COURT FILE NO.: 33-165775 and 33-165776

ESTATE NO.: 33-165775 and 33-165776

DATE: 2023/07/27

COURT FILE NO. 33-165775

ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY)

IN THE MATTER OF THE BANKRUPTCY OF MARTHA LORRAINE BEACH, a.k.a. MARTHA BEACH, OF THE VILLAGE OF INVERARY IN THE COUNTY OF SOUTH FRONTENAC, IN THE PROVINCE OF ONTARIO

COURT FILE NO. 33-165776

ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY)

IN THE MATTER OF THE BANKRUPTCY OF JONATHAN GARY BEACH, a.k.a. JOHNATHAN GARY BEACH, OF THE VILLAGE OF INVERARY IN THE COUNTY OF SOUTH FRONTENAC, IN THE PROVINCE OF ONTARIO

COUNSEL: Percy Ostroff and Denise Sayer for Heliotrope Investment Corporation Martha Lorraine Beach on her own behalf, and on behalf of Gary Johnathan Beach and 2290998 Ontario Inc.

JUDGE: Justice R. Ryan Bell

HEARD: July 25, 2023

endorsement on moton to remove protective orders

Overview

1On November 18, 2022, I adjudged Martha Lorraine Beach (“Martha”) and Johnathan Gary Beach (“Gary”) bankrupt. The Beaches have appealed the bankruptcy orders.

2Prior to November 18, 2022, I made certain orders, on consent, to protect and preserve property owned by the Beaches and their companies. One of the companies specifically referenced is 2290998 Ontario Inc. (“229 Ontario”).

3The protective orders were registered on title by Heliotrope Investment Corporation.

4The Beaches and 229 Ontario bring this motion to have the protective orders removed from title. Heliotrope maintains that the protective orders were properly registered and should remain on title.

5These reasons explain why I am dismissing the motion, with costs.

Martha’s representation of 229 Ontario on this motion

6Rule 15.01(2) of the Rules of Civil Procedure provides that a party to a proceeding that is a corporation shall be represented by a lawyer, except with leave of the court.¹ Martha sought leave to represent 229 Ontario on this motion. She is the sole shareholder and director of 229 Ontario and has been authorized to act on 229 Ontario’s behalf.

7Heliotrope did not object to the request for leave. I therefore granted leave to Martha to represent 229 Ontario on this motion.

The protective orders

8The first orders² were made November 29, 2021 on the consent of Heliotrope, Martha, and Gary. Paragraphs 3 and 4 of the order made in the bankruptcy proceedings against Martha provide:

3. THIS COURT ORDERS that, until further Order of this Court, the Respondent [Martha] shall not make, permit or cause any transfer, encumbrance, assignment, pledge or other disposition or dealings of any property owned by her, Johnathan Beach, 1073650 Ontario Inc., 1324789 Ontario Inc., 2290988 [sic] Ontario Inc. or any other related party other than a financing or refinancing up to a combined maximum of $250,000, all the funds from which will be used exclusively to fund the Respondents’ legal costs in connection with their respective disputes of the Bankruptcy Orders sought by Heliotrope, other legal costs of related litigation, and their reasonable and necessary personal living expenses.

4. THIS COURT ORDERS that, until further Order of this Court, the Respondent shall provide written notice and details of any dealing or intended dealing with any property owned by either or both of the Respondents, 1073650 Ontario Inc., 1324789 Ontario Inc., 2290988 [sic] or any other related party, to MNP Ltd., at least 5 business days before such intended action is taken, by email notice to John Haralovich at JohnHaralovich@mnp.ca showing the intended property, the nature of the intended transaction, date, amount, and intended distribution or allocation of proceeds.

