Court File and Parties

COURT FILE NO.: CV-23-00699065-00CL DATE: 20230525 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

BETWEEN:

BUSINESS DEVELOPMENT BANK OF CANADA Applicant – and – 170 WILLOWDALE INVESTMENTS CORP. Respondent

Counsel: Matilda Lici, for the Applicant Raymond Zar, Agent for the Respondent 170 Willowdale Investments Corp. Brian N. Radnoff, for 7291771 Alberta Inc.

HEARD: May 23, 2023

Endorsement

OSBORNE, j.

[1] The Applicant, Business Development Bank of Canada (“BDC”) seeks the appointment of The Fuller Landau Group Inc. as receiver of all of the assets, properties and undertakings of the Debtor, 170 Willowdale Investments Corp. (the “Debtor”). Those assets include a property located at 170 Willowdale Ave., Toronto (the “Real Property”). The Debtor operates a small boutique hotel on the Real Property.

[2] Following the hearing of the application on May 23, 2023, I granted the relief sought with reasons to follow. These are those reasons.

[3] Defined terms in this Endorsement have the meaning given to them in the Application materials unless otherwise stated.

[4] The Debtor was represented by Mr. Raymond Zar, the president, secretary and director of the Debtor, and himself a guarantor under the Credit Agreement referred to below.

[5] No court reporter was available. The hearing commenced at 10:40 AM via Zoom and had been scheduled for 30 minutes. At 11:05 AM, and as explained further below, given that Mr. Zar requested additional time to make submissions and a brief opportunity (10 minutes) to gather his thoughts, which I granted, I stood down the continuation of this matter until 11:45 AM at which time the hearing resumed. As no court reporter was available, I requested that the Registrar record the hearing via Zoom. That recording has been preserved.

[6] The Applicant relies on the affidavit of Dodie Ballesteros sworn May 5, 2023 and exhibits thereto. The Debtor did not file any responding materials.

The First Adjournment Request

[7] At the outset of the hearing, Mr. Zar requested an adjournment of the application. BDC submitted that it should proceed.

[8] Counsel for the second ranking creditor, 729171 Alberta Inc. (“171 Alberta”), opposed the request for an adjournment and supported the position of BDC.

[9] Mr. Zar submitted, initially, that the Application should be adjourned for two reasons.

[10] First, it was only a “first appearance and it never crossed [his] mind that any relief other than the imposition of a case management schedule would be granted at the hearing of the Application”.

[11] I do not accept this submission. The Application material is very clear that the Applicant sought the relief requested today.

[12] The Notice of Application and the draft receivership order were served on Mr. Zar via email on May 5, 2023 and again in hard copy via personal service effected by process server three days later on May 8, 2023. The Notice of Application states on its face that the Application was returnable on May 23, 2023 at 10:30 AM.

[13] The full Application Record was served on Mr. Zar on May 15, 2023. The electronic mail message under cover of which the Application Record was served clearly stated again the return date of May 23 at 10:30 AM.

[14] Mr. Zar acknowledges receipt of these materials on these dates, but submitted that he requires additional time to respond to the Application. He submitted that, notwithstanding receipt of the Notice of Application and draft order on May 5, he did not receive the full Record until May 15, which is acknowledged by BDC. I observe, however, that the Record contains, in addition to the Notice of Application already delivered, only the affidavit of Dodie Ballesteros.

[15] That affidavit contains nothing other than the facts clearly set out in the Notice of Application (although states them in properly sworn affidavit form), of which Mr. Zar was well aware in any event given his position as president, secretary and director of the Debtor and as guarantor. Even today, he does not deny any of the facts of the Credit Agreement (defined at para. 56), the defaults (including default of repayment), or the receipt of the demand for repayment and notice pursuant to s. 244 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3 (the “BIA”) on April 6, 2023.

[16] Mr. Zar was personally involved throughout the transactions at issue. He signed all of the loan documentation comprising the Credit Agreement documents. He was the directing mind of the Debtor when it committed a default and failed to make payments when due in September, 2022 and at all times since then. He received the demand for repayment and Notice of Intention to enforce Security discussed below.

