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Court File No. CV-18-596204-00CL
Ontario SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE
MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c. 29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
MOTION RECORD OF FAAN MORTGAGE ADMINISTRATORS INC., IN
ITS CAPACITY AS COURT-APPOINTED TRUSTEE
December 13, 2018
OSLER, HOSKIN & HARCOURT LLP P.O. Box 50, 1 First Canadian Place Toronto, ON M5X 1B8
Michael De Lellis (LSUC# 48038U) Jeremy Dacks (LSUC# 41851R) Patrick Riesterer (LSUC# 60258G) Tel: (416) 362-2111 Fax: (416) 862-6666 Lawyers for FAAN Mortgage Administrators Inc., in its capacity as Court-appointed Trustee of Building & Development Mortgages Canada Inc.
TO: SERVICE LIST
1
Court File No. CV-18-596204-00CL Ontario
SUPERIOR COURT OF JUSTICE COMMERCIAL LIST
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant - and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC. Respondent
APPLICATION UNDER SECTION 37 OF THE
MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c. 29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
SERVICE LIST
TO: OSLER, HOSKIN & HARCOURT LLP
100 King Street West 1 First Canadian Place Suite 6200, P.O. Box 50 Toronto, ON M5X 1B8 Michael De Lellis Tel. +1.416.862.5997 Jeremy Dacks Tel. +1.416.862.4923 Patrick Riesterer Tel. +1.416.862.5947 [email protected] [email protected] [email protected] Counsel for the Trustee
AND TO:
FAAN MORTGAGE ADMINISTRATORS INC. 20 Adelaide Street East Suite 920 Toronto, ON M5C 2T6 Naveed Manzoor Tel. +1.416.258.6415 Daniel Sobel Tel. +1.647.272.8383 Lana Bezner Tel. +1.416.966.7646 [email protected] [email protected] [email protected] Trustee
2
AND TO:
AIRD & BERLIS LLP Brookfield Place 181 Bay Street, Suite 1800 Toronto, ON M5J 2T9 Steven L. Graff Tel. +1.416.865.7726 Ian Aversa Tel. +1.416.865.3082 Miranda Spence Tel. +416.865.6414 [email protected] [email protected] [email protected] Counsel for the Superintendent of Financial Services
AND TO:
CHAITONS LLP 5000 Yonge Street, 10th Floor Toronto, Ontario M2N 7E9 Harvey Chaiton Tel. +1.416.218.1129 George Benchetrit Tel. +1.416.218.1141 [email protected] [email protected] Court-Appointed Representative Counsel for Investors
AND TO:
HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY THE MINISTER OF FINANCE P.O. Box 620 33 King Street West, 6th Floor Oshawa, ON L1H 8E9 Kevin O’Hara Tel: +1.905.433.6934 Fax: +1.905.436.4510 [email protected]
AND TO:
NORTON ROSE FULBRIGHT CANADA LLP Royal Bank Plaza, South Tower 200 Bay Street, Suite 3800, P.O. Box 84 Toronto, Ontario M5J 2Z4 Jennifer Teskey Tel: +1.416.216.2303 Jeremy Devereux Tel: +1.416.216.4073 Fax: +1.416.216.3930 [email protected] [email protected]
AND TO:
FINANCIAL SERVICES COMMISSION OF ONTARIO (“FSCO”) 5160 Yonge Street, 16th Floor Toronto, Ontario M2N 6L9 Mark Bailey Tel: +1.416.250.7250 Brendan Forbes Tel: +1.416.250.7250 Fax: +1.416.590.7070 [email protected] [email protected]
AND TO:
BRAUTI THORNING ZIBARRAS LLP 161 Bay Street, Suite 2900, Toronto, ON M5J 2S1 Jay Naster Tel. +1.416.507.2442 [email protected] Counsel to Building and Development Mortgages Canada Inc., Canadian Development Capital & Mortgage Services Inc. and Ildina Galati
3
AND TO:
BUILDING AND DEVELOPMENT MORTGAGES CANADA INC. (“BDMC”) 25 Brodie Drive, Unit 8 Richmond Hill, ON L4B 3K7 Ildina Galati [email protected]
AND TO:
CANADIAN DEVELOPMENT CAPITAL & MORTGAGE SERVICES INC. (“CDCM”) 25 Brodie Drive, Unit 7 Richmond Hill, ON L4B 3K7 Julie Galati [email protected]
AND TO:
ROBINS APPLEBY LLP 120 Adelaide Street West Suite 2600 Toronto, ON M5H 1T1 David Taub Tel. +1.416.360.3354 John Fox Tel. +1.416.360.3349 [email protected] [email protected] Counsel to Fortress Real Developments Inc.
