Court File and Parties

Winning Brands Corporation; 2024 ONSC 6434 Court File No.: BK-24-00208697-OT31; BK-24-00208698-OT31; and BK-24-00208699-OT31 Date: 20241021 Superior Court of Justice – Ontario (Commercial List)

Re: FRIEDRICH LEHNER, NIAGARA MIST MARKETING LTD.; WINNING BRANDS CORPORATION And CHARLES PERLMAN

Before: W.D. Black J.

Counsel: Matthew Harris, for Friedrich Lehner, Niagara Mist Marketing Ltd., and Winning Brands Corporation Josh Suttner and Shaun Parsons, for Charles Perlman

Heard: October 21, 2024

Endorsement

[1] This is a motion by the debtor Winning Brands Corporation (“WBC”), in the context of a pending bankruptcy application against it by a creditor, Charles Perlman, for an order to strike or permanently stay that bankruptcy application.

[2] The purported basis for the motion is that WBC is a Delaware corporation, operates only in Delaware, does not own any property in Canada, does not have licenses or pay taxes in Canada, is not registered to do business in Ontario (or elsewhere in Canada) and has no place from which it does business in Ontario.

[3] WBC argues that in order for a foreign entity/debtor to be subject to Canadian bankruptcy law, a sufficient “nexus” must be shown between the foreign corporation and the Canadian court in which the Canadian creditor is seeking to assign the corporation into bankruptcy.

[4] This in turn boils down, WBC maintains, to whether or not the insolvent person “at the time of an act of bankruptcy was committed by him resided or carried on business in Canada.” This notion is confirmed in section 2(1) of the BIA defining a debtor as “…any person who, at the time an act of bankruptcy was committed by him, resided or carried on business in Canada.”

[5] While acknowledging one or more cases in which foreign corporations, including Delaware corporations, have been successfully assigned into bankruptcy in Canada, WBC asserts that it “does not conduct business in Ontario or Canada”.

[6] It argues that it does business exclusively in the United States, is registered and listed (on the SEC OTC exchange) there, and pays taxes in the United States. It claims that it has many American secured and unsecured creditors, and that an assignment in bankruptcy would impact on those U.S. creditors.

[7] Finally, and only recently, it argues that Ontario is not a convenient forum for these proceedings, and that it does not attorn to the jurisdiction of the Ontario courts to hear them.

[8] The difficulty with WBC’s position, as elaborated in detail in the responding submissions of Mr. Perlman, is that much of what it says is at odds with the evidence in the record before this court.

[9] Mr. Perlman assert six grounds on which this court has jurisdiction over WBC.

[10] First, the underlying loan agreements (the “Loan Agreements”) giving rise to WBC’s debt to Mr. Perlman, and in respect of which Mr. Perlman obtained a contested judgment in Ontario, each contain a forum clause confirming that all proceedings between the parties “related to the subject matter of this Agreement” may be commenced in Ontario, at Mr. Perlman’s sole discretion.

[11] The Loan Agreements were drafted by Friedrich Nikolai (Eric) Lehner, the CEO of WBC (and WBC’s Canadian subsidiary corporations). Mr. Lehner is stated in public disclosure to own 95% of the Preferred Shares of WBC, and through that shareholding to exert “voting control” over WBC. Mr. Lehner, it is agreed, lives in Barrie, Ontario.

[12] As noted, pursuant to a contested motion for summary judgment, in which WBC was a represented party defendant, O’Brien J. found for Mr. Perlman, ordering the defendants (including WBC) to pay CAD $85,000 and USD $23,462.20 to Mr. Perlman together with pre and post‑judgment interest at the rate of 60% per annum. The contractual interest rate of 15% per month – which O’Brien J. found Mr. Lehner had proposed - would have yielded 180% interest per annum, and Mr. Perlman insisted that the parties instead agree to the “legislated upper limit” in Canada.

[13] Justice O’Brien also found the defendants liable as guarantors for an additional $10,000 loan made to a third party, and declared that Mr. Lehner had engaged in fraudulent misrepresentations which induced Mr. Perlman to make one of the loans he made to the defendants.

[14] There is no indication, and WBC does not allege, that it contested the jurisdiction of the Ontario court to hear and decide the underlying contractual claim. I expect it would have been difficult for the defendants, including WBC, to contest jurisdiction given the clear clauses, drafted by Mr. Lehner, that gave Mr. Perlman the option of electing to proceed in Ontario.

