SUPERIOR COURT OF JUSTICE – ONTARIO
( COMMERCIAL LIST )
APPLICATION UNDER SUBSECTION 243(1) OF THE BANKRUPTCY AND INSOLVENCY ACT , R.S.C. 1985, c. B-3, AS AMENDED AND SECTION 101 OF THE COURTS OF JUSTICE ACT , R.S.O. 1990, c. C.43, AS AMENDED
COURT FILE NO.: CV-11-9496-00CL
DATE: 20120215
RE: BUSINESS DEVELOPMENT BANK OF CANADA, Applicant
AND:
2197333 ONTARIO INC., Respondent
BEFORE: MORAWETZ J.
COUNSEL:
Ian A. Aversa, for the Applicant, Business Development Bank of Canada
R. B. Moldaver, Q.C., for the Respondent, 2197333 Ontario Inc.
Rosemary A. Fischer, for the Fuller Landau Group Inc., Proposed Receiver
HEARD: January 23, 2012
ENDORSEMENT
[ 1 ] Business Development Bank of Canada (“BDC”) brings this application for the appointment of a receiver under s. 243(1) of the Bankruptcy and Insolvency Act (“ BIA ”) and s. 101 of the Courts of Justice Act (“ CJA ”).
[ 2 ] Counsel to the Respondent submits that a receiver can be appointed by an interlocutory order where it appears to the court to be just or convenient to do so. Counsel referenced National Trustco v. Yellowvest Holdings Limited (1979), 1979 1791 (ON SC) , 24 O.R. (2 nd ) 11 for this proposition. Counsel questioned as to whether it was proper to proceed by way of application as this would result in the granting of a final order, which, he submits, is inconsistent with the view expressed by Callaghan J. (as he then was) in National Trustco .
[ 3 ] Counsel to BDC responded by referencing Ontario v. Shehrazad Non-Profit Housing Inc. , 2007 ONCA 267 , a decision of MacPherson J.A. (In Chambers). In this case, the Ministry commenced its application, including the relief to appoint a receiver and manager pursuant to s. 101 of the CJA . The order appointing the receiver was granted and the moving party on appeal, Shehrazad, sought a stay pending appeal. The request for the stay was opposed by the Ministry on two bases: (1) the Court of Appeal had no jurisdiction to hear the motion because the order being appealed was an interlocutory order and, therefore, the appeal would have to be taken to Divisional Court; and (2) on the merits, the moving party could not meet the test for obtaining a stay.
[ 4 ] With respect to the jurisdictional point, MacPherson J.A. disagreed with the position put forth by the Ministry noting that the Ministry did not bring a motion to appoint a receiver; rather, it made an application.
[ 5 ] Justice MacPherson stated the following:
It follows that the decision of this court in Illidge (Trustee of) v. St. James Securities Inc. (2002), 2002 44971 (ON CA) , 60 O.R. (3d) 155 (Ont. C.A.), governs the question of which court has jurisdiction to hear the appeal in these proceedings. In Illidge , the appellant sought an order setting aside the appointment of the respondent as receiver on the basis of an alleged conflict of interest by reason of the respondent’s role as trustee in the bankruptcy for other parties. The respondent argued that the Court of Appeal lacked jurisdiction to hear the appeal because the order appointing the receiver was interlocutory and not final.
The court rejected this argument. Armstrong J.A. stated at paragraph 4:
At the initial proceeding, Soberman sought the appointment as receiver by way of application rather than on interlocutory motion. As stated by this court in Hendrickson v. Kallio , 1932 123 (ON CA) , [1932] O.R. 675, … and in numerous subsequent cases, orders that finally determine the issues raised in an application are final orders.
In my view, this passage is directly applicable to, and disposes of, the Ministry’s objection that the corporation has brought its appeal to the wrong court. It follows that the Corporation’s motion for stay should be considered on the merits.
[ 6 ] The above passage is, in my view, a complete answer to the position put forth by counsel to the Respondent. The Court of Appeal did not take issue with the fact that the proceeding to appoint the receiver was brought by way of application which resulted in a final order.
[ 7 ] In any event, the provisions of s. 243 of the BIA specifically contemplate an application to appoint a receiver.