[17] Mr. Zar’s first submission did not persuade me that an adjournment should be granted.

[18] Second, Mr. Zar submitted that on May 11, 2023, he attempted to retain Fogler Rubinoff LLP as counsel to respond to this Application. However, that firm advised that it was in a position of conflict vis-à-vis the Applicant, with the result that on the same day, Mr. Zar requested that BDC waive the conflict and permit that law firm to act for the Debtor.

[19] BDC declined to waive the conflict. Counsel for the Applicant confirmed in Court that this was conveyed to Mr. Zar the very same day, on May 11, 2023. Mr. Zar does not dispute that, but rather, maintains that the declining to waive the conflict on the part of the Applicant was unreasonable, unfair and done in bad faith and for tactical reasons.

[20] I asked Mr. Zar repeatedly what, if any, steps he as directing mind of the Debtor Company had taken in the intervening period of approximately two weeks to retain other counsel. He stated to the Court that he had attempted to retain other counsel, but as of the date of hearing had not done so. He reiterated that it was unreasonable and unfair for BDC to decline to waive the conflict with his chosen firm and submitted that they ought to waive the conflict even now in order that he could seek to retain that firm.

[21] I do not accept this submission. Mr. Zar had sufficient time to retain counsel to appear today on his behalf. But for the concerns of the Applicants, I might have granted the adjournment request. However, those concerns, which I will discuss below, in combination with Mr. Zar’s conduct of this litigation to date, persuaded me that I should not grant the adjournment.

[22] It is important to note that Mr. Zar did not challenge the underlying debt, the default in repayment or the fact that the loan documents provided for the appointment of a receiver in such circumstances, but submitted that it was not just or convenient to appoint a receiver today.

[23] There is no evidence from or on behalf of the Debtor as to any substantive response to BDC to the demand for repayment delivered in April. There is no evidence of any effort or response, formal or even informal, to the Notice of Application served on May 5. The Debtor reached out to BDC only to request that it waive the conflict with respect to his chosen law firm. That itself was on May 11, and the response was given the same day.

[24] I also observe that Mr. Zar made no submission that the Debtor (the entity he controls) was, even at the hearing of the Application, prepared to propose or entertain any forbearance terms or make any repayment, even if partial and/or late, with respect to the acknowledged indebtedness. Nor did he offer any submission to the effect that alternative or replacement financing or investment was even on the horizon, let alone binding or available now, which might facilitate the repayment, in whole or in part, on any terms whatsoever, of the indebtedness owing to BDC.

[25] In short, there was no suggestion or submission by Mr. Zar, even informally and in the absence of any properly filed evidence, to the effect that there was any prospect of additional funds to facilitate any repayment of the indebtedness on extended terms such as may have been agreed. On the contrary, he submitted that he intended to challenge any effort by BDC to enforce on its security every step of the way.

[26] Both the Applicant and 171 Alberta submitted that they were concerned about the erosion of their respective security over the assets of the Debtor, had limited visibility into its operations or financial affairs, and given the events of default, maintained their position that a receiver should be appointed immediately.

[27] For all of these reasons, I declined to adjourn the Application.

Merits of the Application and Mr. Zar’s Renewed Request for an Adjournment

[28] Counsel for BDC advised that it continued to rely on the facts as set out in the Application materials. I then asked Mr. Zar whether he wished to make any submissions in response to the Application and the relief sought, being the appointment of a receiver. He advised that he wished to do so, and requested a brief opportunity of ten minutes to gather his thoughts. I granted that, and the hearing was stood down for approximately 50 minutes.

[29] As noted above, upon reconvening, I invited Mr. Zar to make submissions with respect to the appointment of a receiver.

[30] Mr. Zar is a sophisticated businessperson, and an experienced litigant. When invited to make submissions on the merits of the motion, after his request for an adjournment had been denied, Mr. Zar continued to request an adjournment on various grounds, and made allegations of conflict of interest against each of the other counsel present and against the Court, and made allegations of bias and discrimination on the part of the Court. Mr. Zar advised that a higher court would review these matters. These requests and allegations were made on a continuing basis throughout the hearing.