[15] Second, there can be no doubt that WBC in fact carries on business in Ontario. The materials in the record before me are replete with examples of WBC representing to the public and investors for years that it conducts business out of an office in Barrie, Ontario. WBC variously refers, in its public disclosure, to 92 Caplan Avenue in Barrie as its “principal executive office”, its “formal business office” or its “principal place of business.”

[16] The record includes numerous quarterly public filings by WBC confirming its Barrie address, and representing that “The issuer’s [i.e. WBC’s] formal business office, with reception, boardroom and other public facilities is located in an executive business center at 92 Caplan Avenue, Barrie, Ontario…”

[17] WBC’s website displays (or displayed during the relevant period) the Barrie address.

[18] On January 26, 2023, WBC issued a press release saying that “Winning Brands Corporation and its new GestureTek Division will operate from its new headquarters location beginning February 2023. The facility in Toronto’s Don Mills area at 179 Bartley Drive will combine production, administration, sales, and storage in a single location for the first time.” In connection with that new Toronto facility, WBC signed an indemnity to the landlord for any amounts owing by its subsidiary under the Toronto lease.

[19] Mr. Perlman relies on Royal Bank of Canada v. FASI 2 Ltd., in which the Court of King’s Bench in Alberta found, relative to an individual living in Texas, that relevant financial statements saying that he carried on business as a consultant at a Calgary address was “sufficient to establish that the locality of the debtor is Calgary.”

[20] There is no doubt, based on extensive public filings and representations, that WBC carried on business in Ontario. It may, if its representations to the court are to be credited, have done so improperly or illegally (if it was never registered or licensed in Ontario) but there is nonetheless no doubt based on its ongoing public disclosure that it carried on business here.

[21] Third, and similarly, there is no doubt based on its disclosure that WBC also resided in Ontario. Again, numerous statements WBC made in the public domain confirm that its office was on Caplan Avenue in Barrie.

[22] WBC argues before me that not WBC, but the Winning Brand “Group” consisting of WBC’s Canadian subsidiaries, resided, and operated in Ontario. Again, WBC’s various public representations, including its many quarterly reports and its media release about its new lease in Toronto in January of 2023, belie this suggestion. WBC itself is repeatedly said to reside and operate in Ontario.

[23] Fourth, with respect to assets in Ontario, Mr. Perlman points out that on WBC’s own theory, that its Ontario-based subsidiaries operated in Ontario, by definition WBC owns assets – being the shares of its subsidiaries – in Ontario. WBC oddly denies that it actually holds shares in its wholly-owned subsidiaries, but it seems to me that this is unlikely, and that WBC cannot have it both ways.

[24] Fifth, there is also no question that WBC’s debts were incurred while conducting business in Ontario. Those debts were confirmed by this court, and remain outstanding.

[25] In such circumstances, as confirmed in Cheerio Toys & Games Ltd. (Re), 1969 CarswellOnt 62 and Granatstein (Re), 1997 CarswellOnt 3054, respectively, the debtor is deemed to carry on business within the jurisdiction of the court until the debts have been satisfied, and a creditor has the right to file a petition in the Province of Ontario on the basis that the debtor is carrying on business here.

[26] Sixth, applying the common law test for corporate residency, requiring the court to consider the location of the company’s “central management and control”, Mr. Perlman notes that Mr. Lehner is the sole officer and director of WBC, and that he exercises voting control over the company and makes all management decisions on its behalf. He resides in Ontario, and manages and controls WBC, as its sole directing mind, from Barrie, Ontario.

[27] Mr. Perlman makes certain public policy arguments in support of his position, including that parties who represent to the public that they reside and operate in a particular jurisdiction ought not, when their creditors pursue them, be allowed to “abscond” from that jurisdiction and purport to be located and operating elsewhere.

[28] In my view, the determination of this motion is not a close call.

[29] There is an overwhelming preponderance of evidence linking WBC to Ontario, and no basis to stay or strike Mr. Perlman’s application. As such, I dismiss WBC’s motion.

[30] Mr. Perlman is entitled to his costs of the motion.

[31] He has submitted a costs outline, but his counsel advised that, depending on the outcome, further submissions would be required. I infer from this submission that there may be an offer or offers to consider.

[32] As such, I ask that Mr. Perlman provide a brief written submission with respect to costs within seven days of receiving this decision. WBC may then have four days within which to file responding submissions. In each case, the maximum length of such submissions, apart from any costs outline, should not exceed three pages.

W.D. BLACK J. Date: October 21, 2024