SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 13-57904
DATE: 2013/08/13

BETWEEN: (Receivership Action)

ONTARIO SUPERIOR COURT OF JUSTICE

IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 101 OF THE

COURTS OF JUSTICE ACT, R.S.O. 1990, c. C.43, AS AMENDED

AND IN THE MATTER OF SECTION 248(3)(b) OF THE

ONTARIO BUSINESS CORPORATIONS ACT, R.S.O. 1990, CHAPTER B.16

AND IN THE MATTER OF SECTION 241(3)(b) OF THE

CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985, c. C-44

AND IN THE MATTER OF SECTION 253(3)(b) OF THE

CANADA NOT-FOR-PROFIT CORPORATIONS ACT, S.C. 2009, c.23

AND IN THE MATTER OF THE

BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3

BETWEEN:

LILY BACIC, RONALD AYOUB, SANDRA AYOUB, DONALD HUTCHINSON, GLORIA HUTCHINSON, KIM KRUK, DALE HEIN, PAMELA STONE, CAROLINE LEWANDOWSKY, LIM LEWANDOWSKY, ANNE LEFIER, GARY McGINN, DAVID HAMILTON, JAMES MILLER, HELENE LAMADLEINE, MARY LOU FISHER, ALLAN BRETT, RICHARD MELCER, STEPHEN CALDWELL, WENDY CALDWELL,BARRY DOUCETTE, COLLEEN MOORE, MICHELLE VEZEAU,DAVID KORNELSEN, KEVIN HARSH, LUC MALTAIS, COLLEEN MALTAIS,

BOB MECH, A.A.N.T. SOFTWARE CORPORATION, TERRANCE FINNIGAN, JAMES JOSS, DAVID WISKOWSKI, MOE LITWACK, TOMY ISSA and GEORGE BOSZORMENY

Applicant(s)

AND

MILLENNIUM EDUCATIONAL & RESEARCH CHARITABLE FOUNDATION (formerly the THOMAS C. ASSALY CHARITABLE FOUNDATION), ASSALY INVESTMENT PROGRAM CORPORATION, ASSALY FINANCIAL CORPORATION, ACT 1 CORP. and MILLENNIUM SPRINGS DEVELOPMENT & CONSTRUCTION CORP. (aka MILLENNIUM SPRINGS PROPERTIES LTD.) THOMAS G. ASSALY, KAREN FLOYD-ASSALY, and FRANK H. FEE, III

Respondents

AND BETWEEN: (Bankruptcy Action-Foundation)

Court File No.: 33-165343

ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF MILLENNIUM EDUCATIONAL &
RESEARCH CHARITABLE FOUNDATION (formerly the THOMAS C. ASSALY
CHARITABLE FOUNDATION) a registered charity carrying on business in the City of Ottawa, in the Province of Ontario

BEFORE: Mr. Justice Paul Kane

COUNSEL:
Justin Fogarty and Pavle Masic, counsel for the Applicants

John E. Smith, counsel for the Respondent, Thomas G. Assaly

Jason Dutrizac, counsel for Doyle Salewski

Shael Eisen, counsel for Millennium Educational & Research Charitable Foundation (“the Foundation”)

HEARD: August 6, 7 and 8, 2013

ENDORSEMENT

THE PROCEEDINGS

[1] Relief is sought in an Inspection Action (Court File No.: 13-56663) (the Inspection Action), the Receivership Action and the Bankruptcy Action on August 6, 7, and 8, 2013 (such three actions collectively being the “Proceedings”) in each of which, the Foundation is a respondent.

[2] The applicant in the Bankruptcy Action seeks a determination under s. 95 (2) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, (the “BIA”), that the May 24, 2013 conveyance by the Foundation to Thomas G. Assaly and Karen Floyd Assaly of title to real property in the State of Florida, United States of America, known municipally as 2615 S. Indian River Dr., Fort Pierce (“Canada House”) is void as against the Trustee.

BACKGROUND

[3] This court on May 7, 2013, in the presence of counsel for the Foundation, and then by endorsement dated May 22, 2013, scheduled June 19, 2013, for argument of the applicants’ motion for a restraining order to freeze the assets of the Foundation and for the appointment of a receiver of the Foundation.

[4] The Receivership Action was commenced on June 10, 2013, by Notice of Application returnable on June 19, 2013.

[5] With knowledge of this scheduled June 19, 2013 motion to appoint a receiver of and restrain the conveyance or dissipation of assets of the Foundation, the Assalys and the Foundation proceeded two days later on May 24, 2013, to transfer title of Canada House to the two Directors of the Foundation, namely Mr. and Mrs. Assaly.

