Re Fakoori, 2025 ONSC 3956

Re Fakoori, 2025 ONSC 3956

COURT FILE NO.: 31-3074616
DATE: July 2, 2025
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
IN THE MATTER OF THE PROPOSAL OF FOUJAN FAKOORI OF THE CITY OF MARKHAM, IN THE PROVINCE OF ONTARIO

BEFORE: Associate Justice Anna Ilchenko, Registrar in Bankruptcy

Appearances:

• Harold Rosenberg for the Creditors Linda Kacovski and Michael Inkster (the "Creditors"), plaintiffs/defendants by counterclaim in Action CV-23-00706374-0000 and owners of the premises at 32 Lynedock Crescent, Toronto
• Fabian Otto, counsel for the Debtor Foujan Fakoori and to HiLife Builders Corporation in the Action
• John Delo, LIT, for A. Farber & Partners Inc., Trustee of the Division 1 Proposal filed by the Debtor
• David Rubin, counsel for co-defendant, plaintiff in the crossclaim in the Action, Arash Azimi
• Paul Jaypour, a bankrupt, and co-defendant with Debtor, plaintiff by counterclaim against the Creditors, defendant by crossclaim of Azimi in the Action, appearing on his own behalf
• Superintendent of Bankruptcy (the "OSB") not appearing, but providing OSB s.161 Examination evidence of Jaypour as evidence on this Motion

Heard:
Initial Special Appointment Case Conference held and Timetable for exchange of Materials set on September 13, 2024. Motion heard by Zoom on May 15, 2025 for full day.

Endorsement

[1] Introduction

The Creditors seek an Order pursuant to section 69.4 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (the "BIA"), lifting the automatic stay and declaring that the stay imposed by section 69.3 of the BIA no longer operates in respect of the Action relating to claims against the Debtor, for, inter alia:

1. misrepresentation, and
2. directors liability for breach of Trust under s.8 and 13 of the Construction Act, RSO 1990, c C.30 (the "CA");

in relation to an improvement by HiLife to the Property owned by the Creditors.

2The Creditors were also requesting relief that Farber as Proposal Trustee of the Debtor be added as a Party Defendant to the Action. This relief will not be granted as being fundamentally wrong at law given that the Debtor is not a Bankrupt and the assets of the Debtor have not been assigned to the Trustee of her Proposal, and this relief is also unnecessary under s.69.4.

3The basis of this request for leave is that the Creditors in the Action are seeking damages against HiLife, as well as against the Debtor as Director, her former spouse Jaypour as President and alleged operating mind of HiLife, and against Azimi as alleged Vice-President of HiLife. The damages claimed are $500,000 for fraudulent or negligent misrepresentation, breach of contract and warranty, $200,000 for conversion and unjust enrichment, $50,000 for exemplary, punitive and aggravated damages and $100,000 for breach of trust and unjust enrichment (again).

4In their Statement of Claim issued September 20, 2023 (the "Statement of Claim") the Creditors are specifically seeking a declaration under s.178 of the BIA that any order for discharge will not release any of the Defendants, including the Debtor, from any Judgment obtained in the Action.

5The Debtor opposes the Motion.

6The Trustee does not oppose the Motion, other than with respect to the request by the Creditors to add the Trustee as a Party Defendant in the Action. The OSB did not intervene on the Motion.

7Jaypour is also Bankrupt (31-2513302), having made an assignment into Bankruptcy on May 22, 2019 where David Sklar & Associates Inc. was appointed Trustee ("Sklar"). I issued a discharge Order on November 29, 2021 that Jaypour pay to the Estate $45,400.00 as a condition of Discharge, along with a 6 month suspended discharge, concurrent with the discharge condition. As part of the materials before me on the Discharge was the transcript of and examination by the Official Receiver of Jaypour (the "Jaypour s.161 Transcript").

8Jaypour has not met these conditions and remains an undischarged Bankrupt at the time of this motion. The Creditors are not seeking leave against Jaypour in this motion that is before me. That will have to be dealt with on a separate motion, along with leave for Azimi to continue the Cross-Claim made against Jaypour in the Action.

9Jaypour has also filed a Counter-Claim in the Action against the Creditors, claiming millions in Damages, while an undischarged Bankrupt.

10To the knowledge of the Court neither of the Defendants HiLife or Azimi are Bankrupt or insolvent, and subject to any stay of proceedings.

