Court File and Parties

COURT FILE NO.: C0763-13
DATE: 2013-12-20
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Royal Bank of Canada, Applicant

AND:

1389431 Ontario Inc., Respondent

BEFORE: The Honourable Mr. Justice James W. Sloan

COUNSEL:
Clark Peddle - Counsel, for KPMG, the receiver for 1389431 Ontario Inc.
Paul Amey – Counsel for John W. Eva
Judy Fowler Byrne – Counsel for Susan Eva
L. Viet Nguyen – counsel for Royal Bank of Canada

HEARD: December 19, 2013

ENDORSEMENT

[1] This is a motion brought by KPMG Inc. the court appointed receiver for the respondent seeking court approval for the sale of property registered in the name of the respondent.

[2] The Royal Bank is the first mortgagee on the property and Susan Ava the former spouse of John W. Ava is the second mortgagee. Her mortgage is for $871,000 plus interest, and in addition she is owed approximately a further $496,000 from John Ava.

[3] The Royal Bank and Susan Ava are in favor of accepting the subject agreement of purchase and sale.

[4] Susan Ava acknowledges that she is in favor of accepting the subject agreement of purchase and sale notwithstanding that she recognizes that she will lose between $100-$200,000 of her mortgage.

[5] Since Susan Ava's mortgage is security for monies owing to her by John Ava, John will owe Susan whatever the shortfall is on her mortgage from the sale of the subject property.

[6] The price of the subject agreement of purchase and sale is for the amount of $3,450,000. If the property were listed with a 5% real estate commission it would mean that the property would have to be sold for $3,631,578.90 to net out at $3,450,000.

[7] John takes issue with the fact that KPMG conditionally accepted this offer without listing the property on MLS basis and marketing it.

[8] He points out that there are three appraisals for $3,400,000, $3,800,004 and $4,050,000.

[9] This would average out to $3,750,000.

[10] The receivers reviewed several complexities identified by the real estate brokers which would impact on the sale/marketing of the subject property including, the significant office to warehouse proportion, the irregular shape of the property, the current market environment including the numerous RIM (Blackberry) property vacancies, the impact of significant excess capacity in the Cambridge marketplace and the relatively short timeframe of the current lease agreements with the current tenants.

[11] The receiver also carefully reviewed three listing proposals it received in addition to the appraisals. The range is approximately $1,700,000 and reflects the uncertainty caused by a number of factors including those set out in the preceding paragraph.

[12] In addition the receiver considered that this property would likely have to be exposed to the market for an estimated 6 to 9 month sales timeline and possibly longer if the tenant would not agree to a lease extension.

[13] The receiver also points out that based on the subject agreement of purchase and sale there would be an income tax liability of approximately $534,000 which would rank as an unsecured claim in the bankruptcy.

[14] This tax liability would of course be higher, if the property sold for more money.

[15] It is therefore difficult to see how John Eva or the Eva Family Trust which owns all the shares of 1389431 Ontario Inc. could ever benefit from the sale of the property even at the highest appraised value.

[16] The only possible benefit to Mr. Eva may be that his former spouse Susan Eva would receive all of the money owing to her under the mortgage thereby reducing the money that he would owe her equal to her shortfall on the mortgage.

[17] Other than the possibility set forth in the preceding paragraph, John Eva has "no skin in the game".

[18] If the property sells for less than the subject agreement of purchase and sale, it is Susan Eva who will suffer.

[19] Of course the longer this matter goes on the receiver's fees and the legal fees will increase all to the detriment of Susan Eva.

[20] Susan Eva points out in her affidavit of December 12, 2013, that John Eva is in breach of numerous court orders because he has not made the payments to her as ordered by the courts.

[21] I therefore grant the motion of the applicant pursuant to paragraphs 1, 3, 5 and 6 of its Notice of Motion. Paragraphs 2 and 4 of Notice of Motion were not argued before me and I therefore adjourn them sine die to be brought back on 7 days notice.

[22] If the parties are unable to agree on costs, all counsel who supported the application shall forward their brief submissions on costs to me by January 3, 2014. Mr. Amey shall forward his brief response to me by January 8, 2014. All counsel who supported the application shall then forward their reply, if any, to me by January 13, 2014. Cost submissions may be sent to my attention by email, care of Kitchener.Superior.Court@ontario.ca

J. W. Sloan J.

Date: December 20, 2014