[6] This court in its endorsement dated May 22, 2013, also scheduled a hearing for July 9, 2013, to determine whether any of the respondent Assaly corporations, including the Foundation, had breached any order by their disbursement of transfer of property or money and if so, whether they were required to convey the same to the Foundation.

[7] Counsel to that point in the Inspection Action for the Foundation and the other Assaly corporate respondents on the return of the motion in the Receivership Action to appoint a receiver and to restrain the dissipation of assets, advised the court on June 19, 2013, that he no longer acted for the respondent corporations and would thereafter act only for Mr. Assaly. The court was advised that Mr. Eisen had been retained as counsel by the Foundation but was travelling abroad and could not attend that day. Counsel for Mr. Assaly accordingly asked for an adjournment of the June 19th hearing to permit counsel for the Foundation to attend. Without knowledge of the Foundation’s May 24, 2013 conveyance of title of Canada House to Mr. and Mrs. Assaly, this court granted the Foundation’s requested adjournment.

[8] This court on June 19, 2013, did however in the presence of legal counsel for Mr. Assaly:

(a) grant an Interim Restraining Order prohibiting the Foundation, Mr. Assaly and the other Assaly corporate respondents from selling, conveying or dissipating their assets, and

(b) appoint an Interim Receiver of the Foundation and other respondent corporations in the Receivership Action solely to seek recognition of this order under the BIA and Chapter 15 of the US Bankruptcy Code.

[9] AANT Software Corporation, an applicant in the Inspection and Receivership Actions, brought an application for bankruptcy of the Foundation and appeared thereon before Kershman J. of this court on June 24, 2013.

[10] The Foundation on June 24, 2013, advised that it would file a dispute and oppose the bankruptcy application. Kershman J. set a timetable for filings, cross-examinations and ordered that the trial whether the bankruptcy application be granted or denied would occur on September 11 and 12, 2013.

[11] The Interim Receiver in its first report dated July 1, 2013, advised that it caused a search of title to be conducted of Canada House on June 28, 2013, whereupon its United States counsel advised of the above May 24, 2013 transfer of Canada House by the Foundation to Mr. and Mrs. Assaly.

[12] This court on an ex-parte motion on July 2, 2013, brought in the Receivership and Bankruptcy Actions, was advised of the above transfer of Canada House by Mr. and Mrs. Assaly as Directors of the Foundation to themselves. This court was advised of findings by the Receiver that:

(a) Mr. Assaly on February 8, 2013, caused the transfer of investments and property of the Foundation to one of its subsidiary corporations in Florida,

(b) the Foundation on February 11, 2013, transferred $367,000 US and $50,000 US from its Florida bank account to its subsidiary Canada HSE LLC in Florida,

(c) Mr. Assaly had delivered money belonging to several Assaly corporations including the Foundation to Mr. Fee, III, an attorney in Florida, to be held in the latter’s trust account. The March 2013 bank balance in the Florida bank account(s) of the Foundation exceeded $400,000 U.S.

[13] The applicants also filed an affidavit of Mr. Meuse alleging that Mr. Assaly had spent money belonging to the Foundation for his personal benefit.

[14] This court on July 2, 2013, extended the powers to the Interim Receiver of the corporate respondents, including the Foundation. It also granted an expanded Restraining Order against all respondent corporations, including the Foundation, Mr. Fee, III and Mr. and Mrs. Assaly. The court thereupon adjourned these two interim ex-parte orders dated July 4, 2013 to July 9, 2013, for argument on notice.

[15] This court’s July 4, 2013 Restraining Order granted in the Receivership and Bankruptcy Actions states:

17. THIS COURT ORDERS AND DECLARES that the May 24, 2013 transfer of the residence located at 2611 S. Indian River Dr., Ft. Pierce, Fl USA from the Respondent Millennium Educational & Research Charitable Foundation to the Respondents Thomas G. Assaly and Karen Floyd-Assaly is, on the evidence filed prima facie void pursuant to sections 95 and 96 of the BIA and will be so declared unless the Respondents can supply evidence to the contrary of the return of the motion on July 9, 2013.

[16] Counsel for the Foundation remained unavailable on July 9, 2013. This court as a result adjourned the motions to confirm the Interim Restraining and Receivership Orders and the s. 95 (2) relief on terms which included:

(a) the review and approval of accounts in the Inspection Action was adjourned to proceed on August 7, 2013,

(b) the motions for the appointment of a Receiver of the respondent corporations, including the Foundation, and an ongoing restraining order were adjourned to proceed peremptorily on August 6, 2013,

(c) the Interim Restraining Order and interim appointment of the Receiver were extended to August 6, 2013. Mr. Assaly did not oppose this term, and

(d) the Foundation and the Assalys were ordered to serve and file any materials opposing the appointment of the Receiver of the corporate respondents, excluding the Foundation, and the restraining order sought, by July 26, 2013, in advance of argument of those issues on August 6, 2013.