9The November 2021 orders were amended by my endorsement made on January 21, 2022. The January endorsement was also made on consent of the parties. The January 2022 endorsement allowed a financing of an aggregate of $475,000 (an increase from the $250,000 allowed under the November 2021 orders). The permitted financing is in two parts: a “First Financing” to replace an existing first mortgage and a “Second Financing” that the Beaches anticipated would proceed in February 2022 “for the primary purpose of paying a costs award to Heliotrope and related parties.”

10Paragraph 7 of the January 2022 endorsement provides:

The Second Financing is outside the limitations imposed under the November 29th Orders. However, the November 29th Orders permit modification of such limitation by further order of the Court. The parties agree that the Second Financing is hereby authorized, provided that (a) the use of funds are as set out above; (b) that the funds are not exempted from any applicable garnishment order or writ in favour of the applicant; and, (c) that five (5) business days prior to the completion of the Second Financing the Beaches provide notice of the same to MNP Ltd. as required under the November 29th Orders.

11229 Ontario was erroneously referred to as 2290988 Ontario in the November 2021 orders. This error was corrected at the request of Martha and on the consent of the parties, by my order dated December 2, 2022.

Registration of the protective orders on title

12Section 17 of Reg. 690 to the Land Titles Act³ provides:

(1) Except as provided in section 15, an application to register a judgment or order affecting or relating to registered land that is submitted for registration in a non-electronic format shall not be registered unless accompanied by an application in the required form.

(2) An application to which subsection (1) applies shall be supported by an affidavit of a solicitor deposing that the judgment or order,

(a) is still in full force and effect and has not been stayed, and

(b) affects or relates to the land referred to in the application.

(3) A judgment or order shall not be registered unless it is in the form of,

(a) the original judgment or order;

(b) a copy certified by the court;

(c) a certificate certified by the court setting out the substance and effect of the judgment or order; or

(d) a notarial copy of the original, certified copy or certificate.

13The November 2021 orders, the January 2022 endorsement, and the December 2022 order were registered by Nelligan LLP, lawyers for Heliotrope, as a schedule to Instrument no. FC372458. The statements in the Instrument are:

The applicant applies to register the following order: See Schedules. The order is still in full force and effect.

The court order contains the following title related restriction: Pursuant to paragraph 3 of Schedule A of the Order, 2290998 Ontario Inc. shall not make, permit or cause any transfer, encumbrance, assignment, pledge or other disposition or dealings of any property owned by 2290998 Ontario Inc. except as set out in the Order.

14On June 23, 2023, John Haralovich of MNP Ltd. received an email from Gary Beach which stated “Below is the permitted 2nd financing from an order of Justice Ryan Bell, dated January 23, 2022, which we are trying to finally complete later next week (June 29th or 30th) or early in the following week (July 6th or 7th).” The email then cuts and pastes an excerpt from the January 2022 endorsement and concludes “We don’t have all final paper yet, as much is still up in the air.”

15No details were provided at that time or subsequently. In particular, the name of the lender was not provided, the Beaches did not indicate if the “intended distribution/allocation of proceeds” was to be the actual distribution/allocation, the closing date was not provided, and no assurances were given with respect to the payment of the costs awards expressly referenced in the January 2022 endorsement.

16The Instrument was registered on June 26, 2023 so that any lender and their lawyers, or anyone proposing to acquire an interest in the property on disposition by 229 Ontario would have notice of the protective orders.

Analysis

17The Beaches and 229 Ontario argue that the protective orders should be removed from title. They argue:

(i) the registration of the protective orders was contrary to the terms agreed to by the Beaches and Heliotrope;

(ii) Heliotrope has added an “additional oversight requirement” that goes beyond the scope of the parties’ agreement; and

(iii) the protective orders were not made against 229 Ontario and the statements contained in the Instrument are misleading.

18None of these arguments has merit.

