Court File and Parties

COURT FILE NOS.: BK-24-00208704-0T31 and BK-24-00208705-0T31 DATE: 2024-12-06

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

Court File No.: BK-24-00208704-0T31 IN THE MATTER OF THE BANKRUPTCY OF JASVIR JOHAL also known as JASVIR SINGH JOHAL OF THE CITY OF MISSISSAUGA, IN THE PROVINCE OF ONTARIO

Court File No.: BK-24-00208705-0T31 IN THE MATTER OF THE BANKRUPTCY OF SULAKHAN JOHAL also known as SULAKHAN SINGH JOHAL OF THE CITY OF BRAMPTON IN THE PROVINCE OF ONTARIO

RE: Bank of Nova Scotia, Applicant AND: Jasvir Johal and Sulakhan Johal, Respondents

BEFORE: Peter J. Osborne J.

COUNSEL: Ian Klaiman and James S. Quigley, for the Applicant Matthew P. Gottlieb and Andrew Winton, for the Respondent Rachel Nicholson and Chris Burr, for the Pride Entities Chris Burr, for the Monitor

HEARD: December 6, 2024

ENDORSEMENT:

[1] Companion motions in each of these two related bankruptcy Applications were heard together. This Endorsement has effect in each of the two above-noted proceedings.

[2] Jasvir Johal and Sulakhan Johal (individually “Jas” or “Sam” respectively, and collectively, the “Johals”)[^1] each move in their respective bankruptcy Applications for the same relief: an order staying the bankruptcy Applications and directing that the claims of the Applicant, the Bank of Nova Scotia (“BNS” or the “Bank”) be pursued in the Companies Creditors’ Arrangement Act, R.S.C., 1985, c. C-36 (“CCAA”) proceeding currently ongoing in this Court in respect of the Pride Entities (the “Pride Entities”, the "PGEs").[^2]

[3] The Johals are the main shareholders, directors and officers of the Pride Group. It includes a group of companies that operate cross-border businesses in the trucking industry including sales, leasing, service and logistics. At their peak, the PGEs managed over 20,000 trucks and had over 550 employees. The Pride Entities are the Applicants in the above-noted CCAA proceeding.

[4] BNS loaned funds to each of the Johals in August 2023 pursuant to a line of credit issued to each of them in the amount of $10 million.

[5] Both lines of credit were effectively fully drawn almost immediately, and the funds were used by the Pride Entities.

[6] The Johals submit that BNS knew or ought to have known that the funds were borrowed for the Pride Entities, with the result that any debt owed by the Johals to BNS is stayed by operation of paragraph 19 (the stay of proceedings) of the Amended and Restated Initial Order (“ARIO”) made in the CCAA proceeding, and should be determined or resolved within that proceeding.

[7] In the alternative, they submit that:

a. BNS has not established that they are ceasing to meet their liabilities generally as they become due;

b. the debt owed to BNS in each case is a single debt and that the Johals are not ceasing to meet other liabilities as they come due; and

c. that special circumstances are not present to justify granting an application for bankruptcy based on a single debt in each case.

[8] BNS submits that:

a. the Johals are failing to meet their liabilities generally as they become due;

b. the debt owed to BNS in each case is not a single debt but rather one of a number owed to creditors; and

c. in any event, and even if these are single creditor bankruptcy Applications, special circumstances are present to justify granting them.

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

[10] For the reasons that follow, the motions are granted. In my view, these bankruptcy Applications should be stayed and the claims of the Bank should be addressed within the CCAA proceeding.

Facts

[11] The Johals had been clients of another bank, Royal Bank of Canada (“RBC”), since 1993. RBC was also the principal banker of the Pride Entities. At the same time, the Johals had had a relationship since 2009 with Roynat Inc., a subsidiary of BNS.

[12] One of the Roynat client representatives who worked regularly on the Johals’ accounts was Evan Olsthoorn (“Olsthoorn”).

