2022 ONSC 5108
COURT FILE NO.: CV-22-00676500-00CL
DATE: 20220914
SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
RE: Business Development Bank of Canada, Applicant
AND:
Blugo Enterprise Inc., Respondent
BEFORE: Osborne J.
COUNSEL: Vern DaRe, for BDO Canada Limited in its capacity as Court-appointed Receiver of Blugo
Javed Siddiqui, in person
HEARD: August 9, 2022
ENDORSEMENT
[1] This motion requires a determination of when and in what circumstances a Receiver can terminate a tenancy in connection with the sale of a property for the benefit of creditors. In this case, the debtor company landlord is a related party to the tenant.
[2] BDO Canada Limited (“BDO”), in its capacity as the Court-appointed Receiver of Blugo Enterprise Inc. (the “Debtor” or “Blugo”), seeks in its Notice of Motion an order authorizing it to terminate an “informal tenancy” (described as an occupancy arrangement or unwritten lease) “entered into between the Debtor as landlord, and Elder Tree Montessori or any company or person related to the Debtor or to the principal of the Debtor, Javed Siddiqui (“Mr. Siddiqui”) as tenant”, all in respect of the real property owned by the Debtor at 46 Mimico Avenue, Toronto (the “Property”).
[3] The Receiver seeks alternative relief declaring that the lease should be divested from the Property upon the issuance by this Court of an approval and vesting order approving the sale of the Property.
[4] The Receiver also requested in the Notice of Motion an order directing the tenant to vacate the Property on August 12, 2022 and to deliver vacant possession to the Receiver on that date.
[5] Finally, the Receiver sought approval of its First Report and its interim statement of receipts and disbursements.
Background
[6] By way of context for this motion, BDO was appointed Receiver on the application of the Business Development Bank of Canada (“BDC”), Blugo’s senior secured creditor, upon the default by each of Blugo and Mr. Siddiqui of their respective obligations to BDC according to the terms of the applicable credit facilities. Blugo was and remains indebted to BDC. As at December 6, 2021, the amount of that indebtedness exceeded $1 million.
[7] The security held by BDC includes first priority mortgages registered against the Property and guarantees of Blugo’s obligations by four numbered companies. The company most relevant to this motion is 462525 Ontario Inc. (“462”) since it operates Montessori schools under registered business names including Elder Tree Montessori.
[8] The Receivership order appointed BDO as Receiver of all of the assets, undertakings and properties of Blugo including, for greater certainty, the Property.
[9] Mr. Siddiqui is the owner and directing mind of each of these companies as well as Blugo.
[10] The Receiver has not been paid rent by the tenant for its occupation of the Property since the date of the Receivership appointment on April 1, 2022. Rental arrears for the months of April through July inclusive exceed $20,000.
[11] On June 27, 2022, the Receiver formally demanded the payment of rental arrears, then for the months of April through June inclusive, in the amount of $15,458.40, by July 11, 2022. The demand letter also provided a notice to vacate, whereby if the rental arrears were not paid by July 11, 2022, the tenant had until August 12, 2022 to vacate the Property. Accordingly, in the absence of the payment of rental arrears, that notice of approximately 45 days would expire on August 12.
[12] The Receiver has listed the Property for sale with an independent real estate broker and as discussed below, a conditional APS was pending as of the date. The position of the Receiver is that, particularly in light of the rental arrears and also to maximize proceeds on a sale of the Property, it needs the ability to deliver vacant possession to a purchaser on closing, free and clear of any lease or informal tenancy.
Context for and Hearing of the Motion, and the Pending Agreement of Purchase and Sale
[13] Early in the morning on August 9, the date on which this matter was first heard, and shortly prior to the hearing of this motion commencing at approximately 9:45 AM, counsel for the Receiver wrote to the Court to advise that the Receiver anticipated that the motion would proceed on consent and that the parties had, counsel anticipated, agreed on the terms of the draft order.
