Court denies rubber-stamping receivership applications

Foremost Financial Corporation et al. v. Alai Developments Inc. et al., Court File No. CV-23-00702528-00CL (July 24, 2023)
Can a receivership application be delayed on jurisdictional grounds?

Overview: In this case, the debtors raised a jurisdictional issue to a receivership application in an attempt to buy themselves more time to refinance their loans. The Court ruled that it had the authority to grant leave to have the receivership application issued on the Commercial List and refused the jurisdictional challenge.

Foremost Financial Corporation et al. applied for an order appointing Goldhar & Associates Ltd. as receiver of Alai Developments Inc. et al., including over certain real property located in Markham, Ontario (the “Real Property”). Foremost Financial are secured lenders of three loans that are secured by mortgages registered against the Real Property and general security agreements over other assets and property of the debtors.

The debtors acknowledged the validity of the security and that the loans were in default. Their response to the application was to ask for more time to refinance and payout the indebtedness. The debtors also raised jurisdictional concerns about the receivership application that would have the effect of delaying it by requiring the applicants to re-issue it in another locality in Ontario (and thus, de facto give them some additional time). 

Specifically, the debtors argued that the Real Property over which the security was held and the location of the debtors was the City of Markham, and that they had no connection to the City of Ontario. They debtors relied on s. 243(5) of the BIA, which provides that a receivership application “is to be filed in a court having jurisdiction in the judicial district of the locality of the debtor.” The debtors contended that the Ontario Superior Court of Justice (Commercial List, Toronto) was not a court having jurisdiction in the judicial district of the locality of the debtors (in Markham). Thus, they argued that, even though the Court granted leave to Foremost Financial to have the Notice of Application issued on the Commercial List, the Court did not have the authority to do so under s. 243(5) of the BIA.

Justice Kimmel did not accept the debtors’ interpretation of s. 243(5) of the BIA. First, pursuant to s. 183(1)(a) of the BIA, the Superior Court of Justice is the court in Ontario that is: “invested with such jurisdiction at law and in equity as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act during their respective terms, as they are now, or may be hereafter, held, and in vacation and in chambers.”

Second, reading the words of s. 243(5), the Ontario Superior Court of Justice (as opposed to any of the other provincial or territorial courts in Canada listed in s. 183(1)(a) of the BIA) is the court that has jurisdiction in the judicial district of the locality of the debtor (in this case, Markham). Markham is in Ontario and there is only one court in Ontario with this jurisdiction, the Superior Court of Justice.

The Notice of Application in this proceeding was issued by the Ontario Superior Court of Justice. There is no jurisdictional issue under the BIA that prevented Foremost Financial from issuing this receivership application in Toronto, or that prevents a judge of the Ontario Superior Court of Justice sitting in Toronto from hearing it.

Whether a given receivership application will qualify for issuance on the Commercial List in Toronto is an entirely different matter that is governed first and foremost by the Consolidated Practice Direction Concerning the Commercial List, most recently updated and effective June 15, 2023. Counsel for Foremost Financial did seek and receive leave for their Notice of Application to be issued on the Commercial List in Toronto. Justice Kimmel was not referred to any authority or justification upon which that prior determination should be revisited. 

Justice Kimmel also emphasized that the comment made by counsel for the debtors that these types of receivership applications by commercial lenders are just rubber stamped for issuance on the Commercial List was not accurate. The Practice Direction guides these considerations. If there are venue considerations that are relevant to a given proceeding, the fact that leave has been granted on an ex parte or administrative basis for an application to be issued on the Commercial List in Toronto will not preclude a respondent from bringing a motion for transfer to another county under r. 13.1.02. No such motion was before Justice Kimmel.

Ultimately, the Court ruled that it was just and convenient to appoint Goldhar & Associates Ltd. as receiver, and the jurisdictional challenge was unsuccessful.

Judge: Justice Kimmel

Counsel: Harvey Chaiton and Danish Afroz of Chaitons for Foremost Financial

Howard Reininger for the debtors