Ontario Superior Court of Justice

Court File No.: 31-3051650
Date: April 23, 2025

IN BANKRUPTCY AND INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF ORGANIC GARAGE (CANADA) LTD.

Before: Associate Justice Anna Ilchenko, Registrar in Bankruptcy

Appearances:

• Miranda Spence, Adrienne Ho, and Pritesh Patel, LIT, for the Respondent Trustee KPMG Inc., Trustee in Bankruptcy of Organic Garage (Canada) Inc.
• Colby Linthwaite, Alan Rutman, LIT, and Sudhanshu Marwaha, LIT, for the Creditor Appellant, Zeifman Partners Inc., Trustee in Bankruptcy of Oragin Foods Inc., and as counsel to Tobias Ihde, the Applicant Creditor
• Eric Peterson for Department of Justice, Counsel to the Office of the Superintendent of Bankruptcy

Heard:
Appeal heard on first issue of appeal from Trustee’s disallowance on November 21, 2024; further materials and Business Development Bank of Canada loan and security documentation to be filed by December 7, 2024.
Second portion of appeal on Chair’s decision at meeting of creditors adjourned sine die pending determination of first issue on appeal.

Endorsement

[1] Introduction

This Appeal deals with the unusual situation of the disallowance by KPMG, the Trustee of the Bankrupt, of the wholly owned subsidiary Organic Garage (Canada), of the proof of claim filed by Zeifman, as Trustee in Bankruptcy of the parent company creditor Oragin.

[2] Background and Procedural History

In the Notice of Appeal at issue in this Appeal, Oragin, by its Trustee in Bankruptcy Zeifman, requests an Order setting aside the disallowance of the Proof of Claim of Oragin dated May 30, 2024 (the “Oragin Proof of Claim”) at Exhibit K to the Affidavit of Alan Rutman Affirmed October 15, 2024 (the “Rutman Affidavit”). The Rutman Affidavit, exhibits and the Motion Record on the Appeal constitutes approximately 1363 pages. The combined materials filed on this Appeal were approximately 1900 pages.

[3] Specific Grounds for Disallowance

The specific grounds for the disallowance of the Proof of Claim were set out in the Notice of Disallowance by the Trustee dated November 1, 2024 (the “Disallowance”) at Exhibit K to the First Report of the Trustee, as Trustee in Bankruptcy of Organic Garage (Canada) dated November 1, 2024 (the “First Report”).

1. Oragin Foods Inc. (“Oragin”) asserts that the Company’s financial records reflect a debt obligation owing by the Company to Oragin in the amount of $6,760,280.89 (the “Alleged Loans”);
2. The documentation provided in Schedule “A” to the Claim, and the subsequent information provided by ZPI on September 19, 2024 (collectively the “Claim Documentation”), does not support the existence of the Alleged Loans in the amount of $6,760,280.89, or at all;
3. There are no loan documents evidencing the Alleged Loans;
4. There is no agreed means by which the Company was to repay the Alleged Loans;
5. There is no evidence of regular repayments made towards the Alleged Loans, reflective of an agreed means of repayment;
6. There is no fixed maturity date or payment schedule associated with the Alleged Loans;
7. There is no fixed rate of interest or interest payments associated with the Alleged Loans;
8. There is no source of repayment of the Alleged Loans aside from the Company's business operations;
9. The Company used the majority of the funds characterized as the Alleged Loans to acquire capital assets;
10. The Alleged Loans have the characteristics of equity injections into the Company;
11. Oragin and the Company are related companies, not acting at arm's length:
    • (a) The Company is a wholly-owned subsidiary of Oragin; and
    • (b) At all material times, Matt Lurie was the sole director and officer of the Company and a director, president and CEO of Oragin; and
12. Such further and other grounds as the trustee may advise.

The Meeting Decision Appeal

[4] There was initially a second appeal (the “Meeting Decision Appeal”) brought by Zeifman to set aside certain decisions of the Official Receiver’s Representative chairing the Meeting of Creditors of the Bankrupt held on June 6, 2024, preventing Zeifman as Trustee of Oragin from voting at the meeting of creditors, inter alia, on the basis that Oragin as a related party could not vote.

[5] At some point, the Official Receiver’s Representative reversed her decision and permitted Rutman to vote as a contingent creditor, but only after the appeal was made by Zeifman of the decision. Oragin is continuing the appeal of the Chair’s determination, notwithstanding the change of position by the OSB, on the basis that the decision was reversed only after Oragin had prepared and served appeal materials, and therefore the issue needs to be determined, and the costs of Oragin for the Appeal of the Chairperson’s rulings also need to be determined.

[6] As these issues on the Meeting Decision Appeal are premised on whether the disallowance of the Proof of Claim by the Trustee should be set aside being determined on this Motion, as a creditor with a disallowed claim cannot vote at a meeting of creditors, I adjourned that Meeting Decision Appeal pending the determination of the Appeal of the Disallowance of the Oragin Proof of Claim.

[7] The Trustee also brought a Cross-Appeal requesting that motions at the Meeting of Creditors affirming the Trustee, appointing inspectors and appointing Aird & Berlis as Estate Solicitors, be affirmed by the Court. Those issues will be dealt with along with the Meeting Decision Appeal, if required.

[8] In the same Cross-Appeal the Trustee also requested an Order affirming that Zeifman is a related creditor who did not deal with Organic Garage (Canada) at arm’s length within the meaning of subsection 109(6) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, as amended (the "BIA"), and therefore cannot vote at the meeting of creditors, which is another issue that can only be dealt with once this Appeal is disposed of.