[13] In 2023, Olsthoorn transferred to Scotia Wealth Management. He reached out to the Chief Financial Officer of PGE, Mr. Kav Hamzavi (“Hamzavi”), to see whether and how BNS could provide private banking services to the Johals personally. The Bank was understandably interested in getting their personal banking business as they were high net worth individuals.

[14] All of Olsthoorn’s discussions were with Hamzavi. He had no direct communications with either of the Johals. In July 2023, he proposed to Hamzavi that BNS would advance a $10 million line of credit to Sam. At the time, Sam was interested in borrowing funds to finance the construction of a new home. Notwithstanding that, Olsthoorn represented to Sam that the funds could be used for any reason.

[15] On August 10, 2023, Olsthoorn prepared a “Credit Presentation [Wealth Management]” (“Credit Presentation”), an internal document used to seek approval of Olsthoorn’s superiors for the proposed loan to Sam. In relevant part, the Credit Presentation was clear that:

a. the proposed line of credit did not impose any financial covenants or thresholds on Sam. Rather, BNS would benefit from financial covenants to which the Pride Group was subject through a cross-default provision in the credit agreement;

b. Sam’s personal free cash flow for 2022 was only $223,000. However, the annual interest charges on the $10 million line of credit would be $750,000 per year if the line was fully drawn;

c. it follows that if the eligibility of Sam for the line of credit was based on consideration of his personal income as his ability to service the debt, it would be “deficient”;

d. in order to justify extending the line of credit to Sam, BNS had to consider his access to additional cash flow from the Pride Group; and

e. BNS was dependent on the performance of the Pride Group for debt servicing in respect of the line of credit even though it was subordinate to the secured lenders of the Pride Group.

[16] The Credit Presentation was approved immediately. BNS delivered a credit agreement to Sam the very next day. In addition to the cross-default provision referred to above, the credit agreement provided that the line of credit was payable on demand. It also included a provision that entitled BNS to make such a demand for the immediate repayment of the debt (i.e., the entire principal and interest outstanding) if BNS ceased to be a lender to the Pride Group, or if there was a material adverse effect on the Pride Group.

[17] Sam’s line of credit was partially secured by his matrimonial home.

[18] Hamzavi then asked Olsthoorn if BNS would make a $10 million line of credit available to Jas on similar terms. As with Sam, Olsthoorn had no discussions with Jas about the line of credit. The terms offered to Jas were similar to those offered to Sam, with the one difference: the interest rate was 50 basis points (one half of 1%) higher since there was no security for the indebtedness.

[19] The Credit Presentation in respect of Jas was similar in material respects to that for Sam: there were no financial covenants imposed on Jas, but the Bank benefited from financial covenants that the Pride Group was subject to through the cross-default provision; and his personal free cash flow for 2022 of $156,000 was insufficient to service the potential annual interest charges (in his case, $800,000 if the line was fully drawn). Jas’ ability to service the debt would be deficient if based solely on consideration of his personal income and the Bank was dependent on the performance of the Pride Group for debt servicing, notwithstanding that it was subordinate to the secured lenders of the Pride Group.

[20] Sam executed his credit agreement on August 29, 2023, along with his wife Rashpal whose signature was required to guarantee the line. The very next day, the CFO of the Pride Group, Hamzavi, arranged for BNS to advance $9.5 million of the total credit availability of $10 million.

[21] Moreover, the advance was not made directly by BNS to Sam, but rather to a Pride Group affiliate, Block 6 Holding Inc. Olsthoorn was aware of this and had no objection.

[22] Approximately two weeks later, on September 12, 2023, Hamzavi arranged for an advance on Jas’ line of credit. It too was almost in the full amount of credit availability: $9 million. Moreover, it too was transferred at the request of the CFO, not to Jas but rather directly to another Pride Group affiliate company, 933 Helena Holdings Inc. Olsthoorn was similarly aware of the direct transfer of the funds to that entity and had no objection.