[14] The hearing of the motion then proceeded. A court reporter was present.
[15] Mr. Siddiqui attended on his own behalf. He advised the Court that he was the directing mind, owner and principal of Blugo. While the company clearly been served with the materials, it was not represented by counsel. Mr. Siddiqui advised the court that while he understood the requirement for the company to be represented by counsel, he did not intend to cause that to occur.
[16] Counsel for the Receiver submitted a revised draft order for consideration by the Court, and made submissions to the effect that the revised draft order reflected the compromise position of the Receiver which was in turn intended to give the Debtor one last opportunity to avoid a sale of the Property. As further described below, this revised draft order extended the date of August 12 referenced in the motion materials by which vacant possession was to be required, to August 31, 2022.
[17] The Receiver had entered into a conditional agreement of purchase and sale with a third party purchaser (the “APS”). Counsel for the Receiver advised that the APS remained in a due diligence period and that the proposed purchaser could accept or waive conditions in the APS until the day following the hearing of this matter, August 10, 2022. This is consistent with the motion materials filed.
[18] Counsel for the Receiver further advised that, in submitting the revised draft order, the Receiver was prepared to agree that if the APS was not final and binding on August 10, and if the Debtor had fully repaid its indebtedness to BDC on or before August 31, 2022, the tenant shall not be required to vacate the Property by August 31. However, if either the APS was firm on August 10, or the Debtor has not fully repaid its indebtedness by August 31, the tenant shall be required to vacate the Property on August 31 and the lease shall be terminated or disclaimed.
[19] Counsel for the Receiver submitted that he was not certain as to whether Mr. Mr. Siddiqui consented to the revised draft order or not. Mr. Siddiqui then advised the Court that in fact, he did not consent to the revised draft order and that while he was content to agree to an order requiring him to vacate the Property in the event that the Applicant, BDC, was not fully repaid its indebtedness by August 31, he would not consent to the term regarding the conditionality or finality of the APS described above. In short, there was in fact no consent to any relief sought with the result that the motion proceeded.
[20] Mr. Siddiqui does not challenge the Receivership order or the chronology of events relied upon by the Receiver. Rather, he seeks, in his own words, “a little more time to get the money”. He requested essentially an adjournment of the motion or its outright dismissal, effectively requesting an opportunity to avoid a sale of the Property.
[21] Mr. Siddiqui then advised the Court, although neither he nor Blugo filed any evidence on this motion, that he had “in hand” a firm and binding commitment letter from a private lender to advance him immediately the sum of $1 million and fully expected to receive later that same day (i.e., August 9), a further firm and binding commitment letter from a private lender to advance him an additional $350,000. The aggregate sum of $1,350,000 would likely permit him to repay BDC in full. Mr. Siddiqui submitted that the binding and unconditional commitment letter for the first $1 million that he had in hand was such that the funding could be advanced immediately, or within “a day or two”.
[22] In the circumstances, and in an effort to be as fair as possible to Mr. Siddiqui and the Debtor, but at the same time being conscious of the fact as I understood it at the time of the hearing of the motion on the morning of August 9, that the conditionality period in the APS expired the very next day on August 10 and therefore created significant urgency, I adjourned the motion until 4:00 PM that same afternoon.
[23] I was concerned that if the matter were adjourned further, at least some of the issues would be moot in that, as I understood it, the conditions in the APS were all waivable in the sole discretion of the proposed purchaser, with the result that if they were waived the next day, the APS would be firm and binding on the Receiver as a contract enforceable by the purchaser. As noted above, I wished to give Mr. Mr. Siddiqui an opportunity to file the materials that he stated that he had in hand and further the materials he stated he could obtain the same day, all evidencing the firm financing commitment he submitted that he had.
