Court File and Parties
ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
RE: Bertha Aiello, Applicant
AND:
Niazi Holdings Inc. and Leroy Bleta, Respondents
BEFORE: Peter J. Osborne J.
COUNSEL: Elaine Peritz and A. Sean Graham, for the Applicant
Kira Domratchev, for the Respondent Niazi Holdings Inc.
Luke Sabourin, for the Respondent Leroy Bleta
HEARD: January 11, 2023
ENDORSEMENT
Relief Sought and Context
- The Applicant, Bertha Aiello (“Aiello” or the “Applicant”), brings this oppression application seeking various heads of relief, including:
a. an order that the Respondent, Niazi Holdings Inc. (“Niazi”), pay the sum of $999,007.50 to the Applicant as an amount due for the redemption of 999,007.5 Class “A” preference shares held by Aiello in Niazi;
b. a declaration that the powers of the Respondent, Leroy Bleta (“Bleta”), as the director and officer of Niazi, have been exercised in a manner that is oppressive or unfairly disregards the interests of Aiello as a shareholder;
c. a declaration that the business and affairs of Niazi have been carried out in a manner that is oppressive or unfairly disregards the interests of Aiello as a shareholder; and
d. prejudgment interest from the date of redemption of the shares on March 17, 2021, post-judgment interest, and costs.
Aiello and Bleta are siblings. Niazi is one of three companies previously owned by their late father, Karafil Bleta, and bequeathed to them and/or other family members upon his death in 2008. The other two companies are Floriri Village Investments Inc. (“Floriri”) and Korce Group Ltd. (“Korce”).
Following the death of their father, the personal relationship between Aiello and Bleta deteriorated, although their business interests remained intertwined.
Bleta is the sole director and officer of Niazi. Aiello was a shareholder in Niazi holding 999,007.5 Class “A” redeemable and retractable preference shares (the “Shares”) with a redemption price of one dollar per share, for an aggregate Redemption Amount of $999,007.50.
Aiello delivered to Niazi her Notice of Election to Redeem the Shares at the Redemption Price in accordance with the requirements of the Articles of Incorporation on March 10, 2021.
Niazi, through its directing mind Bleta, refuses to pay the Redemption Amount. Aiello therefore brought this Application by Notice of Application issued on June 1, 2021.
Preliminary Matter
By Endorsement of Kimmel J. dated September 12, 2022, the hearing of this Application was scheduled, on the consent of the parties, for January 11, 2023. A timetable for the delivery of Application materials and prehearing steps had been fixed by Gilmore J. by Endorsement dated August 4, 2022.
The Application Record was served in accordance with the timetable fixed, and the factum of the Applicant was delivered on December 28, 2022.
On January 4, 2023, one day before the factum of the Respondents was due (it had not been delivered), the Respondents requested an urgent case conference before the court to request an adjournment of the hearing of this Application.
As reflected in the Endorsement of Kimmel J., and as more particularly set out below in these reasons, there was an appeal then pending from a decision of Gilmore J. relating to these family companies. The Respondents based their request for an adjournment in part on the basis of that pending appeal. However, Gilmore J. had specifically scheduled the hearing of this Application on the basis that her decision dealt only with the common shares of the companies, including Niazi, and not the preference shares to which the redemption that is the subject of this Application relates.
In her Endorsement scheduling the hearing of this Application, Gilmore J. stated: “I agree with Ms. Aiello with respect to scheduling this matter. The 2014 agreement could not have dealt with the preference shares …”.
In her Endorsement following the January 4, 2023 case conference and adjournment request, Kimmel, J. noted this. Kimmel J. observed that the present Application sought to determine issues regarding the preference shares, for which Application Gilmore J. had specifically timetabled the prehearing steps in her Endorsement of August 4, 2022. Accordingly, Kimmel J. was not inclined to adjourn the hearing of this Application on the basis of the pending appeal.
Kimmel J. went on to observe that the primary ground for the adjournment request was the submission that two new applications had been commenced by the Respondents in December 2022. One of those was styled as a counter-application (Court file No. CV-22-00691124-0000) and the second was an application involving Floriri (Court file No. CV-22-00691109-00). The Respondents argued that all of these applications should be consolidated, heard together or heard one after the other.
