COURT FILE NO.: BK-24-00208718-OT31
ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
IN BANKRUPTCY
IN THE MATTER OF THE BANKRUPTCY OF THOMAS DYLAN SUITOR, an individual with a locality of Burlington, Ontario
RE: Thomas Dylan Suitor, Debtor
BEFORE: Peter J. Osborne J.
COUNSEL: Jennifer Stam, Evan Cobb and Lauren Archibald, for the Fuller Landau Group Inc, Receiver of the property, assets and undertaking of The Lion’s Share Group Inc.
Tanya Pagliaroli and Vinayak Mishra, for the Debtor
Shaun F. Parsons, for The Noteholders of The Lion's Share Group Inc.
Mario Forte, for the Unsecured Lenders of The Lion's Share Group Inc.
HEARD: October 3, 2024
ENDORSEMENT
The Motion
The Receiver of The Lions Share Group Inc. seeks an order appointing TDB Restructuring Limited as interim receiver over the property of Thomas Dylan Suitor (“Suitor”) pursuant to section 46 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) within this Bankruptcy Application, with the powers and responsibilities as set out in the draft order appended to the Motion Record.
The Receiver relies upon the Fourth Report dated August 31, 2024, the Supplement to the Fourth Report dated September 30, 2024 and the Affidavit of Verification of Gary Abrahamson sworn August 30, 2024, together with their respective Appendices and Exhibits.
The Receiver’s motion, which it brings in its capacity as Receiver and not for any self-interested purpose, is supported by:
a. Representative Counsel to the Secured Creditors appointed in the Balboa CCAA Proceedings (described below);
b. Representative Counsel appointed in the Balboa CCAA Proceedings on behalf of the holders of the non-Lion’s Share unsecured claims; and
c. Representative Counsel appointed in the Lion’s Share receivership proceedings on behalf of the LS Lenders (described below).
The Debtor opposes the appointment of an interim receiver and relies on his affidavit affirmed September 26, 2024 and his supplementary affidavit affirmed October 2, 2024, together with Exhibits thereto.
Defined terms in this Endorsement have the meaning given to them in the motion materials unless otherwise stated.
For the reasons set out below, the motion is granted.
The Test
- There is no dispute about the applicable test. An interim receiver may be appointed pursuant to section 46(1) of the BIA if:
a. an Application for a Bankruptcy Order has been filed; and
b. the appointment of an interim receiver is necessary for the protection of the estate.
There is no issue here that an Application for Bankruptcy Order in respect of the Debtor was filed on August 30, 2024 in the judicial district of the Debtor’s locality, in this case, Burlington, Ontario.
Accordingly, the focus on this motion is on the second branch of the test. Courts have held that in determining whether an interim receiver is necessary for the protection of the estate, the moving party must establish that:
a. on a balance of probabilities, the creditor petitioning the debtor into bankruptcy is likely to succeed in obtaining a Bankruptcy Order; and
b. there is an immediate need for protection of the debtor’s estate due to the grave danger that assets will disappear, or the estate is otherwise in jeopardy.
See: Konopy, Re, 2009 44412 (ONSC) (“Konopy”) at para. 21, quoting with approval from Houlden and Morawetz, Bankruptcy and Insolvency Law of Canada, 4th ed., (Toronto: Carswell, Looseleaf ed., 2009) at p. 2-115.
It is important to note at the outset of the analysis that I am not determining for the purposes of this interim receivership motion whether the Bankruptcy Application will succeed. That is for another day. The purpose of an interim receivership pursuant to section 46 of the BIA is to protect the interests of secured creditors during the brief period between the time when a secured creditor delivers the Notice and the determination of the Bankruptcy Application.
Moreover, the powers of an interim receiver are intended to advance this interim objective of conserving assets and are limited, both generally by section 46(2) which specifies those things that the court may direct an interim receiver to do, and specifically in this case by the terms of the draft order sought by the Receiver. Those terms are discussed further below.
Receiver Likely to Succeed in Obtaining a Bankruptcy Order
The Receiver submits on this motion that the Bankruptcy Application is likely to be successful since Suitor has engaged in several acts of bankruptcy, and that it is clear that a trustee in bankruptcy should be appointed over his affairs for the benefit of all stakeholders.