[24] I directed Mr. Mr. Siddiqui to immediately provide to counsel for the Receiver a copy of the binding commitment letter he had in hand for $1 million, and to provide to counsel for the Receiver the second binding commitment letter for the additional $350,000 as soon as it was received later that same day. I directed counsel for the Receiver to provide to the Court immediately a copy of the APS which was not part of the motion materials previously filed. All parties agreed to comply with these requests, on consent.
[25] Shortly before the resumption of the matter at 4:00 PM on August 9, counsel for the Receiver provided to the Court a copy of the APS, under cover of a request that it be sealed and not form part of the public record until the transaction had closed, given the sensitivity of the purchase price and other contractual terms.
[26] The APS does indeed include conditions that are waivable at the discretion of the proposed purchaser. However, counsel for the Receiver candidly and fairly advised that he had made an error in his submissions earlier that morning, and that in fact the due diligence period in the APS expires on August 25, rather than the next day, August 10. I accept the inadvertent error and the explanation of counsel. Had I known that the due diligence period expired on August 25 rather than August 10, that may have influenced the necessity of an urgent continuation of the motion at 4:00 PM on August 9.
[27] However, it became clear to me upon a review of the APS that there are other substantive terms of the APS relevant to the disposition of this motion.
[28] The terms of the APS provide that it is expressly conditional on approval of this Court. Schedule A to the APS provides at paragraph 2 that: “it is understood by the Purchaser that the Receiver requires Court approval to sell the Lands in this agreement is subject to, and conditional upon, Court approval being obtained.”
[29] The APS further provides, at paragraph 13 of Schedule A, that in the event that a Court order is obtained or sought preventing the Vendor from completing the Agreement, the APS shall be terminated and any deposit paid shall be returned to the Purchaser without interest and the Vendor shall not be liable, in any manner whatsoever, to the Purchaser relating to the APS.
[30] Finally, the APS further provides at paragraph 19 of Schedule A certain mutual conditions for the benefit of the vendor and purchaser, including the condition that the Court will have approved the approval and vesting order which would then be final, by the closing date, in any event that this did not occur, neither party would be obligated to complete the transaction unless this condition (among others) had been satisfied or waived by both parties in writing.
[31] I had been concerned at the outset of the hearing of this motion and prior to having reviewed the APS, that the Receiver was committed irrevocably to close the transaction if the purchaser in its sole discretion waived any outstanding conditions. However, upon review of the APS, and particularly given the conditions I have referred to above, in my view the APS is capable of being terminated, without liability to the Receiver, by order of this Court.
[32] Moreover, Schedule A to the APS appeared to me to include terms relevant to the obligation of the Receiver to deliver vacant possession on closing, although the terms appeared to be internally inconsistent. As described below, and since this fact is relevant to the relief being sought, following the hearing I asked the parties (and primarily the Receiver) for brief submissions to clarify whether the Receiver was indeed contractually bound to deliver vacant possession, and whether it was still seeking a termination of the tenancy, and if so when.
[33] At the resumption of the hearing late in the afternoon on August 9, the Receiver urged the Court to grant relief in the form of the revised draft order. Mr. Siddiqui continued to seek an adjournment or dismissal of the motion, in order that he could be provided more time to raise the necessary funds. He filed with the Court as directed the document he represented was the binding commitment letter for the first $1 million. It was uploaded to CaseLines at page C35.
[34] However, a review of that document raises several issues:
(a) it is from an entity called 12197626 Canada Inc. and is addressed to Blugo and Mr. Siddiqui;
(b) it is a commitment to fund a loan to be secured by a mortgage to be registered on title to 46 Mimico Avenue, Toronto, the Property that is the subject of this motion, in first position, and a second mortgage over a property located at 3715 Drive, Mississauga, which is Mr. Siddiqui’s principal residence; and
(c) it is not signed by the issuing entity or anyone on its behalf. It is purportedly accepted, however, by Mr. Siddiqui on behalf of Blugo.
