Court File and Parties

COURT FILE NO.: CV-23-00707330-00CL DATE: 20240923 SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF AN APPLICATION UNDER SECTION 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

RE: Enlightened Funding Corporation, Applicant AND: Velocity Asset and Credit Corporation and 926749 Ontario Ltd. o/a Clonsilla Auto Sales and Leasing, Respondents

BEFORE: Peter J. Osborne

COUNSEL: Haddon Murray and James Aston, for the People’s Trust Company Derek Harland and Rebecca Kennedy, for Deloitte Restructuring Inc.

HEARD: September 23, 2024

Endorsement

[1] The People’s Trust Company (“Peoples”) brings a motion for an order authorizing and directing the Court-appointed Receiver of the assets of the Respondents, to produce to Peoples all documents in its possession, control or power relevant to any acts of bankruptcy by Hugh Waddell.

[2] Neither Waddell nor counsel on his behalf appeared at the hearing of the motion. A court reporter was present.

[3] This motion was originally returnable on August 22, 2024. Just prior to the hearing of that motion, counsel for Waddell advised Peoples that he no longer acted for Waddell. Waddell himself then wrote to counsel for Peoples on August 16 requesting an adjournment of the motion for 10 – 14 days in order that he could retain new counsel. I pause to observe that Waddell had already changed lawyers three times in this proceeding and had sought adjournments as a result of those changes. Nonetheless, Peoples agreed to an adjournment, provided that:

a. Waddell would not argue that the adjournment of the August 22 motion (and any delay that it may cause to the Receiver in producing the documents) had prejudiced his ability to respond to the trial in respect of his personal bankruptcy, the Application in respect of which is returnable on November 4, 2024; and

b. Waddell would not request any further adjournments of this motion and the trial of the Bankruptcy Application would proceed as scheduled on November 4.

[4] On August 19, Waddell agreed to those conditions and advised counsel for Peoples that he would let them know when he had retained counsel.

[5] This motion was next before the Court on August 22, 2024, when Justice Steele scheduled it to be heard on September 23, imposing the agreed conditions set out above.

[6] It therefore came on before me.

[7] Waddell has not retained new counsel. He has not filed materials, although clearly aware of this motion now since August.

[8] Counsel for Peoples advises that it served (via email) Waddell last Friday, September 20, with its aide memoire in respect of this motion, and further that Waddell responded to counsel to advise that he was now self-represented and that he would be filing submissions or materials in respect of the relief sought on this motion. No materials were served, and none were filed.

[9] Counsel for Peoples advises that they then sent another email message to Waddell late on Sunday, September 22 (the day before the motion), resending him the zoom link for the hearing the following day. That evening, and for the first time, Waddell apparently advised counsel for Peoples that while he wished to make submissions at the hearing of the motion, and further that while he acknowledged he could not seek another adjournment as a result of the conditions imposed, and set out above and imposed with his consent, he would not be attending the hearing due to a personal health issue with his son.

[10] Accordingly, while no adjournment request was formally made, I am grateful for the candour of counsel to the Applicant in bringing to the attention of the Court the above events, all as would be expected of an officer of this Court.

[11] Given the history of this matter, the repeated adjournments, and the fact among other things, Waddell took no steps to respond to this motion, to retain new counsel, or indeed to do anything following the August 22 court appearance before Justice Steele until the Receiver sent its aide memoire last Friday, I directed that the motion proceed, and heard submissions from Peoples and the Receiver. I observe that the email sent by Waddell to counsel for the Receiver last night was the first occasion on which Waddell even indicated that he was opposing the relief sought, and no materials have been filed. For all of these reasons, I declined to adjourn the motion again, and it proceeded.

[12] Peoples is a financial services provider and the assignee of the debt and security of the Applicant in this proceeding, Enlightened Funding Corporation (“Enlightened”). Peoples is also the senior secured creditor of the Respondents in this proceeding.

[13] The Respondent Clonsilla is a privately held company that operated as a vehicle leasing company. It received its financing from the Respondent Velocity. Waddell was the principal of the Respondents, and a guarantor of their obligations to Peoples.

[14] Peoples has brought a Bankruptcy Application against Waddell. That is pending and scheduled to be heard on November 4, 2024. Waddell has filed a Notice of Dispute.

[15] As a result of the defaults by the Respondents under the loan and forbearance agreements, the Receiver was appointed over the Respondents on October 26, 2023. Almost immediately thereafter, the Receiver identified irregularities with the books and records of the Respondents, some of which have been previously characterized by this Court as including “issues of duplicate funding, irregularities in lease documentation … and misappropriation of lease proceeds to purchase additional vehicles”.

[16] The Receiver reported that the inability or unwillingness of the Respondents to provide basic financial and accounting information severely hampered its investigation. The Receiver further reported in its Third Report that Waddell and members of his family have not cooperated with the investigation and have sought to frustrate the entire process.