AND TO:
FORTRESS REAL DEVELOPMENTS INC. 25 Brodie Drive, Unit 1 Richmond Hill, ON L4B 3K7 [email protected] [email protected]
AND TO:
BLANEY MCMURTRY LLP 2 Queen Street East, Suite 1500 Toronto, Ontario M5C 3G5 David Ullmann Tel. +1.416.596.4289 [email protected]
AND TO:
PAUL BATES BARRISTER 100 Lombard St., Suite 302 Toronto, ON M5C 1M3 Paul Bates [email protected]
AND TO:
NOBLETON SOUTH HOLDINGS INC. 56 The Esplanade, Suite 206 Toronto, Ontario M5E 1A7 Domenic Fazari [email protected] Borrower
AND TO:
NOBLETON NORTH HOLDING INC. 368 Four Valley Drive Concord, Ontario L4K 5Z1 Giuseppe Valela [email protected] Borrower
4
AND TO:
BROOKHILL HOLDINGS INC. 56 The Esplanade, Suite 206 Toronto, ON M5E 1A7 Giuseppe Valela
[email protected] Borrower for Bowmanville
AND TO:
SOUTH WEST QUEENSVILLE HOLDINGS INC. 56 The Esplanade, Suite 206 Toronto, Ontario M5E 1A7 Giuseppe Valela [email protected] Borrower for Highlands of York
AND TO:
OWENS WRIGHT 20 Holly Street, Suite 300 Toronto, Ontario M4S 3B1 David Forgione [email protected] Counsel to numerous Borrowers
AND TO:
MILLER THOMSON LLP 40 King Street West, Suite 5800 Toronto, ON M5H 3S1 Craig Mills [email protected] Counsel to Brookhill Holdings Inc.
AND TO:
WELLINGTON HOUSE INC. 778 King Street West Toronto, Ontario M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
GOLDMAN, SLOAN, NASH & HARBER LLP 480 University Avenue, Suite 1600 Toronto, ON M5G 1V2 David Nakelsky [email protected] Counsel to Wellington House Inc.
AND TO:
O’CONNOR MACLEOD HANNA LLP 700 Kerr Street Oakville, ON L6K 3W5 Orie Niedzviecki [email protected] Counsel to JW Roberts Enterprises Inc.
AND TO:
FFM CAPITAL INC. 35 Silton Road Woodbridge, ON L4L 7Z8 Tony Mazzoli Krish Kochhar [email protected] [email protected]
AND TO:
FDS BROKER SERVICES INC. 160 Traders Blvd, Suite 202 Mississauga, ON L4Z 3K7 Zafar Khawaja [email protected]
AND TO:
ROSEN GOLDBERG INC. 5255 Yonge Street, Suite 804 Toronto, ON, M2N 6P4 [email protected] Trustee to FDS Broker Services Inc.