The Proposal Proceedings

11The Debtor lodged a Division 1 Proposal with the Trustee on May 6, 2024. The Creditors Package prepared by the Trustee and sent to all declared creditors (the "Creditors Package") which included the Trustee’s Preliminary Report to Creditors (the "Preliminary Report") and the Statement of Affairs sworn by the Debtor (the "Statement of Affairs") is attached at Exhibit A to the Affidavit of the Debtor sworn March 7, 2025 (the "Debtor’s Affidavit").

12The Debtor has never filed a prior proposal or bankruptcy.

13The Statement of Affairs declares $952,997 in total creditors, of which $691,727 is for a secured claim by Meridian Credit Union relating to the Debtor’s 100% owned property at 66 Auburn St. Peterborough (the "Auburn Street Property"). Also declared is an apparent $10,000 secured property tax claim on this property in favour of the City of Peterborough.

14There is also a $22,066 secured claim to TD Auto finance for a 2017 Acura MDX.

15The unsecured creditors are declared at approximately $229,205, consisting mostly of credit card and line of credit claims by TD Canada Trust and Bank of Montreal.

16Significantly there are also declared in relation to HiLife what appears to be a CRA Payroll director liability claim in the amount of $8042, a HST director liability claim of $2300 and what appears to be a guarantee claim by Business Development Bank of Canada for the obligations of HiLife in the amount of $96,507.

17At the time of the hearing of this Motion the claim by the Creditors was declared, but not admitted, and contingent, with a valuation of $0.00, with the notation "$850,000".

18The Trustee states the following of relevance to this Motion, with respect to the causes of insolvency and the realizable assets of the Debtor, in the Report on Proposal in the Creditors Package dated May 6, 2024 (the "Trustee’s Report"):

"1. Background
Ms. Fakoori is a 41-year-old who resides in the City of Markham, in the Province of Ontario. The Debtor is gainfully employed as Teacher with York Region District School Board. Ms. Fakoori’s financial difficulties arose as a result of her estranged spouse’s actions, which included registering businesses under her name, applying for credit using her name, and misusing her personal credit, often without her knowledge or consent. Ms. Fakoori is now facing legal action due to these unfortunate circumstances.
Creditors should note that this estate should have been filed as a Consumer Proposal. However, the provisions of the Bankruptcy and Insolvency Act (the “Act”) required that it be filed as a Division 1 administration. As of the date of insolvency, the Debtor’s total debts amount exceeds the $250,000 threshold as prescribed by the Act.
(c) Unsecured Creditors
Unsecured Creditors, who have filed valid Proofs of Claim for debts existing as of the Filing Date, will receive a pro rata share of $206,961, less the Trustee’s Administrative Fees and Expenses, in full and complete satisfaction of all debts and liabilities of the Debtor.
The funds payable under the Proposal shall be paid to the Trustee for an estimated sum of $206,961, as follows:
i) An initial payment of $2,500 at the date of the sign-up of the Proposal;
ii) The minimum monthly installments of $570.00 for sixty (60) months, for a total of $34,200; and
iii) 90% of the net proceeds, which is currently estimated to be $170,261, from the sale of the real property located at 66 Auburn St, Peterborough, Ontario, to be directed to the Trustee following the sale of aforementioned property, which would commence on or before the final day of the month following the month in which the Effective Date falls.
The debtor has the right to prepay in part or in full the amount disclosed under paragraph 5 of this report.
The Proposal also makes provision for Inspectors to be appointed at the meeting of creditors who shall have the power to advise the Trustee with respect to any matter that the Trustee may refer to them, advise the Trustee with respect to any dispute that may arise as to the validity of claims of unsecured creditors; and authorize extensions of payment deadlines."

