CITATION: Munrealty Inc. v. Ideal Construction Co. Limited, 2007 ONCA 616
DATE: 20070911
DOCKET: C46473
COURT OF APPEAL FOR ONTARIO
IN THE MATTER OF THE BANKRUPTCY OF MOUNTELL INVESTMENTS LIMITED OF THE CITY OF TORONTO, IN THE PROVINCE OF ONTARIO
-and-
IN THE MATTER OF SECTION 248 OF THE ONTARIO BUSINESS CORPORATION ACT, R.S.O 1990, C. B.16, AS AMENDED
AND IN THE MATTER OF IDEAL CONSTRUCTION CO. LIMITED AND BEXON INVESTMENTS LIMITED
SHARPE, CRONK and LANG JJ.A.
BETWEEN:
MUNREALTY INC.
Appellant
and
IDEAL CONSTRUCTION CO. LIMITED, BEXON INVESTMENTS LIMITED, WENDY LEE ZELIKOVITZ, LAWRENCE B. SMITH, MOUNTELL INVESTMENTS INC., MOUNTELL INVESTMENTS LIMITED, LARSMITH HOLDINGS INC., ELLSBIRCH LIMITED AND MORRIS A. HUNTER INVESTMENTS LIMITED
Respondents
Christopher W. Besant and Joseph J. Bellissimo, for the appellant Munrealty Inc.
Daniel R. Dowdall and Jane O. Dietrich, for the respondents Mountell Investments Inc., Wendy Lee Zelikovitz and Mountell Investments Limited
Heard and released orally: August 30, 2007
On appeal from the order of Justice Colin L. Campbell of the Superior Court of Justice dated December 27, 2006.
ENDORSEMENT
[1] This case involves a dispute between two current or former shareholders of Ideal Construction Co. Limited, a closely held investment holding corporation. The appellant challenges the legal effectiveness of the transfer in 2000 of Ideal shares held by Mountell Investments Limited (“Limited”) effected by Limited’s trustee in bankruptcy and its lead secured creditor (a bank that held a security interest in the Ideal shares in priority to the trustee’s interest in the shares) in favour of Mountell Investments Inc. (“Inc.”).
[2] The Ideal shares were subject to share transfer restrictions set out in Ideal’s amended articles of incorporation. The appellant argues that the transfer of the Ideal shares did not comply with these restrictions in several respects and, consequently, that the transfer was ineffective to convey title in the shares to Inc. It also argues that a confirming conveyance of the Ideal shares to Inc. by Limited’s trustee in bankruptcy carried out in 2005 was similarly ineffective.
[3] We disagree. The motion judge stated in part, at paras. 30 to 33 of his reasons:
[30] The Trustee transferred its title in Limited to Inc. with respect to the shares in Ideal for good and proper con-sideration with full knowledge of the facts and concurrence of the only creditors necessary.
[31] I can see no reason other than an improper motive that would cause Ideal through its CEO to refuse a transfer [of the shares]. The evidence on this motion does satisfy me that [the husband of W.Z., the controlling shareholder of Limited] did at all times hold the Ideal shares in Limited [sic] for her benefit.
[32] When the issue of concern was raised by Munrealty, the controlling interest in Inc. was transferred to W.Z. who was entitled both in law and equity in my view to have the transfer recognized, which was done by Ideal.
[33] If for any reason I am in error that the legal entitlement to the Ideal shares was with the trustee and not validly transferred to [Inc.], there can be no doubt in my view with respect to the equitable entitlement.
[4] In our view, even if the original transfer of the Ideal shares in 2000 was defective for non-compliance with the share transfer restrictions applicable to the shares, this defect was effectively cured by the 2005 confirming transfer of the Ideal shares from Limited’s trustee in bankruptcy to Inc.
[5] Moreover, we agree with the motion judge that in the particular circumstances of this case, equitable title in the Ideal shares passed to Inc. under the 2000 transaction. The cases relied upon by the appellant to argue that equitable title was not so conveyed do not assist. In this case, as noted by the motion judge, the original share transaction was supported by valid consideration, the facts regarding Limited’s holdings in Ideal were fully disclosed to all interested parties, and the transfer of Limited’s assets to Inc., including the Ideal shares, was approved by the court. The record makes clear that, throughout, both Limited’s trustee in bankruptcy and its major creditor – who, as we have said, held a priority security interest in the shares – did everything in their power to transfer good and valid title in the Ideal shares to Inc.
[6] In addition, no party to Limited’s bankruptcy now complains of the transfer of the Ideal shares to Inc. Furthermore, the appellant is the only shareholder of Ideal to take issue with the transfer. Yet, at its core, the issue of the validity of Inc.’s ownership of the Ideal shares is an issue between Inc. and Limited’s trustee in bankruptcy and its creditors. The appellant is neither.
[7] We also agree with the respondents’ submission that while the appellant may have had an interest in who owned the shares of Ideal when Ideal was an operating company, once Ideal became subject to a winding-up order (to which the appellant consented), any such interest ceased and was in the hands of Ideal’s liquidator and the court.
[8] Finally, we observe that the appellant’s attack on the challenged share transfer is predicated on the theory that Limited and its principal, W.Z., wrongly concealed their bankruptcies and effected the Ideal share transfer in contravention of the share transfer restrictions applicable to Ideal’s shares for the purpose of facilitating an improper scheme by one of Ideal’s other shareholders to wind up the company, thereby damaging the appellant’s interests. Whatever the merits of this assertion when viewed in the wider context of the pending oppression proceedings between the parties, it cannot be tested or determined on the record now before this court.
[9] There is no issue that in light of our conclusion, detailed above, there is no need to address the appellant’s claim for the appointment of a replacement trustee in the bankruptcy of Limited. That issue is moot.
[10] Accordingly, the appeal is dismissed. The respondents are entitled to the costs of this appeal, fixed in the total amount of $20,000, inclusive of disbursements and G.S.T. The costs of the motion regarding the letter of credit are a matter for the Superior Court of Justice in the pending oppression proceedings.
Signed: “Robert J. Sharpe J.A.”
“E. A. Cronk J.A.”
“S.E. Lang J.A.”