Mel Cohen Realty Ltd. v. Merget Holdings Inc., 2025 ONSC 1242

Court File No.: CV-24-95838
Date of Judgment: 2025-02-25
Superior Court of Justice – Ontario

Applicant: Mel Cohen Realty Ltd.
Respondent: Merget Holdings Inc.

Before: C. MacLeod
Applicant Counsel: Sanj Mitra, Shaun Parsons & Chris Matthews
Respondent Counsel: Aaron Blumenfeld & Christopher Shorey
Heard: 2025-02-20

Application under subsections 47(1) and 243(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, as amended, and section 101 of the Courts of Justice Act, RSO 1990, c C.43, as amended.

Endorsement

Background

[1] The Applicant is the mortgagee under a Vendor Take Back (“VTB”) mortgage which has matured and is in default. The Respondent is the purchaser and mortgagor in relation to a commercial property located in Ottawa.

[2] There are actions started in Toronto (Court files CV-23-709899 and CV-23-713867) in which the Respondent disputes the validity of the security or at least the amount owing. It advances claims for equitable setoff for liquidated and unliquidated damages, and asserts indemnity claims against the Applicant, the principal of the Applicant or what the Respondent claims are related corporations.

[3] The Applicant served a demand under the mortgage before the Toronto proceedings were launched but it has not taken steps to enforce its contractual power of sale nor has it commenced a mortgage action. Instead, the Applicant brings this freestanding application to appoint a court appointed receiver under the Bankruptcy and Insolvency Act (“BIA”) or the Courts of Justice Act (“CJA”) or both.

Issues and Arguments

[4] While I heard extensive argument concerning the merits of the setoff claims and whether or not equitable setoff is available under the circumstances, this is not the forum to determine that question. There are extensive, complex and disputed questions of fact and legal and equitable arguments that cannot appropriately be determined in what was scheduled as a two-hour hearing on a regular motions list. There is sufficient complexity to this issue and the factual matrix underlying the dispute that I cannot conclude the Respondent’s claims against the Applicant are frivolous or vexatious. There are, in any event, motions pending in the Toronto actions which may (or may not) dispose of that question.

[5] The Respondent also challenges the Application on jurisdictional grounds. It argues that the appointment of a Receiver or an Interim Receiver under the BIA requires a finding of insolvency or bankruptcy. The Respondent argues that it is not insolvent simply because it has halted payment on a disputed security claim. Similarly, the Respondent argues that s. 101 of the CJA provides for the appointment of a receiver “by an interlocutory order” and as there is neither an underlying proceeding nor an intended proceeding, s. 101 is not available.

Reasons for Decision

[6] After hearing argument, I advised the parties that I am not prepared to grant a Receivership at this time for the following reasons:

a. The evidence does not disclose that the Respondent is insolvent. There is no evidence that the Respondent is failing to pay its other debts or failing to meet its obligations as they fall due. Accordingly, neither s. 47 nor s. 243 of the BIA are engaged.

b. I agree that s. 101 of the CJA deals with the appointment of receivers by interlocutory order. While it may be that s. 101 is not exhaustive of the powers of the Court to appoint a Receiver in appropriate circumstances, there is no urgency in these circumstances that demands the protection of the Court where there is no underlying proceeding.

c. I agree that the decision whether “it is just and convenient” to appoint a Receiver is neither formulaic nor a checklist, that it continues to evolve and the modern approach is to take a holistic approach. See Canadian Equipment Finance and Leasing Inc. v. The Hypoint Company Limited, 2022 ONSC 6186 and Kingsett Mortgage Corporation v. Mapleview Developments Ltd., 2024 ONSC 1983. This does not mean that the appointment of a receiver will be routine. It remains an extraordinary remedy.

d. The mortgage in question does not contain a contractual right to appoint a Receiver. While this does not deprive the Court of jurisdiction, it does mean that the bar for granting extraordinary relief is high. See Anderson v. Hunking, 2010 ONSC 4008 and Hands-On Capital Investments Inc. v. DMCC Holdings Inc., 2023 ONSC 2417.

e. In the Toronto proceedings, the Respondent seeks an order staying enforcement of the mortgage but no motion for an interlocutory order is pending. The mortgage contains other private remedies (just not a receivership).

f. There is no evidence as to why the Applicant has not commenced a mortgage action other than the certainty that it will be defended.

g. The equity in the property appears at this time to be more than adequate to cover the debt if the mortgage is valid. The Applicant’s mortgage is in second position but the property is worth more than the outstanding balance on both mortgages (totalling approximately $3.4 million).

h. A Receiver is not necessary to protect the value of the real property nor is there any apparent benefit to an immediate sale. The disputed funds would be paid into court, a default under the first mortgage would certainly be triggered and there is no evidence that there are other creditors who require the protection of a court appointed receiver. See Luo v. Song, 2024 ONSC 7043.

i. A free-standing receivership application in the face of defences to the debt and the security in other actions that are before the Court should not be lightly entertained. This is particularly so if it appears to simply be a mechanism to avoid the safeguards and procedures built into private enforcement or a mortgage action under Rule 64. In addition, there are the actions in Toronto to consider. This motion could easily be brought in the existing court proceeding.

Conclusion

[7] In conclusion, the Application is dismissed. This is without prejudice to a subsequent application on proper grounds and without prejudice to any relief sought in the Toronto actions.

[8] The parties are encouraged to move all of the related proceedings to the Commercial List in Toronto or alternatively to seek to transfer the Toronto proceedings to Ottawa where the property is located. Nothing good can come of parallel proceedings in two different Regions before different judges.

[9] I expect that counsel can reach agreement on costs but if that is not the case, I will entertain cost submissions in writing on a timetable to be agreed between counsel in the next 30 days.

Justice C. MacLeod
Date: 2025-02-25