Court File and Parties

COURT FILE NO.: CV-18-591280-00CL DATE: 20200403 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

APPLICATION UNDER Rule 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended, and section 248 of the Business Corporations Act, R.S.O. 1990, c. B16, as amended

APPLICATION UNDER Section 253(1) of the Business Corporations Act, R.S.O. 1990, c. B16 and Rule 14.02(2) and 38.03(4) of the Rules of Civil Procedure

B E T W E E N:

LORENZO CORNACCHIA, TREVOR BUTLER, MICHAEL FRANCHETTO, PAUL PIZZO and CRAIG WILKINS Applicants – and – MICHAEL COTIC Respondent

Counsel: Paul D. Guy and Scott McGrath, for the Applicants Natalie Schernitzki, for the Respondent

A N D B E T W E E N:

MICHAEL COTIC Applicant – and – LORENZO CORNACCHIA, TREVOR BUTLER, MICHAEL FRANCHETTO and PAUL PIZZO Respondents

HEARD: June 19, 25, 26 and September 23, 2019

L.A. Pattillo, J.

Introduction

[1] On September 7, 2017, Michael Cotic (“Cotic”) delivered a buy-sell offer (the “Offer”) to Lorenzo Cornacchia (“Cornacchia”) pursuant to the provisions in the shareholders agreement between them. The Offer provided either:

a) Cornacchia would sell all of his shares in Fitness Fanatix Inc. (the “Corporation”) at a purchase price of $3,500 per share together with his shareholder’s loan to the Corporation in the amount of $369,256.25 for an aggregate purchase price of $671,131.25; or

b) Cornacchia would buy Cotic’s shares in the Corporation at $3,500 a share together with his shareholder’s loan in the amount of $989,700.00 for an aggregate purchase price of $1,593,450.00.

[2] Pursuant to the terms of the buy-sell provision, Cornacchia had 15 days from the date the Offer was delivered to accept either of the two Offers, failing which he would be deemed to have accepted Offer (a).

[3] Cornacchia’s response to the Offer was swift. On September 7, 2017, he, along with Trevor Butler (“Butler”), Michael Franchetto (“Franchetto”), Paul Pizzo (“Pizzo”) and Craig Wilkins (“Wilkins”) (collectively the “Cornacchia Group”) commenced Application CV-17-582378 against Cotic pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B16, as amended (the “OBCA”) (the “Cornacchia Group Application”).

[4] The Cornacchia Group Application seeks a declaration that Cotic had conducted the business and affairs of the Corporation in a manner that was oppressive, unfairly prejudicial to and unfairly disregarded the interests of the Cornacchia Group as shareholders of the Corporation together with several orders to rectify the oppression including an accounting of the financial affairs of the Corporation and a suspension of the Offer. In the grounds, the Cornacchia Group alleged, among other things, that Cotic had been secretly directing significant deposits away from the Corporation to accounts controlled by himself.

[5] In response, on November 7, 2017, Cotic commenced Application CV-17-586008 against Cornacchia, Butler, Franchetto and Pizzo pursuant to s. 253(1) of the OBCA seeking an order requiring Cornacchia to comply with the shareholders’ agreement and complete the sale of his shares and his loan to the Corporation as contained in the Offer (the “Cotic Application”).

[6] On January 3, 2018, both the Cornacchia Group Application and the Cotic Application were transferred to the Commercial List. On November 28, 2018, both Applications were ordered consolidated under Court File No. CV-18-591280-00CL.

[7] The hearing of the Applications took place before me utilizing affidavits, accompanying documentation and cross-examination transcripts as well as 2.5 days of viva voce evidence. In total, there are almost 30 affidavits from 16 witnesses, two experts and nine expert reports.

[8] At the outset of the hearing, the parties advised that they had agreed with the value of $3,500.00 per share and the issues for determination are:

i. How many shares does Cotic own in the Corporation? ii. What is the value of Cotic’s shareholder loan to the Corporation? and iii. How much money has Cotic taken from the Corporation?

[9] In addition to the above questions, the hearing also raised the issue of who are the shareholders of the Corporation?

The Facts

[10] The following are my factual findings based on the evidence.

[11] The Corporation carries on business under the name of “Fitness Fanatix” and operates a fitness and health centre at a gym (“Gym”) located at 3450 Ridgeway Drive, Units 15 to 17 in Mississauga, Ontario.

[12] Prior to starting the Corporation, Cotic, who has a grade 12 education, worked in security, mainly as a bouncer at night clubs. He had no experience running a business. Sometime in early 2002, he spoke to his friend, Butler, who had worked at gyms and as a personal trainer, about getting into the gym business. Around the same time, Cornacchia, who had been friends with Butler for years, also spoke with Butler about his interest in opening a gym. Butler arranged for Cotic and Cornacchia to meet.

[13] Cornacchia, who was engaged at the time as a full-time partner in Pyrotek Special Effects Inc., a successful pyrotek special effects business, was interested in investing in a gym.

[14] In mid-2002, Cotic, Cornacchia and Butler, along with two other investors, agreed to go into the gym business together. They each agreed to invest $25,000 for a 20% interest. Early on the two other investors backed out leaving Cotic, Cornacchia and Butler. It was agreed from the outset that Cotic would manage and supervise the day-to-day affairs of the business. Aware of Cotic’s lack of business experience, Cornacchia offered his accountant, Harry Chang (“Chang”), and his lawyer and business advisor, John Papadakis at Blaney McMurtry LLP, to assist the Corporation.

[15] The Corporation was incorporated on September 19, 2002 pursuant to the OBCA. The Articles provide that the Board of Directors (the “Board”) shall consist of a minimum of one and a maximum of ten members. Cotic was named as the first director. The Articles provide for an unlimited number of common shares without par value and restrict the transfer of shares without a resolution of the Board or the express consent of all shareholders either by resolution at a meeting or in writing signed by all shareholders.

[16] Also, on September 19, 2002:

1. Cotic as the sole director, passed a number of resolutions organizing the Corporation and providing for, among other things, the appointment of officers and the issuance and allotment of shares. Cotic was appointed President, Butler, Secretary and Cornacchia, Treasurer.
2. Cotic, Cornacchia and Butler were each issued 100 shares of the Corporation at an aggregate subscription price of $10 each.
3. By-Law #1 relating to the general transaction of the business and affairs of the Corporation and By-Law #2 permitting borrowing were passed by Cotic as the sole director and confirmed by the shareholders.
4. A subsequent shareholders resolution dated September 19, 2002, provided that the three directors of the Corporation were Cotic, Cornacchia and Butler and that the Board managed or supervised the business and affairs of the Corporation.
5. The directors passed resolutions appointing Chang as the Corporation’s accountant and Blaney McMurtry as the Corporation’s solicitors.

[17] Finally, Cotic, Cornacchia and Butler entered into a written shareholders agreement dated September 19, 2002 (the “2002 Shareholders Agreement”), governing the organization and operation of the Corporation as well as their relationship as shareholders. Among other things, it provided for a prohibition on the transfer of shares, a right of first refusal in the event of a bona fide third party offer and a compulsory buy-sell provision.

[18] In particular, Paragraph 6.1 of the 2002 Shareholders Agreement provided that notwithstanding the appointments of the President, Secretary and Treasurer of the Corporation, Cotic “shall manage and supervise the day-to-day affairs of the Corporation for a remuneration as determined by the Board of Directors.”

[19] From the inception of the Corporation, Cotic, Cornacchia and Butler did not conduct themselves in accordance with the strict terms of the 2002 Shareholders Agreement.

[20] In accordance with the unanimous resolution of directors dated December 31, 2002 and as shown in the Corporation’s Shareholder Register, Butler transferred 73.75 shares to Cotic and Cornacchia transferred 13.75 shares to Cotic with the result that Cotic is shown as owning 187.5 shares of the Corporation, Cornacchia 86.25 shares and Butler 26.25 shares.

[21] Following incorporation, Cotic opened a bank account for the Corporation at the TD Bank. He secured leased premises at 355 The Collegeway, Mississauga and between March and July 2003, the Corporation incurred significant expenses in building out the premises and buying and leasing equipment for the Gym. The Gym opened in July 2003.

[22] Cotic worked full time at the Gym without pay. In addition to overseeing the construction, Cotic bought and leased equipment, marketed the Gym, paid the bills and staff, and managed, hired and fired the staff.

[23] Apart from getting the Corporation up and running and opening the Gym, neither Cornacchia nor Butler were involved in the Corporation or the day-to-day operation of the business. Cornacchia was busy in his full-time job and checked in with Cotic from time to time. He says that between 2005 and 2014, he didn’t pay very close attention to the business.

[24] Butler initially worked at the Gym’s front desk for the first couple of years, also for no pay. From 2006 to 2008, he again worked at the Gym during which time he was paid. He stopped working at the Gym in 2008. While he attended a few of the shareholder meetings after 2015, he continued to not really be involved in the Corporation.

[25] Ninety percent of the revenue of the Corporation comes from monthly membership fees and a semi-annual rate security fee from members (to protect their membership fee) which fees are collected electronically from members by Twin Oaks Software and deposited by it to the Corporation’s bank account. In addition, payments comprised of rent from a sub-tenant, members fees and payments from personal trainers are received at the Gym’s front desk and are paid either by credit card, debit or cash.

[26] In or around 2003 or 2004, Pizzo became a shareholder of the Corporation. He was initially introduced to the Corporation through Butler who was a friend of his. At the time he became a shareholder, Pizzo received a copy of the 2002 Shareholders Agreement. Pizzo was also not involved in the business and received “occasional” updates from Cotic. He rarely visited the Gym until sometime between 2015 and 2017 when he started spending time there.

