COURT FILE NO.: CV-11-2659-00
DATE: 2014-11-21
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Kulveet Singh Chahal, the Plaintiff
AND:
Ravinder Chabrra, Savita Chhabra and 2245165 Ontario Inc., the Defendants
BEFORE: LEMON, J.
COUNSEL: H. S. Dorsey, for the Plaintiff
S. Bhangu, for the Defendants Ravinder Chabrra and Savita Chhabra
R. Dodokin, for the Toronto-Dominion Bank
J. Ross and B. Rosen, the Receiver, SF Partners
HEARD: November 17, 2014
ENDORSEMENT
THE ISSUE
[1] The receiver, SF Partners Inc., seeks an order approving its actions to date, and allowing the sale of the assets of the defendant, 245165 Ontario Inc.
[2] The plaintiff agrees with the receiver’s request and, if the sale is approved, asks that the action, counterclaim and third-party claim be stayed. In the alternative, he seeks an order staying the defendants’ motion for summary judgment.
[3] The defendant, Ravinder Chabrra, seeks an order cancelling the sale, discharging the receiver and placing the defendant back in control of the business. In the alternative, he seeks to be allowed to close a share purchase agreement pursuant to the order of Donohue J. dated August 19, 2013. If the sale is approved, the defendants do not object to the rest of the relief requested by the receiver.
[4] The only real issue in the motion is whether the receiver’s proposed sale of the business assets for $140,000 is appropriate or not. If so, all other issues essentially follow from that result.
[5] At the end of argument, I approved the sale for written reasons to follow. These are those reasons.
BACKGROUND
[6] The plaintiff, Mr. Chahal and the defendant, Ravinder Chabrra, are each 50 percent shareholders of the defendant, 2245165 Ontario Inc. They are also directors of the corporation and, with each of their spouses, are guarantors of the company’s bank loan and indemnifiers of the lease of the premises from which the company operates. In short, they, through their company, operate a convenience store at the corner of Spadina Road and College Street in the City of Toronto.
[7] The litigation commenced in 2011, and there have been a variety of interim orders since that time. It appears that the litigation primarily surrounds what amount Mr. Chahal should be paid for his interest in the company. Much of the dispute has already been finalized by various interim orders.
[8] On August 19, 2013, Donohue J. ordered that a share purchase agreement for the sale of Mr. Chahal’s interest in the company to Mr. Chabrra should close October 21, 2013. In the event the transaction did not close, a $25,000 deposit held in the trust account of Mr. Chahal’s lawyer should be forfeited and paid to Mr. Chahal. Alternatively, if the share purchase agreement closed, the action was to be dismissed. Finally, Mr. Chabrra was to pay costs to Mr. Chahal in the amount of $20,000 within 90 days of August 19, 2013.
[9] It is agreed that the transaction did not close. Mr. Chabrra appealed Justice Donohue’s decision. The Court of Appeal quashed that appeal. No further appeal has been launched.
[10] On November 28, 2013, Donohue J. appointed SF Partners Inc. as a monitor on an interim basis. The monitor’s first report is dated March 27, 2014. The conclusion of the monitor was that a sale of the assets should be commenced as soon as possible. The monitor consented to being appointed as a receiver and/or receiver manager of the company if so ordered.
[11] By the time this matter came before me on July 7, 2014, Mr. Chabrra had been convicted of a fraud-related offence in India. He was sentenced to an imprisonment term of two years. Presently, he is appealing that disposition but remains in India.
[12] In my endorsement of July 25, 2014, I appointed the receiver for the purpose of selling the business. The plaintiff, Mr. Chahal, was to have control of the day-to-day business operation so long as he cooperated in full with the receiver.
[13] Since that order, the receiver attended at the business and took possession of the assets. It obtained a listing agent and entered into an MLS listing agreement for the sale of the business at a price of $175,000.
[14] The details of the receiver’s work are set out in their report. Other than the process of sale and the purchase price, the defendants do not object to the rest of the report.
[15] On September 19, 2014, an offer was received in the amount of $140,000 ($110,000 for goodwill and $30,000 for inventory) along with a 15 percent deposit in certified funds. The offer was conditional that the receiver obtain the consent of the landlord for the assignment of the lease along with a renewal of the lease for a five-year term.
[16] On October 1, 2014, the receiver received another offer in the amount of $150,000; however, no deposit was received and several significant conditions applied to the offer.
[17] No other offers were received.
[18] Based on the above, the receiver accepted the first offer with an agreement of purchase and sale effective October 6, 2014. By October 27, 2014, the purchaser had been able to arrange his own lease agreement with the landlord.
POSITIONS OF THE PARTIES
[19] Both the plaintiff and the secured creditor, Toronto Dominion Bank, approve of the sale.
[20] Mr. Chabrra disputes the appropriateness of the sale and, as set out above, seeks to have the sale cancelled, the receiver removed and the business given back to Mr. Chabrra.
[21] Mr. Chabrra submits that:
(a) the listing agent is a close friend of the plaintiff who had filed an affidavit earlier in these proceedings.
(b) the listing price was below its fair market value of approximately $200,000.
(c) the listing agent did not properly consider the second offer and unfairly asked that purchaser to waive a financing condition.
(d) there has been no proper inventory control.