[31] Mr. Zar then renewed his request for an adjournment on the basis that he had, during the break, contacted potential new counsel via text message, and would be attempting to retain them. Mr. Zar and counsel for the Applicant disagreed on whether this new counsel had in fact previously been contacted about a potential retainer on this matter for the Debtor.

[32] I advised that the adjournment request had already been denied for the reasons expressed above, and invited Mr. Zar to make any submissions as he wished with respect to the appointment of a receiver or the terms of any receivership.

Mr. Zar Alleges a First Reasonable Apprehension of Bias: Confidential Motion Record

[33] Mr. Zar then submitted that I could not proceed to hear this matter either then or at any time, as a result of an apprehension of bias.

[34] Mr. Zar submitted that since I had received and reviewed, earlier this year, a confidential motion record of counsel filed in support of a motion to remove themselves as counsel of record in another matter, I was in receipt of confidential information which operated to the prejudice of the Debtor in this matter. In the result, I could not be impartial and must recuse myself. He submitted that this was made clear by my endorsement in that other matter dated March 3, 2023.

[35] The matter to which Mr. Zar refers is a different proceeding. On March 3, 2023, I heard a motion in another matter involving different parties: KingSett Mortgage Corporation v. 30 Roe Investments Corp. (Ct. File No. CV-22-00674810-00CL). That motion, brought by counsel for the Debtor, sought an order removing them as counsel for the Debtor in that matter, 30 Roe Investments.

[36] Counsel on that motion advised that they would be seeking similar orders removing themselves as counsel of record in four other proceedings pending in this Court in which they acted for corporate parties that were owned and/or controlled by the same individual who was the principal of 30 Roe Investments, Mr. Zar. One of those corporate parties was the Debtor, although in its capacity as a defendant in yet still another matter unrelated to this Application. (As noted above, this Application was not commenced until May 5, 2023 and was not pending at all on March 3, 2023).

[37] I adjourned that motion to ensure that all responding parties had received proper notice. The motion was subsequently heard by Steele, J., who removed that law firm as lawyers of record, but as reflected in her Endorsement, such removal was without prejudice to the right of the receiver in that proceeding to oppose the law firm’s removal as counsel in the Court of Appeal for Ontario in respect of appeals that were then pending from two sales orders made in that receivership proceeding.

[38] That law firm then moved in the Court of Appeal to be removed as counsel of record on those pending appeals. By Endorsement dated March 20, 2023, Lauwers, J.A. dismissed the motion in what he described as the rare circumstances of that case: KingSett Mortgage Corporation v. 30 Roe Investments Corp., 2023 ONCA 196, at para. 18.

[39] In my view, the fact that I received a motion record by a law firm on a motion (ultimately heard by another judge) to be removed as counsel of record in a proceeding involving parties, none of which is a party to the current proceeding, and in respect of a corporate entity that is not a party to the current proceeding although apparently controlled by the same individual who controls the Debtor in this proceeding, does not disqualify me in the present circumstances from hearing any further step in this proceeding.

[40] I advised Mr. Zar that I declined his request that I recuse myself on the basis of the alleged apprehension of bias and that he should proceed to make submissions, if he wished to do so, on the appointment of a receiver.

Mr. Zar Alleges a Second Reasonable Apprehension of Bias: Prejudgment

[41] Mr. Zar then requested that I recuse myself from this matter on a second alleged basis for a reasonable apprehension of bias; namely, that I appeared to have already concluded that a receiver should be appointed without having given Mr. Zar an opportunity to be heard.

[42] I explained to Mr. Zar that he had been given every opportunity to be heard, but that that opportunity was now, with the result that he should make such submissions as he wished. I declined to recuse myself on this second allegation of bias. I advised Mr. Zar, again, that he should restrict his submissions to the merits of the Application.

[43] Mr. Zar then proceeded to make lengthy submissions, although they largely consisted of repeated requests for an adjournment.