[27] Pizzo’s name does not appear on any of the Corporation’s records as a shareholder nor is he a signatory to the 2002 Shareholders Agreement. Pizzo says the reason is because at the time of his investment, he was engaged in an illegal business which could have resulted in legal issues which in turn could have jeopardized the Corporation’s business. As a result, it was agreed that his name would not appear on any of the paperwork.

[28] The Corporation experienced substantial losses in the early years requiring the shareholders to invest money. In November 2005, the shareholders executed a document, prepared by Chang, entitled “Fitness Fanatix Inc. Shareholder Structure as at September 2005” (the “Shareholders Structure Document”) which sets out the amount of monies each shareholder had invested in the business at that time as follows:

FITNESS FANATIX INC. SHAREHOLDER STRUCTURE As at September 30, 2005

SHAREHOLDER	AMOUNT
MIKE COTIC	$613,500
LORENZO CORNACCHIA	480,753
TREVOR BUTLER	218,851
PAUL PIZZO	145,800
TOTAL	$1,459,004

[29] Chang prepared annual financial statements for the Corporation which were done on a notice to reader basis. He also did the Corporation’s tax filings for each year. Chang produced financial statements for the Corporation from 2002 to 2010.

[30] Chang ceased to be the Corporation’s accountant towards the end of 2011. As a result, Cotic retained Falcon Mah, CPA, CMA (“Mah”). Mah prepared notice to reader statements for the Corporation for the 2011 to 2013 years as well as doing all the tax filings.

[31] Despite the fact that the business was not profitable, Cotic continued to inject money into it to enable it to operate. When he asked the other shareholders to invest money in proportion to their shareholdings, they declined.

[32] The monies Cotic injected into the business he obtained primarily from borrowing it from family, friends and acquaintances and from mortgaging his house. Often in order to cover expenses, Cotic borrowed money by having the lender use their credit card to inject money directly into the business. The Cornacchia Group evidence confirms that Cotic borrowed money from almost all of them over the period as well as from other affiants.

[33] Wilkins ran a supplement store in Mississauga for 12 years. When that closed in the fall of 2011, he moved his juice bar into the Gym. Cotic opened an account at the TD Bank for the juice bar which was run by Wilkins. Wilkins closed the juice bar in 2014 and became a full-time employee of the Corporation. He worked at the Gym’s front desk and described his role as operations and collections. He was paid $500 per week in cash by Cotic. In late 2016, Cotic increased his salary to $600 per week.

[34] By late 2012, the Gym had approximately 1,200 members. In November/December of 2012, on Cotic’s initiative, the Corporation entered into a franchise agreement with World Gym and began operating as World Gym Mississauga. The association with World Gym resulted in a significant increase in the Corporation’s Gym membership.

[35] In March 2013, Cotic opened a new business bank account for the Corporation at the Royal Bank of Canada.

[36] Franchetto had known Cotic for several years before the Corporation was formed. Although he was asked by Cotic at the outset of the Corporation if he was interested in investing in the Corporation, he declined as he was involved running his own business. When Cotic again approached him in 2012, he and his wife decided it was time to sell the business, enabling them to become shareholders. Between 2013 and 2015, Franchetto and his wife invested a total of $146,989.40 for 15 shares or a 5% interest in the Corporation.

[37] The Corporation’s Share Transfer Register shows that Franchetto became the owner of 15 shares of the Corporation on July 31, 2014 by the transfer of 15 shares from Cotic. As a result, the Shareholders’ Register was amended to provide that as at July 31, 2014, Cotic owned 172.5 shares, Cornacchia 86.25 shares, Butler 26.25 shares and Franchetto 15 shares.

[38] The parties agree the entries in the Corporation’s Share Register concerning the source of Franchetto’s shares is incorrect and in fact Franchetto’s 15 shares were received not from Cotic alone but from Cotic, Cornacchia and Butler based on 2.5% from Cotic, and 1.25% interest from each of Cornacchia and Butler.

[39] Accordingly, the Share Register should really provide that as of July 31, 2014, Cotic owned 185 shares of the Corporation, Cornacchia owned 85 shares, Butler 25 shares and Franchetto 15 shares.

[40] Both Franchetto and his wife worked at the Gym starting in 2014 and mid-2013 respectively. Franchetto did a lot of construction and renovation work for which he was paid, and his wife worked at various jobs including the front desk. When the construction work was done, Franchetto continued to attend the Gym regularly and do odd jobs.

[41] In October 2014, Cornacchia retired from the pyrotek business and decided to take a more active role in the Corporation’s business.

[42] Coinciding with Cornacchia’s more active involvement in the business, he arranged to have Chang again retained as the Corporation’s accountant which took place on October 7, 2014.

[43] As a result of Franchetto becoming a shareholder, Chang set about updating both the Corporation’s financial information and its Minute Book. In particular, he prepared interim financial statements for the Corporation as at July 31, 2014, amended the financial statements for 2012 and 2013 and filed corrections with the CRA.

[44] The July 31, 2014 interim financial statements set out on the Balance Sheet, under “Other Liabilities”, the following shareholder advances to the Corporation:

Cornacchia – $ 447,600 Butler – $ 249,200 Cotic – $1,185,200 Franchetto – $ 125,000

[45] Chang also instructed the Corporation’s solicitors in respect of updating the Corporation’s Minute Book and Share Register.

[46] By resolution dated November 2014 and signed by Cotic, Cornacchia and Butler, the directors of the Corporation approved the borrowing of monies advanced to the Corporation as follows:

1. By Cotic $795,200 on December 31, 2010 and $255,000 on December 31, 2013 for a total of $1,050,200;
2. By Cornacchia, $447,600 on December 31, 2010;
3. By Butler, $249,200 on December 31, 2010; and
4. By Franchetto, $125,000 on July 31, 2014.

[47] By agreement made July 31, 2014, Cotic, Cornacchia, Butler and Franchetto signed an Amended and Restated Shareholders Agreement (the “2014 Shareholders Agreement”). Pizzo received a copy of the 2014 Shareholders Agreement and agrees that he is bound by it.

[48] Apart from adding Franchetto as a shareholder, the 2014 Shareholders Agreement did not differ in any material respect from the 2002 Shareholders Agreement.

[49] The preamble to the 2014 Shareholders Agreement provides that the issued and outstanding common shares of the Corporation are owned as follows:

Cotic – 172.5 shares Cornacchia – 86.25 shares Butler – 26.25 shares Franchetto – 15 shares

[50] In 2015, Cotic retained a new accountant, Stephen Meade (“Meade”) of BDO Dunwoody in Mississauga. Meade completed the Corporation’s financial statements and tax filings for the 2015 and 2016 years.

[51] In September 2016, Kinetic Like Inc. (“Kinetic”), a physiotherapy clinic, began subleasing space at the Gym from the Corporation.

[52] When Cornacchia started to take a more active role in the Corporation’s day-to-day business, it wasn’t long before issues arose between Cornacchia and Cotic concerning both business matters and what they both envisaged the model for the Gym to be. Cotic said that they did not see “eye to eye”.

[53] In August 2015, Cornacchia began to press Cotic for financial information about the business. As a result, in October 2015, Cotic, with Meade’s assistance, began providing monthly financial summaries to the shareholders showing revenues and expenditures.

[54] In addition, sometime in 2015, the shareholders began holding monthly meetings. At some point, Cornacchia began circulating emails to the shareholders summarizing what was discussed and agreed between them.

[55] In March 2016, Cornacchia began to press Cotic for production of the bank statements.

[56] There is a dispute between Cotic and Cornacchia about Cotic’s willingness to provide the bank statements. Cornacchia says that he did not have access to them and received no regular financial reporting beyond periodic verbal assurances from Cotic.

[57] Cotic says that he told Cornacchia that he could speak to the Corporation’s accountant who had all the financial information including the bank statements. Cornacchia denies that and says that Cotic refused to produce the bank statements. Eventually the Cornacchia Group ended up obtaining the bank statements directly from the TD Bank. Further, in June 2017, the Cornacchia Group met with Meade, the Company’s accountant.

[58] Cotic proposed that the Corporation retain BDO Dunwoody to do the Corporation’s bookkeeping, but the Cornacchia Group rejected the idea as being too expensive.

[59] Cotic and Cornacchia also disagreed on the day-to-day operations of the business. In 2015, Cotic says that Cornacchia spent approximately $10,000 on flat screen TVs and $15,000 for unnecessary renovations to the Gym, neither of which he approved.

[60] Pizzo says that when the Gym was moving to new premises, he advised Cotic that he wanted to sell his shares in the Corporation. Cotic says that he and Pizzo agreed that he would purchase Pizzo’s shares in the Corporation for $150,000. On June 12, 2017, Cotic gave Pizzo a cheque for $15,000 as a deposit for the purchase. The other shareholders were advised of the proposed sale at the June meeting and while Cornacchia stated he wanted to purchase half of Pizzo’s shares, he did not proceed.

[61] Pizzo’s evidence is that when Cotic offered to buy his shares, he made it clear that they had to be offered to the other shareholders. Cotic agreed but insisted on giving him a deposit. Pizzo said it was not necessary, but they “settled” on a $15,000 non-refundable deposit. Subsequently, Pizzo says that he ended up changing his mind and decided not to sell his shares. Subsequently, when the litigation started and Cotic asked for his money back, Pizzo refused.

[62] In June 2017, as a result of the 355 The Collegeway location having been sold, the Corporation began extensive renovations at new premises which had been leased at the current Ridgeway Drive location. In order to pay for both operating costs as well as the renovation costs for the new premises, the shareholders advanced money in proportion to their shareholding percentage.