5
AND TO:
ROYAL CANADIAN MOUNTED POLICE Integrated Market Enforcement Team 20 Queen Street West, 15th Floor Toronto, ON M5H 3R3 Jeff Francis [email protected]
AND TO:
TSUNAMI TECHNOLOGY GROUP INC. 215 Traders Blvd. East, Suite 16 Mississauga, ON L4Z 3K5 Don Tanner [email protected]
AND TO:
COMPUTERSHARE TRUST COMPANY OF CANADA 100 University Avenue 12th Floor, South Tower Toronto, ON M5J 2Y1 David Kerr [email protected] Robert Armstrong [email protected]
AND TO:
OLYMPIA TRUST COMPANY 200, 125-9 Avenue SE Calgary, AB T2G 0P6 Jonathan Bahnuik Johnny Luong [email protected] [email protected]
AND TO:
DUNSIRE (LANDSDOWN) INC. 203A-465 Phillip Street Waterloo, Ontario N2L 6C7 Shawn Keeper [email protected] Borrower
AND TO:
RSM CANADA LIMITED 11 King Street West Suite 700, PO Box 27 Toronto, Ontario M5H 4C7 Jeffrey Berger [email protected] Court-appointed Receiver of Dunsire (Landsdown) Inc.
AND TO:
LAMB BAUHAUS INC. 778 King Street West Toronto, ON M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
BEL CALGARY INC. 778 King Street West Toronto, ON M5V 1N6 Brad Lamb [email protected] Borrower
6
AND TO:
SUNRISE ACQUISITIONS (BOND HEAD) INC. 50 West Wilmot Street, Suite 100 Richmond Hill, ON L4B 1M5 Sajjad Hussain
[email protected] Borrower
AND TO:
BRAESTONE DEVELOPMENT CORPORATION 85 Bayfield Street, Suite 500 Barrie, ON L4M 3A7 J. David Bunston James Massey [email protected] Borrower
AND TO:
FORTRESS BROOKDALE INC. 1 – 25 Brodie Drive Richmond Hill, ON L4B 3K7 Jawad Rathore Vincenzo Petrozza [email protected] [email protected] Borrower
AND TO:
RSM CANADA LIMITED 11 King Street West, Suite 700 Toronto, ON M5H 4C7 Arif Dhanani [email protected]
Private Receiver of Brookdale
AND TO:
MEYER, WASSENAAR & BANACH LLP Royal Bank Bldg. 301-5001 Yonge St. North York, Ontario M2N 6P6 Joseph Fried [email protected] Counsel to Private Receiver of Brookdale Project
AND TO:
EMERALD CASTLE DEVELOPMENTS INC. 361 Connie Crescent, Suite 200 Concord, ON L4K 5R2 Desi Auciello [email protected] Borrower
AND TO:
AVERTON (RUTHERFORD) INC. 101 Riele Drive, Suite 310 St. Alberta, Alberta T8N 3X4 Paul Lanni [email protected]
Borrower
AND TO:
CARLYLE COMMUNITIES (CRESTVIEW) INC. 20 Rivermede Road, Suite 204 Concord, ON Naram Mansour [email protected]
Borrower
7
AND TO:
LAMB EDMONTON CORP. 778 King Street West Toronto, ON M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
AVERTON HOMES (PRESCOTT) INC. 101 Riele Drive, Suite 310 St. Alberta, AB T8N 3X4 Paul Lanni [email protected] Borrower
AND TO:
THE HARLOWE INC. 778 King Street West Toronto, ON M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
GOLDMAN SLOAN NASH & HARBER LLP 480 University Avenue Suite 1600 Toronto, ON M5G 1V2 Robert Jackson [email protected] Counsel to The Harlowe Inc.
AND TO:
THICKSON ROAD 407, WHITBY LIMITED 9000 Keele Street, Unit 4 Concord, Ontario L4K 0B3 Mario Bottero [email protected] Borrower
AND TO:
HARRIS, SHEAFFER LLP 4100 Yonge Street, Suite 610 Toronto, ON M2P 2B5 Raz Nicolae [email protected] Counsel to Whitby Borrower
AND TO:
2309918 ONTARIO INC. 30 Wertheim Court, Unit 3, Building A, Richmond Hill, Ontario L4B 1B9 Dino Sciavilla [email protected] Eden Borrower
AND TO:
DAVID CHONG 1370 Don Mills Road Don Mills, ON M3B 3N7 David Chong Tel. +1.416.510.2233 [email protected] Counsel to 2309918 Ontario Inc.