Justice Kimmel noted that as the new applications had not been approved for issuance on the Commercial List (per the November 8, 2022 Endorsement of McEwen J. following a November 4, 2022 request by the Respondents), they had been issued on the regular Civil List. Consolidation of the three applications at that time would have entailed moving this Application, then returnable the following week, to the Civil List and would likely have resulted in an adjournment of at least a year.
In the result, Kimmel J. denied the adjournment request of the Respondents, noting again that the hearing of this matter had been scheduled on consent and the delay that would be created by the new applications and request for consolidation was not justified. As reflected in the Endorsement, the Respondents had acknowledged that no new evidence will be relied upon in support of the new applications. Justice Kimmel determined that: “[t]he outcome of this application may have some bearing on the necessity and/or scope of the new applications, but I am not persuaded that the reverse is true. If the respondents are concerned about the enforcement of any award arising out of this application pending the determination of the new applications, they may move for a stay.”
Justice Kimmel granted the Respondents leave to file their responding factum on this Application late, by January 9, 2023.
Finally, Justice Kimmel’s endorsement provided that if the Respondents wished to move for a stay of the hearing of this Application, pending the determination of the appeal and/or the determination of the new applications, they were to serve a motion record by the same date, January 9, 2023 and the parties were directed to seek directions from the applications judge hearing this Application regarding the complete briefing of the stay motion, including any responding evidence from the Applicant, and a hearing date to be scheduled.
Two days prior to the hearing of this Application, the Respondents served a Motion Record returnable on the same date as this Application, seeking an order, among other things:
a. staying this Application or any orders made therein pending the outcome of the appeal bearing Ontario Court of Appeal No. C70757 (the “Appeal”) of Gilmore J.’s Judgment and associated costs ordered in Court File No. CV-16-11658-00CL (the “Corporate Action”)”;
b. staying this proceeding or any order made therein pending the resolution of the Intercorporate Loans (defined below) including the proceeding bearing Ct. File No. CV-21-00655166-00CL (the “Loans Action”);
c. transferring this Application from the Commercial List to the Civil List; and
d. ordering that this Application be heard together with, or one immediately after the other with, the new applications commenced in December 2022, as this court may direct.
The Respondents then delivered one factum, both in response to this Application and in support of their proposed motions.
At the outset of the hearing of these matters, counsel for the Respondents confirmed that she was content to proceed with the hearing of the Application and was not seeking a stay of the hearing of the Application on the basis of the two new applications commenced in December 2022, nor was she seeking a hearing of the motion to consolidate or have all of the applications heard together or one after the other, provided that the Respondents be permitted to refer in their submissions to the court on this Application to the motion record referred to above.
Counsel for the Applicant agreed and consented to proceed on that basis. The principal submission of counsel for the Respondents remained, however, that this Application should be stayed pending a determination in the appeal of the Corporate Action.
For the reasons described below, that submission is now moot since the Court of Appeal has recently released its decision dismissing that appeal.
The issue of whether any continuing proceedings should be consolidated or ordered to be heard together or one after the other is for another day and is not determined as part of this Application.
The Corporate Action
- Aiello, together with Floriri and the Bleta Family Trust as plaintiffs, commenced the Corporate Action against Bleta, Niazi and Korce. By order of McEwen J., the trial of that action was limited to a determination of the issues set out in paragraphs 1(a) and 1(b) of the amended statement of claim being whether:
a. a declaration should be granted that Aiello purchase the interest of Bleta in Floriri in exchange for the transfer to Bleta of Aiello’s interest in the Bleta Family Trust including the corporate assets held by that Trust, being Niazi and Korce, plus an equalization payment; and
b. a declaration should be granted that Aiello was entitled to sole beneficial ownership of Floriri on the basis of unjust enrichment and proprietary estoppel and corresponding orders to realize her entitlement.