The Receiver further submits that its investigation is continuing, so the full extent and quantum of Mr. Suitor’s indebtedness and obligations to Lion’s Share under certain promissory notes and/or otherwise, continues to be investigated. For this reason, it was unable to quantify an exact quantum of that indebtedness (even subject to per diem interest and costs that continue to accrue).
The overarching context within which this motion is brought is relevant to this analysis.
The Receivership Order in the Lion’s Share Receivership Proceedings appointing the Receiver over the property of Lion’s Share was granted on April 3, 2024.
Lion’s Share carried on business of, among other things, issuing promissory notes to individuals and corporations (the “LS Lenders”) to generate funds to then be advanced as loans, usually by way of promissory notes issued to corporations and individuals (“LS Borrowers”). The assets of The Lion’s Share consist almost exclusively of these unsecured loans to borrowers documented through those promissory notes.
Claire Drage (“Drage”) is the owner of the Lion’s Share. Drage filed an assignment in bankruptcy on April 8, 2024, five days after the Receivership Order was made in the Lion’s Share Receivership Proceedings.
One of those significant LS Borrower groups is a group of borrowers consisting of a number of corporations collectively referred to as the “Balboa Borrowers”.1 The Balboa Borrowers commenced CCAA proceedings which are continuing.
The Debtor, Dylan Suitor (“Suitor”), is one of the four principals of the Balboa Borrowers. By order made in the Balboa CCAA Proceedings on June 25, 2024, the powers of the Balboa CCAA Monitor were substantially enhanced, and the power and authority of the four principals to manage or govern the Balboa CCAA Borrowers was correspondingly displaced.
The Receiver submits that Suitor has significant liabilities and obligations to Lion’s Share as one of the Balboa Principals, and pursuant to other direct obligations and personal guarantees.
The Receiver submits on this motion that the Debtor is indebted to Lion’s Share in the amount of $23,169,435.25 plus chargeable enforcement costs incurred to date and interest and costs that continue to accrue.
The Receiver has identified at least 16 Related Entities through searches and public filings owned or controlled by the Debtor (the name of each Related Entity is set out in the motion materials).
For all of these reasons, the Receiver submits that interim relief to prevent creditors from getting an advantage over other creditors is appropriate. It further submits that the appointment of an interim receiver is not prejudicial to the Debtor since the powers will be restricted to requiring the Debtor to provide full disclosure with respect to all of his holdings and those of his companies, and powers necessary to preserve his assets.
The Receiver submits that numerous acts of bankruptcy under section 42 of the BIA have been committed here and that the Debtor has ceased paying his obligations generally as they become due.
The Debtor disputes that either of the two branches of the test has been met here. He takes the position that he is not personally indebted to Lion’s Share, and while he concedes that it is his signature on the relevant promissory notes, he submits that he did not understand that he was giving any personal guarantees or that he had personal liabilities.
I begin with the Bankruptcy Application. It states at paragraph two that:
the said Debtor is justly and truly indebted to Lion’s Share for, among other things, the following amounts:
a) $1,267,948.83; and
b) $1,403,393.17.
Those amounts represent indebtedness owing to Lion’s Share pursuant to various promissory notes. A number of those notes are appended to the Fourth Report at Appendix “A”.
The Affidavit of Verification sworn in support of the Bankruptcy Application is to the same effect, and states that the Debtor is indebted to Lion’s Share [for the above amounts] and that the debt “arises from promissory notes signed and guaranteed by Thomas Dylan Suitor in favour of Lion’s Share on behalf of a number of companies indebted to Lion’s Share, including 10 Norfolk St. Inc. and 388 Downie St. Inc. [among others]” (the “Suitor Lion’s Share Notes”).
Upon its appointment, the Receiver reached out to Suitor to discuss these Suitor Lion’s Share Notes and a plan for repayment of same. Suitor did not provide any proposal for repayment.