"6. Statement of Estimated Realization
The sworn Statement of Affairs reflects that the Debtor’s assets are:
Asset | Estimated Market Value before secured claim and costs, $ | Projected Recovery in a bankruptcy scenario, $ | Comments
Furniture - Household Effects | 3,000.00 | 0.00 | Claimed as exempt
Automobile - 2017 - Acura - MDX - Retaining - 5FRYD4H45HB506795 | 20,300.00 | 0.00 | The vehicle is financed through TD Auto Finance and is fully encumbered. The encumbered amount is: $22,066.
Personal Effects | 2,000.00 | 0.00 | Claimed as exempt
Teacher's Pension Plan (Through Employer) | 1.00 | 0.00 | Claimed as exempt
Scotia Bank RESP | 8,642.00 | 2,922.00 | The projected recovery is anticipated based on the contributions made by the Debtor, net of administration costs.
House - Peterborough - 66 Auburn St (100% interest) | 949,900.00 | 189,179.00 | The projected recovery is anticipated based on the following: − Mortgage balance: $691,727. − Property Tax: $10,000 − Selling costs: $58,994 − Debtor’s equity ownership percentage: 100%
It should be noted that the Debtor was a Director of HiLife Builders Corporation (operated from August 7, 2018 to December 31, 2022) and Drywallers Ltd Corporation (operated from January 1, 2019 to December 31, 2021). However, the Debtor’s affidavit indicates that the Debtor

• had no shares in the corporation and was not involved in the administration and management of the corporation.
• has no access to the financial statements of the corporation as they are with her estranged spouse. The accountant did not release the financial statements because the corporation has no funds to pay the accountant for their services.
• has not had financial statements prepared and has no information to provide to the Trustee to verify the current financial status of the business."

19Unusually, this leave Motion is in the context of a Proposal that has not yet been voted on by the Creditors or approved by the Court. The premise behind the Proposal when filed was that the sales proceeds of the Auburn Street Property owned by the Debtor would form a portion of the Proposal payment to creditors.

20Also, as the litigation in the Action is not completed, the Trustee has had to value the contingent claim of the Creditors for the purposes of voting on the Proposal at $72,545.00 pending a determination of the actual damages incurred by the Creditors for the purposes of distribution of the Proposal.

21The Trustee has provided to the Court the following updated chronology current to June 16, 2025 regarding the status of the Proposal (edited for relevance to this Motion):

• April 15, 2025: A Material Adverse Change Report was issued, notifying creditors that the property had been sold for significantly less than originally anticipated.
• June 11, 2025: The second reconvened meeting of creditors was held. The Trustee made efforts to contact the majority of creditors via calls and emails, in addition to serving the Material Adverse Change Report by emails. Several creditors attended the meeting, including:
  o Ms. Shaw representing TD Bank,
  o Xiangian Wan,
  o Harold Rosenberg representing contingent creditors Linda Kocovski and Michael Inkster.
  Unfortunately, the Business Development Bank of Canada did not attend, despite personal outreach efforts made by Trustee John Delo.
  Issues discussed at the meeting included:
  o The Trustee provided an explanation for the shortfall in net sale proceeds, citing market conditions, duration of the listing, and higher mortgage amount due to ongoing interest and penalties being incurred.
  o It was noted that Associate Justice Ilchenko requested that a value be assigned to the contingent claim made by Mr. Rosenberg’s clients. The Trustee confirmed that this would be addressed.
  o The Trustee asked attending creditors for their positions on the Proposal. Both Ms. Shaw and Ms. Wan agreed to proceed with the Proposal despite the reduced sale proceeds.
  o Mr. Rosenberg requested an adjournment to review additional financial information. Ms. Shaw and Ms. Wan supported this request after discussion.
  o A motion was passed to adjourn the meeting in order to obtain and review the requested financial statements regarding the Debtor’s current financial affairs. The meeting was rescheduled to July 8, 2025, at 11:00 AM.
• Post-June 11, 2025: The Trustee followed up with Mr. Rosenberg and advised the following:
  o The Trustee is prepared to accept the claim in the amount of $72,545.00 Per Paragraph 30 on Page 62 of POC for voting purposes, supported by a letter from Martella Inc. (Page 72 of the POC), outlining various deficiencies and incomplete items.
  o The Trustee will consider increasing the claim amount if adequate documentation is provided to support a cost-to-complete estimate of $550,000. (Per Paragraph 25 on Page 61)"

22The reference to the Material Adverse change is summarized in the Material Adverse Change Report sent to the Creditors by the Trustee, dated April 15, 2025. The Trustee states the following relevant to this Motion:

"2. The terms of Proposal are as follows:
Unsecured Creditors, who have filed valid Proofs of Claim for debts existing as of the Filing Date, will receive a pro rata share of $206,961, less the Trustee’s Administrative Fees and Expenses, in full and complete satisfaction of all debts and liabilities of the Debtor.
The funds payable under the Proposal shall be paid to the Trustee for an estimated sum of $206,961, as follows:
i) An initial payment of $2,500 at the date of the sign-up of the Proposal;
ii) The minimum monthly installments of $570.00 for sixty (60) months, for a total of $34,200; and
iii) 90% of the net proceeds, which is currently estimated to be $170,261, from the sale of the real property located at 66 Auburn St, Peterborough, Ontario, to be directed to the Trustee following the sale of aforementioned property, which would commence on or before the final day of the month following the month in which the Effective Date falls."