8
AND TO:
2301132 ONTARIO INC. 11025 Lakeridge Road Port Perry, Ontario L9L 1V7 Brian Tilley [email protected] Borrower
AND TO:
2309840 ONTARIO INC. 11025 Lakeridge Road Port Perry, Ontario L9L 1V7 Brian Tilley [email protected] Borrower
AND TO:
DLA PIPER 1 First Canadian Place 100 King Street West, Suite 6000 Toronto, ON M5X 1E2 Edmund Lamek [email protected] Danny Nunes [email protected] Counsel to 2301132 Ontario Inc. and 2309840 Ontario Inc.
AND TO:
KSV KOFMAN INC. 150 King Street Westm Suite 2308 Toronto, ON M5H 1J9 Bobby Kofman [email protected] Jonathan Joffe [email protected] Proposal Trustee for Georgetown Borrower
AND TO:
BENNETT JONES LLP 1 First Canadian Place 100 King Street West, Suite 3400 Toronto, ON M5X 1A4 Sean Zweig [email protected] Counsel to Georgetown Proposal Trustee
AND TO:
WORTHINGTON HOMES (HUMBERTON) INC. 164 Nelson Street Oakville, Ontario L6L 3J2 Daniel Marion [email protected] Borrower
AND TO:
BEL-EDMONTON INC. 778 King Street West Toronto, Ontario M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
KING SQUARE LTD. 50 Acadia Avenue, Suite 310 Markham, Ontario L3R 0B3 Wen Yi Wang [email protected] Borrower
9
AND TO:
KINGRIDGE DEVELOPMENT CORPORATION 235 Speers Road Oakville, Ontario L6K 2E8 Daniel Marion [email protected] Borrower
AND TO:
WORTHINGTON HOMES (HUMBERTON) INC. 164 Nelson Street Oakville, Ontario L6L 3J2 Daniel Marion [email protected] Borrower
AND TO:
DUNSIRE (1041 LAKESHORE) INC. 203A-465 Phillip Street Waterloo, Ontario N2L 6C7 Shawn Keeper [email protected] Borrower
AND TO:
DUNSIRE (1407 LAKESHORE) INC. 203A-465 Phillip Street Waterloo, Ontario N2L 6C7 Shawn Keeper [email protected] Borrower
AND TO:
KINGRIDGE (OAKVILLE EAST) INC. 1660 North Service Road East, Suite 109B Oakville, Ontario N6H 7G3 Daniel Marion [email protected] Borrower
AND TO:
L RICHMOND CORP. 778 King Street West Toronto, Ontario M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
2382917 ONTARIO INC. 500 Hanlon Creek Blvd Guelph, Ontario N1C 0A1 Lee Piccolo [email protected] Borrower
AND TO:
MILLER THOMSON LLP 40 King Street West, Suite 5800 Toronto, ON M5H 3S1 Kyle Hampson [email protected] Counsel to 2382917 Ontario Inc
AND TO:
1177 DANFORTH AVENUE LTD. 156 Duncan Mill Road, Suite 23A Toronto, Ontario M3B 3N2 Morris Hansun [email protected] Borrower
AND TO:
GORDIN & TARR LLP 1 Director Court, Suite 105 Woodbridge, ON L4L 4S5 Jessica Tarr [email protected] Counsel to 1177 Danforth Borrower
10
AND TO:
LAMB CALGARY INC. 778 King Street West Toronto, Ontario M5V 1N6 Brad Lamb [email protected] Borrower
AND TO:
TORKIN MANES LLP 151 Yonge Street, Suite 1500 Toronto, ON M5C 2W7 Michael Tamblyn Tel. +1.416.777.5366 [email protected]
AND TO:
SMYGINE (LAKEEAST) INC. 6021 Yonge Street, Suite 229 Toronto, Ontario M2M 3W2 Mike Petrovski [email protected] Borrower
AND TO:
