ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 3637/11
DATE: 2012-03-27

B E T W E E N:

Andrew Van Penuvchev

Kimberly Boara Alexander, for Applicant

Applicant

• and -

Zoran Cocovski a.k.a. Zoran Cocov, Crosslink Development Corporation and Crosslink Bridge Corp.

Zoran Cocovski, Self-represented No one appeared for Crosslink Bridge Corp. or Crosslink Development Corporation

Respondents

HEARD: March 23, 2012

The Honourable Mr. Justice B.H. Matheson

ENDORSEMENT

[ 1 ] This matter has been before the courts for over a year. The matter was first heard by Justice Newbould sitting as a judge of the Commercial List in Toronto.

[ 2 ] Justice Newbould gave his decision on February 17, 2011. It was varied on consent by Justice Newbould on the 13 th of May 2011.

[ 3 ] Zoran Cocovski (“Cocovski”) appealed that decision to the Ontario Court of Appeal. It was heard on July 21, 2011. The Court of Appeal upheld the decision of Newbould J. with only one change. That change reduced the amount that Cocovski was to pay Andrew Van Penuvchev (“Penuvchev”) from $300,000 to $150,000. That was the only change to the order of Justice Newbould. The order of the Court of Appeal was on consent.

[ 4 ] Justice Newbould transferred this matter to Niagara area court in Welland. The property is situate in Niagara Falls, Ontario.

[ 5 ] On December 21, 2011 I gave an order pursuant to s.248 of the Business Corporations Act , R.S.O. 1990 c. B 16 (the “OBCA”) and s.101 of the Courts of Justice Act , R.S.O. 1990, c. C.43, as amended (the “CJA”).

[ 6 ] There was a further court appearance in this matter on March 14, 2012 before Justice Whitten of this Court. It was a request for an adjournment on behalf of the respondent Cocovski. Justice Whitten granted the adjournment to March 21, 2012 peremptory to the respondent.

[ 7 ] Because of scheduling problems, I had to adjourn the matter on March 21 until March 23 rd . At the hearing on March 21, Mr. Cocovski released his counsel and indicated that he would appear on his own behalf.

[ 8 ] That is a brief history of the court appearances in this matter. I will deal in more detail with the matters that were dealt with in the various courts. Obviously in those matters that were before other Justices, I will have to rely on the documents filed and the orders granted.

[ 9 ] The February 17 th order of Justice Newbould, as varied on May 13, 2011, stated basically the following:

1. That Crosslink Bridge Corp. and Crosslink Development Corporation pay Penuvchev that sum necessary to reduce his investment in Crosslink to the level of Zoran Cocovski’s investment in Crosslink, thereby equalizing their current investment.

2. The money was to be paid within 3 business days.

3. Cocovski make a contribution equal to that of Penuvchev to the payment due under the terms of the CN mortgage on December 26, 2010, or such later date that is agreed to.

4. Neither party shall make any commitments on behalf of Crosslink unless each of them consents.

5. Crosslink list the properties for sale with CBRE forthwith.

6. Upon sale Crosslink be wound up, unless there is a share purchase, in which case the shares will be distributed amongst the two shareholders.

7. Financial statements be prepared and filed of all requisite tax returns of Crosslink.

8. Both shareholders have full and complete access to all financial information of Crosslink.

9. Crosslink pay to Penuvchev interim costs including legal fees in the sum of $100,000.

10. Pre and post judgment interest.

[ 10 ] As stated, the order of Justice Newbould was varied on consent. The matter varied was a listing agreement.

[ 11 ] It is apparent that at this time both parties were in agreement with the order of Justice Newbould.

[ 12 ] As indicated, Cocovski appealed to the Court of Appeal. As stated, it was varied on consent in the one matter of reducing the amount that Cocovski had to pay to Penuvchev from $300,000 to $150,000.

[ 13 ] The matter came before me and I gave an order on December 21, 2011.

[ 14 ] Penuvchev was asking that Cocovski be removed as a director and officer of Crosslink Bridge Corp. and Crosslink Development Corporation and that Penuvchev be the sole officer and director of the Crosslink companies.