The Receiver made formal Demands on the notes on June 18, 2024 and August 16, 2024, which Demand Letters are also attached to the Fourth Report as Appendices “B” and “C” respectively. Each of those two Demand letters sets out the amount owing in respect of the specific named Suitor Lion’s Share Borrowers For example, in the June 18, 2024 Demand Letter, the following amounts are demanded:
a. 10. Norfolk $281,342.35;
b. 388 Downie $130,980.21;
c. Commercial Urkel $273,398.32;
d. Happy Town $318,426.20; and
e. Up-town Funk $263,801.75.
Those amounts in the aggregate equal the sum of $1,267,948.83 referred to above in the Bankruptcy Application.
The June 18, 2024 Demand Letter was also delivered to Suitor as guarantor of the above obligations.
Subsequent to the June 18 2024 Demand Letter, additional Suitor Lion’s Share Notes matured and were not repaid, with the result that the second Demand Letter, the August 16, 2024 Demand Letter, was delivered demanding repayment of the second amount referred to above in the Bankruptcy Application, $1,403,393.17 pursuant to an additional promissory note dated February 16, 2023.
The Fourth Report (at paragraph 19) states that in addition to the above obligations, there is an additional Promissory Note owed by Suitor and in default with a principal balance of $177,974.69 and interest continuing to accrue.
It is agreed by the parties that for the purposes of this motion, the language of each of the Suitor Lion’s Share Notes is substantially the same in the relevant respects. For the purposes of this motion, I reference the language of the Note that appears first at Appendix “A” to the Fourth Report in respect of 10 Norfolk Street Inc. to which both parties referred in their materials and submissions, and which they both agreed was representative of all of the Notes at issue.
I pause to observe that this company is one of the 16 companies identified in the motion materials as being owned and controlled by Suitor. As noted above, Suitor does not dispute that he owns and controls these 16 companies and indeed admits such in his affidavit (see paragraph 20, and the reference to “my corporation 10 Norfolk St. Inc.” and paragraph 21, and the reference to “my corporation 388 Downie Inc.”).
In submissions this was confirmed, and his counsel further fairly conceded that there is no issue that the debts are due and owing by the corporate entities.
Those companies owned several properties (see Appendix “D” to the Fourth Report). As further described below, pursuant to the terms of the Suitor Lion’s Share Notes, the Borrowers agreed to allow a charge to be registered against title to those properties. Pursuant to Orders granted by this Court on June 12 and June 26, 2024, respectively, the Receiver was authorized to register the orders on title to those properties, to protect the interests of the Lion’s Share estate for the benefit of its creditors.
In addition to guaranteeing obligations of the Lion’s Share Borrowers, the Receiver submits that Suitor also guaranteed certain obligations of the Balboa Borrowers (entities of which he is one of four principals). Suitor also owns, directly or indirectly through 2657677 Ontario Inc., at least four of these Balboa Borrowers: Interlude, Hometown, Horses, Neat Nests (collectively with Mulligan, the “Suitor Balboa Borrowers”).
At the time of filing, Suitor was the sole director of these parties. According to corporate profile reports for these entities appended to the Fourth Report, Suitor was an officer, director and shareholder of the Suitor Balboa Borrowers but it appears that he has recently resigned as director and officer.
As set out in the Clark Affidavit (Appendix “F”) and the Fourth Report (see paragraph 24), the Suitor Balboa Borrowers had outstanding mortgage debt as of December 31, 2023 in amounts exceeding $25 million. According to the Receiver, certain of those loans were guaranteed by Suitor. Those same entities are obligated under a series of unsecured notes with principal amounts that were due on January 23, 2024 and in the specific amounts set out at paragraph 26 of the Fourth Report. In the aggregate, they total over $35 million, of which approximately $23 million is owed to the Lion’s Share. That amount is in addition to the obligations owed by the Suitor Lion’s Share Borrowers.
Suitor’s position on this motion is that his personal guarantees of those corporate obligations are not valid. Indeed, this was his principal defence to the motion.
As stated above, Suitor does not contest that:
a. the Suitor Lion’s Share Notes were validly issued;
b. the Suitor Lion’s Share Notes were properly and validly executed by Suitor himself on behalf of the relevant corporation named in each;
c. the terms of the Notes were agreed;
d. the principal amount of each Note is accurate, and the funds were advanced;
e. the funds remain owing by those respective Suitor Lion’s Share Borrowers to Lion’s Share, and the Notes have not been repaid.
