COURT FILE NO.: CV-21-00656398-00CL
DATE: 20210602
SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
IN THE MATTER OF SECTION 243(1) OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, C. B-3, AS AMENDED, AND SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O 1990 C. C.43, AS AMENDED
RE: COSA NOVA FASHIONS LTD., B & M HANDELMAN, INVESTMENTS LIMITED, COMFORT CAPITAL INC., 693651 ONTARIO LTD., E. MANSON INVESTMENTS LIMITED, NATME HOLDINGS LTD., FRANCIE STORM, BARSKY INVESTMENTS LTD., STEPHEN HANDELMAN, ROSEWILL INVESTMENT CORPORATION, THOMAS BOCK, THE BANK OF NOVA SCOTIA TRUST COMPANY AND CANADA INVESTMENT CORPORATION, Applicants
AND:
THE MIDAS INVESTMENT CORPORATION, Respondent
BEFORE: S.F. Dunphy J.
COUNSEL: David P. Preger, for the Applicants
Raymond M. Slattery, for the Receiver, Rosen Goldberg Inc.
MAURICE J. NEIRINCK, for the Respondent Midas Investment Corporation
Robert A. (Bob) Klotz, for Auto World Imports
Symon Zucker, for John Kavanagh, guarantor
HEARD at Toronto: May 31, 2021
ENDORSEMENT (Revised)
[1] The Receiver brought this motion seeking (i) a general order approving its activities as set forth in its first report; (ii) an order approving a sales process for the two properties (Yonge Street and Eastern Avenue) that it has been appointed over; and (iii) an order requiring the tenant of the 90 Eastern Avenue property to comply with its obligations under paragraph 5 of the Receivership Order dated April 6, 2021 by disclosing all documentation in relation to its tenancy to the Receiver.
[2] I do not think the first order sought is necessary or useful in the context of a receivership although I recognize that many receivers are in the habit of asking for them. A generic approval of actions adverted to in the Receiver’s Report is meaningless in the absence of specific issues being raised and decided. I have been asked to approve a sales process and any orders I make in that regard will include all findings necessary to lead to that order. I have no basis to approve on a generic basis the Receiver talking to this or that stakeholder or reading this or that document and I decline to do so. As and when an action – such as the sales process – needs approval, approval or directions can be sought.
[3] I also think that the third item – ordering Mr. Klotz’ client to comply with the April 6 Receivership order – ought to have been entirely unnecessary. Mr. Klotz advises that his client is bound to the defendant Midas by certain contractual confidentiality obligations. The Receiver was appointed over all of the debtor Midas’ “assets, undertakings and properties” and thus stands clothed with all of the authority Midas had in relation to the property which includes any contractual obligations of the kind adverted to by Mr. Klotz. This is the very nature of the appointment made. Further, paragraph 5 of the appointment order obliged Mr. Klotz’ clients to make available for inspection and copying all records in its possession or control excepting only records to which solicitor-client privilege attached or “due to statutory provisions prohibiting such disclosure”. Neither exception is applicable here and Mr. Klotz’ objection that he needed a direct order naming his client in order to comply or a waiver from the debtor was baseless. The necessity for immediate disclosure is obvious with suggestions being made of unusual and unknown (to the Receiver) transactions involving Mr. Klotz’s client allegedly pre-paying several years’ worth of rent or possessing an undisclosed agreement to purchase the property. The Receiver shall have the requested order directed at the tenant of Eastern Avenue and that tenant shall comply without delay.
[4] I turn now to the substantive purpose of this attendance i.e. sale process approval. The process proposed is as standard as such processes can be. The Receiver has canvassed potential listing agents and made a reasoned selection. It has obtained indications of value to help inform its conduct of the process and seeks the court’s approval to enter into listing agreements for the two properties. The proposed listing agreements do not provide for a fixed listing price nor for commissions to the listing brokers unless a sale takes place. This latter should alleviate Mr. Kavanagh’s concerns as guarantor about the consequences of paying up on his guarantee or Midas’ concern about discharging the mortgage or taking an assignment of it.
[5] There were requests to adjourn this motion made at the outset. I turned them all down.