[ 15 ] It was ordered that Cocovski provide all financial information that was needed from the lender Romspen. It also ordered much further disclosure of financial nature. My order is attached to this order.

[ 16 ] There was also a costs order in favour of Penuvchev. It awarded him $14,000. I am advised that it has not been paid to date.

[ 17 ] As stated earlier in these reasons, Mr. Cocovski applied for an adjournment before Justice Whitten on March 14, 2012. Justice Whitten found that notice of this motion had been given well in advance of the hearing. The reason given for the adjournment was that the respondent planned to be on a March break holiday.

[ 18 ] Justice Whitten stated the following in his endorsement:

“For the respondent to plan a March break holiday in the face of the financial predicament the corporation is in and the impending time lines was reckless to say the least.”

He goes on to say:

“ The appearance by Ms. Comegna today as competent as she is, given the history of the relations between the parties and the numerous court orders, some of which have not been followed by the respondent namely, February 17, 2011 of Justice Newbould, April 15, 2011 of Justice Newbould and December 22, 2011 of Justice Matheson appears shamelessly tactical.”

[ 19 ] As indicated, Mr. Cocovski appeared before me on March 21, 2012. At that time he ended the services of his lawyers and proceeded on his own. Because of scheduling problems I had to adjourn the hearing until March 23, 2012.

[ 20 ] No new material was tendered as required by the rules. He stated that he had new lenders but needed 10 days to get the money. He had stated the same about a previous lender that had fallen through.

[ 21 ] I find that Cocovski has deliberately ignored most of the orders of the Superior Court and of the Court of Appeal. He has acted in an antagonistic manner to his business partner Penuvchev. He has taken no steps to correct the problems that prevent the company to move forward.

[ 22 ] In the examination of Cocovski he indicated when asked certain questions about the company that he did not have the information. He stated that his wife Rose Cocovski, his mother Dita Cocov, his chartered accountant Jim Peros and his bookkeeper Irina Lazarou had the information or documents that were required. This is a further example of his conduct in this matter. He had a duty to inform himself and bring all relevant documents to the examination. He did not.

THE LAW

[ 23 ] Section 248 of the Ontario Business Corporations Act states the following:

(1) A complainant, the Director and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue.

(4) Where an order made under this section directs amendment of the articles or by-laws of a corporation,

(a) the directors shall forthwith comply with subsection 186(4); and

(b) no other amendment to the articles or by-laws shall be made without the consent of the court, until the court otherwise orders.

(5) A shareholder is not entitled to dissent under section 185 if an amendment to the articles is effected under this section.

(6) A corporation shall not make a payment to a shareholder under clause (3)(f) or (g) if there are reasonable grounds for believing that,

(a) the corporation is or, after the payment, would be unable to pay its liabilities as they become due; or

(b) the realizable value of the corporation’s assets would thereby less than the aggregate of its liabilities.

[ 24 ] Justice Farley in 820099 Ontario Inc. v. Harold E. Ballard Ltd. , 1991 CarswellOnt 142 , stated the following at para. 124:

Blair J.A. for the court in Mason , supra, concluded at p.636 [O.R.] that: “The court has a broad discretion to make the ‘order it thinks fit’ including 14 types of relief listed in the clauses of s.247(3).” I too feel that s.247(3) gives the court tremendous latitude. Subject to being concerned about the interfering as little as possible (see Explo Syndicate v. Explo Inc., unreported, (June 29, 1989), Doc. Niagara North 6007/87, Gravely L.J.S.C. (Ont. H.C.) and Re Sabex Internationale Ltée (1979), 6 B.L.R. 65 (Que. S.C.) , infra), a judge should be able to use his ingenuity to effect the remedy most suitable to the situation. However, I would think that there should also be a note of caution as to the diagnosis of the true illness as well as to the administration of the medicine. Section 247 does not have a life of its own; it must be interpreted in the light of the overall corporate legislation and case law. Section 247 can be a help; it can’t be the total law with everything else ignored or completely secondary. In other words, there must be some interplay between directors’ fiduciary duties generally and s.247.

