Court File and Parties

COURT FILE NO.: CV-22-00679931-00CL DATE: 20220422 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

HAZELTON DEVELOPMENT CORPORATION Applicant – and – PROPOSED MONITOR, MERIDIAN CREDIT UNION LIMITED, CENTURION MORTGAGE CAPITAL CORPORATION, WESTMOUNT GUARANTEE SERVICES INC., PROPOSED DIP LENDER and GRANT THORNTON LIMITED Respondents

Counsel: David Ward, Larry Ellis and Asim Iqbal, for the Applicant Leanne Williams, for the Proposed Monitor Bart Sarsh, for the Respondent Meridian Credit Union Limited Dominique Michaud, for the Respondent Centurion Mortgage Capital Corporation James MacLellan and Alex MacFarlane, for the Respondent Westmount Guarantee Services Inc. Yan Wang, for the Respondent for Proposed DIP Lender Triumph Eastern Investments Inc.

HEARD: April 20, 2022

Endorsement

McEwen, J.

Overview

[1] This matter came before me on April 20, 2022. It involves an application brought by Hazleton Development Corporation (the “Company”) for an initial order and other related relief under the Companies’ Creditors Arrangement Act, RSC, 1985, cC-36 (the “CCAA”).

[2] Upon reviewing the application and hearing submissions of counsel I issued the initial order with reasons to follow. I am now providing those reasons.

Background

[3] The Company is a closely-held corporation. It owns property known municipally as 4064, 4070 and 4078 Dixie Road, Mississauga, Ontario (the “Project Lands”). The Company is currently in the process of constructing a 14-storey, 265 unit residential condominium complex on the Project Lands known as the “Highlight of Mississauga” (the “Project”).

[4] The Project is the Company’s only business and the Project Lands are the Company’s primary asset. The Company has no employees aside from certain family members that control the Company. Currently there are approximately 45-60 contractors involved in work on the Project.

[5] The majority of the units in the Project have been sold. Unfortunately, the Project was late in commencing development and thereafter has been disrupted due to construction delays, pandemic-related shutdowns, labour and supply shortages, increasing costs and a number of other factors. Further delays are anticipated. As a result of the foregoing the Company is no longer able to draw on its existing credit facilities.

[6] The Company is now insolvent. The Project is currently encumbered by significant secured charges from Meridian Credit Union Limited (“Meridian”), Centurion Mortgage Capital Corporation (“Centurion”) and Westmount Guarantee Services Inc. (“Westmount”).

[7] Additionally, multiple trade creditors have registered liens against the Project Lands and the Company owes money to other creditors and trade creditors as well.

[8] In recent weeks trades have insisted upon payment of the outstanding accounts and threatened to lien the Project Lands or walk off the job. Costs have continued to escalate and the Company expects additional cost overruns. The Company therefore urgently seeks protection to give it “breathing room” as necessary to identify and assess its options, understand with reasonable certainty the remaining cost to complete and assess the Project’s economics and viability.

Issues

[9] The principle issues on this application are as follows:

(a) Does the Company meet the statutory requirements for relief under the CCAA? (b) Should the Court grant the stay of proceedings? (c) Should this Court approve the appointment of Grant Thornton Limited as the Monitor? (d) Should this Court permit the Company to make Pre-Filing Payments? (e) Should this Court approve the Debtor-in-Possession Financing Facility Charge (the “DIP Facility”)? (f) Should this Court grant the Administration Charge? (g) Should this Court grant the Directors’ Charge?

Does the Company meet the statutory requirements for relief under the CCAA?

[10] The Company is insolvent and the aggregate claims against it total more than $5 million. I am satisfied that the Company meets the definition of “company” under s. 2(1) of the CCAA. The Company has established that their liabilities materially exceed their assets and they are experiencing an operational deficit. The Company is unable to pay their obligations under its agreements with secured lenders that are currently due and those that are soon coming due. The Company is also facing a financial risk from claims of unsecured creditors and other stakeholders that the Company has been unable to pay. As noted, this includes a number of claims that may delay or frustrate the development of the Project.

Should the Court grant the stay of proceedings?

[11] I am content that a stay of proceedings ought to be granted for ten days pursuant to s. 11.02(1) of the CCAA. As per s. 11.02(1) the relief sought is limited and allows for operations of the Company to be stabilized and for it to be able to negotiate with its creditors.

[12] Given the aforementioned financial crisis and the inability of the Company to meet its obligations as they become due, it is appropriate for this Court to grant the stay of proceedings requested by the Company.

Should this Court approve the appointment of Grant Thornton Limited as the Monitor?

[13] Grant Thornton Limited (“GTL”) has consented to act as Monitor. GTL is a trustee as per s. 2(1) of the Bankruptcy and Insolvency Act, RSC, 1985, c. B-3 (the “BIA”). GTL is qualified to act as Monitor in these proceedings.

Should this Court permit the Company to make the Pre-Filing Payments?

[14] Certain ongoing trades and suppliers are critical to the success of the Project and the Project relies heavily upon these trades and critical suppliers.

[15] Payment of these certain trades and suppliers would benefit all of the Company’s stakeholders. The Monitor supports the proposed payments. I agree that the proposed payments ought to be made.

Should this Court approve the DIP Facility?

[16] Section 11.2 of the CCAA provides this Court with authority to approve the DIP Facility. The Court may also grant a priority charge to the DIP Lender over the Company property. The DIP Lender is an arms-length entity.

[17] I am satisfied that Company has satisfied the Court that the terms of the loan are limited to what is reasonably necessary for the continued operations of the Company in the ordinary course during the initial stay period. Further, I am satisfied that the DIP Facility and the related charge are essential elements of the measures that are required during the initial stay period.

[18] It is clear that the Company urgently requires interim financing to stabilize its operations and it is appropriate for the charge to be secured on the Company’s property. The amount sought by way of advance, $1,547,254, is exactly calculated to the anticipated cash flow needs until the matter returns to this Court on April 29, 2022. The Monitor has confirmed that it will work with the Company to ensure that the initial DIP advance of $1,547,254 will be dispersed in accordance with the Excel cash flow document that was circulated by the Monitor’s counsel to the secured creditors on April 20, 2022 (the “Cash Flow”). In the event that there is a material deviation from the Cash Flow, the Monitor and the Company will consult with the secured parties prior to making any additional or alternative payments to those outlined in the Cash Flow.

Should this Court grant the Administration Charge?

[19] I am satisfied that it is appropriate to grant the $300,000 Administration Charge in order to secure the payment of fees and expenses incurred in connection with the within application with the initial 10-day period.

[20] Section 11.52 of the CCAA provides this Court jurisdiction to grant such a priority charge and sets out a number of factors that the Court is to consider. I have considered those factors, including the support of the proposed Monitor and have concluded that the Administrative Charge is warranted. The proposed Administrative Charge is intended to cover the fees of counsel to the Company, the proposed Monitor and counsel to the proposed Monitor. I agree that they are essential to the operation of the CCAA proceedings and the amount sought is reasonably necessary.

Should this Court grant the Directors’ Charge?

[21] I am also of the view that the requested Directors’ Charge is appropriate in the circumstances and is approved in the maximum amount of $100,000. The purpose of the charge is to retain the directors during the restructuring and provide them with some personal protection against potential liabilities that could arise There is no D&O insurance coverage.

Disposition

[22] For all of the reasons above, I granted the initial order. As agreed at the hearing, however, the initial order is without prejudice to the rights and remedies of the secured creditors, Meridian, Centurion and Westmount for the April 29, 2022 hearing.

McEwen, J. Released: April 22, 2022