Court File and Parties

Court File No.: CV-25-00736069-00CL
Date: 2025-03-30
Court: Superior Court of Justice – Ontario (Commercial List)

Applicant: Waygar Capital Inc., as agent for Ninepoint Canadian Senior Debt Master Fund LP
Respondents: El Mocambo Entertainment Inc., El Mocambo Productions Inc., and 2446928 Ontario Inc. (formerly known as Elmorealty Inc.)

Before: Peter J. Osborne
Counsel:

• Steve Graff and Adrienne Ho, for the Applicant and Proposed Receiver
• Alan Merskey, for the Respondent

Heard: March 26 and 27, 2025

Endorsement

Introduction

The Applicant, Waygar Capital Inc., as agent for Ninepoint Canadian Senior Debt Master Fund LP (the “Lender”), seeks an order appointing a Receiver over all of the property of the Respondents, El Mocambo Entertainment Inc., El Mocambo Productions Inc., and 2446928 Ontario Inc. (formerly known as Elmorealty Inc.) (collectively, the “Debtors”) pursuant to section 243 of the Bankruptcy and Insolvency Act (“BIA”) and section 101 of the Courts of Justice Act (“CJA”). The El Mocambo is a live music venue in Toronto.

Legal Test for Appointment of a Receiver

The test for the appointment of a receiver pursuant to section 243 of the BIA or section 101 of the CJA is not in dispute. Is it just or convenient to do so?

In making a determination about whether it is, in the circumstances of a particular case, just or convenient to appoint a receiver, the Court must have regard to all of the circumstances, but in particular the nature of the property and the rights and interests of all parties in relation thereto. These include the rights of the secured creditor pursuant to its security: Bank of Nova Scotia v. Freure Village on the Clair Creek (“Freure Village”).

Where the rights of the secured creditor include, pursuant to the terms of its security, the right to seek the appointment of a receiver, the burden on the applicant is lessened: while the appointment of a receiver is generally an extraordinary equitable remedy, the courts do not so regard the nature of the remedy where the relevant security permits the appointment and as a result, the applicant is merely seeking to enforce a term of an agreement already made by both parties: Elleway Acquisitions Ltd. v. Cruise Professionals Ltd., 2013 ONSC 6866 at para. 27. However, the presence or lack of such a contractual entitlement is not determinative of the issue.

Factors for Appointment

As observed in Canadian Equipment Finance and Leasing Inc. v. The Hypoint Company Limited, 2022 ONSC 6186, the Supreme Court of British Columbia, citing Bennett on Receivership, 2nd ed. (Toronto, Carswell, 1999), listed numerous factors which have been historically taken into account in the determination of whether it is appropriate to appoint a receiver and with which I agree: Maple Trade Finance Inc. v. CY Oriental Holdings Ltd., 2009 BCSC 1527 at para. 25:

a. whether irreparable harm might be caused if no order is made, although as stated above, it is not essential for a creditor to establish irreparable harm if a receiver is not appointed where the appointment is authorized by the security documentation;
b. the risk to the security holder taking into consideration the size of the debtor’s equity in the assets and the need for protection or safeguarding of assets while litigation takes place;
c. the nature of the property;
d. the apprehended or actual waste of the debtor’s assets;
e. the preservation and protection of the property pending judicial resolution;
f. the balance of convenience to the parties;
g. the fact that the creditor has a right to appointment under the loan documentation;
h. the enforcement of rights under a security instrument where the security-holder encounters or expects to encounter difficulties with the debtor;
i. the principle that the appointment of a receiver should be granted cautiously;
j. the consideration of whether a court appointment is necessary to enable the receiver to carry out its duties efficiently;
k. the effect of the order upon the parties;
l. the conduct of the parties;
m. the length of time that a receiver may be in place;
n. the cost to the parties;
o. the likelihood of maximizing return to the parties; and
p. the goal of facilitating the duties of the receiver.

Application of the Factors

How are these factors to be applied? The British Columbia Supreme Court put it, I think, correctly: “these factors are not a checklist but a collection of considerations to be viewed holistically in an assessment as to whether, in all the circumstances, the appointment of a receiver is just or convenient”: Pandion Mine Finance Fund LP v. Otso Gold Corp., 2022 BCSC 136 at para. 54.