Suitor maintains, however, that the obligations under these Notes are those of the respective corporations, and not him personally as a Borrower. Suitor further submits that to the extent that there was any intention that he be a Guarantor, the Notes lack sufficient particulars to give rise to an enforceable guarantee with the result that the is not personally liable thereunder.
For the limited purpose of this motion (i.e., whether an interim receiver should be appointed), and recognizing that the relief sought is temporary in nature and that the issue can and will be finally determined in the Bankruptcy Application itself, I am satisfied that the Receiver is likely to succeed on the Bankruptcy Application.
It is of assistance to look at the language of these Suitor Lion’s Share Notes themselves.
The 10 Norfolk Street Inc., Promissory Note Loan Agreement states, in relevant part, the following:
a. Recital: “Borrowers: 10 Norfolk Street Inc. (the “Borrowers”) with personal guarantor(s) Dylan Suitor (the “Borrowers”)”;
b. Article 8: “This Note is secured by the Lender’s right to register this Note on title on all or any properties held by the Borrowers and Guarantors as security (the “Security”) if not paid in full by 6:00 PM on April 13, 2024.” [emphasis in original]; and
c. Signatories: “Dylan Suitor 10 Norfolk St. Inc. (Borrowers)” and “Dylan Suitor (Borrowers/Guarantors)”.
Suitor submits that these Notes are the basis for the Demand Letters delivered, that the Receiver did not advance the position before delivery of its factum on this motion that Suitor was a Borrower as well as a Guarantor, and that the guarantee language in the Notes set out above, without more, is insufficient to create an enforceable guarantee.
Suitor submits that the definition of “Borrowers” is at best ambiguous and at worst refers to the company only and not him in his personal capacity.
For the purposes of this motion only, in my view, it is far from clear that Suitor is not a Borrower as well as a Guarantor. The recital excerpted above states that 10 Norfolk Street is defined as “the Borrowers”, as are both that company together “with personal guarantor(s) Dylan Suitor”. While the reference or potential reference to the plural of “Borrower” in both instances reflects drafting that is arguably not as clear as it could be, there is a very real argument that Suitor is both a Borrower and a Guarantor.
I am reinforced in this conclusion, again for the limited purposes of this motion, by the two other Articles of the Note excerpted above. First, Article 8 refers to other properties held by both the Borrowers and Guarantors as security. Second, Suitor signs as a signatory twice. It is undisputed that he signs first on behalf of the corporate Borrower, 10 Norfolk.
However, he also signs a second time. Suitor argues on this motion both that he is not a Borrower, and also that he is not a Guarantor since he did not appreciate or understand that he was signing as such. This is, in contradistinction to the fact that he expressly signs (separate and apart from signing as a corporate representative) as “Borrower/Guarantor”.
If Suitor is correct that only the corporate entity was bound, and intended to be bound, by the terms of the Note, including the guarantee, that would have been acknowledged and agreed to by that corporate entity through Suitor’s first signature on its behalf. There must be an explanation as to the intention of the parties and the legal effect as to what Suitor’s second signature, as “Borrowers/Guarantors” means.
Again, in my view, there is a real argument on the Bankruptcy Application that Suitor is a Borrower as well as a Guarantor.
Leaving aside for a moment the issue of Suitor’s liability as a Borrower, Suitor also denies liability with respect to the guarantee His submission is that the three excerpted paragraphs set out above comprise the only references to the guarantee obligation or the fact that Suitor signed in his capacity as personal Guarantor, and that, without more, those provisions are insufficient to give rise to an enforceable guarantee obligation.
Suitor submits that these Lion’s Share Promissory Notes were drafted by Drage and/or her group of affiliated companies, including Lion’s Share. He further submits that: Drage encouraged him not to get legal advice; while he “entered into the Lion’s Share Promissory Notes”, he did so without knowledge that he would be bound as a personal guarantor with unlimited liability (factum, para. 5(c)); he entered into the Notes on the basis that they were short-term instruments that his companies would be able to pay off at the end of the term with additional funds promised by Drage and her companies; Drage unilaterally altered terms of the Notes and increased interest payments contrary to his expectations and often without notice; and, finally, that the Notes contain insufficient certainty of terms.
