Court File and Parties

COURT FILE NO.: CV-22-685411-00CL

DATE: 20221027

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: TORONTO-DOMINION BANK Applicant

AND:

13153100 CANADA INC., SHENGYU MA AND XU WANG Respondents

APPLICATION UNDER SUBSECTION 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. 43, AS AMENDED

BEFORE: Osborne J.

COUNSEL: K. Plunkett and D. Robb English, for the Applicant

J. Rosenstein, for the Respondent Xu Wang

Shengyu Ma, for the Respondents Shengyu Ma and 13153100 Canada Inc.

HEARD: October 27, 2022

ENDORSEMENT

[1] The Applicant, TD Bank, seeks the appointment of a receiver or all of the assets of 13153100 Canada Inc. [the “Debtor” or “131”], and judgment against each of the individual Respondents, Shengyu Ma [“Ma”] and Xu Wang [“Wang”] in accordance with their joint and several guarantees in favour of TD. Ma is the owner and director of 131, and Wang is his wife. 131 operates a PetroCanada gas station in Rockwood, Ontario.

[2] On this motion, TD is proceeding only with its request for appointment of a receiver, and is not seeking judgment against the guarantors, which component of the relief is to be adjourned.

[3] Pursuant to a credit agreement dated August 4, 2021, TD provided 131 with a demand operating facility and a term loan, the latter facility to finance the purchase of the gas station from the vendor, 2456554 Ontario Inc. [“245”].

[4] As security for the loan facilities, 131 granted to TD a collateral mortgage on the property and a general security agreement. Each of the Respondents provided an unlimited guarantee by which they jointly and severally guaranteed the payment by 131 to TD plus interest from the date of demand.

[5] The credit agreement defines typical events of default, including where any representation, warranty or statement “of the debtor” made in connection with the delivery of the credit agreement was false or misleading.

[6] In approving 131 for credit and entering into the credit agreement, TD relied on financial statements that 131 provided to show the financial viability of the gas station it wanted to purchase with financing from TD.

[7] 131 had been referred to TD by a broker who had referred numerous financing transactions for other gas stations as well. TD discovered that one of its other gas station borrowers, albeit one involved with the same broker, had submitted falsified and misleading financial reporting. The accounting firm who had purportedly prepared that reporting apparently denied to TD ever having had that borrower as a client or producing the financial statements.

[8] As a result, TD began to review other externally-prepared financial reports for other borrowers to whom it had been introduced by the same broker. These included 131.

[9] When TD contacted the accounting firm who purportedly prepared the financial statements for the vendor from whom 131 purchased the gas station, and on which TD had relied in extending credit, the accounting firm denied ever having had the vendor as a client.

[10] TD takes the position that 131 had therefore provided a misleading representation and statement in connection with the delivery of the credit agreement, and thereby committed an event of default. TD accordingly delivered a formal demand for payment together with the 10 day notice pursuant to section 244 of the BIA. TD also formally demanded under each of the individual guarantees.

[11] The operating facility is repayable on demand and the term loan is repayable upon the occurrence of an event of default. TD’s position in its Notice of Application is that while 131’s operating account is no longer in an overdraft position, TD has received no payment on the demand for the term loan and that non-payment also constitutes a further event of default.

[12] Under the general security agreement, TD has the right to appoint a receiver upon the occurrence of an event of default.

[13] TD relies upon the affidavit of an account manager, Amanda Bezner, sworn August 19, 2022. That affidavit attaches the vendor financial statements referred to above as Exhibit K. That exhibit includes unaudited financial statements for the vendor, 245, prepared by “Orientec Tax & Accounting Services”.

[14] The key evidence for the purposes of this motion is found at paragraph 16 of the affidavit, wherein Ms. Bezner states that an individual by the name of Basia Pozin, an analyst at TD, telephoned the accounting firm, Orientec, and a representative of that firm, Mike Guo, could find no record of 245, the vendor, as a client of the firm.

[15] The Respondents submit that the Application, even in respect of the limited relief sought [appointment of a receiver] should be adjourned to permit cross examinations. They argue that the evidence at paragraph 16 of the affidavit is double hearsay. There is no evidence in the record from either Basia Pozin or Mike Gao [or, I note for greater certainty, anyone else].

[16] The Respondents also argue that if there are indeed misrepresentations in the financial statements, the financial statements were not prepared by or on behalf of 131, but rather by the vendor, 245, and simply provided to TD by 131 as requested.

[17] TD reiterated its concern that it had no visibility whatsoever into the operations or financial status of 131.

[18] Following the hearing, as encouraged by the Court, counsel for the parties discussed whether an adjournment was appropriate, and if so on what terms. Counsel subsequently advised the Court that they were unable to reach an agreement with regard to the terms of an adjournment.

[19] TD repeated its position that a receiver should be appointed, but in the alternative requested that an adjournment include a requirement that 131 remain current on its payments, and that TD be given visibility into the operations and business of 131 by way of the interim receivership order.

[20] 131 repeated its position that on the basis of the evidence in the record today, the Application should be dismissed, but in the alternative requested that an adjournment be granted. 131 agreed that an adjournment should include a requirement that 131 remain current in its payments, and that TD be granted visibility into the operations and business of 131 but that this be achieved by TD requesting and receiving any information to which it is entitled to receive under the loan agreements.

[21] In the circumstances, and given the position of the parties, the motion and the balance of the relief sought in the Application itself, are adjourned to a date to be scheduled through the Commercial List Office. The parties may make that returnable before me. This Endorsement does not prejudice any rights of TD including without limitation any relief it may seek on the return of the motion and/or application.

[22] On the agreement of all parties, it is an express condition that 131 remain current in all of its payments due and owing to TD under all facilities, including for greater certainty both the operating credit facility and a term loan.

[23] TD is entitled to visibility into the operations and business of 131. 131 shall provide, and Ma shall cause 131 to provide, any and all financial and operational information and documentation reasonably requested by TD. This is to include, without limiting the foregoing, bank statements, cash flows and income statements, and any other information reasonably required by TD to monitor the receipts and disbursements of 131.

[24] If 131 defaults on any payment obligations to TD or fails or refuses to cooperate and provide the information and materials described above, TD may seek the return of this motion on an urgent basis before me.

Osborne J

Date: October 27, 2022