[63] When the Cornacchia Group proposed selling refreshments and a line of clothing in the Gym, Cotic disagreed and refused to permit the Corporation to fund it. Nevertheless, the Cornacchia Group went ahead with the proposal, using their own funds.

[64] In August 2017, when Cotic returned from a vacation, he learned that the Cornacchia Group had authorized extra plumbing work in the bathroom of the new premises against Cotic’s wishes and without his approval.

[65] Around the same time, World Gym notified the Corporation the franchise agreement for the Gym would expire on November 30, 2017. Cotic had not wanted to renew the World Gym franchise for some time and was proposing moving forward with another gym organization after November 30, 2017. Cornacchia disagreed and wanted to renew the franchise with World Gym. While Cotic agreed to extend the franchise for three months as a result of the litigation, unbeknownst to him, Cornacchia has been paying the franchise fee beyond that period to continue the relationship with World Gym.

[66] As a result of Cotic’s issues with the Cornacchia Group, and Cornacchia in particular, regarding operating the Gym, on September 7, 2017, Cotic delivered the Offer which in turn gave rise to both the Cornacchia Group Application and the Cotic Application.

The Experts

[67] Both sides hired expert forensic accountants to deal with the issue of the value of Cotic’s shareholder loan account with the Corporation.

[68] Cotic retained Scott Paulin, a Senior Manager at Taylor Leibow LLP, Chartered Accountants. In response, the Cornacchia Group retained Dominic Marino, a partner with PricewaterhouseCoopers LLP.

[69] Mr. Paulin has a BCom degree from McMaster and received his Chartered Accountant designation in 2008. He received a Diploma in Investigative and Forensic Accounting from the University of Toronto in 2011 and received both his Investigative and Forensic Accounting designation and his Chartered Professional Accountant designation in 2012. In 2014, he was Certified in Financial Forensics by the American Institute of Certified Public Accountants. Mr. Paulin has over ten years professional experience in investigative and forensic accounting.

[70] Mr. Marino has a BCom from the University of Toronto and received his Chartered Accountant designation in 2005. He received the Chartered Business Valuator designation in 2007. His practice specializes in the areas of business valuation, loss quantification and forensic accounting in which he has significant experience.

[71] Both Mr. Paulin and Mr. Marino were called as witnesses at the hearing and were qualified by me as experts in financial accounting and forensic investigation based on both education and experience.

[72] In total, Mr. Paulin produced five reports and Mr. Marino produced four.

[73] In his initial report dated August 1, 2018, Mr. Paulin undertook a source and use analysis of the Corporation’s three bank accounts for the period from January 1, 2013 to August 31, 2017 to determine the deposits and withdrawals to and from the shareholder loan accounts over the period. A source and use analysis involve reviewing all bank transactions and analyzing the source of any deposits and the use of any withdrawals.

[74] Mr. Paulin’s review involved some 8 to 9,000 documents in six banker’s boxes encompassing approximately 12,900 transactions. Mr. Paulin’s analysis concluded that over the four and a half years reviewed, on a net basis, all the shareholders withdrew money from the Corporation. He stated, however, that he found no evidence that, either Cotic or any of the other shareholders withdrew more money from the Corporation than they were entitled to. That opinion was based on the status of the Shareholder advances to the Corporation as shown on the interim July 31, 2014 Balance Sheet prepared by Mr. Chang.

[75] Mr. Paulin noted that in doing his review, he did not rely on the 2015 or 2016 financial statements of the Corporation because he determined that they were prepared with incomplete information.

[76] Based on his analysis, Mr. Paulin’s opinion is that all shareholders withdrew more than they contributed to their shareholder account over the period of 2013 to 2017. Specifically, as shown on Schedule 1 to the August 1, 2018 report, over the period Cotic withdrew $41,993.49, Cornacchia $82,387.50, Butler $47,883.13, Franchetto $110,763.15 and Pizzo $25,192.63.

[77] Mr. Marino’s reply report dated March 13, 2019, took issue with Mr. Paulin’s source and use approach to determine the status of the shareholder loans on the basis it did not analyze the full period of operations of the Corporation from its inception in 2002 to 2017. Further, based on being advised that the business had a significant cash component, Mr. Marino noted that if the cash was not deposited into the Corporation’s bank account, a source and use analysis would be incomplete.

[78] Mr. Marino was further of the opinion that it was not possible to draw reasonable conclusions about the financial affairs of the Corporation from its books and records because there were no records for the period from 2003 to 2012. Nor were the financial statements audited or reviewed. It was therefore not possible to say what Cotic’s shareholder loan balance was at August 31, 2017 as there are no detailed records of the shareholder loan balances. Nor could Mr. Marino say how much cash Cotic had taken out of the Corporation.

[79] Mr. Paulin issued a further report dated April 5, 2019, taking issue with Mr. Marino’s opinions. He felt that based on the information he had available, a source and use analysis could be completed. He also stated that based on his review, he had no information that there was a significant cash component to the Corporation’s business.

[80] Mr. Marino delivered a further reply report dated April 23, 2019, responding to Mr. Paulin’s April 5th report and providing more detail to support his opinions. Mr. Marino’s opinion based on his review of the documentation provided is that the support relied upon in preparation of Mr. Paulin’s August 1, 2018 report was inadequate to allow him to conclude that the allocations contained in Schedule 1 of his report were accurate. He undertook a detailed review of the documents provided and stated that he was unable to independently confirm the appropriateness of the allocations in Mr. Paulin’s report.

[81] To illustrate his conclusion, Mr. Marino prepared a detailed schedule of all the deposits and withdrawals in 2016 as shown on the Corporation’s bank statements, broken down by category for each of the various transactions. In total, there was $2,590,787 in deposits and $2,638,061 in withdrawals. Mr. Marino’s review identified $670,505 in deposits and $1,058,435 in withdrawals for which he stated he was unable to locate adequate supporting documentation to permit the proper classification of the transactions.

[82] On April 29, 2019, Mr. Paulin provided Mr. Marino with his detailed schedules showing transaction-by-transaction allocations he used to come to the conclusions set out in his August 1, 2018 report.

[83] On April 30, 2019, Mr. Paulin provided a further report explaining the significant allocation differences between himself and Mr. Marino having regard to Mr. Marino’s 2016 analysis.

[84] On May 14, 2019, Mr. Marino provided a “supplemental submission” in which he stated that based on his review of Schedule 1 of the April 30, 2019 Paulin report and the 2016 supporting schedule produced by Mr. Paulin, he agreed with certain of Mr. Paulin’s categorizations. However, he maintained that there were still several transactions which were not sufficiently supported. Accordingly, he maintained his earlier opinion that Mr. Paulin’s source and use analysis could not be relied upon.

[85] On May 24, 2019, Mr. Marino provided an amended supplemental submission to his May 14, 2019 supplemental submission providing further amendments in relation to two categories of transactions based on further information. Of note is Appendix B to the submission which is a comparison of Mr. Paulin’s analysis of the source and use of the Corporation’s bank accounts for 2016, compared to Mr. Marino’s analysis for the same period (Ex. 2, Tab 44, p. 1108).

[86] Of the total deposits to the Corporation’s bank accounts of $2,590,787 in 2016, Mr. Marino agreed with Mr. Paulin that $83,013 were supported by third party documents, bank statements and could be otherwise identified. He concluded, however, deposits totaling $2,207,774 were unsupported. In respect of the total withdrawals of $2,638,061, Mr. Marino agreed that $1,702,126 were supported and $907,505 were unsupported. The unsupported deposits and withdrawals that in Mr. Marino’s opinion were unsupported were broken out into ten transaction categories.

[87] Both Mr. Paulin and Mr. Marino testified at the hearing. Their evidence focused on Mr. Marino’s chart, Appendix B to his May 24, 2019 amended supplemental submission and specifically his opinion concerning the unsupported transactions.

[88] The largest category of unsupported deposits and withdrawals identified by Mr. Marino was in respect to Elavon and Moneris, the two companies that process the Corporation’s credit card transactions. Mr. Marino concluded that a total of $1,708,984 in deposits and $28,429 in expenses concerned revenue from Elavon and Moneris that could not be reconciled to supporting documentation.

[89] Mr. Paulin testified that he reviewed the actual credit card slips from each individual in respect of the deposits from both Elavon and Moneris and was able to separate them into revenue ($1,030,390), Cotic deposits ($116,513), Cotic acquaintance deposits ($117,011) and shareholder payments (other than Cotic) ($4,000). In so doing, he allocated the amounts deposited by Cotic and his acquaintances to Cotic’s shareholder loan.

[90] Mr. Marino listed $52,982 American Express deposits as unsupported. Mr. Paulin used the American Express credit card statements to allocate $29,894 (less $803 in charges) to revenue and $23,891 to shareholders (other than Cotic).

[91] On branch to branch transfers (between the TD account and the RBC account), Mr. Marino concluded that $305,715 in withdrawals and $52,400 in deposits were unsupported. In response, Mr. Paulin said that he saw no evidence that the amounts concerned either revenue or expenses given that the majority of the Corporation’s revenue was deposited to the RBC account and the majority of expenses were paid from the TD account. Accordingly, he allocated almost all the withdrawals and the deposits to Cotic.

[92] Mr. Marino identified withdrawals of $169,315 in respect of transactions unsupported by external documentation. In response, Mr. Paulin allocated the amount to four different areas, the primary one being expenses of $116,297 with the next largest one being $46,814 to Cotic personally.

[93] Mr. Marino further identified $120,421 in ATM deposits as being unsupported. Again, Mr. Paulin allocated almost the entire amount to Cotic personally.

[94] Mr. Paulin further explained the basis for his allocations in respect of a withdrawal of $37,555 by a credit card payment; payments of $170,852 to individuals other than Cotic’s acquaintances; and other deposits/wire transfers of $272,987.