With respect to all of those factual defences, Suitor relies on his affidavits. He disputes that he personally owes any money to Lion’s Share pursuant to the Lion’s Share Promissory notes as a guarantor, and repeats the statements advanced on his behalf in his factum as set out above (paragraph eight).
Suitor further denies owing any funds to Lion’s Share under the Lion’s Share Promissory Notes personally (paragraph nine), although notwithstanding this, he submits that he is “committed to try to get the most value out of the properties owned by my corporations to satisfy as many of the secured and unsecured creditors as possible on behalf of the corporations who are party to the agreements” (paragraph 19). I pause to observe that this reinforces my conclusion that an interim receivership is appropriate at this time. It is intended to achieve precisely the objective that Suitor states is also his own objective.
With respect to Suitor’s argument about the technical sufficiency of the language in the guarantees, he places considerable reliance on the Konopy decision referred to above.
In that case, the basis for the bankruptcy order was liability pursuant to a guarantee. A number of arguments were advanced on behalf of the debtor there as to why the applicant had failed to show that a bankruptcy order was “almost certain” to be made, including the fact that there was no original of the guarantee, no evidence at all concerning the circumstances in which the guarantee was executed, the guarantee was not signed by the petitioning creditor, and notwithstanding the alleged execution of the guarantee, the creditor repeatedly sought to obtain a personal guarantee - i.e., it did not consider the form relied upon to be a guarantee (see Konopy, at paragraph 18).
Strathy J. went on to observe, noting circumstances similar to the present case, that the guarantor in that case did not deny that he had signed the form or that his signature was forged, but rather that he had no recollection of signing the form. (paragraph 24).
Notwithstanding all of this, the Court in Konopy was satisfied that the applicant had made out a prima facie case that the guarantor had indeed signed the guarantee. Strathy J. further observed that: “the form of the guarantee is simple and clear. He guarantees payment of all money due by his company … There may be defences, whether technical or substantial, but those defences will have to be proven and have not been identified to me. Richards has established a meritorious claim, on the balance of probabilities.”. (para. 25).
The approach of Strathy, J. is equally applicable here. Suitor challenges the certainty of terms of the guarantee document he admits he signed. For example, and with respect to 10 Norfolk (although, as noted above, the same argument applies to all of the Notes), and notwithstanding that the language of the Note sets out clearly the principal amount advanced, the applicable interest rate, the maturity and due date for the Note on which date the principal and interest was due and owing, the fact that the Lender could register security on any Property of the Borrowers or the Guarantors if the Note was not repaid on maturity, Suitor submits that there is no certainty as to what amount he guaranteed or when it was due.
Suitor further submits that this lack of clarity of language has been held in other cases to be fatal to the successful enforcement of guarantees. See, for example: Waterloo-Oxford Co-Operative Inc. v. Hamm, 2005 2953; Times Square v. Shimizu, 2001 BCCA 448; and Bank of Nova Scotia v. Williamson, 2009 ONCA 754, among others.
As Strathy J. found in Konopy, there may be defences, whether technical or substantial, but those defences will have to be proven. All of that can occur at the hearing of the Bankruptcy Application.
I observe that, while Suitor submits as noted above, that Drage and/or her affiliated companies drafted the Notes including the guarantees, that Suitor did not understand he was incurring any liability, and Drage unilaterally amended terms from time to time such that there is no meeting of minds and there was the presence of undue influence, there is no evidence on this motion from Drage or anyone else other than Suitor with respect to the circumstances surrounding the negotiation and execution of these documents. All of that can be explored in the Bankruptcy Application.
Finally, Suitor challenges the motivation of the moving party on this motion, which has been held to be a relevant factor in considering the appointment of an interim receiver: La Hogue Financial Management Services Ltd., v. One Shaftesbury Community Association, 2005 25954 at paras. 29-34.