[23] There is no issue on these motions that from the respective dates on which funds were advanced pursuant to the two lines of credit, and continuing through January 2024, the Johals serviced the interest payments on their respective lines of credit in accordance with the terms of the credit agreements.

[24] However, and notwithstanding that the Johals were current in their servicing of the debts, BNS delivered letters to each of the Johals on January 11, 2024, terminating their lines of credit and demanding repayment in full.

[25] The basis for the terminations was that the Bank had become aware in December 2023 through its participation in a syndicated loan to the Pride Group that the Pride Group was experiencing liquidity issues.

[26] As is clear from the Olsthoorn affidavit, on December 15, 2023 the Pride Group provided BNS, in its role as a member of the lending syndicate to the Pride Group, with an updated forecast anticipating that they would breach the financial covenants for the syndicate loans over the next three fiscal quarters (beginning with the last quarter of 2023). Shortly thereafter, on December 19, 2023, RBC, as the senior member of the syndicate, advised the other members that it appeared that the Pride Group had obtained floorplan financing and asset financing from external providers outside the syndicate, which granted security interests in the same vehicles already pledged to the syndicate.

[27] Indeed, this was expressly acknowledged by Sam on behalf of the Pride Group a few days later still when on or about December 22, 2023, he wrote to RBC, the leader of the Pride Group syndicate, to advise the syndicate that the Pride Group was experiencing liquidity issues. In that letter, Sam advised the syndicate (and therefore BNS as well) that he and Jas had personally injected approximately $18.5 million from their personal lines of credit into the operating business of the Pride Group to address the liquidity issues.

[28] Internally within BNS, Olsthoorn received a copy of the syndicate letter within a day. He was therefore aware of the confirmation from Sam that both of the Johals had used their personal lines of credit to inject the approximately $18.5 million. However, he already knew this as a result of the fact that the advances on the lines of credit went directly to the corporate entities within or affiliated with the Pride Group, and not to either of the Johals personally: $9.5 million on Sam’s line of credit and $9 million on Jas’ line.

[29] However, the termination and demand letters delivered by BNS a few weeks later on January 11, 2024, terminating the lines of credit, made no reference to the use of the funds for the Pride Group, nor to any suggestion that such a use constituted a breach of the credit agreements. In my view, this is inconsistent with the position now advanced by BNS on this motion to the effect that the Bank would not have approved or advanced the credit lines if the Johals had advised that they intended to use the funds for Pride Group working capital. Even though the Bank knew that had occurred, it did not rely on such as a basis to terminate the lines of credit.

[30] Thereafter, the Johals continued to pay interest on the lines of credit for the balance of January, and through February and March 2024 until the Pride Group filed for and received protection from its creditors under the CCAA on March 27, 2024.

The Test on a Bankruptcy Application

[31] The Applicant has the onus to establish that the debt of the debtor amounts to $1,000 or more, and that the debtor has committed an act of bankruptcy within six months preceding the filing of the application: Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, s. 43(1) ("BIA"). A debtor commits an act of bankruptcy if he or she ceases to meet their liabilities generally as they become due: BIA s. 42(1)(j).

[32] In general, the existence of more than one unpaid creditor is sufficient to establish that a debtor ceased to meet their liabilities generally as they came due: Braich v. Clarke, 2023 BCCA 305, para. 43; Syndic de Cohen, 2023 QCCA 201, para. 14; ATB Financial v. Coredent Partnership, 2020 ABQB 587, paras. 82-95.

[33] Pursuant to s. 43(7) of the BIA, the Court shall dismiss an application for bankruptcy if it is not satisfied with the proof of the facts alleged, or if it is satisfied that either the debtor is able to pay their debts, or that for other sufficient cause, no order ought to be made.