[95] I accept Mr. Paulin’s opinion concerning his analysis of the source and use of the Corporation’s revenues and expenses not only in respect of the 2016 year but for the entire period of his analysis as set out in Table 1 of the Taylor Leibow Report of August 1, 2018, as corrected by him in his testimony before me.

[96] I do not accept Mr. Marino’s evidence that Mr. Paulin’s analysis is unreliable based on the fact that many of the transactions cannot be supported.

[97] Further, I accept Mr. Paulin’s evidence that, in his review, he did not have any evidence that there was a significant cash component to the Corporation’s business.

[98] I have reached those conclusions for the following reasons:

1. Mr. Marino’s response to Mr. Paulin’s report was not to prepare his own source and use analysis but rather to critique Mr. Paulin’s report. I don’t fault Mr. Marino for that. Those were his instructions.
2. Mr. Marino’s critique of Mr. Paulin’s report was based primarily on his opinion that many of Mr. Paulin’s allocations could not be supported. I am satisfied, however, based on Mr. Paulin’s detailed review of the documents and his professional judgment that his allocations are both appropriate and justified.
3. Further, Mr. Paulin explained the basis for how he arrived at his allocations specifically in respect of Mr. Marino’s 2016 analysis and he successfully defended his opinions in cross-examination.
4. In my view, in coming to his conclusion that many transactions were unsupported, Mr. Marino either didn’t do the detailed investigation of the documentation that Mr. Paulin did, or he was too rigid in his requirement for supporting documentation. For instance, Mr. Paulin testified that in respect of $169,315 in withdrawals Mr. Marino classified as unsupported, $116,000 was allocated by Mr. Paulin as lease payments, notwithstanding that he did not have the actual lease agreements. His conclusion was based on a number of factors, including the payments being regular automatic withdrawals, the withdrawals going to a leasing company and notations in respect of the withdrawals.
5. Mr. Marino did not do an analysis of the Company’s records to determine if there was a significant cash component to the business. He was simply told to accept that fact as part of his instructions.
6. I also do not accept Mr. Marino’s opinion that it was not possible to determine the status of the shareholder loans in the absence of records going back to the beginning of the Corporation in 2002. In fairness, he was told to not consider the various documents that the shareholders/directors had signed over the period.

The Issues

[99] As noted at the outset, the parties have agreed that the issues to be decided are: how many shares does Cotic own in the Corporation; what is the value of Cotic’s shareholder loan as at August 31, 2017; and how much money has Cotic taken from the Corporation.

I. The Cornacchia Group

[100] The Cornacchia Group’s Application seeks a declaration that Cotic has conducted the business and affairs of the Corporation in a manner that is oppressive, unfairly prejudicial to and unfairly disregards their interests contrary to s. 248 of the OBCA, together with various forms of relief.

[101] As a number of the remedies sought by the Cornacchia Group are no longer applicable, particularly because the parties have each hired expert forensic accountants, the relevant remedies sought that remain are:

a) An order transferring Cotic’s equity interest in the Corporation to the Cornacchia Group, or vice versa, at their election … and any other related orders necessary to separate the financial interests of Cotic and the Cornacchia Group; and b) An order suspending the operation of Cotic’s Buy-Sell Notice and directing that any transfer of ownership in connection with the Corporation shall only occur in connection with the Application.

[102] In addition to the issues agreed to by the parties, the Cornacchia Group submits that in addition to Cotic, Cornacchia and Butler, Wilkins and Correia are also shareholders of the Corporation and that Cotic’s conduct both in terms of how he ran the Corporation and specifically his shareholder loan was oppressive, unfairly prejudicial to and disregarded their interests as shareholders. They allege that Cotic wrongly took cash from the Corporation.

II. Cotic

[103] The Cotic Application seeks an order requiring Cornacchia to comply with s. 9 of the 2014 Shareholders Agreement and the Offer pursuant to s. 253 of the OBCA on the basis that Cornacchia sell his shares and shareholder loan to Cotic in accordance with the set out in the Offer.

[104] At the conclusion of the hearing, Cotic also sought orders requiring that he deliver buy/sell notices to each of Butler, Franchetto and Pizzo in accordance with the agreed share price of their shareholder loans.

[105] Cotic denies that Wilkins and/or Correia are shareholders. Further, Cotic submits that the Cornacchia Group has not established either that their expectations were reasonable or that if they are reasonable, that they were violated by the requisite conduct. Specifically, Cotic denies that he misappropriated any cash from the Corporation.

The Oppression Remedy

[106] Section 248 of the OBCA sets out what is referred to as the oppression remedy. The test to establish oppression involves a two-pronged inquiry as set out by the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 SCR 560 at para. 68: 1) does the evidence support the reasonable expectation(s) asserted by the claimant; and 2) does the evidence establish that the reasonable expectation(s) was/were violated by conduct that was oppressive, unfairly prejudicial or unfairly disregarded?

[107] The expectations listed by each of the Cornacchia Group in their affidavits are virtually identical. They are that the Corporation’s business would be run in a responsible way with proper books and records; that they would have access to the books and records of the business if requested; that the business of the Corporation would be operated out of one bank account; that the other shareholders would not transfer their shares without first offering them to the other shareholders; and that Cotic would not borrow from third parties to invest in the Corporation without their authorization.

[108] In addition, Cornacchia says he expected Cotic to operate the business of the Corporation in the spirit of the Shareholders Agreements and Franchetto expected Cotic to operate the Gym in accordance with all applicable laws and regulations.

[109] Whether a complainant’s expectation(s) is/are reasonable is objective, having regard to the facts, the relationship at issue and the entire context: BCE, para. 62. At paras. 72-80 of BCE, the Court lists a number of factors to consider in determining whether a reasonable expectation exists including: general commercial practice, the nature of the corporation, the relationship between the parties, past practice, steps the claimant could have taken to protect itself and communications and documents between the stakeholders.

[110] In the present case, the relationship of the shareholders was governed initially by the 2002 Shareholders Agreement which was signed by Cotic, Cornacchia and Butler and which was provided to Pizzo and, more recently, by the 2014 Shareholders Agreement which was signed by Cotic, Cornacchia, Butler and Franchetto with Pizzo again being given a copy and agreeing it applied to him.

[111] At the same time, and as noted, the shareholders did not follow the Shareholders Agreements. Nor did the directors ever hold a formal directors meeting. The shareholders and directors were content to allow the Corporation to be run exclusively by Cotic without any involvement by them for over 12 years.

[112] I have no difficulty in concluding that the Cornacchia Group’s expectations that the Corporation would be run in a responsible way with proper books and records and in accordance with all applicable laws and regulations are reasonable. Those are basic duties of officers and directors of corporations. I am also of the view that their expectations that they would have access to the books and records if requested and the restriction of the transfer of shares to existing shareholders are also reasonable. Those requirements are contained in the Shareholders Agreements in Articles 7.1 and 13.1 respectively.

[113] From the outset of the Corporation carrying on business, I am satisfied that the Corporation under Cotic’s direction, maintained sufficient financial records. Each of Chang, Mah, and Meade, were able to produce annual financial statements and filed tax returns from financial information provided by the Corporation. The financial records were kept by Cotic in his office and were available to review on request. However, for the first 12 years of the Corporation’s operation, there is no evidence that any of the shareholders requested to see them.

[114] In 2015, when the shareholders, led by Cornacchia, began requesting more detailed financial information, Cotic subsequently provided it, with the assistance of Meade, in the form of monthly revenue and expense statements. When that didn’t satisfy them, Cotic told them to speak to Meade which they finally did. Their complaints focus in part on the cash component of the business which occurred at the Gym’s front desk. But even there, records were kept on a daily basis by the front desk of the payment and the form of payment.

[115] The Cornacchia Group submits that the fact that there are no financial records for the Corporation from 2002 to 2013 points to Cotic’s record keeping deficiencies. I disagree. A corporation cannot be expected to keep records forever. Chang said that he purges records after three years which is the limitation period for a CRA audit. If Cornacchia and Butler, as directors of the Corporation, felt that it should have maintained better financial records from the outset, they could have required that. They never did.

[116] Further, while the Minute Book was set up at the outset, although it was not maintained between 2005 and 2014, there was no reason to do so.

[117] I am also of the view that the Cornacchia Group has failed to prove that Cotic ran the Corporation in an irresponsible way during the 12 years he ran it before the other shareholders started to get involved. Cotic started the business, sustained it over many tough financial years and grew it into a success with over 6,000 members. There is no question that Cotic’s business methods were sometimes unorthodox. In the circumstances, however, I consider his actions to have been dictated by what was necessary to keep the business going, particularly in the absence of any assistance from the other shareholders.

[118] I am of a similar view for the time period after 2014 when Cornacchia and then the other shareholders got involved in the business for the first time. While it is clear that they did not agree with some of Cotic’s business methods, I do not consider that is sufficient to establish that Cotic was not running the Corporation in a responsible way. It is more indicative of a disagreement in business approaches.

[119] Further, there is no evidence that Cotic did not operate the Gym in accordance with all applicable laws and regulations as raised by Franchetto.

[120] With respect to the expectation that the Corporation would be operated out of one bank account, while the Shareholders Agreements provide in s. 7.3 that a “separate bank account shall be opened and maintained for the Corporation”, it does not restrict the Corporation to one bank account. Management was ceded to Cotic who had sole control over running the Corporation including the finances. In such circumstances, I do not consider that it was reasonable to assume that the Corporation would only operate using one bank account.

[121] If I’m wrong about my conclusion that the Shareholders Agreements do not restrict the Corporation to one bank account, in my view Cotic’s actions in opening two additional bank accounts (the RBC account and the juice bar account) were not “oppressive” or unfairly prejudicial to the shareholders.