In my view, the motivation of the petitioning creditor here militates in favour of the appointment of an interim receiver. The Receiver is not seeking any relief to advance its own beneficial interest. On the contrary, it is acting exclusively for the benefit of the creditors and the estate generally, in accordance with the terms of its appointment order. It is not a petitioning creditor with a vested interest in recovering funds for its own benefit. Moreover, it is not seeking any beneficial entitlement finding, but rather preservation of assets for an interim period of time.
For all of these reasons, I am satisfied that for the purposes of this motion, the Receiver is on a balance of probabilities likely to succeed on the Bankruptcy Application.
Immediate Need for protection of the Debtor’s Estate
The Receiver submitted that there was some urgency to the appointment of an interim receiver given its submission that the estate is in jeopardy. It further submits that the appointment of a receiver is just and convenient for the protection of the Debtor’s estate, given the steps the Receiver submits that Suitor has taken to deal with and dissipate assets surreptitiously despite extensive claims, the absence of any meaningful steps to resolve his debts, and the concerns of a high volume of competing creditors.
Among others, the Receiver submits two things.
First, it submits that in March and May, 2024, the Debtor appears to have granted mortgages to National Bank over two residential properties owned by him for $3,200,000 and $1,450,000, respectively, and that it is unclear what Suitor used the proceeds of these loans for.
Second, it submits that on May 21, 2024, the Debtor, through one of his holding companies, Elevation Realty Network Inc., purported to take charges in respect of properties owned by one of the LS Borrowers (Happy Town Housing Inc.). After initially suggesting that value had been given for these mortgages, Suitor failed to provide any response to the Receiver after it requested the evidence of such value.
All of this is of particular concern, submits the Receiver, given the facts set out in the Fourth Report of the Balboa CCAA Monitor dated June 11, 2024. That Report, appended to the Fourth Report of the Receiver as Appendix “K” and filed on this motion, included findings, among others, that the principals of the Balboa Borrowers had:
a. engaged in questionable transfers without any apparent benefit to the business, including over $4 million of payments to corporations affiliated with Suitor or to Suitor himself;
b. caused the Balboa Borrowers to make questionable dividend payments;
c. exhibited a pervasive lack of proper record keeping and other deficient business practices; and
d. in the case of Suitor specifically, swearing false statutory declarations.
It was these concerns, placed before the Court through the Fourth Report of the Balboa CCAA Monitor on the motion to expand the powers of that Monitor and restrict the powers of the principals of the Balboa Borrowers (of whom Suitor is one of four), that caused the Court to grant that relief.
In addition to the above, the Receiver submits that given the Related Entities that Suitor owns or controls, including those that have been identified by the Receiver to date (and those in turn include the 16 companies referred to above), and further given the sheer number of claims and potential claims to be asserted against Suitor and those Related Entities, interim relief is appropriate to prevent creditors from “jumping the queue” and attempting to gain an advantage over other creditors and/or prejudice the estate and creditors generally.
In this regard, and while there is currently in place a stay of proceedings against Suitor in respect of personal claims against him in connection with his obligations related to the Balboa Borrowers, that stay may soon expire upon the completion of transition of management of property in connection with the expansion of the powers of the Balboa CCAA Monitor, after which time the Receiver fully expects that there will be possibly hundreds of additional claims against Suitor absent the granting of the bankruptcy order and the interim receivership order sought here.
For his part, Suitor admits that he placed the mortgages and charges on the properties referred to above and highlighted by the Receiver. He maintains that he did so, however, in the ordinary course and not for any improper purpose.
I have reviewed all of that evidence. I accept that (as attached as exhibits to Suitor’s affidavit), he has now produced documents such as mortgages and wire confirmations related to the proceeds of the mortgages and loans and questions.
It may be that he ultimately succeeds on the Bankruptcy Application in satisfying the Court that he continues to meet his obligations as they come due. However, and notwithstanding his affidavit evidence, in my view, it is appropriate that the interim receiver be appointed in the circumstances where the Receiver has been seeking information from him for months, those inquiries remain outstanding, and there are a number of outstanding questions and issues relating to Suitor’s assets and those of his companies. The interim receivership will sift through all of this information, and attempt to sort out all of that material, and the resulting entitlements.