[34] While the burden of proof on a bankruptcy application is the civil standard, the Bank has a high onus. Proceedings under the BIA are quasi-criminal in nature, and the acts of bankruptcy and all allegations set out in the application must be proven on sufficient evidence: Re Levesque, 2016 ONCA 393, 36 CBR (6th) 217, at paras. 5 – 6 (“Levesque”).

Are the Johals Able to Pay their Debts: Are these Single Creditor Bankruptcy Applications?

[35] The parties disagree on whether, aside from the demand made by BNS in respect of the lines of credit, the Johals remain current on all other debts as they become due.

[36] The Johals rely on two principal facts. First, the only debt referenced in the affidavits filed on behalf of the Bank in support of these bankruptcy Applications are the lines of credit. I accept that. In the Affidavit of Verification of Christopher Usas sworn in support of each bankruptcy Application, the only debt referenced is that under the line of credit. The affidavit in each Application confirms that the line of credit is a demand credit facility, that demand has been made, and that there has been no repayment.

[37] Second, each of the Johals confirmed on their respective cross examinations in these Applications that they are not in default on any of the personal debt, and that all claims related to the Pride Group are stayed pursuant to the ARIO. In addition, and as noted above, the Johals were current on payments of interest under the lines of credit from the dates of advance and continuing until the Pride Entities filed for CCAA protection in March 2024.

[38] The Bank submits that the Court ought to reject such a bald assertion. The Bank states that notwithstanding the lack of any admission, there is evidence of the inability of the Johals to meet their obligations generally as illustrated by the fact that they were served with a claim from Mitsubishi HC Capital Canada Inc. and Mitsubishi Capital Canada Leasing Inc. issued on March 25, 2024(the "Mitsubishi claim").

[39] The Mitsubishi claim, issued two days prior to the commencement of the CCAA proceeding, seeks payment on guarantees the Johals had given to Mitsubishi in respect of significant creditor advances to the Pride Entities. Those proceedings, as with all claims related to the Pride Group, have been stayed by the CCAA stay of proceedings. This has been expressly acknowledged by Mitsubishi, which, as described below, is taking steps within that CCAA proceeding with respect to that debt. Moreover, in this regard, and as discussed more particularly below in the section respecting the CCAA stay of proceedings, the quantum of the indebtedness of the Johals to Mitsubishi is dependent on and certainly affected by recoveries to creditors in the Pride Group CCAA proceeding. The exact quantum is as yet undetermined.

[40] In addition, BNS submits that an inference ought to be drawn that the Johals cannot meet their obligations generally from the fact that the Johals have borrowed other sums which remain outstanding. Jas borrowed approximately $300,000 - $400,000 from close friends to pay for his son’s wedding and other expenses. Sam borrowed over $1 million, although the evidence is unclear as to the purpose or use of those funds.

[41] Finally in this regard, BNS invites the Court to draw an adverse inference from the fact that the Johals refused to answer BNS' questions on cross-examination about whether they were failing to meet other obligations within the six-month period preceding these Applications, and BNS' requests for further information about their outstanding debts within that time period.

[42] As noted above, the onus is on the Bank for these Applications. The clear evidence of each of the Johals on cross-examination was that they were current in all of their debts as they generally become due. I am satisfied that, for the purposes of these motions, BNS brings these motions as a single creditor.

Do Special Circumstances Exist Here?

[43] As has been well-established, the provisions of the BIA are intended to be utilized for the benefit of the creditors of a debtor as a class, not for the enforcement of an individual debt: Levesque at para. 7. See also: Bankruptcy of the Jewish Foundation of Greater Toronto, 2022 ONSC 2120, 99 CBR (6th) 261, at para. 25; aff’d 2023 ONCA 268.