[ 8 ] Turning to the merits, the Respondent is a single-purpose real estate holding company. It has no employees and no active business. The Respondent owns a property at 330 Oakdale Road, Toronto (the “Oakdale Premises”). The Respondent’s tenant is bankrupt. The Respondent is in default of its obligation to BDC and BDC’s security has become enforceable.
[ 9 ] Demand was made on May 17, 2011. The demand was accompanied by a Notice of Intention to Enforce Security pursuant to s. 244 (1) of the BIA .
[ 10 ] The Respondent is indebted to BDC in the amount of approximately $2.5 million.
[ 11 ] The mortgage agreement provides that following an event of default, BDC is entitled to apply to court to seek the appointment of a receiver.
[ 12 ] BDC also raised issues concerning the ability of the Respondent to make payments for heat, hydro and security. However, subsequent to the issuance of the application, it appears that the Respondent made adequate arrangements with respect to these items.
[ 13 ] A representative of the Respondent, Mr. Santaguida, raised a number of allegations that there are environmental issues affecting the Oakdale Premises. Counsel to the Respondent takes the position that, in the event that the Oakdale Premises have any environmental issues, Mr. Santaguida will be causing the Respondent and the other borrowers to commence proceedings against BDC.
[ 14 ] Section 101 of the CJA and s. 243 of the BIA provide that the court may appoint a receiver if it considers it to be just or convenient to do so.
[ 15 ] Counsel to BDC submits that a receiver should be appointed for the following reasons:
(a) the credit agreement is in default;
(b) the indebtedness is not in dispute;
(c) there has been a loss of confidence in management and the debtor has shown a flagrant disregard for the secured position of BDC in view of the continued accrual of interest; and
(d) the Respondent is merely a holding company and has no other assets, lines of business or any reasonable prospects for future solvency.
[ 16 ] Counsel to BDC also takes the position that the court should not interfere with the rights derived by private contract and, in this case, the mortgage provides BDC with the ability to seek the appointment of a court-appointed receiver. Counsel contends that, as the Respondent’s default has not been cured, it is unjust to deny BDC the remedy of a court administration (See Bank of Montreal v. Appcon Limited (1981), 1981 1740 (ON SC) , 37 C.B.R. (NS) 281 at 286; and United Savings Credit Union v. FNR Brokers Inc . 2003 BCSC 640 .)
[ 17 ] In addition, counsel referenced Textron Financial Canada Limited v. Chetwynd Motels Limited , 2010 BCSC 477 at para. 75 where it is stated:
The parties in this case stipulated in their contracts that the plaintiff would be entitled to appoint a receiver or to apply for a court-appointed receiver in the event of default. The relief sought by the plaintiff is not, therefore, extraordinary.
[ 18 ] Finally, counsel submits that the appointment of a receiver is justified in order to protect to stakeholders and that it is the optimal enforcement mechanism in this case.
[ 19 ] Counsel for the Respondent contends that there is no basis for the appointment of a receiver and that there are other ordinary legal remedies available that the Applicant could pursue. The Respondent also contends that there is no evidence that the Oakdale Premises are in jeopardy and that urgency has not been demonstrated. Counsel contends that there is no evidence to suggest that the appointment of a receiver is necessary without the court’s intervention. Counsel further submits that the court should not intervene in the circumstances by giving the extraordinary remedy of appointing a receiver.
[ 20 ] In argument, counsel to the Respondent indicated that the debtor does intend to take proceedings against BDC and that the principal has a limited guarantee involved. In these circumstances, counsel submits that BDC should not get the additional protection of having a court-appointed receiver.
[ 21 ] Having considered the positions put forth by both sides, it seems to me that the appointment of a receiver, in this case, is justified. There has been a default. There is a contractual remedy provided for in the mortgage that contemplates the appointment of a receiver. As such, the relief cannot be seen to be extraordinary in nature. The Respondent has been in default for a considerable period of time. Further, the lack of an operating business has persuaded me that there is no prejudice to the debtor that is directly related to the appointment. The submissions of counsel (as to BDC as set out at [15] – [18]) in this respect, are persuasive.
[ 22 ] The Receiver will, in all likelihood, be seeking directions from the court on a periodic basis. The Respondent can raise appropriate issues in respect of the receivership on the return of such motions.
[ 23 ] The application is granted and the Fuller Landau Group Inc. is appointed Receiver.
MORAWETZ J.
Date: February 15, 2012