[122] The Cornacchia Group take great issue with Cotic opening more than one account. They submit that there is no need for more than one account and Cotic opened the other two accounts “secretly”. Cotic’s evidence, which I accept, explains why both accounts were opened. Further, there is no evidence that they were used for any purpose other than the Corporation’s business. All three accounts were part of Mr. Paulin’s source and use analysis. Further, I accept that Cotic told Cornacchia about the RBC account at the time it was opened.

[123] Finally, I do not agree that the Cornacchia Group’s “expectation” that Cotic would not borrow from third parties to invest in the Corporation without their authorization is reasonable. There is no such requirement in the Shareholders Agreements. More importantly, there is no evidence that such a restriction was ever discussed or contemplated. It also makes no sense commercially. Where or from whom Cotic, or any other shareholder for that matter, obtained the monies they invested in the Corporation was not subject to the approval of the other shareholders.

The Shareholders

[124] The Cornacchia Group submits that the shareholders of the Corporation are Cotic, Cornacchia, Butler, Pizzo, Wilkins and Correia.

[125] They further submit that presently Cotic only owns 10.8% or 33.4 shares in the Corporation. They reach that number by first starting with the initial percentage of shares Cotic received at the outset (33.3%) and subtracting 15% which they submit Cotic sold to Wilkins in 2012; 5% which they submit that Cotic sold to Steve Correia (“Correia”) in June 2013 and 2.5% which he sold to Franchetto in 2014.

[126] In addition, they submit each of Cornacchia and Butler/Pizzo’s initial allocation of 33.3% of the shares has only been reduced by their transfer to Franchetto of 1.25% each resulting in Cornacchia owning 32.05% and Butler/Pizzo together owning 32.05% of the Corporation’s shares.

[127] Contrary to the Cornacchia Group’s submission, Pizzo, in his affidavit, says that he purchased a 25% interest in the Corporation in 2003 or 2004. While there is no issue between the parties that Pizzo is a shareholder, there is an issue as to what percentage of shares he owns.

[128] Cotic denies that either Wilkins or Correia are shareholders. Further, he submits he owns 57.50% or 172.5 common shares of the Corporation; Cornacchia owns 28.75% or 86.25 shares; Butler/Pizzo together own 8.75% or 26.25 common shares; and Franchetto owns 5% or 15 common shares.

[129] There is no dispute that only 300 common shares have been issued by the Corporation and that at the time of incorporation, each of Cotic, Cornacchia and Butler received a 33.3% or 100 common shares in the Corporation. Further, they have remained shareholders throughout.

[130] The Cornacchia Group submits that the shareholders operated on a “fundamental misunderstanding” as to the interaction of shareholders loans to equity. I do not agree. The evidence establishes and I find that from the outset, the shareholders agreed and acted on the basis that their respective ownership interest in the Corporation would be adjusted relative to their shareholder loans. As their shareholder loan increased (or decreased) so too did their ownership interest in the Corporation. This is confirmed by the evidence of the shareholders together with various documents that the shareholders signed over the years, beginning with the Shareholder Structure Document. Throughout, the shareholders agreed and acted on the basis their equity interest was based on their financial contributions to the Corporation.

[131] Subsequent to 2014, the shareholders contributed monies to the Corporation in accordance with their shareholding percentage.

[132] The issues for determination are therefore what is Pizzo’s share percentage; whether Wilkins and/or Correia are shareholders of the Corporation; and what are the respective shareholdings of Cotic and the other shareholders.

a. Pizzo

[133] As noted, Pizzo says that in 2003 or 2004, he purchased 25% of the shares of the Corporation. Nothing was in writing. Whether that was the case in 2004, there is no issue that Pizzo’s share percentage in the Corporation has decreased over time.

[134] As noted, in 2005, Pizzo signed the Shareholder Structure Document which provided he had a 10% interest in the Corporation. Pizzo says he agreed to it because that is what Cotic told him his shareholding was. There is no evidence that he ever disputed it.

[135] In my view, Pizzo knew that his interest in the Corporation was based on the amount of money each shareholder invested in the Corporation and went up or down based on the amount each shareholder contributed or didn’t contribute to the Corporation.

[136] Subsequently, Pizzo’s interest in the Corporation decreased further from 10%. While the other shareholders, principally Cotic, continued to contribute money to the Corporation, Pizzo did not. His financial contribution remained the same from the outset. Similarly, Butler’s financial contribution did not increase after 2005 and as a result, his share interest in the Corporation decreased too.

[137] Although it is not reflected in the corporate records, it was understood by the shareholders that, as a silent shareholder, Pizzo’s shares were held on his behalf by Butler and included in Butler’s shares. Pizzo says that he learned in 2014 that he had 10% of Butler’s shares. There is no evidence in the record to support that. Even if true, there is no evidence Pizzo ever took issue with what he was told. Nor is there any evidence Butler ever disputed that Pizzo owned part of his shares.

[138] From 2014 forward, the documentation indicates that Pizzo had 3.25% of the Corporation’s shares which were held by Butler. That percentage is reflected in the correspondence between the shareholders and, once again, there is no evidence that at any time Pizzo took issue with it. He both received and contributed monies to the Corporation based on his 3.25% interest. Further, in discussing the sale of his shares to Cotic during his cross-examination, Pizzo acknowledged that his share percentage is 3.25%.

[139] As noted, Cotic and Pizzo reached an agreement that Cotic would purchase Pizzo’s shares for $150,000. Cotic gave Pizzo a $15,000 deposit. When the sale did not proceed, Pizzo refused to return the deposit.

[140] I cannot accept Pizzo’s evidence that the deposit was non-refundable. Given his position that the sale had to be offered to the other shareholders, it makes no sense that the deposit would be non-refundable. Further, it was Pizzo who refused to proceed with the transaction. Cotic’s evidence, which I prefer in the circumstances, is that the $15,000 was not “non-refundable”.

[141] In the absence of the sale of his shares to Cotic, I find that Pizzo owns 3.25% or 9.75 shares in the Corporation which are part of Butler’s shares.

b. Wilkins

[142] Wilkins submits that he is a 15% shareholder in the Corporation.

[143] He says that in 2012, Cotic told him that he was looking for investors in the Gym. He and Cotic agreed that he would invest $100,000 for 15% equity in the Corporation. Subsequently, he paid the $100,000 - $20,000 on September 6, 2012 and $80,000 on October 12, 2012. On July 19, 2016, Wilkins says he received $15,000 from the Corporation as a dividend.

[144] Cotic’s evidence is quite different. He says that in 2012, Wilkins advised him that he wanted to invest in the Gym. He told him that he would have to discuss it with the other shareholders and asked for a $20,000 refundable down payment to demonstrate he was serious. They agreed that if the transaction did not close by October 31, 2012, Cotic would return the down payment. Wilkins borrowed the $20,000 from his parents and intended to borrow the remainder of the monies from them.

[145] Further, about a week after Cotic received the $20,000, Wilkins told him that his parents did not want to purchase shares of the Corporation. Cotic asked Wilkins if his parents would be willing to lend him the money to use in the operation of the Gym. His parents agreed and he subsequently repaid the loan in full.

[146] Cotic does not deal with Wilkins’ evidence that he received a $15,000 dividend in July 2016.

[147] The documents support Cotic’s evidence, not Wilkins. Cotic and Wilkins signed an undated document on Fitness Fanatix letterhead providing that on September 6, 2012, Cotic had received a refundable down payment of $20,000 from Wilkins’ parents for a 15% ownership/shareholder position in Fitness Fanatix to be held in trust pending the successful merger with Worlds Gym. If the transaction did not close by October 31, 2012, the $20,000 would be returned.

[148] On September 29, 2012, Cotic signed a demand promissory note for $100,000 addressed to Wilkins’ parents. Cotic’s signature was witnessed by Wilkins. Further, Wilkins’ mother’s initials are written at the top of the note beside handwritten changes to both her and her husband’s names. Also, on September 29, 2012, Cotic signed a pledge agreement acknowledging the $100,000 loan from Wilkins’ parents and pledging 45 of his shares in the Corporation as security for the loan in accordance with the terms in the agreement. Again, Wilkins witnessed Cotic’s signature.

[149] The originals of both the promissory note and pledge agreement were in Wilkins’ parents’ files.

[150] Wilkins produced a copy of a cashed cheque dated January 16, 2017 made out to his mother, Linda Wilkins, from Cotic in the amount of $40,000. Further, evidence of payments to Linda Wilkins is contained in Mr. Paulin’s source and use analysis and were credited by Mr. Paulin against Cotic’s shareholder loan.

[151] Wilkins says that he always understood that he was a shareholder because he was entitled to attend shareholder meetings. Pizzo said that when Wilkins showed up at one of the monthly meetings, Cotic said that he needed to attend because he was working the front desk and had a lot of knowledge about the business, not that he was a shareholder. The shareholders asked that he be excluded which he was.

[152] Pizzo says that later Wilkins showed up at a monthly meeting and Cotic admitted that he’d sold 15% of his shares to Wilkins. While Wilkins was present for a few of the later shareholder meetings, it is hard to reconcile Pizzo’s evidence concerning the sale with the documentary evidence. In addition, for reasons already stated, I do not accept other aspects of Pizzo’s evidence.

[153] Butler mentions that Wilkins was at a shareholder meeting and Franchetto says that he did not know Wilkins was a shareholder until Cotic said he was. Cornacchia’s minutes of the shareholder meetings don’t show Wilkins being present until June 2017 and do not show Wilkins being required to pay any portion of the renovation costs which the other shareholders were required to pay.