[17] The Foundation and Mr. and Mrs. Assaly filed no opposing materials by July 26, 2013, as ordered. They did not seek to file any such opposing materials upon the commencement of argument on August 6, 2013.

[18] Argument proceeded on August 6, 2013, to appoint a Receiver, to grant a restraining order and for a declaration under s. 95 (2) of the BIA that the May 24, 2013 transfer of Canada House to Mr. and Mrs. Assaly be declared invalid as against the Trustee.

Section 95 (2) Determination

[19] The Foundation, represented by Mr. Eisen, submitted that there should be no final determination under s. 95 (2) of the BIA until the conclusion of the scheduled bankruptcy trial in this court on September 11 and 12, 2013, and a September 30, 2013 hearing scheduled in the US Bankruptcy Court in Florida again involving the Foundation.

[20] Counsel for Mr. Assaly advised that the Foundation retained separate counsel to represent it for the bankruptcy trial to proceed on September 11 and 12, 2013. Counsel agreed with the Foundation’s submission that the s. 95 (2) declaration of invalidity issue be adjourned to trial before Kershman J. on September 11, 2013.

[21] The applicant in this Bankruptcy Action submitted that this court proceed with the scheduled s. 95 (2) hearing to declare the Foundation’s May 24th transfer of Canada House invalid as the Foundation and Mr. Assaly had chosen to file nothing to refute this court’s above finding that such transfer prima facie appeared to be contrary to the BIA.

[22] Counsel for Mr. Assaly advised that an unsigned affidavit of Mr. Assaly and a signed affidavit of Mr. Fee, III in opposition to the s. 95 (2) declaration requested had just been received, that time was needed to review the same and accordingly an adjournment was requested of the s. 95 (2) relief being requested.

[23] Upon further review of such affidavits of Messrs. Assaly and Fee, III, counsel advised that one copy of Mr. Assaly’s affidavit was signed. Upon being put to an election by the court, counsel for Mr. Assaly requested and received permission to file the affidavits of Mr. Assaly and Mr. Fee, III in opposition to the s. 95 (2) order requested. This court reviewed the copies of such affidavits. Due to the absence of a style of cause in any of the Proceedings, the affidavits of Mr. Fee, III and Mr. Assaly were introduced into the evidentiary record on this motion as exhibits 1 and 2.

[24] This court agrees with the above submissions of the Foundation and Mr. Assaly that the issue whether the May 24, 2013 transfer of Canada House by the Foundation to the Assalys is or is not valid under s.95 (2) of the BIA, should be adjourned and determined by this court in this Bankruptcy Action before Kershman on September 11 and 12, 2013. This adjournment of this s. 95 (2) issue as requested by the Foundation and Mr. Assaly to the September 11, 2013 trial is ordered as:

(a) the s. 95 (2) relief is a cause of action belonging to the Trustee who has not yet been appointed, and

(b) any declaration under s. 95 (2) of the BIA invalidating the transfer of Canada House by the Foundation on August 8, 2013, would likely negatively impact the Foundation or predetermine the outcome of the trial on September 11 and 12, 2013.

[25] The s. 95 (2) claim is therefore adjourned to proceed in this court peremptorily on September 11 and 12, 2013, based on the evidence now filed, subject to the discretion of that trial judge.

[26] Leave is hereby granted to the applicant, AANT Software Corporation to file an amended application for bankruptcy by August 15, 2013, citing and relying upon this May 24, 2013 transfer of Canada House by the Foundation to the Assalys. The Foundation shall file any amended Notice of Dispute thereto by August 19, 2013, prior to its examination of the applicant on August 19, 2013. The schedule set by Kershman J. on June 24, 2013, continues un-amended.

RECEIVERSHIP

[27] Counsel for the Foundation advised that the Foundation agreed that the existing Interim Receivership Order and the existing Interim Restraining Order should continue as against the Foundation. The Foundation however opposed the grant of a final Receivership Order.

[28] Counsel for Mr. Assaly submitted that the Interim Receivership Order should be continued against the Foundation, Mr. Fee, III and Mr. and Mrs. Assaly but that the full Receivership Order issue be adjourned and not granted at this time. Mr. Assaly further submitted that the Interim Restraining Order to be continued should be reduced in scope to mirror an Interim Restraining Order granted on August 1, 2013, by the US Bankruptcy Court.

[29] The applicants agreed that the Interim Receivership and Restraining Orders be continued against the Foundation, Mr. Fee, III and Mr. and Mrs. Assaly but sought the full appointment of the Receiver against the other corporate respondents in the Receivership Action.