Moreover, and even if Suitor ultimately establishes on the Bankruptcy Application that, for example, the two National Bank mortgages were placed in the ordinary course to refinance existing obligations, and even if he can further establish that the use of proceeds was not an attempt to dissipate or hide assets from the Receiver (see, for example, paragraphs 26 – 55 relating to the National Bank mortgages, and paragraphs 57- 74 with respect to the Elevation transaction), it is of significant concern that he would not have, at a minimum, disclosed these transactions to the Receiver and to the Balboa CCAA Monitor at the time, and moreover sought their consent.
It is not an answer in my view, to say (as he submits) that Suitor undertook some of the transactions at issue before the date of the Notice of Bankruptcy Application. Those transactions clearly took place during the currency of the Balboa CCAA Proceedings (during which Suitor enjoyed the protections that flow from the stay of proceedings - creditors were prohibited from commencing proceedings against him), and indeed he was of course well aware not only of those Proceedings, but also of the fact that the powers of the Monitor had been enhanced and his powers and those of his fellow co-principals restricted, for the very reasons that the Monitor had concerns about Suitor, his companies and the transactions they had undertaken.
Given that, aside from all else, these transactions were undertaken while the stay against imposed in the context of the Balboa CCAA Proceedings was pending, it is difficult to accept the submission that these transactions were undertaken as Suitor submits “in the ordinary course” at all. Respectfully, nothing is ordinary about the circumstances of the Balboa CCAA Proceeding, and the Lion’s Share Receivership Proceeding. Significant questions about the whereabouts of millions of dollars belonging to investors remain unanswered.
A number of these transactions were undertaken within three months of the insolvency, at least as of August, 2024. I pause to observe the obvious with respect to the Suitor Lion’s Share Promissory Notes: while Suitor has, according to his own affidavit, been working with and cooperating with other unrelated creditors with a view to paying (secured) debts apparently owing to them, the Notes have not been repaid, by Suitor or the companies he owns and controls, the Demand Letters have not been satisfied, and he has advanced no plan or proposal for the repayment of those Notes, even in the record filed in respect of this motion.
In addition, Suitor states in his affidavit that he has “been working with secured creditors to minimize costs and maximize returns” (paragraph 25). Suitor goes on to describe how he has been working to negotiate standstill agreements with banks, attempt to sell other properties and engage in other activities involving his assets and those of companies he controls.
For example, and with respect to one property (43 Centre), he describes in his affidavit how the Bank of Montréal wanted to proceed with the sale in its capacity as first ranking mortgagee, and that notwithstanding the refusal of the Receiver to consent, BMO intends to go ahead with the sale in any event and intends to proceed with a Notice of Intent to Enforce Security.
The Bank may, ultimately, establish that it is entitled to a first priority interest. However, this transaction is one about which the Receiver has concerns, and it is illustrative about the overarching challenge here arising from the interrelated web of Balboa and Lion’s Share principals, entities and transactions: the property at 43 Centre was sold to Suitor’s parents indirectly, through a numbered company they own, as has been admitted. (See electronic mail communication to counsel for the Receiver from Suitor’s counsel respecting this transaction dated August 19, 2024).
It was, therefore, a related party transaction. Whatever the ultimate entitlements may be, these assets should not be transferred and encumbered while all the issues described above are still being investigated and resolved or determined. That is exactly the type of circumstance where an interim receivership to preserve assets is appropriate.
In addition, Suitor describes in detail in his affidavit, and in the context of his description of events regarding the two National Bank mortgages, the “Addison King Mortgage” (paragraphs 42 and on). He states that paragraph 50(b) and in the related chart in the affidavit that he paid $353,965 to [the law firm with carriage of the mortgage transaction] “by selling investments in a Scotiabank investing account”, all of which was inconsistent with the outstanding and unsatisfied Demand from the Lion’s Share Receiver.
In my view, the chaos that will inevitably result in the circumstances of all of the above from an ad hoc series of efforts by individual creditors who understandably wish to maximize their own position, and the fact that all of this will have the further effect of increasing costs and risking prejudice to other creditors, can and should be avoided or at least minimized through the interim receivership.