[44] For this reason, courts grant bankruptcy orders in single creditor cases only where special circumstances exist, which have been recognized in three categories: Levesque at para. 10, quoting with approval from Re Valente, (2004), 2004 CanLII 8018 (ON CA), 70 O.R. (3d) 31 (C.A.) at para. 8:

a. where repeated demands for payment have been made within the six-month period before the application;

b. where the debt is large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which require that the processes of the BIA be set in motion; or

c. if, prior to the filing of the petition, the debtor has admitted its inability to pay creditors generally without identifying the creditors.

[45] I am satisfied that none of the special circumstances that justify the granting of a bankruptcy order on an application by a single creditor are present in this case.

[46] First, the record is clear that there have not been repeated demands for payment: there was one demand based on the liquidity crisis at the Pride Group entities. That is the demand upon which each of the two bankruptcy Applications was based, as is clear from the respective affidavits of verification. Moreover, the Johals continued to make regular interest payment on the lines of credit through until March 2024 when the debts were stayed pursuant to the CCAA Initial Order.

[47] Second, and while the quantum of each debt is material, there is no evidence of fraud or suspicious circumstances here with respect to the manner in which debtors have handled their assets, such as would require use of BIA processes.

[48] Third and finally, as noted above, neither debtor has admitted his inability to pay creditors generally.

[49] I note that to these three categories of special circumstances, BNS submits that Kimmel J. of this Court added a fourth category in Sergio Grillone (Re), 2023 ONSC 5710 at paras. 134, 161 and particularly 162.

[50] In that case, Kimmel J. observed that, in the particular circumstances of that matter, an order under s. 43(1) of the BIA was necessary to achieve an orderly distribution of the estate of the bankrupt to creditors, and to create a single forum in which the multiplicity of claims involving the debtor could be determined while ensuring that no creditor obtains an unfair advantage over the others in the interim. In that case, the Court found that such was a special circumstance that supported the granting of a bankruptcy order.

[51] In my view, the special circumstance to which Kimmel J. was referring militates, on the facts of this particular case now before me, precisely in favour of the stay being granted here and the claims of BNS being addressed within the Pride Group CCAA proceeding, for the very rationale expressed by Kimmel J.: dealing with the BNS claims within the CCAA proceeding will create a single forum in which the multiplicity of claims involving the Johals related to claims against the Pride Entities can be determined while ensuring that no creditor obtains an unfair advantage over the others in the interim. For that reason, the facts here do not give rise to a special circumstance justifying the bankruptcy Applications.

Sufficient Cause

[52] Finally, even if I were not satisfied that these bankruptcy Applications were single creditor applications, or if I were satisfied that special circumstances existed, in my view the particular circumstances of this case are such that there is “other sufficient cause” that a bankruptcy order ought not to be paid as contemplated in s. 43(7) of the BIA.

[53] In my view, it is equitable and just in the particular circumstances of this case that the claims of BNS under the lines of credit be determined as necessary and appropriate within the ongoing CCAA proceeding of the Pride Entities.

[54] I need not repeat the reasons above with respect to the integration of these claims against the Johals, and the liabilities of the Pride Entities in respect of which the advances under the lines of credit were exclusively used.

[55] As urged upon the Court by the Court-Appointed Monitor in oral argument on this motion (without objection from the Bank): it would be to the benefit of all stakeholders, and the fairness of the process generally, to address all claims against all parties covered by the stay of proceedings in the Initial Order in one comprehensive proceeding with the benefit of oversight of a Court officer in the form of the Court-Appointed Monitor. Again, that is consistent with the reasoning of Kimmel, J. in the Grillone case.

[56] Of all other creditors, no other creditor has joined with BNS in these bankruptcy Applications. The only other creditor who has indicated or demonstrated any intention to proceed as against Sam and Jas is Mitsubishi, which extended commercial credit to the Pride Entities guaranteed by the Johals.