[154] When asked about the documents in cross-examination, Wilkins conceded that they “lay out a little bit differently than what I had hoped for when I signed it in 2012.”

[155] Notwithstanding the evidence of Butler and Franchetto, which is not specific, and Cotic’s failure to respond to Wilkins’ evidence that he received a “dividend” of $15,000 in July 2016, based on the documentary evidence, I accept Cotic’s evidence and reject Wilkins’ evidence concerning his alleged ownership of shares in the Corporation and find that Wilkins was not a shareholder of the Corporation.

c. Correia

[156] The Cornacchia Group submits that Correia, who is not a party to their Application, is a shareholder of the Corporation having purchased a 5% interest from Cotic in June 2013.

[157] Correia’s evidence is that he became a member of the Gym shortly after it opened and attended regularly, five days a week. Over time he got to know Cotic. After the transition to the World Gym franchise, the business picked up and he asked Cotic if he could invest. Cotic agreed.

[158] On June 28, 2013, Correia and Cotic signed a document entitled “Letter of Intent” providing that Cotic would sell Correia 10% of the Corporation’s shares for $100,000. The closing date was “negotiable”. The Letter of Intent provided for a deposit of $10,000 and the conditions of the transaction stated “60 days refundable”.

[159] Correia said that he was not able to raise the $100,000 but he ended up investing $55,000.

[160] On July 25, 2013, Correia and Cotic signed a second Letter of Intent. It provides that Cotic will sell Correia 5% of Fitness Fanatix shares for $100,000. The closing date is January 15, 2014. The deposit is $55,000 and the conditions of the transaction are: “$1,150.00 paid monthly interest on the 15th”.

[161] Correia says that his understanding of the deal was that he was buying 5% of the Corporation’s shares from Cotic for $55,000. He says that Cotic paid him $1,150 a month as a dividend on his shares until sometime in 2018.

[162] Cotic’s evidence is that when Correia approached him about investing, he told him to speak with Butler and Pizzo who had told him they wanted to be sell their shares. He asked for a $55,000 deposit to demonstrate he was serious, and they agreed that if the transaction did not close by January 15, 2014, the $55,000 deposit would convert to a loan and he would pay Correia $1,150 a month interest on the money.

[163] The Cornacchia Group submit that Correia’s evidence of what occurred makes sense and that Cotic’s version does not.

[164] In my view, the two letters of intent between Cotic and Correia, together with the payment by Cotic of $1,150 per month to Correia are more consistent with Cotic’s version that Correia’s. In the first instance, the two documents are letters of intent, not purchase agreements. It is also clear that the July 25, 2013 letter supersedes the June 28, 2013 letter. The latter document had no closing date and Correia agrees that it was his understanding he could get out of the transaction and get his money back within 60 days.

[165] The July 25, 2013 letter provides for a purchase of 5% of the shares for $100,000. The Cornacchia Group submits that the change from 10% to 5% for $100,000, “completely defies common sense”. I disagree. The fact that Cotic was quoting a different share percentage for the same dollar amount does not strike me as unusual, particularly given that between 2013 and 2015, Franchetto purchased a 5% interest in the Corporation for $147,000.

[166] Further, the July 25, 2013 letter describes the $55,000 payment as a deposit as opposed to the purchase price. It also provides that the purchase will close on January 15, 2014 but Correia agrees that the proposed transaction did not close by that date.

[167] Finally, it is noteworthy, in my view, that there is no reference to Correia in any of the emails in the 2015 – 2017 period dealing with the shareholder meetings concerning either his attendance, his shareholding, any entitlement to any money distributed to the shareholders or any requirement to contribute money.

[168] Accordingly, I find that Correia is not a shareholder of the Corporation.

[169] The Cornacchia Group submits that they had a reasonable expectation that Cotic would not transfer any shares without shareholder agreement. The evidence establishes that he did not violate that expectation. While it is not formally documented, both Pizzo and Franchetto became shareholders with the consent of all shareholders at the time.

Cotic’s Shareholding

[170] The Cornacchia Group’s submission that apart from the sale of shares to Wilkins, Correia and Franchetto, the shares of the initial three shareholders remained at the initial allocation of 33.3% is not supported by the documentary evidence and by the actions of the shareholders.

[171] The 2014 Shareholders Agreement, signed by Cotic, Cornacchia, Butler and Franchetto, provides that the shares of the Corporation are owned as follows: Cotic 172.5 shares; Cornacchia 86.25 shares; Butler 26.25 shares; and Franchetto 15 shares.

[172] Further, and as noted, Pizzo owns 9.75 shares in the Corporation which are part of Butler’s shares. Accordingly, Butler owns 16.5 shares of the Corporation.

[173] The Cornacchia Group submits that they are not bound by share allocation in the 2014 Shareholders Agreement. They say that in signing it, they trusted Cotic. In my view, however, they knew exactly what they were signing and agreed to it. Further, Pizzo, reviewed it and agreed to be bound by it.

[174] Further, since the 2014 Shareholders Agreement was signed, the shareholders have acted in accordance with the shareholdings set out in the Document.

[175] When the shareholders agreed to rent the Ridgeway Drive premises and subsequently begin to renovate it in June 2017, the shareholders contributed the monies necessary to the Corporation in accordance with percentages equivalent to the above shareholdings.

[176] In emails from at least March 2017 to August 2017 from Cornacchia to Cotic, Butler, Pizzo and Franchetto setting out various issues arising from the shareholder meetings as well as other matters, the shareholder percentage for the Corporation is always referred either directly or in terms of the monies required to be contributed by each to be: Cotic 57.5%; Cornacchia 28.75%; Butler 5.5%; Pizzo 3.25% and Franchetto 5%.

[177] Further, there is no evidence that at any time, any of the shareholders objected to their percentage. Accordingly, I am satisfied that the share allocations set out in the 2014 Shareholders Agreement represent the correct shareholding percentages for Cotic, Cornacchia, Butler/Pizzo and Franchetto.

[178] For the above reasons, therefore, I find that Cotic owns 57.5% or 172.5 common shares of the Corporation; Cornacchia owns 28.75% or 86.25 common shares; Butler owns 5.5% or 16.5 common shares; Pizzo owns 3.25% or 9.75 common shares; and Franchetto owns 5% or 15 shares.

Cotic’s Shareholder Loan

[179] In argument, the Cornacchia Group submitted that they had a reasonable expectation that Cotic would maintain sufficient records to allow the shareholders to know or determine, with minimal difficulty, the amount of Cotic’s shareholder loan.

[180] In my view, that expectation is not reasonable in respect of records pre-2014 given that the shareholders/directors signed off on the shareholder loans in September 2005 and again in 2014. Thereafter, while Cotic’s records may not have been kept in the most organized manner, they were sufficient for Mr. Paulin to reconstruct his shareholder loan from 2013 to September 2017.

[181] The Cornacchia Group submits that they are not bound by the Shareholder Structure Document, the November 2014 director’s resolution or the July 31, 2014 Interim Balance Sheet because they did not all sign (or even see) those documents. Further, they submit that Cotic misrepresented his contributions as shown in those documents and gave false evidence concerning them.

[182] The Shareholder Structure Document which sets out the shareholders’ contributions to the Corporation as at September 30, 2005, was signed by Cotic, Cornacchia, Butler and Pizzo, all of the Corporation’s shareholders at the time. Each of Cornacchia, Butler and Pizzo say that they did not consider the Document closely and trusted Cotic. They submit that the amount of Cotic’s shareholder loan shown in the Document is false.

[183] In support of their allegation, the Cornacchia Group takes issue with Cotic’s evidence as to the circumstances surrounding its signing. I do not consider the fact that Cotic may have been mistaken concerning the circumstances of its signing, some 12 years earlier, to affect the validity of the document.

[184] Chang admits that he prepared the Shareholders Structure Document. While he says he obtained the information from Cotic, it is clear from his evidence that he has no recollection concerning the preparation of the Document. Further, while he says that he didn’t verify any of the amounts, it is likely he would have obtained the information from the shareholders, given it was to be signed by them. It is telling, in my view, that none of Cornacchia, Butler or Pizzo say that the amount of their contribution shown in the Document is incorrect.

[185] I do not accept the Cornacchia Group’s evidence that they did not consider the Shareholders Structure Document closely and were told to sign by Cotic. In my view, they knew what they were signing. If they had any questions or concerns, they were able to ask them of either Cotic or Chang. There is no evidence they did. Further, the business had not been in operation for very long. They would have been familiar not only with the amounts they had each contributed, but they would have also had a general sense of what Cotic had contributed to both get the business started and to enable it to continue operating.

[186] There is no evidence that Cotic’s contributions as shown in the Shareholders Structure Document are false. I am, therefore, satisfied the Shareholders Structure Document accurately sets out the amounts that the shareholders had contributed to the Corporation by way of loan at that time.

[187] From 2005 to 2010, the Corporation’s Balance Sheet set out the total of shareholder advances as at December 31, 2010 for each year under Other Liabilities. While the total advances went both down and up from the September 2005 agreed total of $1,459,004, it did not vary greatly. As at December 31, 2010, the total of shareholder advances shown on the Balance Sheet was $1,491,857.

[188] As noted, Chang ceased to be the Corporation’s accountant in 2010 and Mah took over. In the 2011, 2012 and 2013 financial statements prepared by Mah, the shareholder advances were shown on the Balance Sheet as $1,378,156, $1,283,889 and $981,343 respectively. There is no evidence as to why it declined as it did.

[189] In 2014, Chang again became the Corporation’s accountant. On October 7, 2014, Chang and two members from his staff met with Cotic. Cornacchia was to attend but did not.

