounts from and after October 1, 2025, including the amounts not yet known or incurred.

Enforcement steps in the United States

Since obtaining the Default Judgment Orders, the petitioner has taken steps to enforce them, including serving the Default Judgment Orders on Studio and making demand for payment; commencing proceedings in the Superior Court of California by complaint filed November 17, 2025, and summons filed November 21, 2025; serving Studio with the complaint summons on November 25, 2025; applying for entry of default judgment against Studio in January 2026, which was not processed until March 9, 2026; and securing the appointment of a judge of the Superior Court of California in March 2026 who was assigned to the matter. The entry of the default judgment was not processed until March 27, 2026. The petitioner filed a motion for the appointment of a receiver over Studio in the Superior Court of California, and the Superior Court of California has scheduled this hearing for May 14, 2026. If the Superior Court of California appoints the receiver, the petitioner anticipates the receiver will take steps to sell the assets of Studio, including the intellectual property rights to the film.

Resolution of CRA audits and the Tax Credit Refund

The petitioner has fully resolved the previously reported CRA audits of its GST, HST, and corporate income tax returns. On August 20, 2025, the petitioner filed its corporate income tax return for the period of July 25, 2024 to May 31, 2025. The CRA subsequently commenced an audit of that income tax return. On or around March 24, 2026, the CRA issued an assessment and confirmed the tax refund in the amount of $3,950,128.26 would be issued to the petitioner. National Bank of Canada confirmed that the Tax Credit Refund had been deposited into the petitioner's account. As of March 30, the total amount owing by the petitioner to National Bank was $3,312,355.64. With respect to its GST/HST return, the petitioner had a GST balance owing to the CRA of $91,081, but that GST balance has now been paid to the CRA. On or around April 10, 2026, National Bank applied the payment towards its outstanding indebtedness. The balance of the Tax Credit Refund, approximately $560,000, has been transferred to the petitioner's account at the Royal Bank of Canada.

Third-party negotiations and the ongoing CCAA process

The petitioner is engaging in negotiations with third parties who expressed an interest in providing funding for the completion and release of the film. The petitioner intends to use any funds received through realization to repay its creditors. An increase to the interim lending facility is neither necessary nor sought at this time.

The ruling and the stay extension

The Honourable Justice Basran found that the petitioner meets the test to extend the stay period because it has more than a "kernel of a plan," having made notable progress in the past four months to advance its affairs and pursue a plan to repay its creditors. The Court found that the petitioner, under the supervision of the Monitor, has acted in good faith and with due diligence — specifically, it obtained the Default Judgment Orders, paid the essential pre-filing amounts required for the completion of the production as authorized by the Court, worked with its tax advisors to resolve the CRA audits, paid its senior secured lender National Bank in full, obtained the Tax Credit Refund which improved its cash-flow position, and responded to stakeholder inquiries and demands while keeping its creditors apprised of material developments. The Court noted that this is a somewhat fragile period because the petitioner now has a positive bank balance from the Tax Credit Refund, and if a stay extension is not granted, one or more creditors may attempt to garnish the petitioner's bank accounts or take other enforcement steps to be paid ahead of other unsecured creditors. The cashflow forecast to November 30, 2026 prepared by the Monitor confirms the petitioner has sufficient liquidity to meet its obligations throughout the extended stay period, with an estimated closing balance of $75,000 as of November 30, 2026. The Monitor supports the application for the stay extension. The Court granted the order as sought, extending the stay period to November 30, 2026, to allow the petitioner to enforce the Default Judgment Orders through the appointment of a receiver in the Superior Court of California and to continue negotiations with third parties on agreements to realize on the intellectual property rights of the film. The exact total amount ultimately recoverable for creditors could not be determined at this stage, as enforcement and realization efforts against Studio remain ongoing.