[57] As its claim was stayed by the CCAA proceeding, Mitsubishi, unlike BNS, is taking such steps as it considers appropriate within that CCAA proceeding. The Monitor as well as the Johals submit that that is the proper process here. I agree. The Monitor can then investigate such claims as are advanced with the benefit of its role in that CCAA proceeding, and the corresponding information available to it with respect to all corporate parties, the debts of each and the guarantees in respect thereof. At a minimum, this will avoid all the inefficiencies and unfairness that can flow from a multiplicity of proceedings.

[58] For all of these reasons, I would stay the bankruptcy Applications.

CCAA Stay of Proceedings

[59] Even if I am in error with respect to my conclusion reflected above that these Applications should be stayed under the BIA, in my view, they are clearly subject to the stay of proceedings made in the CCAA proceeding. For this reason also, they ought not to proceed.

[60] Both the Initial Order granted in the CCAA proceeding on March 27, 2024, and the ARIO granted on the comeback hearing dated April 5, 2024, included the standard stay of proceedings consistent with the Model Order of the Commercial List, which in this case, reads as follows:

15. THIS COURT ORDERS that during the Stay Period, no Proceeding shall be commenced or continued against or in respect of Sulakhan Johal, Jasvir Johal and/or Amrinder Johal (collectively, the “Personal Guarantors”), or against or in respect of any of their current or future assets, undertakings and properties of every nature and kind whatsoever, and wherever situate, and including all proceeds thereof (collectively, the “Personal Guarantors Property”) with respect to any guarantee, contribution or indemnity obligation, liability or claim in respect of or that relates to any agreement involving any of the Pride Entities or the obligations, liabilities and claims of and against any of the Pride Entities (collectively, the “Related Claims”), except with the prior written consent of the Pride Entities, the CRO and the Monitor, or with leave of this Court, and any and all Proceedings currently under way against or in respect of the Personal Guarantors or the Personal Guarantors Property in respect of the Related Claims are hereby stayed and suspended pending further Order of this Court or the prior written consent of the Pride Entities, the CRO and the Monitor. [Emphasis added].

[61] Within the Initial Order, the “Pride Entities” referenced in paragraph 15 above are described at Schedule “A” to the Initial Order. They specifically include the two entities to which the $18.5 million advances made on the BNS lines of credit were directly forwarded: 933 Helena Holdings Inc. and Block 6 Holding Inc.

[62] Moreover, Sam and Jas, while not CCAA Applicants, were included within the scope of the stay of proceedings as “Additional Stay Parties”.

[63] The Endorsement of Chief Justice Morawetz setting out the reasons for granting the Initial Order confirmed expressly that the Chief Justice was satisfied that the relief set out at paragraph 15 was appropriate in order to ensure that the intent and purpose of the CCAA proceeding was not frustrated (See: Endorsement dated March 27, 2024 at paras. 32 – 36).

[64] BNS received the CCAA Application Materials and the Initial Order. It immediately requested of counsel to the CCAA Applicants that Sam and Jas be excluded as Additional Stay Parties with respect to the very claims on which these Applications are now based pursuant to the demands made on the lines of credit, failing which, BNS would bring an appropriate motion to be heard simultaneously with the next return date in the CCAA proceeding.

[65] The Court then granted the ARIO (which continues this day). Counsel to the Applicants in the CCAA proceeding responded to the request of BNS to confirm that the stay [in respect of Sam and Jas]:

“only relates to any guarantee, contribution or indemnity obligation, liability or claim in respect of, or that relates to any agreement involving any of the Pride Entities, or the obligations, liabilities and claims of and against any of the Pride Entities. Accordingly, if the Potential Claim does not in any way relate to any liability of [Sam] and [Jas] involving the Pride Entities, then the [stay of proceedings] would not apply to the Potential Claim”.

[66] Counsel for the Applicants in the CCAA proceedings referred counsel to BNS to the counsel representing the Johals in the CCAA proceeding. Counsel to BNS then wrote to that counsel, apparently referencing the above statements from CCAA Applicants’ counsel, but advised that:

We have, in the interim, … received [counsel to the Applicants’] acknowledgement that the Bank of Nova Scotia in respect to the said obligations of [Sam] … and of [Jas] are not stayed under the CCAA Order as these are direct obligations owing to the Bank of Nova Scotia and are not based on their guarantees of obligations of Pride Group of Companies to the Bank of Nova Scotia.