Following a trial of over 11 days, Gilmore J. released Reasons for Decision dated May 13, 2022 (2022 ONSC 2798), and issued a declaration that Aiello was the beneficial owner of Bleta’s common shares in Floriri as sought. Gilmore J. also directed that the Loans Action proceed on an expedited basis.
It was this decision that was under appeal as at the hearing of this Application.
However, while this matter was under reserve, the Court of Appeal for Ontario released its decision dated August 3, 2023 (2023 ONCA 525) dismissing the appeal with costs.
Accordingly, there is no basis to stay this Application or any order made therein on the basis of that pending appeal.
Moreover, even if the decision of the Court of Appeal were still pending, I would decline to stay this Application, since the relief sought on this Application relates to a redemption of the preference shares in Niazi, and the preference shares were no part of the Corporate Action or the appeal.
This is clear for a number of reasons, including:
a. the order of Hainey J. dated May 29, 2019, made in an action commenced by the Bank of Nova Scotia Trust Company in its capacity as the successor estate trustee for the estate of Karafil Bleta (01-1204/09), which included a declaration that:
i. Floriri and Aiello “do not seek any order, judgement, decision or adjudication of any kind in the Floriri Action [i.e., the Corporate Action] that affects any preference shares held, directly or indirectly, by the Estate of Karafil Bleta (“the Estate”) or KB Investments Ltd. (“KB”) in the capital of Floriri or Niazi”; and
ii. “no order, judgment, decision or adjudication of any kind shall be made in the Floriri Action that affects any preference shares held, directly or indirectly, by the Estate or KB in the capital of Floriri or Niazi”;
b. the Reasons for Decision of Gilmore J., which included the following statements and findings:
i. “The [Bleta Family Trust] owns all of the common shares of Niazi. The Estate was the sole beneficial preferred shareholder of … Niazi” (at para. 19); and
ii. “As for the issue of the preference shares, there was no relief sought in relation to those shares. Such relief can be dealt with in a separate proceeding or forum if required” (at para. 239);
c. the decision of the Court of Appeal for Ontario which confirmed that the issue on the appeal was related only to the common shares of Niazi owned by the Bleta Family Trust; and
d. the scheduling Endorsements of Gilmore J. and Kimmel J. referred to above.
- In short, the preference shares of Niazi, and any redemption rights associated therewith, were not the subject of the Corporate Action, which has, in any event, now been finally determined.
The Loans Action
The Loans Action is an action commenced by Aiello on behalf of Floriri to enforce payment of approximately $2 million in intercorporate loans said to be owing to Floriri by Niazi and Korce.
In her Reasons for Decision, Gilmore, J. directed that the Loans Action proceed on an expedited basis, observing that “Mr. Bleta was not forthright with his sister about the status of the loans owed to Floriri. While he did not disagree that they were outstanding, he thought they should be “forgiven” because Floriri had more value than the BFT companies” (at para. 230).
The Loans Action has not been finally determined. The preference shares (together with associated redemption rights) in Niazi are not at issue in the Loans Action. Bleta argues, however, that the Loans Action is relevant because an order that the Respondents pay the Redemption Amount would render Niazi insolvent since it lacks the ability to pay that sum. This is discussed further below.
In any event, and as discussed at the outset of these reasons, the Respondents conceded that this Application should proceed and not be stayed pending a determination of the Loans Action. In my view, this issue had already been determined by Kimmel J. in her Endorsement denying the adjournment request on January 4, 2023. Moreover, it seems to me that a delay in a determination in the Loans Application may be to the benefit of the Respondents here in any event.
The issue is, therefore, whether Aiello is entitled to the substantive relief sought - payment of the Redemption Amount.
Niazi Governing Documents: Redemption and Solvency
The relevant provisions are not disputed. The Articles of Incorporation of Niazi are clear that the preference shares may be redeemed, and each holder of such shares shall be entitled to require the Corporation to redeem them: “3.1 subject to applicable law, each holder of Class A Shares shall be entitled to require the Corporation to redeem all or any of the Class A Shares registered in the name of such holder by payment for each share to be redeemed of an amount …” [emphasis added].