[35] I asked Mr. Siddiqui to explain this document given that:
(a) it did not appear to be executed and was therefore not binding on the lender; and,
(b) it was expressly conditional upon first mortgage financing secured by the Property, which Mr. Siddiqui and Blugo had no authority to agree to or implement, absent the consent of the Receiver which consent had been neither sought nor given.
[36] I further asked Mr. Siddiqui to explain his submission that the commitment was unconditional and that funding could be advanced “in a day or two”, since even if the consent were obtained, it required a mortgage on the subject property.
[37] Moreover, the terms of the commitment as filed include numerous conditions at Schedule B that were required to be satisfied or waived by the Lender. Those conditions are numerous. For example, the required security includes, in addition to the mortgages referred to above, a personal guarantee, assignment of rents, postponement of all shareholder claims and such other legal documents reasonably considered necessary by the Lender’s solicitors. It also includes a Borrowers’ Representation and Acknowledgement to the effect that the Borrowers have the power, capacity and authority to enter into the Commitment, which as noted, they lack as of that date given the Receivership.
[38] Finally, other conditions include a satisfactory review of the application and “credit bureau” [sic] for the Borrower, an appraisal of the lands confirming a value of not less than $3 million, an inspection, and the satisfactory interview of the borrower. The Lender may “in its sole discretion refuse to advance the loan if it is not satisfied with the Borrower’s ability to service or repay the loan.” There is no reference to the receivership or this proceeding.
[39] Mr. Siddiqui was unable to offer any submissions with respect to this document to give the Court satisfactory or indeed any comfort that it was in fact a binding commitment for funds of $1 million as he had represented to the Court. He then submitted that he had perhaps filed with the Court the wrong version of the commitment letter, but that in any event, he continued to represent that he indeed had an unconditional binding commitment from this lender for $1 million. Despite being given repeated opportunities, however, he could not produce any evidence of this.
[40] Mr. Siddiqui further submitted that he had not yet had the opportunity to obtain a second binding commitment letter for the additional $350,000, to which he had also referred earlier that morning, but that he was working diligently toward obtaining it. That was inconsistent with his earlier representation.
[41] As noted above, the Receiver filed and uploaded to CaseLines a revised draft order which, according to its terms, would provide Mr. Siddiqui an opportunity to obtain relief from termination of the informal tenancy and maintain possession of the property if (but only if) the Receiver has not entered into a firm and binding agreement of purchase and sale for the property on August 25, 2022, and the Debtor has fully repaid its indebtedness to the BDO.
[42] As noted above, subsequent to the hearing of this motion, the Court contacted both parties with the request that they make brief supplementary submissions if desired to provide clarification as to whether the APS described above required the Receiver to deliver vacant possession on closing, or not. I asked counsel for the Receiver to confirm whether the Receiver was still seeking an order terminating the tenancy and compelling the tenant to deliver vacant possession: (a) by August 31; (b) by closing of the APS; or (c) at all.
[43] Counsel for the Receiver responded, confirmed that the terms of the APS were “contradictory on point” since section 2 of the APS required the Receiver to deliver vacant possession on closing, while Schedule A (paras. 6(i) and 7) provided that the purchaser was agreeable to accept title, subject to the lease and any existing tenancy.
[44] However, and more importantly, the Receiver advised in its response that the issue was now moot since before the expiry of the due diligence period, the prospective purchaser gave notice to the Receiver that it would not be completing the transaction and accordingly the APS is at an end. Accordingly, so too was the extreme urgency of this motion.
[45] The Receiver further advised that Mr. Siddiqui had retained a real estate lawyer who had advised the Receiver that there was an expectation that the Debtor or Mr. Siddiqui would be in a position to pay out all of the indebtedness that week (i.e., the week of August 22, 2022). However, the Receiver had no certainty as to whether or not the financing would occur or if so when.
[46] As a result, the Receiver confirmed that was still seeking an order terminating the tenancy and vacant possession. Counsel for the Receiver noted that if Mr. Siddiqui was unable to repay the indebtedness because his financing did not materialize, the Receiver would be “back to square one” having to find a purchaser. That had the corollary result, in the submission of the Receiver, that the tenancy needed to be terminated so that vacant possession of the property could be offered to prospective purchasers to maximize value for the estate.