HALO TOWNHOMES INC. 229-6021 Yonge Street Toronto, Ontario M2M 3W2 Mike Petrovski Sayf Hassan Konstantine Simionopoulos [email protected] Borrower
AND TO:
TENENBAUM & SOLOMON LLP 7181 Woodbine Avenue Markham, ON L3R 1A3 Samantha Solomon [email protected] Counsel to Borrower to Halo and Smygine
AND TO:
AMADON-WESTWATER PROJECTS LTD. 426B William Street Victoria, British Columbia V9A 3Y9 Max Tomaszewski [email protected] Borrower
AND TO
UNION WATERFRONT INC. 1-25 Brodie Drive Richmond Hill, Ontario L4B 3K7 Vincenzo Petrozza [email protected] Borrower
AND TO:
MSI SPERGEL msi Spergel Inc. 21 King Street West, Suite 1602 Hamilton, Ontario, L8P 4W7 [email protected] Court Appointed Receiver of Union Waterfront
AND TO:
LEVINE SHERKIN BOUSSIDAN BARRISTERS 23 Lesmill Road, Suite 300 Toronto, ON M3B 3P6 Kevin Sherkin
AND TO:
MCAP INC. 400-200 King Street West Toronto, ON M5H 3T4 Mark Adams [email protected]
11
Tel: +1.416.224.2400 ext. 120 Mitchell Wine Tel: +1.416.224.2400 ext. 116 [email protected] [email protected] Counsel for certain proposed representative plaintiffs in class action proceedings against BDMC and other parties
Philip Frank [email protected] Bruno Iacovetta [email protected]
AND TO:
WESTGATE PROPERTIES LTD. 1 – 25 Brodie Drive Richmond Hill, ON L4B 3K7 Jawad Rathore
Vincenzo Petrozza [email protected] [email protected] Borrower
AND TO:
FORTRESS CHARLOTTE 2014 INC. 1 – 25 Brodie Drive Richmond Hill, ON L4B 3K7 Jawad Rathore [email protected]
Borrower
AND TO:
FORTRESS COLLIER CENTRE LTD. 1 – 25 Brodie Drive Richmond Hill, ON L4B 3K7 Jawad Rathore
Vincenzo Petrozza [email protected] [email protected] Borrower
AND TO:
FORTRESS CARLYLE PETER STREET INC. 20 Rivermede Road, Suite 204 Concord, Ontario L4K 3N3 Naram Mansour Jawad Rathore [email protected] Borrower
AND TO:
6566074 MANITOBA LTD. 1-25 Brodie Drive Richmond Hill, Ontario L4B 3K7 Jawad Rathore Vincenzo Petrozza [email protected] [email protected] Borrower
AND TO:
FORTRESS KEMPENFELTBAY DEVELOPMENTS INC. 1-25 Brodie Drive Richmond Hill, Ontario L4B 3K7 Jawad Rathore
Vincenzo Petrozza [email protected] [email protected]
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Borrower
AND TO:
OLD MARKET LANE INC. 1-25 Brodie Drive Richmond Hill, Ontario L4B 3K7 Vincenzo Petrozza [email protected] Borrower
AND TO:
FORTRESS TRIPLE CREEK INC. 1-25 Brodie Drive Richmond Hill, Ontario L4B 3K7 Vincenzo Petrozza [email protected] Borrower
AND TO:
2221563 ONTARIO INC. 1-25 Brodie Drive Richmond Hill, Ontario L4B 3K7 Vincenzo Petrozza [email protected] Borrower
AND TO:
2283020 ONTARIO INC. FORTRESS PORT PLACE (2014) INC. 1 – 25 Brodie Drive Richmond Hill, ON L4B 3K7 Jawad Rathore
Vincenzo Petrozza [email protected] [email protected] Borrower
13
Email List: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]
INDEX
INDEX
TAB DOCUMENT Page No.
