Bankruptcy of River Green (Thunder Bay) Inc., 2023 ONSC 2411

COURT FILE NO.: BK-21-0002-0T21 DATE: 2023-04-19

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: IN THE MATTER of the Bankruptcy of RIVER GREEN (THUNDER BAY) INC., a corporation carrying on business in the City of Thunder Bay, Province of Ontario

HEARD: March 29, 2023 via Zoom

BEFORE: Fitzpatrick J.

COUNSEL: R. Lepere for Moving Party M. Holervich for John Beals Robert Olson in person

Judgment on Continuation of Application

1In Re Bankruptcy of River Green (Thunder Bay) Inc., 2022 ONSC 4180 I determined that a stay of the within application for a bankruptcy order against River Green (Thunder Bay) Inc. was unwarranted. I determined the disputes about the alleged debt owing to the applicant creditor BNL Contracting Ltd. (“BNL”) were not bona fide. The parties had previously agreed this was to be the sole issue to be determined on that attendance in July 2022.

2The background to this matter was set out in the above noted decision.

3BNL was hired to supply labour and materials for renovations at a property leased by River Green. River Green intended to establish a cannabis cultivation business at this property. However, the business encountered difficulties, and BNL submits that it continues to be owed partial payment for the work performed. BNL seeks an order adjudging River Green bankrupt.

4In my July 2022 decision, I found that River Green was indebted to BNL for more than $1,000.

5The remaining issues to be determined on this application are:

1. Did River Green commit an act of bankruptcy in the six months prior to the filing of this application?
2. Is the application brought for an improper purpose or is there other sufficient cause for the Court to exercise its discretion and refuse to make a bankruptcy order against River Green?

Issue 1: Did River Green commit an act of bankruptcy in the six months prior to the filing of this application?

6The parties opposing the application agree that River Green has committed acts of bankruptcy within the meaning of s. 42(1)(j) of the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B.3 (the “Act”). All parties to this application agree River Green did not meet its liabilities generally as they became due in the six months prior to the filing of this application. The application was filed December 14, 2021. The applicable six-month period commences June 14, 2021.

7D.M. Brown J. (as he then was) stated in Re: Howard Paul Ivany, 2012 ONSC 7058 at para. 12:

To demonstrate that a debtor has ceased to meet his liabilities generally as they become due generally requires, in the absence of special circumstances, (i) proof of the outstanding debt owed to the applicant and (ii) evidence that the debtor has ceased to meet his liabilities to its creditors in general. (Arthur Ali Inc. (Re) (2008), 45 C.B.R. (5th) 293 (Ont. S.C.J.), para. 13.) The existence of unpaid creditors is not sufficient, in and of itself, to establish an act of bankruptcy; the applicant must prove, on the balance of probabilities, that the debtor has ceased to meet its liabilities generally as they become due: La Hougue Financial Management Services Ltd. v. One Shaftesbury Community Association (2005), 13 C.B.R. (5th) 217 (Ont. S.C.), para. 25). Since the machinery of the BIA is for the benefit of the creditors of a debtor as a class, establishing that a debtor has ceased to meet his liabilities generally requires some evidence that the debtor has ceased to meet liabilities other than those incurred towards the applicant creditor (Valente v. Fancsy Estate (2004), para. 13). As Henry J. put the matter in Re: Holmes:

The Court ought not to be asked to draw inferences with respect to the class on the basis of one creditor's experience where evidence of the debtor's conduct towards other members of the class could, with reasonable diligence, be discovered and produced: Re Holmes p. 243.

8BNL has placed in its materials one instance of another debt owed within the relevant time period. A judgment in favour of 2298123 Ontario Limited O/A Teleco Landline was obtained February 21, 2021 for $154,617.87 plus costs. A writ of seizure and sale was obtained by the judgment creditor. It was in place as of October 12, 2021. In my view in addition to the fact the opposing parties have conceded this issue, this evidence satisfies the burden on the applicant to show that River Green was not meeting its ongoing obligations during the relevant time period.

Issue 2: Is the application brought for an improper purpose or is there other sufficient cause for the Court to exercise its discretion and refuse to make a bankruptcy order against River Green?

9The applicable section of the Act in respect of this issue is Section 43(7) which provides:

If the Court is not satisfied with the proof of the facts alleged in the application or of the service of the application, or is satisfied by the debtor that the debtor is able to pay their debts, or that for other sufficient cause no order ought to be made, it shall dismiss the application.

10The powers of the court in respect of the application of this section are discretionary: Laserworks Computer Services Inc. (Re), 1998 NSCA 42 at paras. 40 and 41.

11Robert Olson and John Beals bear the onus with respect to this issue. Only Mr. Beals filed a factum and made formal submissions to the Court. However, Mr. Olson attended in person and indicated he fully joined with and agreed with the position taken by Mr. Beals. For efficiency sake, I will hereafter refer to all parties opposing the order as “Beals”.

