Court File and Parties

COURT FILE NO.: 31-2642914

DATE: 2020-09-15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: In the Matter of the Proposal of Vesna Kolenc of the City of Vaughan in the Province of Ontario

BEFORE: C. Gilmore, J.

COUNSEL: Emilio Bisceglia and R. Battista Frino, for the Moving Party 2446582 Ontario Inc. Sean N. Zeitz for the Moving Party Cherryl LaPosta and 2769163 Ontario Limited Gregory Azeff and Jeremy Sacks for the Debtor Vesna Kolenc Evan Ivkovic for the Third Mortgagee AccessEasyFunds

HEARD: September 11, 2020

ENDORSEMENT

overview

[1] Ms. Cheryl Laposta (“Ms. Laposta”) brings a motion for the sale of 117 Clarence Street, Vaughan, Ontario (“the subject property”) and an Order vesting title in her name clear of encumbrances.

[2] 2446582 Ontario Inc. (“244”) brings a cross-motion to set aside or vary my Order dated July 22, 2020 on grounds it was not given notice of the motion and therefore was unable to make submissions in response to Ms. Laposta’s position as the Fourth Mortgagee. Alternatively, 244 requests that a new bidding process be put into place which would allow the parties to submit their best offer for the subject property to the Trustee by a certain date.

BACKGROUND FACTS

[3] Vesna Kolenc (“the Debtor”) resides in the City of Vaughan and has commenced proposal proceedings under the Bankruptcy and Insolvency Act, RSC 1985, c.B-3 (“the BIA”). The Debtor owns the subject property which was purchased in 2008 and has always been operated as a business.

[4] The subject property is subject to four mortgages (“the mortgages”) which collectively compose the secured creditors affected by the sale of the property:

a. The TD mortgage which had an outstanding principal of $567,155.21 as of June 19, 2020;

b. The Salerno mortgage which had an outstanding principal of $702,187.50 as of June 18, 2020;

c. The AccessEasyFunds mortgage (“the AEF Mortgage”) which had an outstanding principal of $500,000 as of July 6, 2020; and

d. Ms. Laposta’s mortgage which had an outstanding principal of $653,000 as of May 12, 2020.

[5] There is also an outstanding lien registered on the subject property in favour of CRA in the amount of $308,258.

[6] Ms. LaPosta’s mortgage on the subject property was given as collateral security for a mortgage registered against 192 Davidson Drive, Vaughan (“the Davidson mortgage”).

[7] By way of Agreement of Purchase and Sale dated May 30, 2020 and amended June 4, 2020 (“the 244 Offer”), the Debtor agreed to sell the subject property to 244 for $1,680,000. This was an insufficient amount to discharge the mortgages of all of the secured creditors.

[8] Based on the outstanding amounts owing on the mortgages as of July 7, 2020 the shortfall on the sale would have been in the range of $737,342 without considering real estate commission. This meant that there would be no funds available to pay out Ms. LaPosta on the sale and a shortfall on the AEF mortgage as well, depending on the amount of sales commission.

[9] According to an appraisal obtained by the Debtor for the Davidson Drive property in February 2020, the estimated market value for the Davidson Drive property is $1,900,000 with outstanding mortgages exceeding $2,712,000. Ms. LaPosta’s mortgage is also in fourth position on the Davidson Drive property. She has deposed that based on the appraisal and the balance of the mortgages on title, she would also receive no funds on a sale of the Davidson property.

[10] Conditions of the 244 Offer required that 244 obtain court approval for the sale, and either a written undertaking from AEF and Ms. LaPosta discharging their mortgages or a court order discharging the mortgages and vesting clear title to 244.

[11] On July 21, 2020 the Debtor brought a motion for an approval and vesting order to vest out the AEF mortgage, the LaPosta mortgage and the CRA lien given that there would be insufficient funds on the sale to pay out those creditors.

[12] Ms. LaPosta appeared with counsel at the July 21, 2020 motion and sought an adjournment in order to oppose the approval and vesting order and allow her to purchase the subject property on the same terms but for more money. This would allow Ms. LaPosta to potentially recover her outstanding mortgage at a later date.

[13] According to the evidence of Fernando Di Carlo, an officer and director of 244, he had no indication that there would be any opposition to the Debtor’s motion for a vesting order and if there had been, he expected he would have been given notice of the hearing with the ability to make submissions as to why 244’s Offer was fair and reasonable.