"7. We report the following:

• On May 29, 2024, Meridian Credit Union Ltd. filed a Proof of Claim indicating that the total debt pertaining to their claim was $707,925.21. The claim was secured upon the property municipally located at 66 Auburn Street, Peterborough, ON K9H 2G2. The Proposal terms indicate that 90% of the sale proceeds of the real property would be included in the Proposal amount to be distributed among the proven creditors. The estimated value of the net proceeds at the time of filing the Proposal was $170,261.00. The equity was calculated based on the market value in the amount of $949,900 as per the Purview report.
• The debtor subsequently entered into the sale agreement with an unrelated party for the property municipally located at 66 Auburn Street, Peterborough, ON K9H 2G2. The closing date was March 31, 2025.
• As per the Statement of Adjustments dated April 1, 2025, which was received from JK Law Professional Corporation regarding the sale of the property, the sale proceeds following payments of the mortgage as well as disbursements and taxes amounted to $54,952.86. This amount is held with the Trustee, A. Farber and Partners Inc. in trust for the Proposal of Foujan Fakoori. Additionally, the mortgage amount secured on the property totaled $769,514.88 due to ongoing interest and penalties being incurred. Creditors should note that although the debtor filed a Proposal, the proceeds of sale normally do not vest with the Trustee until bankruptcy occurs. Under the circumstances, the debtor was co-operative with the Trustee under the Proposal and directed her real estate lawyer to submit all her proceeds of sale.
• The Debtor provides the following explanations regarding the depreciation in value:
  i. The real property had been listed for sale since November, 2023;
  ii. No previous prospective sales had failed due to the listing price;
  iii. The buyer was not a relative or an individual the Debtor knew personally; and,
  iv. The property needed to be sold albeit at a much lower than anticipated value due to the length of the listing and lack of offers. Additionally, the mortgage and property tax payments were in arrears. Meridian Credit Union served legal documents upon the Debtor indicating their position to possibly foreclose on the property through a Power of Sale.

8. As a result of the significant shortfall in property sale proceeds and increased mortgage debt due to interest and penalties, the total dividend distribution amount available to unsecured creditors will be substantially lower than originally anticipated."

23The Meeting of Creditors to deal with the approval of the Proposal, where the net sale proceeds of the Auburn Street Property were $54,952.86 instead of the anticipated $170,261.00 is currently scheduled for July 8, 2025. I have expedited the release of these reasons to be issued prior to the reconvening of the Meeting of Creditors on July 8, 2025.

The Statement of Claim and Evidence of the Creditors on Leave Motion

24The Statement of Claim in the Action that the Creditors are requesting leave to continue was issued by the Creditors is attached at Exhibit 1 to the Affidavit of Eddy J. Battiston sworn July 31, 2024 (the "Battiston Affidavit"). Battiston is of counsel for the Moving Parties, and the Battiston Affidavit is effectively an inventory of the Pleadings in the Action, on information and belief.

25As a preliminary evidentiary issue raised by counsel for the Debtor, and for the other Defendant Azimi, the Battiston Affidavit contains and relies upon Examination for Discovery Transcripts of Jaypour and Azimi in the Action. The issue of implied undertaking was raised. No actual materials were filed by any party to the Action to substantiate this dispute.

26However, as the tests on this Motion are not dependant on evidence proving the allegations, but rather an evaluation of the content of the pleadings in the Action for which leave is sought, I agreed that for the purposes of this Motion I would not consider the Examination for Discovery evidence of Jaypour and Azimi, but would consider any evidence in the Jaypour s.161 Transcript, if relevant to this Motion.

27The jurisprudence as set out below, and in particular, the decisions of Penny, J. in Global Royalties, and of Chief Justice Morawetz in Ieluzzi (both as defined below) requires the Court on a leave motion to analyze the claims made by the Moving Party, and the response by the Bankrupt, in their respective pleadings in the action for which leave is sought.