(e) at $140,000, there will be a shortfall to all of the parties.
ANALYSIS
[22] When deciding whether to approve a receiver’s sale of property, I should consider:
whether the receiver has made a sufficient effort to get the best price and has not acted improvidently.
the interests of all parties.
the efficacy and integrity of the process by which offers are obtained.
whether there has been unfairness in the working out of the process.
[23] Further, when the court appoints a receiver, it is inescapable that it intends to rely upon the receiver's expertise and not upon its own. Therefore, the court must place a great deal of confidence in the actions taken and in the opinions formed by the receiver. It should also assume that the receiver is acting properly unless the contrary is clearly shown. The court should be reluctant to second-guess, with the benefit of hindsight, the considered business decisions made by its receiver. The conduct of the receiver should be reviewed in the light of the specific mandate given to him by the court. See: Royal Bank of Canada v. Soundair, [1991] O.R. (3d) 1,1991 2727 (CA).
[24] While it may have been better for the receiver to involve the defendants’ lawyer in the search for the selling agent, and it may have been better to use a different agent, those only relate to the appearances of the sale rather than the actual sale. This was an MLS listing. Mr. Chabrra or his lawyer would have been able find and send other offers to the agent or, at worst, the receiver.
[25] While the value of the listing and sale price are below what the defendant would prefer, there is no evidence that the sale price is, in fact, too low. The listing was an open process and only one bid came to the listing agent. That bid was without qualifications and with a 15 percent deposit. The second bid had qualifications and no deposit. It was only $10,000 higher. Mr. Chabrra submitted a bid in his responding materials that had no deposit and was not actually available until January of 2015 if he was able to sell property in India.
[26] Mr. Chabrra complains about a lack of proper inventory control. I am not persuaded that I should refuse the receiver and reject this one offer based on the possibility of problems with the inventory. Mr. Chabrra submits that the inventory should have been valued based on his former employee’s affidavit that “At any given time, the approximate value of the inventory in the store during my employment has been between $65,000.00 and $70,000.00 including cigarettes.” This is not so compelling as to second guess the receiver.
[27] Losing this offer will mean no lease renewal and, with no other offers, likely liquidation on asset values only. As there are no other assets of 2245165, that would leave all four of the individuals liable for the secured debt and the outstanding lease payments. The secured creditor would not be fully secured.
[28] The defendants have put forward no other viable options. Mr. Chabrra cannot run the business from India. He proposes to purchase the assets himself but only when he has funds in January upon the sale of assets in India. If he had money, one would presume that he would pay the outstanding costs which now amount to $44,197.45. It would appear that losing this sale will be financially disastrous to him and his wife since they are guarantors on the lease and the secured debt. The time to close the deal pursuant to Justice Donohue’s order was as ordered and not this late date.
[29] Without other offers and with losses mounting, the sale must be approved.
RELATED ISSUES
[30] As a result, the defendant’s motions to stop the sale and discharge the receiver are dismissed.
[31] The receiver moved to stay a Small Claims Court action brought by Mr. Poudyal, a former employee of the business. Neither the plaintiff nor TD pressed that issue. Mr. Poudyal was not in attendance although he filed an affidavit in support of the defendant’s motion. The receiver asked for an order of service upon Mr. Poudyal nunc pro tunc.
[32] I am not persuaded that it is appropriate to stay that action without input from Mr. Poudyal. While his action may now be academic, he should find that out by his own efforts and not simply be told that his action has been stayed without his input.
[33] Mr. Dorsey seeks a stay of this action because, after the sale and payment of outstanding debts, there will be no asset to dispute. Mr. Bhangu opposes such an order. I do not believe that I can stay an action simply because it appears academic. That is for the parties to decide; not for a judge with an incomplete record.
[34] Apparently Mr. Chabrra has served a summary judgement motion upon the plaintiff. It was to be spoken to this day but, according to court records, no motion has been filed. I have not seen the motion record. The plaintiff seeks an order staying that motion. If the motion is to proceed, the plaintiff would have to file responding materials. He wishes to cross examine Mr. Chabrra who is detained in India. Given Mr. Chabrra’s circumstances, I foresee a motion for security for costs. That would cause considerable expense for what appears to be an academic exercise. If Mr. Chabrra wishes to proceed with that motion, he will need to pay the outstanding costs orders (including any related to these motions if so ordered) before he can proceed.
[35] If the parties cannot otherwise resolve the issue of costs, written submissions may be made to me. The plaintiff, receiver and TD Bank shall make their submissions within the next 15 days and the defendant shall respond 15 days thereafter. Each of the submissions will be no more than three pages in length not including any bills of costs or offers to settle.
Lemon, J.
Date: November 21, 2014
COURT FILE NO.: CV-11-2659-00
DATE: 2014-11-21
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: KULVEET SINGH CHAHAL
- AND –
RAVINDER CHABRRA, SAVITA CHHABRA AND
2245165 ONTARIO INC.
BEFORE: Lemon, J
COUNSEL: H. S. Dorsey, for the Plaintiff
S. Bhangu, for the Defendants Ravinder Chabrra and Savita Chhabra
R. Dodokin, for the Toronto-Dominion Bank
J. Ross and B. Rosen, the Receiver, SF Partners
ENDORSEMENT
Lemon, J.
DATE: November 21, 2014