[ 25 ] MacKinnon J of the Ontario Superior Court stated in King City Holdings Ltd. v. Preston Spring Gardens Inc. , 2001 CarswellOnt 1364 , stated the following at para. 13:

A court may make whatever order it deems “just and equitable”. This gives the court to grant a wide range of discretionary remedies which are available to it in “oppression remedy” cases. Such remedies could include an order that all shares be sold, or that all assets be sold, that the Corporation or other shareholders purchase the shares of the applicant shareholder or that the unanimous shareholders’ agreement be amended. No finding of oppression need by made by the court. It is clear that the parties no longer trust one another, have lost confidence in each other’s ability to deal fairly, and can no longer act properly and in a business-like manner. There is clear deadlock in the operation of this Corporation.

[ 26 ] Justice Karakatsanis, while she was sitting on the Superior Court bench, in Vincent Corp. v. Provis Inc ., 2010 CarswellOnt 635 , stated the following at para. 38:

Section 248 of the OBCA provides that where the respondents have conducted themselves in a manner that is oppressive, unfairly prejudicial or that unfairly disregards the interests of any shareholder, the court may make any interim or final order that it thinks fit in order to rectify the matters complained of. The oppression remedy has evolved into an instrument of the Court to protect the “reasonable expectations” of shareholders of corporations, irrespective of the intent or bona fides of any decision made by officers or directors of the responding corporation.

[ 27 ] Justice Killeen of the Ontario Superior Court of Justice stated in Krynen v. Bugg , 2003 CarswellOnt 1138 , the following at para. 8:

Actual or material loss is not a prerequisite to a finding either of oppression, unfair prejudice or unfair disregard of interest. The object of the remedies available under s.248(3) is to prevent the continuation of the misconduct in question if it is established that a harm or detriment, in the sense of infringement of rights or privileges, will follow in the absence of restraining such misconduct. On this issue, the concept of detriment as a prerequisite to obtaining a remedy is similar to the concept inherent in a quia timet injunction – even if there is no material loss or damage at the time but reasonable grounds are established to apprehend the same occurring if there is no relief granted, the applicant for the quia timet remedy will be entitled to the relief sought. Thus, in establishing unfair disregard of the applicant’s interests as a result of misconduct, there is no requirement that there be actual detriment or loss to the applicant: Sahota v. Barsa , (1999), 1999 14945 (ON SC) , 45 B.L.R. (2d) 143 (Ont. Gen. Div.) , at para. 30 .

[ 28 ] Justice Charron, when she was sitting as a Justice of the Ontario Court of Justice (General Division), stated the following in Lauzier v. Ranger , 1995 CarswellOnt 1002 , at para. 12 :

Counsel for Ms Lauzier takes the position that a creditor must exhaust all other means of obtaining the information from the debtor before an order for the examination of a third person can be made. I do not agree. The rule simply requires that any difficulty arise concerning the enforcement of an order . A reading of the transcripts of the aborted examination in this case leads to the inescapable conclusion that much difficulty has already been encountered. The evidence from the sheriff’s representatives, who indicate they were told by Ms Lauzier to “take a hike” when they first appeared at her residence to enforce the writ of seizure and sale and the subsequent removal of many assets from the residence prior to execution, provide additional evidence that enforcement is very difficult in this case.

[ 29 ] I have had the opportunity of seeing and hearing the respondent Cocovski on at least three hearings. I have found that he is not responsive to questions that are put to him. He is evasive and if he were allowed to continue as an officer and director of the respondent companies they would be in danger of collapse. I find that he must be removed as a director and officer of the company. His financial interest will be protected by the applicant taking total control, subject to my order. That is not to say that the company will remain financially stable. It has been on corporate life support for over a year. The financial damage has been great.

[ 30 ] Order to go as follows:

1. This court orders that the individual respondent Zoran Cocovski is removed as a director and officer of Crosslink and vests in the applicant, all of the duties, powers and obligations as the sole officer and director of Crosslink upon the applicant’s undertaking to account to the court and to Mr. Cocovski for all actions taken in his capacity as sole director and officer of Crosslink.