[67] I agree with the submission of the Johals on this motion that the above is not an accurate summary of the correspondence from counsel for the CCAA Applicants. That correspondence, read according to the plain meaning of the words used, stated that the stay of proceedings related only to any “agreement involving any of the Pride Entities for the obligations, liabilities and claims of and against any of the Pride Entities” and that the stay would not apply if the “Potential Claim” (i.e., the demands under the lines of credit on which these bankruptcy Applications are based) “does not in any way relate to any liability of Sam and Jas involving the Pride Entities”.

[68] BNS argues that the lines of credit were intended for personal uses, and not for working capital or other operating needs of the Pride Entities, and that if (as is clearly the case) the funds were in fact used by the Pride Entities, this was contrary to the intention of the Bank in advancing funds under the lines of credit in the first place. Whatever the expressed or anticipated use of funds, this argument is belied by what in fact happened.

[69] The advances under the lines of credit were made directly to Pride Entities or affiliates expressly covered by the stay of proceedings, and those advances were made with the express knowledge of BNS (which initiated those direct transfers). Then, the Bank received the correspondence to the lending syndicate of the Pride Entities from Sam expressly confirming that he and his brother Jas had injected $18.5 million (the exact amount advanced under these lines) to the Pride Entities to alleviate the liquidity crisis.

[70] In short, the stay of proceedings in the Initial Order captures any liabilities of the Pride Group entities listed on Schedule “A” to that Initial Order, and those entities in turn include the two entities to which BNS advanced the $18.5 million directly from the lines of credit of the Johals. Finally, those advances “relate to liabilities” of the Pride Group entities - it was precisely to deal with liabilities of the Pride Group that the funds were forwarded directly to entities covered by the stay in the first place.

[71] Accordingly, the evidence satisfies me that the funds advanced pursuant to the lines of credit are inescapably “involving the obligations, liabilities and claims of an against any of the Pride Entities”, and that one cannot reasonably conclude that they “do not in any way relate to any liability of Sam and Jas involving the Pride Entities”. They plainly do so.

[72] This is further reinforced by the terms of the credit agreements summarized above. The free cash flow of each of the Johals was deficient (by an order of magnitude) to fund even the interest, let alone repayment of the principal, on the lines of credit. This was recognized by the Bank. Moreover, this is precisely why there is a cross-default provision in each credit agreement entitling the Bank to demand repayment based not on any change in circumstances of the Johals in their personal capacities, but rather expressly and exclusively based on a change of circumstances in the financial position of the Pride Entities. Ironically, and as described below, that is precisely what happened and is precisely the event that triggered the termination of the credit facilities in the first place.

[73] Moreover, counsel for BNS clearly understood that CCAA counsel for the Johals was taking the position that the stay of proceedings applied, based on the email exchange of May 30, 2024, where (excluding without-prejudice excerpts not before the Court) counsel for BNS advised that it disagreed with counsel for the Johals and that “[w]e are comfortable that BNS is not stayed”.

[74] In light of that exchange, one would have expected the Bank to have brought a motion within the CCAA proceeding (and therefore on notice to all affected stakeholders on the CCAA Service List) either for a declaration that the stay of proceedings did not apply, or - precisely as BNS had originally requested - a motion to vary the stay to exclude the Johals as Additional Stay Parties so the stay did not apply.

[75] I am reinforced in my conclusion that the claims relate to liabilities of the Pride Entities by one further fundamental and significant fact as described above: the only reason set out in the correspondence of BNS terminating the lines of credit and demanding that they would be repaid is the liquidity crisis at the Pride Entities, of which the Bank was aware expressly because of its membership in the Pride Group lending syndicate. Put differently, the Johals had not defaulted on these lines of credit, and nor was any default alleged by the Bank.