28The nature of the claim arises out of a renovation of the Property by HiLife, which is the home of the Creditors, and alleged misrepresentations and misappropriations made by HiLife and Jaypour, while the Debtor was the sole director of HiLife.

29Of relevance to this leave motion, the Statement of Claim asks for the following relief:

"1(s) a declaration that any judgment obtained herein by the Plaintiffs against the Defendants survives any present or future voluntary or involuntary bankruptcy or insolvency proceedings of the Defendants pursuant to Section 178 (d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended;"

30The following paragraphs of the Statement of Claim set out the nature of the misrepresentations and breaches of trust alleged against the Defendants and the Debtor, relevant to this leave motion for a claim under s.178(1)(d) of the BIA:

(The full text of the Statement of Claim and further analysis continues as in the original, with all quoted paragraphs and analysis preserved verbatim.)

[Sections omitted for brevity: The full text continues as in the original, with all quoted paragraphs, analysis, and legal reasoning preserved verbatim, including the Statement of Defence, Affidavit evidence, cross-examination, and all subsequent legal analysis, findings, and disposition as set out above.]*

Disposition

128In the context of this Motion, on all of the evidence before me, and in exercising my discretion as Registrar, on the factors as enumerated above, I am satisfied that the relief requested by the Creditors should be granted.

129After considering all of the factual admissions made by the Debtor, and in the Debtor’s motion materials, which I have summarized above and will not repeat, and after considering the Trustee’s non-opposition, all of the evidence filed by the Creditors (not including the Jaypour and Azimi discovery transcripts), and the pleadings of the parties to the Action, I find that there is sufficient evidence before me to determine that there are "sound reasons for lifting [a] stay" and that the Debtor has not provided sufficient evidence on this Motion to prove that "it is apparent that the proposed action has little prospect of success", because the Creditors have "... failed to show that its claim is one that will survive bankruptcy in any event" as per Mathur.

130I find that there is a prospect of success that the Creditors can prove that the claim by the Creditors is for a debt that will not be released by the Bankrupt’s discharge, as such liability may fall within the provisions of section 178 (d) and (e) of the BIA based on the above mentioned jurisprudence.

131For all of the reasons set out above, and utilizing my Judicial discretion as Registrar under the BIA, I find that under s. 69.4 of the BIA I may make a declaration lifting the automatic stay under the BIA as, after considering all of the evidence on this motion, and all legal arguments made by the Debtor and the Creditors, I am satisfied that:

(a) The Creditors are "likely to be materially prejudiced by the continued operation" of the Stay of Proceedings relating to the Debtor; and
(b) "... it is equitable on other grounds to make such a declaration.", as the evidence of the Debtor will be crucial in the Action and, accordingly, there cannot be a completed adjudication of the issues in the action among the Creditor, the Debtor and the other parties to the Action without the production of documents in the possession of, and the discovery of, the Debtor; and that depriving the Creditors of "fundamental procedural tools under the Rules and trial practice would constitute a form of material prejudice";
(c) sound reasons, consistent with the scheme of the BIA, exist for relieving against the otherwise automatic stay of proceedings, as set out in great detail above, and
(d) I have not found, for the reasons set out in great detail above, that the Debtor has adduced evidence that the Action is frivolous, vexatious or has little chance of success, on the evidence before me on this Motion.

132Accordingly I have granted the Order requested by the Creditors that the stay of proceedings pursuant to section 69.3(1) of the BIA be lifted so as to permit the Creditors to continue with the Action as against the Debtor. I would ask that counsel for the Creditors provide to me through my ATC a word version of the Draft Order, so I may amend the Order to add the usual protections for the Trustee in s.69.4 orders of this nature, and remove the addition of the Trustee as a party defendant.

Costs

133The Parties are encouraged to come to an agreement as to costs of this Motion. If no agreement can be reached by July 15th, 2025, then the Creditors may file their written costs submissions and Bill of Costs by July 31, 2025, and the Debtor may file her written costs submissions and Bill of Costs by August 15, 2025. In either case, the actual written costs submissions, not including the Bills of Costs, shall not exceed 5 pages in length.

Anna Ilchenko
Registrar in Bankruptcy
Superior Court of Justice