It is not essential that the moving party establish, prior to the appointment of a receiver, that it will suffer irreparable harm or that the situation is urgent. However, where the evidence respecting the conduct of the debtor suggests that a creditor’s attempts to privately enforce its security will be delayed or otherwise fail, a court-appointed receiver may be warranted: Bank of Montreal v. Carnival National Leasing Ltd., 2011 ONSC 1007 at paras. 24, 28-29. See also Freure Village at para. 10.

The Present Case

Accordingly, is it just or convenient to appoint a receiver in the particular circumstances of this case?

First, the Respondents are represented on this Application and do not oppose the receivership order sought. They have filed no responding materials on the Application although properly served.

The basis for the receivership sought is set out in the Affidavit of Don Rogers, Managing Director of Waygar sworn February 16, 2025, together with exhibits thereto, on which the Applicant relies.

In short, the Debtors are jointly and severally indebted to the Lender with respect to the Credit Agreement in the approximate amount of $55 million. That indebtedness is guaranteed by, among other things, personal guarantee for Mr. Michael Wekerle, the principal of the Debtors. The Credit Agreement confirms the agreement of the parties to the appointment of a receiver in the event of default, which has clearly occurred.

The Lender has first ranking security interests.

While payments were made over the term of the indebtedness in the amount of $7,588,005, the last payment received was in June, 2021. Further to the fourth amending agreement to the Credit Agreement, the Repayment Date was set to October 15, 2024. No further repayments have been made, resulting in the indebtedness described above.

The Lenders made formal Demands on the Debtors and served section 244 BIA notices of intention to enforce security on January 17, 2025.

When this matter first came on for hearing on March 26, it was adjourned for one day, because the parties were sorting out issues of a possible conflict of interest regarding the proposed Receiver. Those issues were resolved when the matter returned on March 27.

The proposed Receiver is a licensed insolvency trustee, is qualified, appropriate, and has consented to act in that capacity.

However, and notwithstanding the clear indebtedness and defaults established by the Applicant, the Applicant acknowledged that it may be appropriate that, if granted, the receivership not be effective immediately and that management of the venue be permitted to continue to operate the business at least for the next few days, given that events were booked at the venue for Saturday, March 29, Sunday, March 30 and Monday, March 31 (and beyond). It therefore proposed that the effective date of the receivership be deferred for a few days.

Initially, the Applicant and proposed Receiver intended to cease operations of the venue past March 31, and immediately advise those parties who had booked events of the fact that they would not be proceeding. The Receiver would then likely seek a Court-ordered sales process for the premises and other assets, including the intellectual property and trademarks.

Obviously, this would have an impact on those parties who would be left without a venue on extremely short notice. I was advised that the venue continues to have liability insurance and a valid liquor licence. The Receiver would obviously not have a liquor licence and not be able to operate and serve alcohol.

Interim Solution and Adjournment

In the circumstances, I therefore explored with counsel for the parties and the proposed Receiver whether, notwithstanding the compelling case put forward by the Applicant for the appointment of a Receiver, and notwithstanding the non-opposition from the Respondents, it might make good practical sense for the proposed Receiver to act in the nature of the Monitor for a very short interim period to explore possibilities for maintaining the business or some version of it as a going concern, not only to honour contracts for events already booked, but indeed to determine whether they may be cash flow positive, such that one possible outcome to the Receiver, if and as appointed, may be to explore the possibility of a sale of the business as a going concern, as opposed to simply an asset sale. Whether that would be possible, I am not in a position today to make any determination.

The parties agreed with this proposed approach. The Respondents have undertaken to cooperate completely with the proposed Receiver in the role of monitor under the auspices of the Applicant, and to share financial and operating information, provide access to the premises and otherwise assist the Applicant and the proposed Receiver, acting as Monitor. The Applicant and the proposed Receiver are also content to proceed on this basis, at least until they can obtain a fuller picture of operations and the financial status of the business.

Accordingly, the receivership application is adjourned, and may be brought back on by the Applicant on an urgent basis if and as necessary. An appointment before me may be booked through the Commercial List office for that purpose or for further directions as required.

Peter J. Osborne