[190] On October 15, 2014, Chang sent Cotic and Cornacchia a concise summary of the meeting which set out a brief background, key issues, next steps for both Cotic and Chang and target completion dates. Attached was Appendix 1 which set out the shares owned by the shareholders (Cotic, Cornacchia, Butler and Franchetto) as well as the shareholder loans as at July 31, 2014 as follows: Cotic $588,806; Cornacchia $294,403; and Butler $98,134 for a total of $981,343 (the amount in the 2013 financial statements). Chang asked that they confirm that the shareholder positions were correct.

[191] On October 16, 2014, Cornacchia responded to Chang as follows:

Harry percentages are good but we need to figure out how to get amounts back up to 1.5 million and then add what Frenchie put in and Mike has another $150,000 at least in the business. I have no idea how other accountants had $900,000 as money injected. Mike seems to feel that we needed to show a profit when we were trying to sell the Gym so the books did not show a loss but I still don’t know how that comes to $900,000.

[192] On October 17, 2014, Chang responded to Cornacchia, copying Cotic and Franchetto stating in part: “I will revert the shareholder loan position to a more realistic position showing at least $1.7M range and will forward my recalculation to you all shortly.”

[193] On October 21, 2014, Chang sent an email to Cornacchia, Cotic and Franchetto which began “Dear All” and attached charts setting out a) shareholder loan positions for each one of the four shareholders from 2010 onwards to July 31, 2014; and b) shareholder share structure position as at July 31, 2014. Chang asked that they review and provide comments.

[194] Chang said the information on the charts came from the shareholders. He could not explain how the total shareholder loans changed from $1.7 M to $1.87M except to say the information from the shareholders was very fluid at the time.

[195] On October 22, 2014, Chang sent a follow-up email to Cornacchia, Cotic and Franchetto, asking if they were ok with the documents so he could proceed with the lawyers. At 8:27 am on October 22, Cotic responded that it was fine with him and at 9:56 am, Cornacchia responded: “Yes and thanks for your work. It is good to have the Old Harry back.”

[196] Shortly thereafter, at 10:06 am, Cornacchia wrote Chang back and said: “Harry one thing shift 100,000 on to trevor’s from Mike”.

[197] At 11:26 am on October 22, Chang sent an email back to Cornacchia and Cotic saying: “ok got it .. please see attached schedule .. thanks.”

[198] The chart attached to that email set out the shareholder loans as at July 31, 2014 totaling $1,872,000 broken out individually as follows: Cotic, $1,050,200; Cornacchia, $447,600; Butler, $249,200; and Franchetto, $125,000.

[199] Subsequently, under Chang’s direction, the Corporation’s solicitors updated the Corporation’s minute book to reflect Franchetto becoming a shareholder and prepared a number of documents including the November 2014 Directors’ Resolution ratifying the shareholder loans to the Corporation between 2010 and 2014 and the 2014 Shareholders Agreement.

[200] In addition, Chang amended the Corporation’s 2012 and 2013 financial statements. Part of that restatement impacted the shareholders advance amount. Instead of $1,283,889 in 2012, Chang amended the amount to $2,083,839. In 2013, he changed the amount from $981,343 to $1,916,343.

[201] Chang’s revision of the shareholder advances between 2010 and 2013 together with Franchetto’s addition of $150,000 in July 2014 was subsequently reflected in the November 2014 Directors’ Resolution signed by Cornacchia, Cotic and Butler which approved, confirmed and ratified them.

[202] The preamble to the 2014 Directors’ Resolution sets out that as at December 31, 2010, Cotic had advanced $795,200; Cornacchia $447,600; and Butler $249,200 for a total of $1,492,000 (the amount of shareholder advances shown on the Corporation’s December 31, 2010 Balance Sheet). It then set out that as at December 31, 2013, Cotic had advanced a further $255,000 and on July 31, 2014, Franchetto had advanced $150,000. Attached to the resolution was Appendix 1, detailing Cotic’s contributions both in 2012 and 2013.

[203] Finally, Chang produced the Interim Balance Sheet and Income Statement for the Corporation for the seven-month period ended July 31, 2014. The final version of the Interim Balance Sheet set out shareholder loan amounts totaling $2,142,438, made up as follows:

Cornacchia – $ 447,600 Butler – $ 248,200 Cotic – $1,185,200 Franchetto – $ 125,000

[204] Once again, the Cornacchia Group attacks Cotic’s credibility based on his incorrect recollection about when the October 2014 meeting with Chang took place and who attended. In my view, however, Cotic’s faulty recollection, subsequently corrected, does not impact on the amount of his shareholder loan.

[205] Further, the Cornacchia Group takes issue with Cotic’s evidence that he borrowed money from acquaintances who used their credit cards to deposit the money to the Corporation. Cotic said it enabled the Corporation to receive the funds quickly without having to go through a bank. While I agree the practice seems unusual, both Mr. Paulin and Mr. Marino said that they had seen it before in small businesses.

[206] The Cornacchia Group also says that Cotic’s evidence as to his shareholder loans is not credible because early in the litigation, he only identified six outside sources from whom he borrowed money while Mr. Paulin identified 26 during his review. I attribute the difference more to Cotic’s sloppy record keeping than being deceitful.

[207] It is clear from the above email correspondence with Chang in October 2014 that it was Cornacchia, not Cotic, who was primarily involved in instructing Chang concerning the shareholder loans at that time. In my view, the correspondence establishes Cornacchia was clearly aware of the amount of monies that Cotic had contributed to the Corporation. Chang’s revision of the shareholder advances was approved by Cotic and Cornacchia and while there is no indication Franchetto agreed, he was copied on all the correspondence. Although Butler wasn’t involved in the Chang discussions, he said that he let Cotic, Cornacchia and Franchetto deal with the shareholder loan issues in October 2014.

[208] Finally, as noted, the shareholder advances as at July 14, 2014 were set out by Chang in the Corporation’s Interim Balance Sheet as at July 14, 2014 after approval by both Cotic and Cornacchia. In the circumstances, I am satisfied that the shareholder advances set out in the July 14, 2014 Interim Balance Sheet represent the shareholder advances as at that date.

[209] The Cornacchia Group submits that Cotic used the Corporation’s money to repay monies he borrowed thereby misrepresenting the amount of his loan. They point to a few of the cheques set out in Appendix 1 to the November 2014 Directors Resolution supporting Cotic’s loan for 2013. Further, while there is no evidence that Cotic engaged in that alleged conduct prior to 2013, they rely on the Taylor Leibow Reports which, based Mr. Paulin’s allocations, clearly establish such conduct.

[210] How Cotic managed all his loans has given me some concern. However, given that the shareholders and directors signed off on the amounts of the shareholder loans at various times, I am not prepared to find that he misrepresented the amount of his shareholder loan by using the Corporation’s money to repay the money he borrowed to inject into the Corporation. There is no evidence of such practice prior to 2013. Further, the 2013 amounts were approved by the November 2014 Directors’ Resolution. And Mr. Paulin’s allocations relate to post 2013. They don’t establish an earlier pattern of conduct.

[211] In a letter dated April 25, 2019, Mr. Paulin calculated the shareholder loan balances for the shareholders as at August 31, 2017 utilizing both his source and use analysis in his August 1, 2018 report and the shareholder loan balances as reported on the Corporation’s Interim Balance Sheet as at July 31, 2014 prepared by Chang.

[212] In his August 1, 2018 letter, Mr. Paulin calculated the shareholder loans for the shareholders as at August 31, 2017, using shareholder loan amounts set out in the July 31, 2014 Interim Balance Sheet together with his analysis of the shareholder loan account changes during the period. His conclusion:

• Cotic – $991,712
• Cornacchia – $385,213
• Butler – $204,317
• Franchetto – $ 85,726

[213] Subsequently, in his evidence before me, Mr. Paulin amended his conclusion in respect of Cotic’s shareholder loan. He stated that there were seven items which he felt were misallocated in his report and which needed to be adjusted. Those items totaled around $16,000 and would result in his opinion in Cotic’s shareholder loan being reduced by $16,000 to $975,712.

[214] Further, during his cross-examination at the hearing, Mr. Paulin agreed that, based on Cotic’s evidence that he paid Wilkins’ wages in cash, if that cash came from the front desk and was not deposited into the Corporation’s bank account, his allocation in respect of Cotic’s shareholder loan would have to be adjusted by removing the amount of the wages paid over the four-year period of his review or $120,000.

[215] Cotic submits that it would be unjust to deduct $120,000 from his shareholder loan. The evidence establishes there was minimal cash revenue and it was used to pay expenses and wages. Accordingly, it was likely that Cotic did withdraw the cash from the bank to pay Wilkins’ salary and Mr. Paulin’s allocation was correct.

[216] While I agree, for the reasons that follow, that cash was a small component of the Corporation’s revenue, in my view, there would have been sufficient left over after other expenses to enable Cotic to pay Wilkins’ wages without having to withdraw the money from the bank every week. While there is evidence that some other employees were paid in cash, Cotic does not say that he exhausted the cash he received in expenses. Rather, he says he deposited any excess cash to the Corporation’s bank account. Accordingly, I am satisfied that Mr. Paulin’s conclusion as to the amount of Cotic’s shareholder loan must be further reduced by $120,000 to $855,712.

[217] With the above two adjustments, I accept Mr. Paulin’s source and use analysis as set out in his August 1, 2018 report. As previously discussed, I also accept the shareholder loan amounts as shown on the Corporation’s July 31, 2014 Interim Balance Sheet. Accordingly, I find that as at August 31, 2017, Cotic’s shareholder loan to the Corporation was $855,712.