[44] I advised that in the circumstances, I was inclined to grant the relief sought and appoint a receiver, and invited Mr. Zar to make submissions if he wished as to the terms of the receivership as set out in the draft order with which he was served on May 5, 2023.

Mr. Zar Alleges a Third Reasonable Apprehension of Bias: My Former Law Firm

[45] Mr. Zar then submitted that I could not hear the matter for yet another new reason. He submitted that my decision to appoint a receiver was improper on the basis of a reasonable apprehension of bias resulting from an alleged conflict of interest, in that, he submitted (for the first time, not having raised the issue previously) another partner at my former firm was apparently engaged in litigation to which he, or at least companies he controlled, were parties. As a result, he submitted, I was in a position of conflict, and could not hear any matter to which Mr. Zar, or any company he controlled, was a party.

[46] I advised I had no knowledge of any such matter and rejected this submission also, and invited Mr. Zar, yet again, to make submissions on the terms of the draft order if he wished to do so.

Mr. Zar Alleges that the Proposed Receiver had a Conflict of Interest

[47] Mr. Zar then submitted that the proposed receiver, The Fuller Landau Group Inc., was not an appropriate candidate to act as receiver as a result of an alleged conflict of interest of that firm. When asked to explain or identify this alleged conflict, Mr. Zar declined to do so, stating that the nature and circumstances of the conflict were privileged. This alleged conflict had not been raised with counsel for the Applicant earlier.

[48] There is no basis upon which I can conclude that the proposed receiver has any disqualifying conflict of interest.

It is Appropriate to Appoint a Receiver

[49] The test for the appointment of a receiver pursuant to s. 243 of the BIA or s. 101 of the Courts of Justice Act, R.S.O. 1990, c.C.43 is not in dispute. Is it just or convenient to do so?

[50] In making a determination about whether it is, in the circumstances of a particular case, just or convenient to appoint a receiver, the Court must have regard to all of the circumstances, but in particular the nature of the property and the rights and interests of all parties in relation thereto. These include the rights of the secured creditor pursuant to its security: Bank of Nova Scotia v. Freure Village on Clair Creek, (1996), 40 C.B.R. (3d) 274 (Ont. Gen. Div), at para. 11.

[51] Where the rights of the secured creditor include, pursuant to the terms of its security, the right to seek the appointment of a receiver, the burden on the applicant is lessened: while the appointment of a receiver is generally an extraordinary equitable remedy, the courts do not so regard the nature of the remedy where the relevant security permits the appointment and as a result, the applicant is merely seeking to enforce a term of an agreement already made by both parties: Elleway Acquisitions Ltd. v. Cruise Professionals Ltd., 2013 ONSC 6866, at para. 27. However, the presence or lack of such a contractual entitlement is not determinative of the issue.

[52] The appointment of a receiver becomes even less extraordinary when dealing with a default under a mortgage: BCIMC Construction Fund Corporation et al v. The Clover on Yonge Inc., 2020 ONSC 1953, 78 C.B.R. (6th) 299, at paras. 43-44.

[53] It is not essential that the moving party establish, prior to the appointment of a receiver, that it will suffer irreparable harm or that the situation is urgent. However, where the evidence respecting the conduct of the debtor suggests that a creditor’s attempts to privately enforce its security will be delayed or otherwise fail, a court-appointed receiver may be warranted: Bank of Montreal v. Carnival National Leasing Ltd., 2011 ONSC 1007, 74 C.B.R. (5th) 300, at paras. 24, 28-29.

[54] Accordingly, is it just or convenient to appoint a receiver in the particular circumstances of this case? I am satisfied that in the circumstances of this case, it is.

[55] The background to the Application is straightforward.

[56] The Debtor entered into loan and credit facilities with BDC according to the terms of a letter of offer dated November 19, 2018, as amended (“the Credit Agreement”).

[57] Pursuant to the terms of the Credit Agreement, the Debtor provided security to BDC including a general security agreement (“GSA”) dated November 30, 2018, a collateral charge/mortgage in the amount of $3,558,000 registered on title to the Real Property on November 30, 2018, and a general assignment of rents.