[47] Mr. Siddiqui also responded to my clarification request on August 23, 2022 to advise that he had just received “final confirmation from lender” and that “they have confirmed the funding now”, but also stated that “hopefully, we will be able to pay BDC before 31st August”.
[48] Unsolicited (and improperly), Mr. Siddiqui then wrote to the Court on September 2, 2022 to the effect that “we had lenders arrange [sic] but delays along with current real estate conditions kept on risking the deal” but that “as of now I through my lender and personal funds can settle ...the full amount owed to BDC”. Email correspondence attached to that unsolicited submission is to the effect that a second mortgage financing source had “backed out” but that Mr. Siddiqui could still offer the amount specified through first mortgage financing and personal funds.”
[49] Regrettably, I am left to conclude that the financing that Mr. Siddiqui had represented to the Receiver he had firmly in hand, yet again, and could close during the week of August 22, did not come to pass.
[50] Accordingly, on the state of the Record before me, I have no clear evidence, properly advanced, by Mr. Siddiqui or Blugo, to the effect that he has, unequivocally and unconditionally, sufficient funds to pay out his indebtedness.
[51] I observe the obvious; that is to say, there is nothing preventing the parties from reaching a consensual agreement with respect to all matters and advising the court of same, and that has not occurred. One would reasonably expect, if Mr. Siddiqui had sufficient funds available to pay the indebtedness, interest, fees and other costs, in full, that he would do so and the Receiver would happily accept same rather than face the uncertainty of attempting yet again to sell the Property with an uncertain recovery.
[52] It follows that I need to determine whether the relief sought by the Receiver should be granted.
Analysis
[53] The reasons for the appointment of the Receiver and for giving it the power that it has, are fully set out in the endorsement of Cavanagh, J. dated April 1, 2022. Those remain valid today. Indeed, there is no dispute about the powers of the Receiver or the fact that Events of Default as defined in the credit agreements have occurred.
[54] I am satisfied that the Receiver has the power to market and sell the Property. It has been marketing the Property through an independent real estate broker. It has the right to continue to do so, now that the APS discussed above is at an end.
[55] Moreover, the Receiver has been prepared to give Blugo and Mr. Siddiqui additional and repeated opportunities to avoid a sale of the Property. As at the hearing of the motion, the Receiver was still prepared to provide that opportunity until the end of August, but as noted above only if the pending APS was not final and if Mr. Siddiqui had fully repaid his indebtedness to BDO by the end of the month.
[56] I recognize that this did not give him an unfettered and unconditional extension of the period of time within which to repay the indebtedness but it was another opportunity nonetheless. In any event, that further opportunity is moot for two reasons: the purchaser elected not to complete the transaction; and despite repeated assurances that unconditional funding was in hand, Mr. Siddiqui could still not offer any evidence of such.
[57] In all the circumstances, in my view the Debtor has had ample opportunity to challenge the Receivership order (which it did not do), to raise the necessary funds to pay out the indebtedness owing to BDO, and to avoid a sale of the Property.
[58] I agree with the submission by counsel for BDO that unfortunately, Blugo and Mr. Siddiqui have been given yet another an opportunity to present evidence of available financing to satisfy the obligations of the Debtor and have not done so. Not only has no material been filed by them since the appointment of the Receiver on April 1, 2022, the representations made to the Court on the morning of August 9 that there was a binding and unconditional commitment in hand for the first $1 million, was not accurate. The further (unsolicited) submissions to the same effect have also not borne fruit.
[59] The representations about the binding commitment in hand followed on an earlier exchange in June, 2022 during which, in summary, and as fully conceded by Blugo and Mr. Siddiqui, they had obtained a commitment from a lender for funds sufficient to pay out BDC in June, but for unexplained reasons, that financing did not materialize.