1. Notice of Motion dated December 13, 2018
2. Fourth Report of the Trustee dated December 13, 2018
3. Draft Harlowe Settlement Approval Order
1
12
120
TAB 1
Court File No. CV-18-596204-00CL
Ontario SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006,
c. 29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
NOTICE OF MOTION (Motion for Approval of Harlowe Settlement)
FAAN Mortgage Administrators Inc., in its capacity as Court-appointed trustee
(“Trustee”) of all of the assets, undertakings and properties of Building & Development
Mortgages Canada Inc. (“BDMC”) pursuant to section 37 of the Mortgage Brokerages, Lenders
and Administrators Act, 2006, S.O. 2006, c. 29, as amended, (“MBLAA”) and section 101 of the
Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, will make a motion before a judge of the
Ontario Superior Court of Justice (Commercial List) on December 20, 2018 at 10:00 a.m., or as
soon after that time as the motion can be heard, at 330 University Avenue, Toronto, Ontario.
PROPOSED METHOD OF HEARING: The motion is to be heard orally.
THE MOTION IS FOR:
1. An Order (the “Harlowe Settlement Approval Order”) substantially in the form attached
to the Motion Record, inter alia:
1
- 2 -
(a) if necessary, abridging the time for service of this Notice of Motion and the Motion
Record and dispensing with service on any person other than those served;
(b) approving the Settlement Agreement dated as of November 6, 2018 (the “Harlowe
Settlement Agreement”) among The Harlowe Inc. (“Harlowe”), the Trustee and
Olympia Trust Company (“OTC”), with such minor amendments as the parties to
the Harlowe Settlement Agreement may agree upon to permit the completion of the
transaction contemplated thereby;
(c) directing Harlowe to pay $15,562,896.38 forthwith to the Trustee in accordance with
the terms of the Harlowe Settlement Agreement (such funds, the “Harlowe Realized
Property”);
(d) approving and ratifying the execution of the Harlowe Settlement Agreement by the
Trustee and OTC and authorizing and directing the Trustee and OTC to comply with
all of their obligations under the Harlowe Settlement Agreement;
(e) releasing, extinguishing, expunging and discharging all of the Harlowe Loan
Obligations and the Loan Encumbrances (each as defined below) upon the delivery
of the Trustee’s Certificate (as defined below), and ordering that none of the Trustee,
BDMC, OTC or any Harlowe Individual Lenders (as defined below) have any claim
against Harlowe in respect of the Harlowe Loan Obligations or the Loan
Encumbrances; provided, however, that Harlowe is not released from any
obligations under the Harlowe Settlement Agreement;
(f) declaring that the Release Agreement be given to the Releasees (as defined below)
by Harlowe on behalf of itself, its affiliates, and their respective shareholders,
agents, directors, officers, employees, and each of their respective successors and
assigns (collectively, the “Releasors”) and shall be binding and effective on the
Releasors in favour of the Releasees upon the delivery of the Trustee’s Certificate;
(g) authorizing the Trustee to make a further distribution to Investors of Realized
Property following the filing of the Trustee’s Certificate certifying, among other
things, the receipt by the Trustee of the Harlowe Realized Property, with the Court
2
- 3 -
in an amount equal to 5% of the Realized Property held on or received after April
20, 2018;
(h) further amending the Realized Property Order (which was initially amended by
paragraph 10 of the Braestone Settlement Approval Order) upon delivery of the
Trustee’s Certificate certifying, among other things, the receipt by the Trustee of the
Harlowe Realized Property, to require the Trustee to distribute 85% of all other
Realized Property obtained, including the Harlowe Realized Property, pro rata to
the Investors entitled to such funds, whether received before or after the date of the
proposed Harlowe Settlement Approval Order; and
2. Such further and other relief as this Court may deem just.
THE GROUNDS FOR THE MOTION ARE:
Background
1. Pursuant to the Order of the Court in respect of BDMC dated April 20, 2018 (the
“Appointment Order”), FAAN Mortgage was appointed as the Trustee, without security, of all
of the assets, undertakings and properties of BDMC, including, without limitation, all of the assets
in the possession or under the control of BDMC, its counsel, agents and/or assignees but held on
behalf of any other party, including, but not limited to, Investors (as defined below), brokers, or
borrowers, in each case whether or not such property is held in trust or is required to be held in
trust;
2. The purpose of the Trustee’s appointment is to protect the interests of the members of
the investing public who invested in syndicated mortgage loans made by BDMC in respect of
certain real estate development projects secured by mortgages (typically third-ranking or lower
priority charges) registered on title to the applicable real property (the “Investors”);
3. Concurrently with the filing of this notice of motion, the Trustee is filing the Fourth
Report of the Trustee dated December 13, 2018 (the “Fourth Report”) with the Court, which
describes the Trustee’s activities to date in carrying out its mandate under the Appointment Order.