[58] BDC is the first position creditor of the Debtor in that it is the first ranking registered secured creditor under the Personal Property Security Act, R.S.O. 1990, c.P.10 over the property of the Debtor, and the charge on the Real Property is a first charge.

[59] The second ranking creditor of the Debtor, 171 Alberta, was represented in Court today and supports the relief sought and the appointment of a receiver.

[60] The Credit Agreement provides that the indebtedness is repayable on demand upon the occurrence of an Event of Default (as defined in the Credit Agreement). It also provides for the appointment of a receiver pursuant to section 15.1 of the GSA.

[61] Events of Default have occurred, including the failure by the Debtor to pay, when due, principal, interest and fees.

[62] BDC issued a formal written demand on the Debtor for repayment by letter dated April 6, 2023. Together with that demand, BDC delivered a Notice of Intention to Enforce Security pursuant to s. 244 of the BIA.

[63] As of April 6, 2023, BDC was owed by the Debtor the amount of $3,629,460.06, exclusive of legal fees, disbursements and interest which continued (and continue today) to accrue.

[64] Since April 6, 2023, the Debtor has not repaid any indebtedness. The evidence of BDC is to the effect that the Debtor has further refused to engage in any meaningful dialogue with BDC for the purpose of entering into any arrangements as may have been agreed for the full repayment of the amounts owing.

[65] Indeed, the Debtor has failed to make the scheduled payments since September 23, 2022 (Ballesteros affidavit, para. 16). In my view, the Applicant has not sought the appointment of a Receiver hastily or without giving the Debtor any opportunity to cure the default or even to seek an agreement with respect to extensions or possible forbearance terms.

[66] Rather, the Debtor has been in default, in respect of repayment of amounts as and when due, for some eight months or the better part of one year, during which the Applicant has not sought to precipitously appoint a receiver, although it had the contractual right to do so last September.

[67] There is no evidence before me of any effort on the part of the Debtor to remedy the default or seek revised terms. As noted, there has been no repayment of indebtedness, in whole or in part at all, since last September. The Applicant has continued to be patient.

[68] The formal demand for repayment, and Notice of Intention to Enforce, were delivered 1.5 months ago. Since that time, the Debtor has failed or refused to acknowledge that correspondence, repay the indebtedness, or enter into any arrangements acceptable to BDC (Ballesteros affidavit, para. 19).

[69] Nor has the Debtor taken any steps whatsoever with respect to its indebtedness, the default and the demand since it was served with the Notice of Application seeking the appointment of a receiver, expressly returnable on the date of this hearing, together with the draft order, on May 5, 2023.

[70] Instead, the Debtor has effectively ignored its contractual obligations and this proceeding until the hearing of this motion, at which time Mr. Zar appeared and requested an adjournment. When that was denied, he made various and repeated and in my view unwarranted, attacks on the Applicant, on counsel for the Applicant and on counsel for 171 Alberta, and this Court, all by way of his submission as to why I ought not to exercise my discretion to conclude that it was just or convenient to appoint a receiver.

[71] Mr. Zar then submitted again that the Applicant was acting in bad faith and that my decision to deny his request for an adjournment and hear the Application on the merits was “ridiculous and disgraceful”.

[72] There is no basis upon which I can conclude that the Application has been brought in bad faith. It was brought in the circumstances described above following nonpayment of amounts due and the complete failure or refusal of the Debtor to substantively engage with the Applicant.

[73] The statements of Mr. Zar at the conclusion of the hearing, after I confirmed to the parties that I was granting the order sought, are illustrative of the repeated attacks and allegations made. Mr. Zar stated that this Court was “ramming it through because [a partner at my former law firm] had accidentally sent him confidential information and [that partner] wants some insurance” (a bald allegation not further explained), and that the Court “clearly had a personal vendetta against [him]”. Mr Zar then threatened, in response to my direction that he focus on the merits of the Application, that: “if [the Court] interrupts me one more time, I will submit a complaint to [the Chief Justice]”.