[60] Then, Mr. Siddiqui represented that he made arrangements with a new prospective lender, also in June, who provided a commitment letter of $1.1 million on June 21, 2022. In the words of Mr. Siddiqui, “the lender backed out. Although no formal reason was given; my broker communicated to me that he had secured the fund of $1.1 million.”
[61] The rent arrears had not been paid. Mr. Siddiqui submits in his materials that it was “an honest mistake to have not provided rent to BDO as was demanded”. He submitted that, as of the date of the hearing, he had paid the rent although I observe that it had been paid by way of postdated cheques not negotiable as of that date, so the Court is unable to determine whether they have in fact been paid (albeit late) or not.
[62] The Demand and Notice referred to above dated June 27, 2022 were delivered to Blugo and Mr. Siddiqui by email to the email address used throughout by the Receiver. However, Mr. Siddiqui submitted that “however, the notice was sent by some other emails, and it missed by eyes and therefore the miss”. There is no evidence, however, of any other email addresses nor of an error in the email address to which the Notice was sent. The relevant time periods have long expired and at the hearing, Mr. Siddiqui did not seriously advance the argument that he was unaware of the Demand or the Notice.
[63] In all the circumstances, I am satisfied that the relief sought, as amended, is appropriate. I observe, and BDO concedes, that an approval and vesting order to vest title in a purchaser will be required on motion by the Receiver at a later date, and such relief is no part of the relief being sought or granted today. To be clear, that means that a further hearing before this Court will be required before title is vested in a purchaser.
[64] The issue, then, is whether the “lease” or informal tenancy should be terminated as of the date of closing of a sale transaction. I must still determine this issue, notwithstanding that the APS that was the subject of the urgency of the original motion, is now at an end. The Receiver continues to seek the ability to market and sell the property on the basis that it is offering vacant possession on closing.
[65] If there were a lease or tenancy with an arm’s-length third-party unrelated to Blugo or Mr. Siddiqui, the result might be significantly different here. Moreover, even if there were a formal lease arrangement between Mr. Siddiqui and an entity owned and controlled by him, I could envision circumstances where equity and a balancing of the interests might dictate a different result.
[66] Here, however, there is no lease. There is no evidence of any lease or tenancy arrangement. The business operating out of the Property is run by a company that Mr. Siddiqui readily admits is owned and controlled by him. There is no lease arrangement, no term, no regular or fixed payments of rent and no indicia of a lease whatsoever. Mr. Siddiqui (or any entity controlled by or affiliated with him, including but not limited to Blugo or 462), has not filed any evidence of any lease (or anything else) whatsoever.
[67] While, as noted above, the Receiver received just prior to the hearing of this motion postdated cheques for rent arrears and those may or may not be negotiated (it remains to be seen), there is no certainty or evidence of any certainty of the ability of the “tenant” to pay rent going forward. There is no commitment to do so.
[68] For all of these reasons, it is appropriate that the “tenant” be directed to vacate the property on or before the date fixed in any unconditional and irrevocable APS entered into by the Receiver for closing in order that vacant possession can be given.
[69] However, it would be unfair to the Debtor if this were to occur on an unreasonably short timetable. Accordingly, while the Receiver is entitled to terminate the tenancy and deliver vacant possession on the closing of an APS for the property, the Debtor is entitled to a minimum of 60 days’ notice, meaning that the Receiver, in entering into any APS with a purchaser, should ensure that the agreement provides according to its terms that closing shall not occur less than 60 days after the date on which the agreement becomes irrevocable, unconditional, and binding on both parties.
[70] As noted above, an approval and vesting order will be required, sought on notice to all parties, in any event.
[71] I am satisfied that the equities here are such that the relief sought by the Receiver is appropriate. Without question, the Receiver needs to be able to maximize the proceeds, and to do that, it needs to be able to offer to a prospective purchaser vacant possession. Whether any ultimately successful purchaser wishes to enter into a lease arrangement with Mr. Siddiqui and/or an entity controlled by him is for that purchaser to determine.
