Court File and Parties

COURT FILE NO.: CV-24-00717669-00CL BANKRUPTCY COURT FILE NO.: BK-24-03056681-0032 ESTATE COURT FILE NO.: 32-3056681 DATE: 20240612

ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF THE LION’S SHARE GROUP INC. AND IN THE MATTER OF AN APPLICATION UNDER SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990, c. C.43

RE: The Lion’s Share Group Inc., Applicant

BEFORE: Peter J. Osborne J.

COUNSEL: Jennifer Stam and James Renihan, Counsel for the Fuller Landau Group, in its capacity as Receiver R. Brendan Bissell, Counsel for 10 Norfolk St. Inc., 388 Downie Street Inc. and Commercial Urkel Inc. Mark Van Zandvoort, Proposed Representative Counsel of the Noteholders Connie and Allan MacIntosh, self-represented Graham Abrahamson and Adam Erlich, Proposal Trustee and Proposed Receiver, The Fuller Landau Group Inc. Chris Argiropoulos, 3rd Party – Counsel for various parties

HEARD: June 12, 2024

Endorsement

OSBORNE J.

[1] The Court-appointed Receiver seeks an order:

a. providing that certain LS Promissory Notes (the “Listed Notes”) constitute good and valid charges on the real property associated with the Listed Notes;

b. requiring the applicable land Registry office to register such order on title to that real property;

c. in the alternative to (a) above, granting the Receiver leave to issue certificates of pending litigation and register them on title to that real property;

d. expanding the scope of the receivership order made in these proceedings on April 3, 2024 to include the property, assets and undertakings of The Windrose Group Inc. (“Windrose”) and include that entity as a Debtor within the receivership proceedings;

e. amending the title of proceedings to include Windrose; and

f. approving the First Report and the activities of the Receiver described therein.

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

[3] The Receiver relies upon the First Report dated June 5, 2024, together with Appendices thereto.

[4] Lion’s Share (“LS”) operated as a privately owned real estate investment and consulting company owned and controlled by Claire Drage. Its operations consisted principally of issuing promissory notes to individuals and corporations to raise funds. It then loaned those funds to borrowers who gave corresponding promissory notes to LS.

[5] LS has over 400 lenders, to whom it owes amounts under promissory notes it issued estimated at over $89 million. Its primary source of revenue and its assets consist of approximately 1000 promissory notes from borrowers.

[6] On January 23, 2024, a significant borrower group, Balboa Inc. (together with related entities), commenced proceedings under the CCAA. The Receiver estimates that LS has approximately 750 promissory notes owing to it by the CCAA borrowers with a claim of over $40 million. It was that CCAA filing, and the corresponding cessation of payments to LS, largely from the CCAA borrowers, that caused LS to file a Notice of Intention under the BIA.

[7] Each of the promissory notes in favour of LS from borrowers includes a provision entitling LS to register the promissory note on title to all property owned by that borrower or any guarantor, if the note was not paid on or before the maturity date.

[8] The promissory notes that are the subject of this motion are all in default and exclude those owed by the CCAA borrowers or those that, to the knowledge of the Receiver, are subject to other bankruptcy proceedings.

[9] The Receiver attempted to file notices of equitable mortgages pursuant to section 71 of the Land Titles Act in respect of certain of the notes. The Land Registry Office declined to accept most of those notices on the basis that the promise to pay, and the right to register such documents, did not unequivocally state that the lender had a right to a charge over the properties in question and that, as a result, a court order would be required before the Land Registry Office would accept for filing the charges against the properties.

[10] Accordingly, the Receiver seeks that relief today from this Court.

[11] The Receiver submits that this relief will assist in the maximization of recoveries for the benefit of LS lenders by preventing borrowers from disposing of the relevant properties without engaging with the Receiver. Moreover, the Receiver submits that there is no undue prejudice since the borrowers agreed according to the terms of the notes they signed that the applicable note could be registered on title, and if there are disputes, any borrower can raise such disputes with the Receiver.

[12] Borrowers under the notes that are the subject of the motion have been given notice of this motion.

[13] Certain noteholders, including 10 Norfolk St. Inc., 388 Downie Street Inc., and Commercial Urkel Inc., and the MacIntoshs (the “Objecting Noteholders”), appeared today and requested an adjournment of the motion for two weeks, the MacIntoshs to retain counsel and the other Objecting Noteholders (who are already represented by counsel present today) to consider their position in response to the motion.

[14] It is common ground that the motion materials, while served on all affected parties, were technically short served by approximately 1.5 days.

[15] The Objecting Noteholders all concede that there is no dispute that they issued the relevant promissory notes, that the notes have matured, are in default, and that no repayment has been made. They also concede that there is no immediate prejudice from their perspective in the sense of any pending conveyance or encumbrance transaction in respect of any of their properties that would be adversely affected by the proposed registrations on title.

[16] I am satisfied that the relief sought by the Receiver should be granted today. I accept the submission of the Receiver that, given the risk of dissipation of assets in the form of a conveyance or encumbrance of the relevant properties, the matter is urgent. I also accept that the Receiver could register the notes on title according to their express terms (and therefore without a motion), and also that a certificate of pending litigation could, in any event, be registered without notice at all.

