Carving properties out of a receivership?

Ontario Securities Commission v. Cacoeli Asset Management, 2025 ONSC 3012
How do you determine whether particular properties should be excluded from a receivership involving real estate?

Summary: In this case, the Ontario Securities Commission sought to place the Cacoeli group—which is in the business of acquiring, holding and managing residential properties in southern Ontario—into receivership for allegedly diverting investor funds. Certain creditors had argued that the property over which they held security should be excluded from any receivership, taking the position that the proposed stay under a receivership order should not prevent them from enforcing their rights. The Court found that the respondents had diverted funds to other investments and that there were serious concerns justifying the appointment of a receiver. The Court also concluded that the receivership should cover all the properties, finding that allowing exemptions would result in a “free for all” among the mortgagees with no central oversight or coordination. There would also likely be a multiplicity of separate receivership and private sale proceedings.

The Ontario Securities Commission (the “Commission”) sought an order under section 129 of the Securities Act to appoint Grant Thornton Limited as receiver and manager over all of the assets and properties of each of the respondents (collectively, “Cacoeli”). The Commission has an ongoing investigation into Cacoeli’s business for alleged diversion of investor equity for prohibited uses not disclosed to investors. Cacoeli is in the business of acquiring, holding and managing residential properties in southern Ontario. 

Cacoeli raised funds from investors to partially finance the purchase and redevelopment of various residential real estate properties (usually large multi-unit rental apartments). Prior to investing in the various Cacoeli projects, potential investors were provided with marketing materials.  The marketing materials were project-specific—that is, the materials indicated that investors would be investing in a specific real property tied to a specific limited partnership.

Section 129(2) of the Securities Act provides that the court shall not make an order under s. 129(1) to appoint a receiver unless the court is satisfied that the appointment of a receiver (i) is in the best interests of the creditors of the respondents or (ii) is appropriate for the due administration of Ontario securities law. The Commission had to show that it had serious concerns that there had been possible breaches of the Securities Act. The Commission did not need to prove a breach of the Securities Act for the court to order the appointment of a receiver.

Reading the limited partnership agreement as a whole and taking into account what was communicated to investors when they made the investment, the Court was of the view that the diversion of funds from one limited partnership to another limited partnership was not permitted.  The purpose was clearly set out in the limited partnership agreement, and it related to the owning and management of the specific property.  The broad powers given to the general partner in the limited partnership agreement were there so the business could be carried on in furtherance of the purpose of the partnership and subject to the restrictions. For example, the power to invest funds that were not immediately needed could be used when rental income was earned by the partnership that was not immediately needed for the partnership’s business.

Consistent with the limited partnership agreement terms, investors were marketed a specific project or property. The marketing materials described in detail the property that the “single purpose limited partnership” was acquiring. The materials did not state that the investments made in respect of a particular property could be diverted and used for another property. When the marketing materials were reviewed, it was clear that investors were told they were making an investment in a specific property.

The Court found that the respondents diverted funds to other investments, which was contrary to what the limited partnership agreement provided, and contrary to what a reasonable person would have understood based on the marketing materials. Accordingly, the Court was satisfied that there were serious concerns such that an order under section 129 of the Securities Act was appropriate.

Certain creditors had argued that the property over which they held security should be excluded if a receivership order were made. Vault Capital, who was a second-ranking mortgagee on the Centreville Property and whose mortgage had matured and had not been repaid, submitted that the proposed stay under the receivership order should not prevent it from enforcing its rights with respect to its mortgage on the Centreville property.  Vault Capital also argued that the terms of appointment should not alter existing priorities with respect to any proceeds of sale regarding the Centreville property. However, the first mortgagee of the Centreville property, CMLS, supported the Commission’s application for the appointment of the receiver over all of the properties of the respondents.

Another first-ranking mortgagee (in respect of certain lands located at 4577 Steeles Avenue East, Toronto), Clifton Blake Capital Corp., sought to exclude the 4577 Steeles property from any receivership order. Clifton Blake argued, among other things, that there was no evidence linking investor funds or securities misconduct to the 4577 Steeles property, and that there was no prejudice to the class of investors the Commission sought to protect if Clifton Blake were permitted to privately enforce its rights. Clifton Blake said it would suffer ongoing and increased prejudice because of the delays and costs of a receivership. However, Terra Bona, which asserted a lien on the 4577 Steeles property, took the position that if a receiver is appointed, it should be appointed over all the respondents.

Grant Thornton, the interim monitor, was of the view that if the Court determined that a receiver should be appointed, conclusive evidence was required that the property proposed to be excluded from the receivership was not, in any way, part of or connected with a fraud or wrongdoing alleged to have been committed by the respondents.

The Court agreed that the receivership should cover all the properties. If certain of the respondents’ properties were exempted from the receivership, there would be a “free for all” among the mortgagees with no central oversight or coordination. There would likely be a multiplicity of separate receivership and private sale proceedings.

Judge: J. Steele J.

Professionals involved:

• Hansen Wong for the Commission

• Simon Bieber, Caroline Harrell and Cameron Rempel of Adair Goldblatt Bieber for the Cacoeli respondents

• Ian Aversa, Miranda Spence and Matilda Lici of Aird & Berlis for Grant Thornton as interim monitor/receiver

• Samuel Robinson of Stockwoods for MCAP Financial Corp.

• David Ullmann of Blaney McMurtry for Terra Bona Investments

• Gary Caplan of Scalzi Caplan for Clifton Blake Capital Corporation

• Thomas Gertner and Heather Fisher of Gowling WLG for CMLS

• Shervin Rismani of Levy Zavet Lawyers for Vault Capital Inc.

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