[6] Mr. Klotz pleaded lack of time to “seek instructions”. He has had four business days to do so at the very least and quite a bit longer given the month and more spent in pursuit of baseless objections to providing the Receiver with the information about the 90 Eastern tenant that is needed. Mr. Klotz was not able to articulate a single interest or even category of interest that his client as tenant might have in permitting the Receiver to start a sales process. His client can discuss what it will with the Receiver after it has disclosed the information that ought to have been disclosed almost two months ago.
[7] Mr. Kavanagh took no position on the motion but as guarantor merely wished to ensure that he would not have to pay commission to sales agents if he exercises his right as guarantor to pay out and receive an assignment of the mortgage he has guaranteed. He was swiftly satisfied on that count.
[8] Midas also suggests that it will imminently be in a position to redeem the security. Once again, it can do so at any time but the mere prospect that it might – a prospect that the parties knowledgeable of the tortured history of this file take with a grain or two of salt – is no reason to delay starting the process.
[9] It is to be devoutly hoped that one or the other of the proposals to pay out this applicant and discharge or take an assignment of the mortgage will be realized. However, this saga has dragged on for years and the magic of compounding is adding more and more to the debt and cementing the fear in the mind of the mortgagee that it will end up suffering a material shortfall. Delay is causing the debt to increase by the day and very possibly the secured creditor’s deficit with it. With the summer months rapidly approaching, it is critical to get the sale process underway without further delay. I am satisfied with the reasonableness of the marketing process proposed by the Receiver. That process is adequately described in the Receiver’s report. It should begin and begin NOW.
[10] I am approving the sales process described in the Receiver’s report and authorizing the Receiver to enter into the listing agreements it has recommended entering into. I do so with these small conditions:
(a) The sealing order requested shall apply to the confidential appendices – containing the listing proposals and the appraisals – but shall not apply to the redacted listing proposals that I am ordering be prepared and circulated to the parties today;
(b) The sealing order shall be until the earlier of (i) further order; (ii) the completion of a sale of the subject properties or (iii) six months from today;
(c) The Receiver shall prepare and circulate to the parties forthwith redacted copies of the listing proposals redacted only to remove information relative to the value of the properties; and
(d) The approval shall of the sales process shall be suspended until Wednesday June 2, 2021 at which point any party with a concrete objection to voice in relation to the approval of the listing proposals will be heard.
[11] I wish to explain or expand upon these conditions.
[12] As to the first two, I find a sealing order is plainly reasonable here both given the history of the proceeding and the nature of the information to be sealed. There is a reasonable apprehension that some of the parties’ past behaviour may prove to be reliable guides to their future behaviour. Were that to be the case, the potential for mischief to the sales process is obvious. Further, appraisal values are something the receiver needs to evaluate the attractiveness of offers or expressions of interest that may come up as the process unfolds – that same information if made public could impact the way in which prospective buyers evaluate the properties in question. Buyers will perform their own valuations and the third-party valuation data should stay sealed until its revelation cannot reasonably be expected to frustrate or negatively impact the very sales process for which the information was sought.
[13] As regards the third condition, I find that the Receiver has been a bit overcautious in seeking to seal the listing proposals in addition to the appraisals. The only objection to revealing them now that was made was that some of them discuss ranges of potential values which could impact the sales process. That objection – potentially a valid one – is easily dealt with by requiring a redacted set of those documents to be circulated without the offending valuation estimates.
[14] The last condition was inserted to recognize the fact that while the parties have had an adequate opportunity to review the sales process as described in the Monitor’s report, but they have not seen the actual documents. They shall have until Wednesday morning to do so. Redacted copies of the listing agreements – redacted only to remove references to opinions regarding value – will enable all of the parties to satisfy themselves that the proposed agreements conform to the description of them given by the Receiver in its Report.
[15] Accordingly, an order shall go in the terms of (b), (c) and (d) of the Notice of Motion. The approval of the marketing and sales process is suspended until Wednesday, June 2, 2021 pending further submissions if any that may be made after reviewing the redacted listing proposals. Unless a further order is made at that time, the approval order is effective as and from May 31, 2021. The sealing order shall be restricted in time in the manner indicated above.
[16] This substance of this endorsement was delivered orally and my orders were effective as of May 31, 2021. This endorsement was released to the parties in writing this day (June 1, 2021) and paragraph 3 hereof was revised in an immaterial respect following the re-attendance of the parties on June 2, 2021.
S.F. Dunphy J.
Date: June 2, 2021