There is no issue on this Application that on March 10, 2021, Aiello delivered to Niazi her Notice of Election to Redeem the Shares at the Redemption Price in accordance with the requirements of the Articles of Incorporation.
The preference shares (i.e., the Class A Shares) are ‘redeemable shares” as defined in s. 1(1) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”).
In short, the preference shares are redeemable shares that Niazi is required to redeem, subject only to the OBCA solvency requirements found in s. 32(2), which provides that a corporation shall not make any payment to purchase or redeem any redeemable shares issued by it if there are reasonable grounds for believing that,
a. a corporation is or, after the payment, would be unable to pay its liabilities as they become due; or
b. after the payment, the realizable value of the corporation’s assets would be less than the aggregate of,
i. its liabilities, and
ii. the amount that it would be required to pay the holders of shares that have a right to be paid, on a redemption or in a liquidation, rateably with or before the holders of the shares to be purchased or redeemed, to the extent that the amount has not been included in its liabilities.
Is Niazi Required to Pay the Redemption Amount?
Bleta argues that the solvency test cannot be met, with the result that Niazi is relieved from what would otherwise be its obligation to redeem the preference shares owned by Aiello and pay the Redemption Amount.
He submits that Niazi would be forced to sell or encumber properties it owns to raise the funds to pay the Redemption Amount and that this would be prejudicial to Niazi.
In many respects, (indeed almost all respects), the arguments advanced by the Respondents in this regard are the very same arguments advanced before Kimmel J. in the request for the adjournment of this Application that was denied.
I reject the submission of the Respondents that payment of the Redemption Amount would render Niazi insolvent. I am not persuaded, on the basis of the evidence in this Application, that Niazi is, or would be after paying the Redemption Amount, unable to pay its liabilities as they become due, or that the realizable value of its assets would be less than the aggregate of its liabilities and the amount set out in s. 32(2)(b)(ii).
The Notice of Election was delivered over two years ago, on March 10, 2021.
In her Reasons for Decision in the Corporate Action, Gilmore J. found that Bleta himself represented the total value of Niazi, at least as of December 1, 2014 when Bleta sent to Aiello a draft share transfer agreement, to be $14,779,757.75, consisting of total assets of $19,616,434.94 less total debts of $4,836,677.19 (specifically including intercorporate account liabilities of $3,234,162.05) (at para. 103).
Bleta proposed to Aiello the share transfer agreement containing the formula for the proposed equalization payment, and the draft share transfer agreement, which provided that: “[Niazi, Korce, Aiello and Bleta] agree that the value of the principal assets and debts of Niazi [and the other companies] as at December 1, 2014 are as follows”, and the above amounts were set out.
I note that this very share transfer agreement was expressly relied upon by the Respondents in the letter from their counsel dated March 24, 2021 specifically responding to the Notice of Election for the share redemption.
Included in the Record before me are Niazi’s financial statements dated February 28, 2021. Those statements are perhaps the best evidence of the solvency of Niazi at the relevant time since they are dated only a few weeks before the Notice of Election was delivered. They were prepared by Crowe Soberman, LLP, Chartered Professional Accountants and Licensed Public Accountants, on a review engagement basis.
The non-consolidated balance sheet of Niazi reflects total assets of $8,955,254, total liabilities of $3,579,813, and shareholders’ equity of $5,375,441.
The total assets include revenue producing properties with a value of $5,390,711.
The shareholders’ equity includes $1,998,015 specifically in respect of the redeemable preference shares (the shares held by both Aiello and Bleta, only half of which are the subject of this Application), as are fully described in Note 10 to the financial statements.
The shareholders’ equity also includes retained earnings of $3,377,226.
Also included in the Record are the financial statements for Niazi for the next fiscal year-end, February 28, 2022. They are prepared by the same accountants, and on the same basis. Those statements reflect that total assets and retained earnings both increased over the year.
The Respondents submit in their factum on this Application that Niazi does not have sufficient liquid funds to pay Aiello the Redemption Amount. They submit that in order to make such a payment, Niazi would have to sell one of its real properties, which would result in capital gains tax or alternatively, Niazi would have to mortgage one of its real properties, which would have an adverse effect on the intercorporate loans and on other non-arm’s-length debtors and other creditors (para. 77).