[74] Mr. Zar submitted, and more than once during his submissions, that he had a medical condition as a result of which he was requesting additional time to make his submissions and formulate his thoughts. I reminded him that I had adjourned the matter earlier in the day when he requested 10 minutes to gather his thoughts and was given approximately 50 minutes, and I had allowed him to make submissions for approximately two hours thereafter.

[75] In my view, all of the allegations represented continuing attempts simply to delay the appointment of a receiver notwithstanding that the Debtor had contractually agreed to that appointment in the event of default which occurred almost a year ago.

[76] I observe that the various arguments, allegations and procedural issues that Mr. Zar raised are very similar to those he raised during the hearing of the appeal by the Court of Appeal for Ontario referred to above and on which Mr. Zar placed reliance in this Application: KingSett Mortgage Corporation v. 30 Roe Investments Corp., 2023 ONCA 219.

[77] In the Reasons for Decision of the Court of Appeal, the Court noted that Mr. Zar appeared in his capacity as guarantor of the responding party’s debt, although the substance of his submission certainly conveyed a response by the debtor corporation to the Receiver’s motion (para. 23).

[78] At paragraphs 14 – 23 of the Reasons for Decision, the Court of Appeal addressed various procedural issues raised by Mr. Zar during the appeal. Those included: a. a request for a 24 hour adjournment; issues resulting from the fact that Mr. Zar orally changed his instructions to counsel in open Court; b. the accommodation offered by the Court to permit Mr. Zar to file with the Court registrar a draft Debtor’s factum that he was holding in his hands and the granting of a 30 minute adjournment to allow him to do so, only to be advised upon resuming that Mr. Zar had not filed a factum for the panel’s consideration or provided copies to the other parties; and c. the fact that instead of filing the factum, upon the resumption of the hearing Mr. Zar requested that Brown J.A. recuse himself because some familial relationship created a conflict of interest, although when questioned, Mr. Zar was not prepared to name the person who allegedly had some familial relationship with Brown J.A., as a result of all of which the panel called upon the moving party receiver’s counsel to make submissions on the motion. Then, when the panel called upon Mr. Zar to make responding submissions, he advised that a medical condition of his was making it difficult for him to formulate submissions. The panel offered, and Mr. Zar accepted, a 10 minute recess to allow him to collect his thoughts. Upon reconvening, argument proceeded.

[79] The delay tactics employed there were nearly identical to those employed on this Application.

[80] In the present case, the Applicant, fully supported by the second ranking secured creditor, seeks the appointment of a receiver not only on the basis of the clear and continuing repayment default, but in the absence of any effort on the part of the Debtor or its principal to make any repayment of any amounts whatsoever, or effectively, to take any step to meaningfully engage as a reasonable sophisticated commercial party, (as the Debtor here clearly is), and respond to its contractual obligations or to this proceeding.

[81] While a receiver may be appointed where it is just or convenient to do so, in my view the circumstances of this case are such that it is both just and convenient. There is no basis upon which I can conclude that the circumstances will be materially different if a receiver were not appointed today and the matter were put over for a short period of time.

[82] Accordingly, and having considered all of the circumstances and the relevant factors, including the rights of the affected parties, it is my view that the interests of all parties will best be protected, in a transparent and fair manner, by the appointment of a receiver who will act in a neutral and impartial way, under the supervision of the Court.

[83] The terms of the proposed receivership are consistent with the Model Order of the Commercial List. The obligations, as well as the permitted activities, of the proposed receiver are clearly set out and in my view are appropriate in this matter.

[84] As I specifically highlighted to Mr. Zar, paragraph 33 of the proposed order contains the usual “comeback” provision, providing that any interested party may apply to the Court at any time to vary or amend the order on seven days’ notice.

[85] I observe in addition that there is of course nothing preventing the parties from having discussions with a view to reaching a consensual resolution of this matter, in whole or in part, at any time.

[86] For all of the above reasons, I granted the receivership order.

Osborne J. May 25, 2023