Capitalized terms used but not defined herein have the meanings given in the Fourth Report;
3
- 4 -
4. The First Report of the Trustee dated June 19, 2018 (the “First Report”) described the
need for certain interim stabilization measures, including, among other things, clarification related
to the use of certain funds held in BDMC’s accounts, to allow the Trustee to discharge its
obligations pursuant to the Appointment Order, perform BDMC’s administrative tasks, and to
commence an in-depth review of the real estate development projects that were funded in part
through the syndicated mortgage loans that were administered by BDMC;
5. The Interim Stabilization Order was issued on June 26, 2018 and, among other things:
(a) appointed Chaitons LLP as representative counsel in respect of the common interests
of all Investors in these proceedings unless and until an Investor opts out of such
representation (“Representative Counsel”);
(b) authorized the Trustee to retain all of the funds held by BDMC on the date of the
Appointment Order, or paid or payable to BDMC or the Trustee thereafter, including
interest where principal is not repaid, other than Realized Property (“Estate
Property”) and to use the Estate Property to fund certain matters in connection with
the administration of BDMC’s estate;
(c) required the Trustee to hold, in a separate account, until further order of the Court
(I) all funds held or received by the Trustee as a result of a repayment (in whole or
in part) of principal on any loan or other indebtedness administered by BDMC on
behalf of Investors, whether or not (i) secured by any Real Property Charges in the
name of BDMC or an RRSP Trustee, (ii) received before or after the date of the
Appointment Order, or (iii) paid or payable in trust, plus (II) all interest paid or
payable to BDMC or the Trustee at the time such repayment (in whole or in part) of
principal is made (collectively, “Realized Property”) other than 50% of the
Realized Property consisting of realizations on the Victoria Medical SML Loans;
(d) directed the Trustee to pay 50% of the Realized Property consisting of realizations
on the Victoria Medical SML Loans pro rata to the Investors entitled to such funds;
and
4
- 5 -
(e) required the Trustee to report to the Court by October 31, 2018 with a
recommendation regarding next steps with respect to the Realized Property,
including any potential distribution of Realized Property to the Investors;
6. The Second Report of the Trustee dated October 23, 2018 (the “Second Report”)
provided a further comprehensive update on the Trustee’s activities undertaken since the date of
the First Report, including a detailed description of the in-depth analysis the Trustee is conducting
with respect to each real estate development project and a status update for each of those projects.