Therefore, the Respondents submit that they would suffer irreparable harm “were [this Application] to move forward prior to the Appeal being resolved (or at the very least if any Order(s) in [this Application are] not stayed pending the outcome of the Appeal)” (at para. 78).
The same argument is advanced even more strongly at para. 81 of their factum, where the Respondents submit that “[the issues of the payment of the Redemption Amount] are inextricably linked to the Appeal but also that staying [this Application] on a temporary basis [i.e., pending the outcome of the Appeal, which has now occurred] will not cause any irreparable harm to Ms. Aiello”.
Finally, the Respondents argue that: “the only purpose behind Ms. Aiello’s actions [i.e., bringing this Application forward] is to gain an advantage over Mr. Bleta in the Appeal and obtain a nearly $1,000,000 cash benefit at Niazi’s expense such that the balance of convenience favours [this Application] or any Order[s] made in [this Application] be stayed pending the outcome of the Appeal” (para. 85).
As stated above, however, the appeal has now been dismissed. The basis advanced for the alleged irreparable harm (the pending appeal) does not exist now, if it ever did. I am not persuaded that it ever existed: the decision of Gilmore J. specifically and expressly did not determine the issue of the intercorporate loans. That issue was not part of the appeal either.
Moreover, in my view a balance of convenience analysis is not part of the relevant test. Subject to the solvency requirements of the OBCA, the Applicant is entitled to be paid the Redemption Amount. Even if a balance of convenience analysis were part of the test, in my view it would clearly favour the Applicant here.
In any event, and given the financial statements, excerpted and summarized above, I am not persuaded on the Record that properties owned by Niazi would have to be sold or encumbered to generate sufficient funds.
The Respondents further submit that on the other hand, Aiello will not suffer any prejudice that cannot be compensated in costs. I reject this submission also. It has already been over two years since the Notice of Election was properly delivered in accordance with the requirements of the Articles of Incorporation. The Applicant has already waited a long time. She ought not to be prejudiced by actions taken (or not taken) by Bleta, who controls Niazi.
Finally, the Respondents submit that the Redemption Amount should not be ordered to be paid because Niazi has an obligation to holders of all of the preferred shares, with the result that there needs to be sufficient funds in Niazi to redeem not only Aiello’s preference shares, but also Bleta’s preference shares (in almost exactly the same amount).
I reject the submission that the obligation to treat all shares of the same class equally and in the same way means that all such shares must be redeemed, for example, at the same time, and that the Corporation must therefore demonstrate that it has the financial ability to do so, even though only some of the shares are the subject of the pending redemption.
All of the preference shares of the same class (Class A) must be treated equally in the sense that, if a Notice of Election were delivered in respect of Bleta’s shares as has been done by Aiello in respect of her shares, the shares would have to be treated in the same way. But that has not occurred here. Bleta has not delivered a Notice of Election in respect of his shares. Allowing the redemption of Aiello’s preference shares, without considering a (possible, future) redemption of Bleta shares, does not amount to different treatment of the shares held by each.
In any event, I am not persuaded by this submission of the Respondents as to the financial ability of Niazi, or lack thereof. They base this submission, again, on the fact that the Loans Action has not yet been determined.
As stated above in these reasons, I am not persuaded (nor was Kimmel J.) that this Application should be stayed pending a determination of the Loans Action, and I observed that I was equally not persuaded that a delay in the determination of the Loans Action was not to the benefit of the Respondents in any event.
The Respondents continue to submit, this time in support of their argument that Niazi lacks sufficient liquidity to pay the Redemption Amount, that the Loans Action needs to be determined first.
In support of this argument, they rely upon the Affidavit of Karen Gibbs sworn January 7, 2023 and exhibits thereto. Ms. Gibbs is not a fact witness, but rather is a law clerk with the firm of counsel for the Respondents, whose affidavit includes as exhibits various pieces of correspondence said to be relevant to this Application.