2. This court orders that the respondents Crosslink give a mortgage in favour of Mr. Penuvchev on all their lands in the following amounts:

(a) $720,500.00, plus interest thereon at the rate of 10 per cent accruing from February 25, 2011 to the date of the registration of the mortgage; plus,

(b) $14,000.00, plus interest thereon at the rate of 3 per cent being the post judgment interest rate accruing from February 22, 2012 to the date of the registration of the mortgage; plus,

(c) Any amount awarded to Mr. Penuvchev by this court as costs for this motion; plus,

(d) $500,000.00.

(1) Such mortgage to be on the following terms:

(a) Interest shall accrue at the rate of 10% calculated and payable monthly in arrears;

(b) The mortgage shall be a fully open mortgage, and prepayable at any time and in any amount without notice, bonus or interest penalty;

(c) Non assumable;

(d) Maturing on the earlier of (i) any default by the charger under any prior charge, (ii) any sale of the mortgage lands, and (iii) November 23, 2012; and

(e) Shall be in the same form as to terms and conditions, other than as set out above as have been used with the existing Pezzack mortgages already on title.

3. This court orders that Mr. Cocovski pay directly to Crosslink the $720,500.00 that, pursuant to the order of Justice Newbould, he was to pay to CN, any such payment to be applied to the mortgage given by Crosslink pursuant to paragraph 2 herein.

4. This court orders that Mr. Cocovski within 10 days of the date of this order:

(a) Deliver to counsel for Mr. Penuvchev all of the information and documents which he undertook to provide on his examination in aid of execution held on July 13, 2011 as summarized in the undertakings chart, attached at Tab A of the Notice of Motion in the applicant’s Motion Record;

(b) Deliver to counsel for Mr. Penuvchev all information requested by the BDC or any other lenders approached by Crosslink for the purpose of refinancing Crosslink’s property, consisting of:

i. A completed “Personal Statement of Affairs” in the form attached as Tab B to the Notice of Motion in the applicant’s Motion Record;

ii. Financial statements for the last three fiscal years for all companies in which he has a beneficial or legal interest as well as personal income tax returns.

(c) Through his counsel, and with a copy to counsel for Mr. Penuvchev, direct Romspen to provide copies of all financial information relating to Mr. Cocovski or his companies provided to or collected by Romspen for the purpose of Mr. Cocovski obtaining any financing from Romspen at any time in the last three years, including financial information provided by Mr. Cocovski for the purpose of obtaining a mortgage from Romspen in the amount of $16,000,000.00 registered as SC924450 on Mr. Cocovski’s properties 4271/4275 Hopkin’s Bay Road, Rama, Ontario and forthwith upon receiving that information to provide same to counsel for Mr. Penuvchev;

(d) Deliver to counsel for Mr. Penuvchev all financial information in his power, possession or control or that of his accountant and bookkeeper relating to the business and finances of Crosslink, including but not limited to invoices, statements, cancelled cheques and bank statements

Failing which, Mr. Penuvchev shall be at liberty to move before this court for an order finding Mr. Cocovski in contempt and any such notice of motion shall be effectively and legally served upon Mr. Cocovski by service upon his lawyer of record herein, without the need for personal service.

5. This court orders and directs that the balance of the issues between the applicant and the respondent be addressed through the trial or accounting processes at the time of the wind up of Crosslink following the sale of its real property.

6. This court orders for the examination in aid of execution of such persons who may have knowledge of the matters set out in Rule 60.18(6) and pertaining to Mr. Cocovski, allowing for the examination of the following individuals and ordering them to disclose their knowledge of the financial matters of Mr. Cocovski:

(a) Rose Cocovski, Mr. Cocovski’s wife;

(b) Dita Cocov, Mr. Cocovski’s mother;

(c) Jim Peros, Mr. Cocovski’s chartered accountant; and

(d) Irina Lazarou, Mr. Cocovski’s bookkeeper.

[ 31 ] If the parties are not able to agree on costs, I may be spoken to.

Matheson, J.

Released: March 27, 2012

COURT FILE NO.: 3637/11
DATE: 2012-03-27

ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N: Andrew Van Penuvchev Applicant

• and –
  Zoran Cocovski a.k.a. Zoran Cocov, Crosslink Development Corporation and Crosslink Bridge Corp. Respondents

ENDORSEMENT
Matheson, J.

Released: March 27, 2012