[30] The corporations in the Receivership Action, other than the Foundation, are not represented by counsel, are not in attendance and have filed no opposing material. Such corporations are not the subject of the US Bankruptcy proceeding. Based on those facts together with the Receiver’s reports to date herein and the events reported and cited above leading to the issuance of the Interim Receivership Order, this court is satisfied that the Receiver’s interim appointment of the respondent corporations in the Receivership Action, other than the Foundation, be granted on the terms as contained in the order now executed by this court.

[31] The July 2, 2013 Interim Receivership and Restraining Orders are hereby continued pursuant to the terms of an order confirming the same and now executed.

[32] The Interim Receivership Order to be continued will not however contain the Administrative Charge set forth in paragraphs 25 to 27 of the July 2, 2013 Interim Receivership Order. The Receiver is now fully conversant with the matters in issue and his interests are not the same as the applicants. The applicants and the Foundation are adversarial parties in the Receivership and Bankruptcy Actions.

Limiting Canadian Restraint To Scope Of U.S. Restraint

[33] This court does not have the benefit of the order of the US Bankruptcy Court not yet settled, the materials before that court on August 1, 2013, nor any reasons by the US Bankruptcy Court for such Interim Restraining Order. I am unwilling to speculate what and why that court made its interim order or the settled terms thereof.

[34] I remain satisfied that the terms of my Interim Restraining Order shall continue against the Foundation, Mr. and Mrs. Assaly and Mr. Fee, III. The applicants are not seeking its continuance against the other corporate respondents in the Receivership Action.

Access To Monies In Fee, III Trust Account

[35] Mr. Assaly sought clarification and permission of this court that he, his wife and the Foundation may draw against the monies now held in Mr. Fee’s trust account to pay legal fees in the Proceedings and the US Bankruptcy action. Such permission is denied for several reasons.

[36] The transfer by the Assalys as Directors of the Foundation of Canada House to themselves with knowledge on May 22, 2013 of the scheduled June 19, 2013 motion to restrain the Foundation from transferring or disposing of its assets and appoint a Receiver, concerns this court. I am concerned what instructions and reasons Mr. Assaly will select in instructing Mr. Fee, III to release all or any part of the monies now held in that lawyer’s trust account.

[37] How much and from whom the money now held in that lawyer’s trust account remains unknown and must be determined by this court before release of the same.

[38] The Receiver in addition reports that the interim Restraining Order of the US Bankruptcy Court prohibits Mr. Fee, III disbursing any of the money now held in his trust accounts and received from or on the direction of the respondents.

[39] Mr. Fee, III is prohibited from using or releasing any money in his trust account from any of the respondents without further order of this court.

Canada House And Personal Assets

[40] The Interim Receivership Order herein extended, prohibits any conveyance, charge or encumbrance etc. of Canada House. Paragraphs 13 and 14 of the July 2, 2013 Interim Restraining Order herein extended, are amended to incorporate that same prohibition involving Canada House.

[41] Paragraph 9 of this court’s July 9, 2013 endorsement did not amend the provisions contained in paragraphs 13 and 14 of the Interim Restraining Order. Paragraph 9 is a combined summary reference to paragraphs 13 and 14, without specifics.

Receiver’s Requests

[42] The Receiver sought orders:

(a) approving his sale as Receiver of the Foundation of its 50% interest in Assaly Meuse LLP to J. Meuse for a consideration of $215,000,

(b) for a finding of contempt against Mr. and Mrs. Assaly for their breach of orders of this court, and

(c) accepting and approving its actions recorded in its three reports as filed and summarized by Mr. Doyle today.

[43] The Receiver was advised that it must serve and file motion material on notice to pursue such relief.

[44] The Receivers First, Second, Third and Amended Third Reports are approved as introduced. The actions of the Receiver as recorded therein are approved by this court.

Costs

[45] The applicants and the Receiver seek costs on the motions argued on August 6 and briefly on August 8, 2013, in the amount of $20,000 and $5,000 respectively. Mr. Assaly and the Foundation oppose those costs requests.

[46] The costs related to a s. 95 (2) determination is adjourned to the determination of that issue on September 11, 2013.

[47] The parties agreed as to the continuance of the Interim Restraining and Receivership Orders. The grant of the full Receivership Order, excluding the Foundation, was opposed but granted. With that result, costs are awarded on that issue to the Receiver and the applicants in the amount of $2,500 and $5,500 respectively, inclusive of disbursements and tax.

Kane J.

Released: August 13, 2013

ONTARIO
SUPERIOR COURT OF JUSTICE

RE: Bacic et al v. Millennium Educational & Research Charitable Foundation et al (Receivership Proceeding)

AND

Millennium Educational & Research Charitable Foundation (Bankruptcy Proceeding)

BEFORE: Kane J.

ENDORSEMENT

Kane J.

Released: August 13, 2013