Moreover, Suitor submits that the allegations against him in the Balboa CCAA Proceedings are “at its highest, allegations of questionable business practices on the part of Suitor in separate CCAA Proceedings that [the Receiver] has been aware of since June 2024 and which have no direct bearing on the issues to be decided on this motion.”
I cannot accept the submission as a basis to decline to appoint an interim receiver. In my view, and for the reasons set out above, I am satisfied that the activities of Suitor and companies that he owns or controls (or owned or controlled at the relevant time, and in respect of which he has recently resigned as a director) are inextricably intertwined with the very issues that underlie the Balboa CCAA proceedings.
As noted above, Suitor is one of the four principal Balboa Borrowers, the powers of whom were expressly restricted by the Court on the motion in that proceeding as a result of concerns arising out of the very issues that underlie both the concerns in that proceeding and Suitor’s assets and entities that are the subject of the proposed interim receivership on this motion.
The notion that the issues in the Balboa CCAA Proceedings have no direct bearing on the issues to be decided on this motion is artificial. They are inescapably linked, and the full extent of the relationship between and among all of these entities is the very thing that it is proposed that the interim receiver will investigate if appointed, all in order that creditors and stakeholders are not prejudiced, and beneficial entitlement to those assets can be determined in a fair and transparent way.
To be clear, the Receiver does not take the position on this motion that Suitor has misappropriated assets in undertaking the transactions on which the Receiver relies and in respect of which Suitor maintains he undertook for no improper purpose. The point is that Suitor is in fact using and dealing with his assets and those of companies he owns or controls, all in the face of the unsatisfied Demands and the matters being undertaken in the course of both the Balboa CCAA Proceedings and the Lion’s Share Receivership Proceeding.
Finally, the powers of the proposed interim receiver will, as set out above, be limited. The fact that those powers are not unlimited is a factor to be considered in approving the interim receivership. An interim receiver is not appointed in a vacuum, and the terms of the proposed appointment are relevant to whether the appointment should be made.
The draft order would permit the interim receiver, if appointed, to:
a. monitor Suitor’s bank accounts in the accounts of Related Entities and approve all disbursements;
b. take any steps deemed necessary or desirable to prevent disbursements, transfers or encumbrances of property;
c. to undertake investigations deemed appropriate;
d. to apply to this Court for further advice and directions; and
e. undertake other related activities.
The object and intent of the proposed interim receivership is to identify and preserve assets in this interim period. It is the disclosure necessary to identify and preserve those assets that the Receiver maintains has been lacking today. I also observe that the powers sought for the interim receiver here are substantially similar to the powers already granted to the Balboa CCAA Monitor. Again, and to state the obvious, those powers do not include the ability to make any final determination as to entitlement to assets of Suitor or companies that he controls. They do, however, provide for the preservation of those assets pending such determinations.
Given Suitor’s own expressed objective as described in his affidavit of assisting in working with creditors, I accept the submission of the Receiver that the prejudice to him by this interim receivership is limited.
Moreover, other than as to the transactions described in his affidavits, which he maintains represent ordinary course refinancings or working with existing creditors in any event, there is no evidence of other recent or pending transactions that would be impacted in any event.
Finally in this regard, Suitor submits that he has given an undertaking - confirmed in Court by his counsel - to the effect that while these proceedings are pending, he will not seek to sell, transfer, convey, encumber or otherwise deal with any of his property, including but not limited to real property and other assets, without the consent of the Receiver or further order of the Court.
That is consistent with the objects of the receivership, but achieving this asset preservation in the context of the receivership will maximize the fairness and transparency of the process while immensely complex transactions are investigated and explored in a fair and transparent manner. The undertaking, while acknowledged, does not provide the visibility into what is admittedly a complex web of transactions, as I am satisfied is required here.
For all of these reasons, I am satisfied that there is an immediate need for protection of the debtor’s estate due to the grave danger that assets will disappear, or the estate is otherwise in jeopardy.
Result and Disposition
- For all of the above reasons, the motion is granted. Order to go in the form signed by me and attached to this Endorsement which has immediate effect without the necessity of issuing and entering.
Osborne J.