The Bankruptcy of Organic Garage (Canada) and the Bankruptcy of Oragin

[9] Cavanagh, J. made an endorsement (the “Cavanagh, J. Endorsement”) on a motion to approve a sale by KPMG the (then) Proposal Trustee of Organic Garage (Canada) dated May 2, 2024 in the Proposal Proceedings (the “Proposal Proceedings”) under the BIA, where he set out the factual circumstances that led up to the Bankruptcy of Organic Garage (Canada), and the filing of the Proof of Claim by Zeifman on behalf of the Bankrupt Oragin:

[1] On March 5, 2024, Organic Garage (Canada) Ltd. (“Organic Garage”), 2412383 Ontario Inc., 2347018 Ontario Inc., 2507158 Ontario Inc., and 2581751 Ontario Inc. (collectively, the “Debtors”) each filed a Notice of Intention to Make a Proposal pursuant to s. 50.4 of the Bankruptcy and Insolvency Act.

[...Full factual background and procedural history omitted for brevity; see full text above...]

The Oragin Proof of Claim and Trustee’s Disallowance

[25] The Proof of Claim of Oragin was signed by Rutman on May 30, 2024, as representative of Zeifman as trustee in Bankruptcy of Oragin (the “Oragin Proof of Claim”). The Oragin Proof of Claim is located at Exhibit K to the Rutman Affidavit.

[26] The amount claimed as an unsecured claim is $6,760,280.89. Oragin did not claim a right to priority. The three components to the total amount claimed are, as set out in Paragraph 14 of the First Report:

(a) a current liability of $2,917,423.11, respecting a “Loan” from Oragin (under its previous name, Organic Garage Ltd.) (the “Current Liability Component”); (b) a long-term liability of $3,342,857.78 respecting a “Loan” from Oragin (under its previous name) (the “Long Term Liability Component”); and (c) a long-term liability of $500,000 respecting a “Note Payable” due to Oragin (under its previous name) (the “Note Payable Component”).

Evidence and Testimony

Lurie Testimony

[32] As noted above, the context of the Lurie Examination was to provide evidence for a Motion by Organic Garage (Canada) to extend time for filing a proposal in the Proposal Proceedings that preceded the Bankruptcy, and the granting of other relief, including the approval of various administrative charges, a Key Employee Retention Program, and a stalking horse bidder sales process.

[...Extensive excerpts of Lurie and Lamb testimony, and analysis, omitted for brevity; see full text above...]

Law and Analysis

Legislation

Sections 124 and 135 of the BIA create the legal context for the Appeal from the Disallowance by the Trustee of a Proof of Claim.

Standard of Review

The court reviews the Trustee’s disallowance of a proof of claim for palpable and overriding error on questions of fact or mixed fact and law, and for correctness on questions of law.

Standard of Proof for Creditor

The creditor bears the onus of establishing its claim by providing vouchers, statement of account or other evidence sufficient to substantiate it. Certainty is not the test; if the method used in calculating the amount of the claim is reasonable and the evidence in support of the claim is relevant and probative, the claim should be admitted.

Analysis of Grounds of Disallowance

1. General Ground: Debt vs. Equity

The court applies the factors from Re YG Limited Partnership and YSL Residences, U.S. Steel Canada Inc. (Re), and Sino-Forest Corporation (Re) to determine whether the advances were loans or equity contributions.

2. Documentation

The court finds that both KPMG and Zeifman worked diligently and professionally with the available documentation, but the lack of formal loan documentation is not determinative in a closely held corporate context.

3. Current Liability Component

The court finds that the $2,917,423.11 "Current Liability Component" was a debt, not an equity contribution, and allows the appeal in respect of this amount.

4. Long Term Liability Component

The court finds insufficient evidence that the $3,342,857.78 "Long Term Liability Component" was a debt, and dismisses the appeal in respect of this amount.

5. Note Payable Component

The court finds insufficient evidence that the $500,000 "Note Payable Component" was a debt, and dismisses the appeal in respect of this amount.

Order on Appeal

• The appeal by Zeifman of the Disallowance by the Trustee of the Current Liability Component of the Oragin Proof of Claim is allowed, and this Current Liability Component of the Oragin Proof of Claim in the amount of $2,917,423.11 shall be admitted as a proven unsecured claim by Oragin in the Bankruptcy Estate of the Bankrupt.
• The appeal by Zeifman of the Disallowance by the Trustee of the Long Term Liability Component of the Oragin Proof of Claim is dismissed.
• The appeal by Zeifman of the Disallowance by the Trustee of the Note Payable Component of the Oragin Proof of Claim is dismissed.

Costs

The Parties are encouraged to come to an agreement as to costs on this Appeal, particularly given the divided success. If no agreement can be reached by May 15, 2025, then the Trustee may file its written costs submissions and Bill of Costs by June 13 and Zeifman may file its written costs submissions by June 30, 2025. In either case, the actual written costs submissions, not including the Bills of Costs, shall not exceed 5 pages in length.

Meeting Decision Appeal

Once all appeals of this decision, if any, are finally determined, the Trustee, with the concurrence of Zeifman and counsel at Department of Justice for the Superintendent of Bankruptcy may contact the Bankruptcy Court Office, and I will provide dates for a possible further hearing to dispose of the Meeting Decision Appeal as well as the issues raised on the Cross-Appeal by the Trustee.

Anna Ilchenko
Registrar in Bankruptcy
Superior Court of Justice