Among those exhibits is correspondence from the accountants for Niazi, Crowe Soberman LLP, dated December 13, 2019, which includes a “loan matrix which details the balances due to / from the various entities in the group”.
No affidavit was filed from Crowe Soberman. Even if the “loan matrix” is admissible for the truth of its contents on this Application, I am not persuaded that it supports the position advanced by the Respondents. First, it is dated December 13, 2019, and therefore materially predates the relevant date being the date on which the Notice of Election was delivered in 2021.
Second, it reflects that Niazi owes to the other entities and/or individuals the aggregate sum of $1,927,760, while the amounts owed to Niazi total $2,448,253, such that on a net basis, Niazi was owed at least as at that date, an additional $520,493. Indeed, this exact amount is confirmed as a net receivable owing to Niazi at page 2 of the letter. The letter goes on to conclude that then current unknown tax liabilities make it impossible to project the availability of funds to repay all the intercompany debts in full.
In the result, I am not persuaded that the Respondents have shown that Niazi is insolvent or would be rendered insolvent by payment of the Redemption Amount.
Bleta also argues that the Redemption Notice is not effective since Aiello is in a conflict of interest in her capacity as director of Floriri since, as stated in Bleta’s affidavit: “the Redemption Notice was delivered by Bertha following the Gilmore Judgment with the goal of securing full ownership of Floriri” (para. 59).
While I do not accept the bald submission that, by delivering the Notice of Election, Aiello put herself in a position of conflict, I need not determine that matter since the issue of ownership of Floriri has now been determined by Gilmore J. and upheld by the Court of Appeal.
For the same reason, I reject the submission of Bleta that delivery of the Notice of Election by Aiello constituted oppressive and prejudicial conduct contrary to Bleta’s interests as a shareholder of Floriri “pending the determination of the Court of Appeal”.
For all of these reasons, I find that Aiello is entitled to be paid the Redemption Amount.
Does the Failure to pay the Redemption Amount to Oppressive Conduct?
Given the conclusions I have reached above, it is not necessary for me to determine whether, as submitted by Aiello, the failure of Niazi, and its controlling mind (and sole officer and director) Bleta, to pay the Redemption Amount for over two years amounts to conduct that constitutes oppression within the meaning of s. 248 of the OBCA.
The Articles of Incorporation contemplated and authorize the redemption sought here. The Articles are binding on the corporation and the shareholders can insist on their observation through the oppression remedy: Markus Koehnen, Oppression and Related Remedies, (Toronto: Thomson Canada Limited, 2004) at p. 166.
The oppression remedy is a remedy of equity, and the focus of the courts in determining whether conduct is unfairly prejudicial to, or unfairly disregards the interests of any security holder, is on the reasonable expectations of the parties.
In the present case, I am satisfied that the reasonable expectations of Aiello included the expectation that the preference shares in Niazi bequeathed to her by her late father could be redeemed in accordance with the terms of the Articles of Incorporation and subject to the relevant statutory provisions.
In my view, Aiello’s reasonable expectations included the expectation that the redemption would be completed as soon as practicable after the Notice of Election was delivered (in this case, in March 2021), or at a minimum, any solvency issues would be addressed.
However, in the context of the multiplicity of disputes and pending proceedings, including the Loans Action, I decline to make a finding on the basis of the record before me as to whether the conduct of Niazi and Bleta in not yet paying the Redemption Amount constituted oppression, as it is not necessary for the disposition of this Application.
Result and Disposition
Aiello is entitled to be paid the Redemption Amount of $999,007.50 from Niazi, together with interest from March 17, 2021 forward to the date payment is made.
The parties were not in a position to address the issue of costs following the hearing of this Application. I requested that they attempt to reach an agreement, but counsel advised the Court subsequently that they were unable to do so. Accordingly, the Applicant shall file submissions on costs, not exceeding three pages in length, together with a bill of costs, within 15 days of the date of this Endorsement. The Respondents shall file submissions on costs, not exceeding three pages in length, within 15 days thereafter.
Order to go to give effect to these reasons.
Osborne J.