19Section 17 of Reg. 690 provides that an order of the court affecting or relating to registered land can be registered on title on application to the Director of Land Titles. The protective orders restrict dealings with 229 Ontario’s property. They are in full force and effect and have not been stayed as a result of the Beaches’ appeal of the bankruptcy orders. Heliotrope’s application to register the protective orders was accepted by the Land Registrar on behalf of the Director of Titles. Contrary to the submission of the Beaches and 229 Ontario, it was not necessary for the protective orders to expressly state that the orders could be registered on title because registration is clearly permitted under s. 17 of Reg. 690.

20Heliotrope has not added an additional oversight requirement as the Beaches and 229 Ontario suggest. The Instrument will not delay or prevent any transaction that the Beaches might want to complete that is consistent with the protective orders. The Beaches are bound to comply with the orders whether or not they are registered.

21The argument that this is tantamount to the appointment of MNP as receiver is simply wrong. MNP was not appointed as receiver or interim receiver and, because of the appeals, no assets have vested in MNP. MNP is only the recipient of the information; it cannot prevent a transaction, nor does it have the power to approve a transaction.

22The November 2021 orders require that the Beaches give MNP as least five business days’ “written notice and details” of any dealing or intended dealing with any property owned by the Beaches or their companies, including 229 Ontario. The notice is required to be made to Mr. Haralovich showing the intended property, the nature of the intended transaction, the date, the amount, and the intended distribution or allocation of proceeds. These details were not provided by the Beaches.

23Finally, it is disingenuous for the Beaches to argue that the protective orders are not binding on 229 Ontario. Martha is the sole shareholder and director of 229 Ontario. She is clearly the directing mind of the corporation. Indeed, she sought and received leave to represent 229 Ontario on this motion on this very basis. A corporation acts through its directing mind. The protective orders expressly restrict Martha from disposing or dealing with property owned by 229 Ontario subject to the specified exceptions. The Beaches were represented by counsel at the time the protective orders were made and I note that it was at Martha’s request that the typographical error relating to 229 Ontario was corrected.

24The statements contained in the Instrument are not misleading. They clearly state that the restrictions in the protective orders prevent 229 Ontario from dealing or disposing of its property “except as set out in the Order.”

Disposition

25The motion is dismissed with costs to Heliotrope.

26Heliotrope requests costs of $10,000 all inclusive. I find this to be a fair and reasonable amount for the Beaches and 229 Ontario to pay to Heliotrope in respect of the motion. Heliotrope’s response included affidavits prepared by Mr. Haralovich of MNP and Ms. Bellinger of Nelligan LLP who registered the Instrument. Heliotrope filed a detailed factum on the motion. Heliotrope was short-served with the Beaches’ reply material and factum.

27Martha, Gary, and 229 Ontario shall pay costs of the motion to Heliotrope in the all inclusive amount of $10,000. This amount is to be paid within 30 days. Martha, Gary, and 229 Ontario are jointly and severally liable for the costs of the motion.

Justice R. Ryan Bell

Released: July 27, 2023

COURT FILE NO.: 33-165775 and 33-165776 ESTATE FILE NO.: 33-165775 and 33-165776 DATE: 2023/07/27

COURT FILE NO. 33-165775

ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY)

IN THE MATTER OF THE BANKRUPTCY OF MARTHA LORRAINE BEACH, a.k.a. MARTHA BEACH, OF THE VILLAGE OF INVERARY IN THE COUNTY OF SOUTH FRONTENAC, IN THE PROVINCE OF ONTARIO

COURT FILE NO. 33-165776

ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY)

IN THE MATTER OF THE BANKRUPTCY OF JONATHAN GARY BEACH, a.k.a. JOHNATHAN GARY BEACH, OF THE VILLAGE OF INVERARY IN THE COUNTY OF SOUTH FRONTENAC, IN THE PROVINCE OF ONTARIO

endorsement on motion to remove protective orders

Ryan Bell J.

Footnotes

1. 1R.R.O. 1990, Reg. 194.
2. 2One in each bankruptcy proceeding.
3. 3R.S.O. 1990, c. L.5.