[72] The relevant equities here to be considered by the Court, relied upon by the Receiver, include the fact that, as noted, the lease or occupancy arrangement is between related parties and is therefore not arm’s-length and is not reflected either by the regular and consistent payment of any rent, nor by any formal agreement.
[73] The continuation of the existing lease arrangement post-sale and the inability to market and sell the property as vacant (on closing) impair the ability of the Receiver to maximize sale proceeds. The fact that formal rent or even occupation rent has not been paid for the preceding four months since the appointment of the Receiver also affects the ability of the Receiver to market the property subject to an existing tenancy. (As to relevant factors to be considered, see Firm Capital Mortgage Fund Inc. v. 2012241 Ontario Ltd., 2012 ONSC 4816 and Meridian Credit Union Ltd., v. 984 Bay Street Inc., 2006 26476).
[74] The applicant Receiver further relies upon the decision of the Court of Appeal for Ontario in Third Eye Capital Corporation v. Dianor Resources Inc. 2019 ONCA 508 for the proposition that “a rigourous cascade analysis approach” should be used in a consideration of whether to grant a vesting order that serves to extinguish rights.
[75] While that case arose from entirely different circumstances, and the rights sought to be extinguished were mineral rights or, more accurately, royalty rights derived from mineral rights, the analysis and approach adopted by the Court is nonetheless informative here.
[76] Importantly however, the rights sought to be extinguished in that case were owned by a third party. Indeed, one of the central issues on the appeal was whether and in what circumstances and limitations a Superior Court judge has jurisdiction to extinguish a third party’s interest in land using a vesting order granted pursuant to section 100 of the Courts of Justice Act and section 243 of the Bankruptcy and Insolvency Act (emphasis added).
[77] The Court of Appeal in Third Eye Capital considered at length the basis of the jurisdiction to extinguish an interest in land using a vesting order, ultimately concluding that, provided there is a basis on which to grant an order vesting property in a purchaser, there is a power to vest out interests on a free and clear basis so long as the terms of the order are appropriate and accord with the principles of equity.
[78] The Court noted that the purpose of a receivership is to “enhance and facilitate the preservation and realization of the assets for the benefit of creditors” (quoting with approval from Hamilton Wentworth Credit Union Ltd. v. Courtcliffe Parks Ltd., 1995 7059 (ONSC) at p. 787), and further that a receiver’s “primary task is to ensure that the highest value is received for the assets so as to maximize the return to the creditors” (see 1117387 Ontario Inc. v. National Trust Company, 2010 ONCA 340 at para. 77).
[79] In my view, there is jurisdiction for a Receiver to obtain a vesting order that extinguishes rights beyond simply title to the property. I accept for the purposes of this motion that the same analysis should apply here, where the relief sought, while not a vesting order, is analogous in that the Receiver is seeking the ability to enter into an agreement of purchase and sale which, if approved by the Court, is waivable or avoidable only at the option of the purchaser, for whose benefit the outstanding conditions may be satisfied or waived. The net effect is therefore similar: the rights of the debtor in the property would be extinguished subject to the terms of any vesting order ultimately vesting title to the property in the purchaser pursuant to the agreement.
[80] The question is then whether the leasehold rights should be extinguished so that the property can be sold (and marketed) free and clear of any tenancy and with vacant possession to be delivered on closing.
[81] As noted by the Court of Appeal in Third Eye Capital, many cases have weighed the equitable considerations to be considered where the vesting order sought would extinguish a leasehold interest. Examples are the Meridian Credit Union case noted above, and the decision of the Ontario Superior Court in Romspen Investment Corporation v. Woods Property Development Inc., 2011 ONSC 3648 (rev’d on other grounds 2011 ONCA 817).