12Beals submits that the principal of BNL, Sam Romeo, has worked in concert with others to improperly obtain the assets of River Green. He points to a series of maneuvers by Romeo and others to obtain control of the assets by:

• acting to improperly distrain the assets of River Green;
• evicting River Green from its established place of business;
• excluding Beals and Olson from any involvement in the management of River Green;
• failing to invest in the ongoing operation of River Green;
• deliberately destroying River Green’s first cannabis crop;
• allowing others to use the assets of River Green;
• improperly seeking to remove Olson and another director of River Green Jordan Smith from their corporate positions with River Green.

13Beals submits this application has been commenced solely in aid of this improper purpose respecting River Green.

14Beals points to Mr. Romeo’s involvement in a meeting in Toronto on September 30, 2020. Beals has no direct evidence of what occurred at that meeting other than having emails where one of the alleged “conspirators”, Jim Peterson, refers to a plan to rid River Green of Beals and Olson.

15Beals does not put evidence before the Court of any direct involvement of Mr. Romeo in alleged nefarious events from that time until the commencement of this application in December 2021. Beals notes that BNL commenced its construction lien claim using Toronto counsel who happened to be at the same firm which represented one of the “other conspirators”, Mr. Atlidakis, who also has commenced actions against River Green. Beals argues that until the bankruptcy application the BNL claim has not been pursued with diligence.

16Beals submits no practical benefit for creditors will be obtained by the making of the bankruptcy order. There is no vexing problem that requires a Trustee to resolve. The improper purpose of this application can be gleaned from context.

17I disagree with the submissions of Beals.

18There is nothing in the materials before this Court that would suggest this is an occasion where the Court should pierce the corporate veil. BNL is the creditor, not Mr. Romeo.

19In any event, I am not persuaded that the “evidence” which in my view is pure speculation, put forward by Beals does anything to demonstrate an improper purpose or sufficient cause not to grant the bankruptcy order requested. The “theory” or even components of it were not put to Mr. Romeo when he was cross-examined on his affidavit. The failure to raise this with Mr. Romeo seems to me to lessen the impact of an argument of improper purpose when such lines of questioning are not pursued in the evidence.

20As I have been case managing various matters involving River Green since April 2021, I am well-aware of the context of disputes involving this company. It should be remembered that Olson, who commenced the first piece of the litigation that caused this entire matter to be subject of case management, originally was moving to appoint a receiver manager for River Green. His opposition now to a Trustee being appointed appears to me to be an interesting reversal of his original position. The role of bankruptcy trustee is clearly different than that of a receiver. However, the practical results can be quite similar. An outside party takes control of what assets are left with a view to working with all parties to determine how best to realize on value of an enterprise in distress.

21River Green is no doubt a failed enterprise. It is not meeting its obligations on a day-to-day basis. In my view the reasons for that have nothing to do with BNL’s claim. BNL is not a competitor of River Green. There is a clear contest between competing groups within River Green. However, no one appears to be in charge of River Green. It cannot even afford to retain counsel.

22In my view, far from representing an improper purpose, making a bankruptcy order is one way to focus and resolve the litigation that has taken a great deal of court time to date and produced little in the way of tangible results. Granting this application will provide an orderly and fair distribution of property of River Green amongst its creditors. The claims of Beals and Olson will be determined in this process. There is no prejudice to them I can ascertain from the materials presently before the Court.

23I do not agree with Beals’ submission that an order in bankruptcy will pave the way for the conspirators to improperly obtain ownership of River Green’s assets. How in particular that would happen is not demonstrated or even postulated anywhere in the evidence or the argument of Beals. There is nothing to suggest how making the order would cause any further harm to River Green, Beals or Olson.

24BNL is owed a debt. The evidence presented on this application demonstrates River Green is unable to pay that debt or any other debts of other creditors for that matter. The bankruptcy process in this case is not being used as a form of a collection agency. River Green has no claim against BNL. BNL asserts no greater rights than any other creditor.

25Beals asserts there is a great deal of value in the assets of River Green. If there is value in what remains of the assets of River Green, since April 2021, none of these interested parties have done anything productive in this case managed process to make this evident. In my view, the opposition to the making of this bankruptcy order is the closest thing in this case to what could be described as an “improper purpose”. This matter has been unduly and unproductively delayed by the actions of the opposing parties. This is a matter which will be dealt with in the cost portion of this process.

26For all these reasons I order and adjudge that River Green (Thunder Bay) Inc. is bankrupt. Order to go appointing Keith Caverly of the City of Thunder Bay as Trustee of the property of River Green.

Costs

27In my view Beals and Olson should pay costs to BNL. Counsel at the outset of the hearing were asked for a quantum of what would be a reasonable amount of costs payable if they were not successful. Both suggested $7,500.00 all in. In my view, this is a reasonable amount of costs on a partial indemnity basis that Robert Olson and John Beals jointly and severally are to pay BNL forthwith.

28If there are any issues with the form of the order required to implement this judgment the parties shall arrange a brief case conference before me to occur on or before April 28, 2023. Otherwise, counsel for BNL may submit a draft order approved as to form and content by Beals and Olson for my signature to my judicial assistant.