[76] In any event of how the above exchange of correspondence is to be interpreted, in my view, a plain reading of the stay of proceedings granted in s. 15 of the Initial Order and reproduced above is clear that it applies to Sam and Jas in respect of any of their assets with respect to any liability or claim that relates to any agreement involving the Pride Entities or the obligations and liabilities of those Pride Entities. The stay of proceedings clearly applies.

[77] In addition to all of the above, in my view, and considering the circumstances of these bankruptcy Applications as against the ongoing CCAA proceeding, the latter proceeding is the one within which these issues should be determined, precisely as Chief Justice Morawetz recognized when granting the Initial Order.

[78] The power of a CCAA court to issue a broad stay of proceedings is the primary instrument provided by that statute to achieve its legislative purpose, establish order and preserve the status quo, which is crucial to the orderly administration of the estate: Sproule v. Nortel Networks Corporation, 2009 ONCA 833, 99 OR (3d) 708, at para. 16; Romspen Investment Corporation v. Courtice Auto Wreckers Limited, 2017 ONCA 301, 138 OR (3d) 373, at para. 72.

[79] A broad stay of proceedings is appropriate if it advances the policy objectives of the CCAA and flows from the broad powers afforded to a CCAA judge: Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 SCR 379, at paras. 66 and 70.

[80] Accordingly, in my view the stay of proceedings, both generally and in the particular circumstances of this case, ought to be interpreted broadly and so as to include the claims on the lines of credit now advanced by BNS.

Result and Disposition

[81] In my view, either of the two principal reasons above (i.e., that no bankruptcy order ought to be made pursuant to s. 43(7) of the BIA; or that the bankruptcy Applications should be stayed by the Initial Order and the ARIO), is sufficient to grant the requested relief here. I have found that both apply here.

[82] For the reasons above, the bankruptcy Application in respect of each of Sam and Jas is stayed, and the claims of BNS on the lines of credit should be determined as necessary and appropriate within the ongoing CCAA proceeding of the Pride Entities.

[83] The parties made submissions as to costs and submitted Costs Outlines. BNS’ Outline reflects substantial indemnity costs of $21,900.54 and partial indemnity costs of $15,142.57. The Costs Outline of the Johals reflects substantial indemnity costs of $50,590.09 and partial indemnity costs of $34,290.97. All amounts are inclusive of fees and disbursements.

[84] The Johals have been successful on the motions. They are presumptively entitled to their costs. They seek an order that costs be assessed and paid now. BNS submitted that if it were unsuccessful on the motions, costs could be awarded, but that they should be made payable by way of set off as against the much more significant debt owing by the Johals to BNS, and not be made payable by BNS now.

[85] Pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 ("CJA"), costs are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[86] Rule 57.01 provides that in exercising its discretion under s. 131, the court may consider, in addition to the result in the proceeding (and any offer to settle or contribute), the factors set out in that Rule.

[87] The overarching objective is to fix an amount that is fair, reasonable, proportionate and within the reasonable expectations of the parties in the circumstances: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at paras. 24-26.

[88] Rule 57.03 provides that, on the hearing of a contested motion, unless the court is satisfied that a different order would be more just, the court shall fix the costs of the motion and order them to be paid within 30 days.

[89] In my view, the amounts owing on the lines of credit ought to have been pursued within the CCAA proceeding without the preparation and hearing of these motions. Taking all of these factors into account, a just and equitable award of costs is in the amount of $17,000, inclusive of fees, disbursements and HST, which amount is payable by BNS to the Johals within 30 days.

[90] Order to go in accordance with these reasons.

Osborne J.

[^1]: Given the commonality of surname, the moving parties are referenced in this Endorsement according to their first names by which they are known and which they routinely use. [^2]: CV-24-00717340-00CL.