[82] However, in my view, much of the consideration as to the applicability of equitable factors discussed in those authorities is not of relevance here because the issue in those cases was whether and on what terms rights owned by third parties ought to be extinguished through a vesting order.
[83] The balancing of rights was required to be undertaken by the courts since the rights to be extinguished, such as those of a tenant, were rights of a stranger to the dispute (usually in the form of a default on debt obligations) which underpinned the jurisdiction for the appointment of a receiver and the approval of a vesting order in the first place.
[84] That is not the case here. The lease or occupancy arrangement here is what is described as informal. Clearly, there is no lease agreement. But even if there were, both landlord and tenant are controlled by the same ultimate party, the individual respondent Mr. Siddiqui. There is no third party who is a stranger to the dispute. He is the principal of the debtor as well as the principal of the operating entity (the school) the tenancy or occupancy of which is sought to be terminated.
[85] Accordingly, it seems to me, the equities that would apply to analysis of whether and in what circumstances the rights of a tenant ought to be extinguished, are significantly different where that tenant is for all intents and purposes the debtor.
[86] The Court of Appeal noted in Third Eye Capital at paragraph 109 that, in considering whether an interest in land should be extinguished, a Court should consider: 1) the nature of the interest in land; and 2) whether the interest holder has consented to the vesting out of their interest either in the insolvency process itself or in agreements reached prior to the insolvency (emphasis added).
[87] If those factors proved to be ambiguous or inconclusive, the Court may then engage in a consideration of the equities to determine if a vesting order is appropriate in the particular circumstances of the case. At para. 110, the Court noted that this would include: “consideration of the prejudice, if any, to the third party interest holder; whether the third party may be adequately compensated for its interest from the proceeds of the disposition are sale; whether, based on evidence of value, there is any equity in the property; and whether the parties are acting in good faith”. The Court noted that the list is not exhaustive and there may be other factors that are relevant to the analysis.
[88] But here, not only does Mr. Siddiqui control both Blugo and 462 (the entity that runs the business operated at the Property), and not only is there no evidence of what 462 does beyond owning the business name, 462 is itself a party to the debt obligations and agreements with BDC.
[89] Accordingly, if the “tenant” is in fact 462 as the responding parties allege (and again, they have put forward no evidence to confirm this), it is itself a party to the BDC agreements with the result that while it has not consented to the vesting out of its interest, it is a party to agreements reached prior to the insolvency giving BDC the very enforcement rights it now seeks to assert. That accords with the factors to be considered as noted in Third Eye.
[90] For all of these reasons, I am satisfied here that the lease arrangement, whatever it is, can and should be terminated on the terms described above such that the Receiver can fulfil its obligation to offer to prospective purchasers vacant possession on closing and therefore market the Property offering same.
[91] The minimum 60 day period I described above seems to me to be sufficient to balance the right and ability of the Receiver to fulfil its obligations, and the rights of rights of the Debtor (and its related party “tenant”) to provide that vacant possession shall be delivered on the closing of the APS which shall not occur in less than 60 days. There is no pending sale today.
[92] I observe the submission of the Receiver that it is in the Debtor’s interest that since the “tenant” operates a business as a Montessori school, to have vacant possession required, and arrangements for the business made, prior to September and the beginning of the academic school year. However, Mr. Siddiqui was emphatic in his submissions that the nature of the Montessori school is such that it operates year-round, and not on a traditional September to June school year. In any event, I leave it to the Debtor to determine if it wishes, for its own reasons, to vacate the premises earlier than the closing date of a binding APS. In any event, since there is no pending APS before the Court, the end of August/start of September issue is moot.
[93] The balance of the relief sought by the Receiver being the First Report and its activities described therein, together with its fees and disbursements, is reasonable and is approved.
[94] Counsel for the Receiver is directed to prepare a form of draft order consistent with this Endorsement for review by me.
[95] Costs of this motion are reserved to the judge hearing the balance of the receivership application following a sale of the Property.
Osborne J.
Date: September 14, 2022