Misappropriation of Cash

[218] The Cornacchia Group submits that it can be reasonably inferred from the evidence that Cotic misappropriated cash from the business. In support they rely on the evidence of front desk personnel, particularly Wilkins and John Perkovic (“Perkovic”) and personal trainers that the cash transactions were substantial; the fact that Cotic received no salary during the whole period and only requested a salary when the litigation began; and the absence of records of the cash transactions.

[219] They further submit Mr. Paulin made a fundamental mistake in his analysis concerning Cotic’s shareholder loan based on his conclusion that the cash revenue of the business was not significant. Rather than reflect the cash deposited to the bank account as revenue, Mr. Paulin allocated it on the basis that it was a contribution to Cotic’s shareholder loan thereby improperly increasing his shareholder loan.

[220] The evidence establishes that there were cash payments at the front desk, primarily for personal training fees but also for a few membership and administrative fees. Payments were primarily made using credit or debit cards. Cotic would collect the cash weekly from the front desk, leaving a float of around $100 for incidental expenses. He would use the cash for various expenses and to pay wages and to the extent any was left over, he deposited it to the Corporation’s bank account.

[221] The personal trainers were charged $15 an hour to train clients and paid weekly. Cotic’s evidence is that between 2009, when personal training first began at the Gym, and 2015, Sean Everingham was in charge of the personal trainers at the Gym. Mr. Everingham was paid by the trainers and at the end of the week he paid the Corporation by credit card. Lee Bloomfield, the current general manager of the Gym who was a personal trainer at the Gym between 2012 and 2016, confirmed Mr. Everington’s role and that he paid him his training fee.

[222] The Cornacchia Group has filed affidavits from personal trainers (Hugo Moniz and Nathan MacMillan) who say they paid cash for their training time and did not pay Mr. Everingham, and people who worked at the Gym at one time or another (John Nahhas and Correia) who spoke of cash being paid by personal trainers at the front desk. As there were numerous personal trainers using the Gym during the period, I accept that some paid Mr. Everington and some paid cash at the front desk directly. Others paid by credit or debit card.

[223] Perkovic was a personal trainer at the Gym around the time it opened. He started working full-time at the front desk from 2006 or 2007 to 2012. He says that when he was working at the Gym, there was a lot of money being made in cash. He estimated that the personal training business brought in about $5,000 a week, mostly in cash.

[224] Wilkins estimated that the amount of cash being paid to the front desk was between $10,000 and $11,000 a month.

[225] The evidence of both Perkovic and Wilkins concerning the amount of cash paid at the front desk is anecdotal and nothing more than a guess in my view. Apart from not having worked at the Gym for at least seven years, Perkovic has other issues with Cotic which make me doubt the reliability of his evidence. I do not accept his evidence concerning the cash component.

[226] Wilkins began keeping a record of the cash at the front desk after September 2017 when the litigation began. The amount of cash received in 2018 averaged $6,595 a month which is a long way from $10-11,000 a month he estimated. Further, as I’ve noted, I have other concerns about the reliability of Wilkins’ evidence. Accordingly, I also do not accept Wilkins’ evidence on the amount of the Corporation’s cash revenue.

[227] I also do not consider that Cotic’s lack of being paid a salary or his request for one when the dispute arose with the Cornacchia Group to be relevant to the issue of whether he misappropriated cash. Cotic says that his family lived off his wife’s salary as a teacher for the years he ran the business. Given that it lost money for many years and has only recently begun to make a small profit explains why he did not request a salary earlier. Further, the timing of his request for a salary, in my view, is just as likely related to the Cornacchia Group’s actions against him than any loss of access to the Corporation’s cash.

[228] The Cornacchia Group also rely on the fact that there are no records concerning the cash receipts, or amounts deposited to the bank accounts. As noted, the Corporation’s records pre-2012 no longer exist. Mr. Bloomfield said there were records in the form of sheets that the trainers would sign. Post-2013 there are records in the form of front desk point-of-sale printouts. However, Mr. Paulin found them to be unreliable to determine total sales as well as a breakdown between cash and non-cash sales, in part because cash payments noted included debit payments and because the records had gaps.

[229] The Cornacchia Group submit that in reaching his conclusion concerning the ins and outs of Cotic’s shareholder loan between 2013 and 2017, Mr. Paulin made a fundamental mistake in his analysis by attributing all unsupported deposits to the Corporation’s bank accounts (including cash) to the benefit of Cotic’s shareholder loan on the basis that the cash component of the business was not significant.

[230] Mr. Paulin explained that, based on his review of the records, the amount and timing of the transactions and the fact that most of the money was withdrawn from the RBC account (the revenue account) and deposited to the TD account (the expense account) together with the evidence that Cotic paid expenses and wages using cash, he concluded that the deposits going into the bank account did not include cash revenue. Based on Mr. Paulin’s evidence, I do not consider that he made a fundamental mistake in his analysis.

[231] In his critique of Mr. Paulin, Mr. Marino does not say that based on his analysis there was a significant cash component to the Corporation’s business. Rather, he was told to accept that by counsel. He did no analysis of the records to attempt to determine the cash component other than to say that Mr. Paulin’s allocation was unsupported.

[232] I accept Mr. Paulin’s allocation concerning the cash deposits being part of Cotic’s shareholder loan.

[233] For the above reasons, I am satisfied that the Cornacchia Group has failed to prove, on a balance of probabilities, that Cotic misappropriated cash from the Corporation.

The Cotic Application

[234] As noted, the Cotic Application seeks an order effectively enforcing the Offer against Cornacchia and requiring that he sell his shares and shareholder loan in the Corporation to Cotic.

[235] Section 253 of the OBCA provides, among other things, that where a shareholder does not comply with, among other things, a unanimous shareholders agreement, a complainant may apply to the court to direct compliance or make such order as it thinks fit.

[236] Given that I have found that Cotic’s shareholder loan as at August 31, 2017 was $133,988 less than the amount set out in the Offer, I am not prepared to enforce the Offer. Further, since the Offer, Butler, Pizzo and Franchetto have aligned with Cornacchia and become involved in the dispute.

[237] It is clear from the evidence that since at least 2015, Cotic and the Cornacchia Group have not seen eye to eye as to how the business of the Corporation should be run. Each side has lost trust in the other and it is affecting how the business of the Corporation is run. The situation cries out for one side or the other to withdraw from the business.

[238] Notwithstanding that Pizzo did not sign the 2014 Shareholders Agreement, he received a copy and understood that he was bound by it. I am satisfied therefore that it is a unanimous shareholders agreement within the meaning of s. 235 of the OBCA.

[239] While I am not prepared to enforce the Offer in Cotic’s favour, in my view, subject to the terms to follow, Cotic shall have the first right to institute an offer pursuant to s. 9 of the 2014 Shareholders Agreement to the Cornacchia Group shareholders at $3,500 a share and in accordance with my findings herein.

Conclusion

[240] For the reasons set out, I have concluded that the Cornacchia Group’s concerns regard Cotic’s management of the business do not amount to oppressive conduct. The Cornacchia Group Application is therefore dismissed.

[241] The Cotic Application is allowed in part. The parties shall have 30 days from the date of these reasons to discuss and if possible resolve how they can separate their interests in the Corporation.

[242] In the absence of an agreement within the 30 days, Cotic shall be entitled within the next 15 days to make an offer pursuant to s. 9 of the 2014 Shareholders Agreement on the terms set out above.

[243] The answers to the parties’ questions are as follows:

1. The Corporation’s shareholders are Cotic, Cornacchia, Butler, Pizzo and Franchetto;
2. Cotic owns 172.5 (57.50%) of the Corporation’s common shares;
3. The amount of Cotic’s shareholder loan as at August 31, 2017 was $855,712.

[244] As set out in their affidavits and not disputed by Cotic, the amounts of the other shareholders’ loans as at August 31, 2017 are: Cornacchia, $438,896.65; Butler, $121,904.03; Pizzo, $147,385.87; and Franchetto, $147,583.85.

[245] Mr. Paulin’s analysis went to August 31, 2017. Subsequent to that date and during the litigation, the parties have operated the Corporation in accordance with an Interim Protocol, amended by Hainey J. on July 5, 2018. Further, they have continued to both contribute to and withdraw funds from the Corporation in respect of their various shareholder accounts.

[246] The parties should be able to agree on the status of each shareholder’s loan as at the date hereof based on their deposits and withdrawals since August 31, 2017. If not, Mr. Paulin should be engaged to determine the amounts.

[247] In normal circumstances, I would ask for written cost submissions within a short time frame. Given current circumstances, however, I direct that counsel discuss the issue of costs in an effort to resolve them, failing which they should contact the Commercial Office to arrange a conference call to discuss how to proceed not only with costs but also concerning any issues arising from the implementation of my judgment.

L.A. Pattillo J.

Released: April 3, 2020

Reasons for Judgment

COURT FILE NO.: CV-18-591280-00CL DATE: 20200403 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

APPLICATION UNDER Rule 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended, and section 248 of the Business Corporations Act, R.S.O. 1990, c. B16, as amended

APPLICATION UNDER Section 253(1) of the Business Corporations Act, R.S.O. 1990, c. B16 and Rule 14.02(2) and 38.03(4) of the Rules of Civil Procedure

BETWEEN: LORENZO CORNACCHIA, TREVOR BUTLER, MICHAEL FRANCHETTO, PAUL PIZZO and CRAIG WILKINS Applicants – and – MICHAEL COTIC Respondent

A N D B E T W E E N: MICHAEL COTIC Applicant – and – LORENZO CORNACCHIA, TREVOR BUTLER, MICHAEL FRANCHETTO, PAUL PIZZO and CRAIG WILKINS Respondents

REASONS FOR JUDGMENT PATTILLO J.

Released: April 3, 2020