[17] Section 71 of the Land Titles Act permits any person entitled to or interested in any unregistered estates, right, interests, or equities in registered land to register such notices. Moreover, registration of charges against property to secure loans is authorized by section 93.

[18] I am satisfied for the purposes of the relief sought today that the notes in question here create equitable mortgages in favour of LS and thereby create valid rights, interests or equity in land. See: Elias Markets Ltd., Re, 2006 ONCA 31904, at para. 65 and Greenspan v. Van Clieaf, 2023 ONCA 681, at paras. 37, 46, 47, and 53.

[19] The notes in question here clearly contemplate on their face, in my view, that LS would have the right to register the notes to properties held by the borrowers as security for the debt and that is the essence of what a mortgage is: a charge on title to secure a debt that is registrable on title. This is the plain reading of the language of the notes, giving the words used their ordinary meaning.

[20] I am also satisfied that any prejudice to other noteholders who have not appeared today can be addressed through the ability of any affected party to seek advice and directions from the Court, on notice to the Receiver. To be clear, any affected party does have that come back right, and as I advised the parties at the hearing of this motion, I will make myself available on short notice should urgent relief be required. As noted above, I observe that all affected noteholders had notice of the motion, and only the Objecting Noteholders appeared.

[21] I do note that certain other affected noteholders, Nels Moxness and his associated companies and Alexandre Mongeon-Lambert and his associated companies, have contacted the Receiver prior to the hearing of this motion, and while they do not appear today, the parties have agreed on language to be included in this endorsement as follows, and with which I agree:

Bennett Jones LLP represents (a) Nels Moxness and his associated companies (collectively, “Moxness”); and (b) Alexandre Mongeon-Lambert and his associated companies (collectively “Lambert”), all of whom have a number of outstanding promissory notes (or purported guarantee obligations) owing to The Lion’s Share Group Inc. The Receiver has been in active settlement discussions with each of Moxness and Lambert. The Court is advised that in order to continue those settlement discussions, the Receiver has agreed to remove the applicable associated properties from Schedule “A” to the proposed order in respect of each of Moxness and Lambert (the “Moxness Associated Properties” and “Lambert Associated Properties” respectively), on the following terms:

1. The removal of the Moxness Associated Properties and the Lambert Associated Properties is without prejudice to the Receiver’s ability to bring a motion to seek an order in respect of Moxness Associated Properties and/or the Lambert Associated Properties which motion is to be scheduled pursuant to a 9:30 hearing on June 19, 2024 unless the parties reached an applicable settlement, provided that if the Receiver brings such a motion in the future, the granting of this Order is without prejudice to any objections or defences that Moxness or Lambert may wish to raise in respect of the appropriateness of this Order;

2. Unless and until the earlier of (a) an applicable settlement is entered into or (b) the motion in respect of the Moxness Associated Properties or Lambert Associated Properties is determined, Moxness and Lambert shall provide the Receiver with at least 14 business days advance notice of any sale, refinancing, lease, encumbrance, charge or other partial or full monetization of any properties owned by the Moxness or Lambert, as applicable, and in the event that no settlement or arrangement can be reached, acknowledge that the Receiver reserves its rights to take any precautionary measures it deems appropriate in the circumstances, subject to paragraph 1 above; and

3. Should any legal proceedings or action otherwise be brought or taken by a third party in connection with any of the Moxness Associated Properties and/or Lambert Associated Properties, Moxness and Lambert, as applicable, shall forthwith notify the Receiver and the Receiver reserves its rights to take such steps at it considers necessary to protect the interest of The Lion’s Share Group Inc.

[22] In the case of the MacIntosh parties, I have explained this to them, advised them to retain counsel as soon as possible (as they are doing) and ensure that any counsel they retain has a copy of this Endorsement as well as the orders made today, is aware of the comeback date referred to below, and is encouraged to contact counsel for the Receiver to discuss the matter.

[23] Moreover, I am scheduling a comeback hearing in respect of this matter for June 26, 2024 commencing at 9:30 AM via Zoom and continuing as necessary for 30 minutes, at which time the Court can hear from any affected party with respect to these issues.

[24] Balancing the potential for prejudice to noteholders (mitigated as I have done above through the ability to come back to court, on an urgent basis if required) as against the risk that creditors of LS in this receivership proceeding may be very significantly prejudiced if the affected properties are encumbered or conveyed, I am satisfied that it is just and equitable that the relief be granted today. Again, it may be amended or varied (including so as to vacate the registrations entirely) on motion of any party, and the relief I have granted today is granted without prejudice to the rights of any party to make any argument on any such future motion.

[25] With respect to the proposed addition of Windrose to this receivership proceeding, it is owned and controlled by Drage. Both Windrose and Drage consent to the relief sought, and no party opposes it. I am satisfied for the reasons set out in the Second Report that the receivership should be expanded to include this party, that it is just or equitable to expand the receivership by appointing the Receiver over this entity also pursuant to section 101 of the Courts of Justice Act. Accordingly, the requested relief is granted.

[26] Finally, I am satisfied that the First Report and the activities of the Receiver described therein are consistent with the mandate given to the Receiver and the appointment order and are appropriate and reasonable in this proceeding. No party opposes the approvals sought, and it is granted.

[27] I have signed both orders requested, and they are effective immediately and without the necessity of issuing and entering.

Osborne J.