[17] As a result of those facts, Justice Conway granted orders expanding the Receivership over all of the property of Clonsilla and granting other relief. The investigations continued.

[18] As noted above, Waddell had personally guaranteed the debts of the Respondents to Enlightened, and in December, 2023, Peoples took assignment of Enlightened’s debt and security including the Personal Guarantees, all with the result that Waddell is now indebted to Peoples in excess of $10 million.

[19] On January 18, 2024, Peoples demanded on the personal guarantees and on April 2, 2024 commenced the Bankruptcy Application. It then sought an order appointing an interim receiver over Waddell, which Justice Conway granted.

[20] The Receiver over the Respondents controls Waddell’s corporate email account and therefore the documents sought on this motion. Justice Conway granted a procedural order about the hearing of the Bankruptcy Application, but it did not address third-party records requests.

[21] This motion is exactly that: a third-party records request. Pursuant to its appointment order, the Receiver took possession of electronic documents and records of the Respondents. Those apparently include electronic mail communications to or from Waddell (the former principal of the Respondents) that both Peoples and the Receiver described as being “of a personal nature” but relevant to the issues on the Bankruptcy Application.

[22] Peoples now wants the Receiver to turn over those documents specifically so it can rely on them in the upcoming Bankruptcy Application.

[23] Peoples submits that the documents are no longer in Waddell’s possession or control because they are contained in the business records of the Respondents.

[24] The Receiver does not oppose the relief sought but is understandably not comfortable turning over the documents without a court order.

[25] In the circumstances, and while I fully appreciate the circumstances giving rise to the motion, including but not limited to the apparent failure of Waddell, his family members and the Respondents to cooperate, I am not prepared to make the order sought.

[26] Peoples submits that the Receiver has the power to turn over the documents by virtue of section 4(m) of the appointment order, which authorizes the Receiver to “report to, meet with and discuss with such affected Persons (as defined below) as the Receiver deems appropriate, on all matters relating to the Property and the receivership, and to share information, subject to such terms as to confidentiality as the Receiver deems advisable.” [Emphasis added].

[27] The appointment order defines “Persons” as including the Debtors, their current and former directors, officers, employees … and all other persons acting on their instructions, or on their behalf, and all other parties having notice of the order” which, Peoples submits, includes it as petitioning creditor in the Bankruptcy Application.

[28] I observe that section 5 of the appointment order deals with the duty to provide access and cooperation to the Receiver and provides that all “Persons” are directed to advise the Receiver of the existence of any Property and deliver it to the Receiver upon request.

[29] Even if I were comfortable concluding that “Persons” included Peoples in this context, I would have concerns with the relief sought, which amounts, as noted, to a third-party production request.

[30] In my view, section 4(m) of the appointment order authorizing the Receiver to share information with affected Persons (who include all other parties having notice of the order) is not sufficiently broad to provide a basis for the relief sought here.

[31] The powers of the Receiver are to be exercised for the purposes and objects of the receivership, and those are set out in the appointment order. As conceded by the Applicant, the Court is to consider when requested to appoint a receiver, among other things, whether the appointment will enable the receiver to carry out its work and duties more efficiently, the likelihood of maximizing the return on preserving the subject property in the best way of facilitating the duties of the receiver: Bank of Nova Scotia v. Freure Village of Clair Creek at paras. 10 – 12.

[32] While I understand the good faith and practical motivation for the Applicant here in bringing this motion, it is clear (and undisputed) that the documents are sought not to advance and administer the receivership of the Respondents, but rather to prosecute the Bankruptcy Application against Waddell.

[33] For these reasons, I am not comfortable concluding that section 243 of the BIA and section 101 of the CJA, which grant to the Court broad discretion to appoint a receiver on such terms as are just, including granting to the receiver the power to exercise any control that the court considers or advisable or take any action that the court considers advisable, assists the Applicant here. That is not to say that the powers granted under those statutory provisions may not be sufficient to ground a basis for production to third parties in appropriate circumstances in other cases.

[34] Moreover, and as conceded by the Applicant, there are other avenues pursuant to which the Applicant can compel production of the documents sought on this motion, particularly within the Bankruptcy Application within which the Receiver could be summoned. I further recognize that this may require an extra step in that Application, but in my view, and in the particular circumstances of this case, that is preferable and more appropriate than granting an order in favour of a third party (albeit a relevant party who is not a stranger to the proceedings) directing a Court officer to turn over documents it compelled as part of its receivership mandate.

[35] Finally, even if I were persuaded that the relief should be granted, I would direct the parties to include a protocol to be approved by the Court to preserve and protect any privilege that may attach to the documents sought to be compelled.

[36] For these reasons, the Application is dismissed. In the circumstances, there is no order as to costs. To be clear, this disposition is entirely without prejudice to the ability of the Applicant to seek the requested documents in the Bankruptcy Application and to seek any procedural directions related thereto.

Osborne J.