[14] On July 22, 2020 I signed the approval and vesting order sought by the Debtor but suspended its operation until July 31, 2020 at 12:00 p.m. to allow Ms. LaPosta the possibility of submitting an Offer on the same terms but $5,000 more than the 244 Offer. Provided Ms. LaPosta complied with those terms her offer would replace the 244 Offer and she could buy the subject property.

[15] After the July 22, 2020 Order was signed, Ms. LaPosta incorporated 2769163 Ontario Limited (“276”) in order to purchase the subject property and delivered a new Agreement of Purchase and Sale to the Debtor on July 30, 2020. 276 also arranged for a deposit of $85,000 to the trust account of the lawyer acting for 276 on the purchase. LaPosta seeks a vesting order given that the purchase price is insufficient to satisfy the registered mortgages.

[16] Mr. DiCarlo was advised of the July 22, 2020 Order and told the other interested parties that he intended to bring a motion to set it aside. However, he waited until after July 30, 2020 to determine whether Ms. LaPosta would submit an offer in accordance with the terms of the July 22, 2020 Order.

THE ISSUES

[17] Ms. LaPosta takes the position that her rights as a secured creditor take priority over 244’s rights. That is, 244 knew about the LaPosta mortgage and sought to have it vested out as a condition of sale. Unfortunately, 244 was not successful in purchasing the subject property and Ms. LaPosta has now offered to pay $1,685,000 in order to avoid losing her $680,000 mortgage.

[18] Counsel for Ms. LaPosta submits that 244’s Agreement of Purchase and Sale is null and void because there was neither an undertaking from AEF and LaPosta to discharge their mortgages nor a court Order discharging those mortgages as of July 21st, 2020. 244 made a deal and failed to fulfil the condition in its bargain. It cannot now come back and attempt to extend the closing of a deal after failing to close that same deal. Ms. LaPosta relies on Kennelly v. Hashemi, 2018 ONCA 558 for this proposition in a similar case in which a purchaser was not entitled to extend closing after it failed to complete the transaction at the required time.

[19] Counsel for 244 submits that the sales process was unfair as it was not given notice that there would be any objection to the approval and vesting order. Further, Ms. LaPosta did not advise the Court that she had a collateral mortgage on the Davidson property. She stands to recover her mortgage out of the proceeds from that property. Finally, the Offer made by Ms. LaPosta was made through 276 and not in her own name as required by the July 22, 2020 Order.

[20] 244 submits that it is a good faith purchaser who engaged in a fair process. Ms. LaPosta had every right to bid on the subject property when it was originally listed and failed to do so.

ANALYSIS

[21] I reject 244’s arguments that Ms. LaPosta should be excluded from any sales or bidding process because she sought to buy the property in the name of a corporation. The argument is a technical one and is insufficient to deprive Ms. LaPosta from participating in the process.

[22] Further, she should not be disentitled to participate because her mortgage is collaterally secured on another property. There were no cross-examinations on this motion and no appraisals or calculations with respect to the proceeds from the Davidson Drive property other than as provided by Ms. LaPosta. Therefore, based on the uncontroverted evidence, it appears her collateral security will not put her in any better position as she remains the fourth mortgagee and without the realistic prospect of recovery.

[23] In the end, this case comes down to fairness. Had 244 been given notice or an opportunity to appear on July 21, 2020 the result may well have been different. While 244 has been blamed for not keeping track of whether the sale conditions were met, it had no reason to believe the matter would not proceed as anticipated. In this sense, the matter is factually different from the Hashemi case cited by Ms. LaPosta where the purchaser was well aware of the deadline for closing but failed to take steps to obtain an extension. 244 was unaware that it would be required to take any steps because it had no notice of any objection to the process.

[24] Given all of the above, I make the following orders:

a. All previous Agreements of Purchase and Sale for the subject property shall be terminated.

b. A new sales process shall be implemented whereby any interested parties including 244 and Ms. Laposta personally or 276 may submit their best offers to the Trustee, on a confidential basis;

c. The Offers are to be received and reviewed by the Trustee by September 18, 2020 with the closing date of September 25, 2020 to remain.

d. In the event the successful party is unable to close on September 25, 2020, the other party may acquire the subject property.

e. If court approval of the successful offer is required, a draft Order may be provided to me for review.

f. The proceeds of sale are to be paid into court in order to determine the nature and priority of any outstanding claims.

COSTS

[25] Neither party has had complete success in this matter, although the result was more closely aligned to the alternative relief sought by 244. If the parties cannot agree on costs, they may provide written submissions of no more than two pages in length, with a Bill of Costs, on a seven-day turnaround from the date of this Endorsement starting with 244.

C. Gilmore, J.

Date: September 15, 2020