The Second Report contained information in support of the Realized Property Order;
7. The Realized Property Order was issued on October 30, 2018 and, among other things:
(a) required the Trustee to distribute (when aggregated with previous distributions) 70%
of the Realized Property (including funds originally obtained with respect to the
Victoria Medical SML Loans);
(b) required the Trustee to retain 30% of all Realized Property; and
(c) authorized the Trustee to use the retained Realized Property to aid the Trustee in
complying with the Appointment Order and in carrying out its mandate, as the
Trustee, in its sole discretion, considered necessary or desirable for the
administration of the estate, including in respect of those matters set out in paragraph
17 of the Interim Stabilization Order (collectively, the “Required Trustee
Activities”);
8. The Third Report of the Trustee dated November 19, 2018 (the “Third Report”)
provided the Court and the stakeholders with the Trustee’s recommendation in favor of a
settlement agreement reached with Braestone Development Corporation (the “Braestone
Borrower”) that provided for an early payout of the Investors under the loan agreement dated
December 1, 2012 between the Braestone Borrower and BDMC (the “Braestone Settlement
Agreement”). The Third Report also included information in support of the Braestone Settlement
Approval Order;
5
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9. The Braestone Settlement Approval Order was issued on November 28, 2018 and
approved, among other things:
(a) the Braestone Settlement Agreement and the transactions contemplated thereby;
(b) an amendment to the Realized Property Order that required the Trustee to distribute
(when aggregated with previous distributions) 80% of all Realized Property to
Investors following receipt of the payment from the Braestone Borrower; and
(c) the approval of the Trustee’s and its counsel’s activities and fees to date;
Need for the Harlowe Settlement Approval Order
10. The Trustee understands that 80% of the available units in Harlowe’s real estate
development project situated at Bathurst and Richmond Street in Toronto, Ontario (the “Harlowe
Project”) have been sold;
11. Harlowe has advised that there have been significant changes to the marketplace since
the commencement of the Harlowe Project, which have created difficulties in completing the sale
of outstanding units and have impacted project cash flows. Harlowe has informed the Trustee that
it does not expect to complete remaining unit sales until the spring of 2021;
12. BDMC is party to a loan agreement with Harlowe dated June 10, 2013 (the “Loan
Agreement”, and such loan, the “Harlowe Loan”). The Trustee understands that the material
delays in the sales of the remaining units required to complete the Harlowe Project would result in
corresponding delays in the repayment of the Harlowe Loan;
13. Harlowe has advised the Trustee that it does not expect to be able to repay the Harlowe
Loan in the near term, and expects that repayment in full may not occur until spring 2021, or later.
The extended term under the Loan Agreement expired on September 1, 2017;
14. Harlowe is seeking to obtain an inventory loan to fund the costs of holding and selling
the remaining units. Harlowe has advised that it has been unable to obtain such inventory loan
while the Harlowe Loan remains outstanding and the Loan Encumbrances remain on title due to
6
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recent negative media coverage surrounding Fortress, BDMC and the syndicated mortgage loan
market;
15. Accordingly, Harlowe is seeking to repay the debt owing to the individual lenders under
the Loan Agreement (the “Harlowe Individual Lenders”) at a discount to the total amount that
would be owing at the completion of the Harlowe Project in order to release and discharge the
obligations and the Loan Encumbrances;
16. The Trustee’s negotiations with Harlowe in respect of a potential payout culminated
when, on November 6, 2018, Harlowe presented the Trustee with an offer to accept payment by
Harlowe of $15,562,896.38 in full satisfaction of the amounts due under the Loan Agreement,
which represents approximately 98% of the outstanding principal balance of $15,863,400 currently
owing under the Loan Agreement. The offer contained the proposed Harlowe Settlement
Agreement (the “Harlowe Offer”);
17. As described in the Fourth Report, the full amount due under the Harlowe Loan
(including interest and certain deferred lender fees) exceeds $20 million; however, when
previously paid interest of approximately $2.7 million is included, the proposed payout would
result in a full payment of the principal owing on the Harlowe Loan plus compensation of
approximately 15% above the principal amount of the Harlowe Loan;
18. The Harlowe Offer is conditional upon the release and discharge of all of Harlowe’s
obligations to BDMC, OTC, and the Harlowe Individual Lenders under the Harlowe Loan
Agreement, the Security and the Loan Documents (each as defined in the Harlowe Loan
Agreement) (collectively, the “Harlowe Loan Obligations”) and all security interests granted to
BDMC, OTC or the Harlowe Individual Lenders in and to the assets of Harlowe to secure the
Harlowe Loan Obligations (the “Loan Encumbrances”) and provides that Harlowe is to deliver
a release agreement (“Release Agreement”) to the Trustee, BDMC, OTC, and the Harlowe
Individual Lenders, each of their respective officers, directors, agents, employees, and each of their
respective successors and assigns (collectively, the “Releasees”), which would release such
Releasees from all obligations under the Harlowe Loan Documents;
7
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19. The Trustee consulted extensively with Representative Counsel regarding the Harlowe
Offer and has been informed by Representative Counsel that it also supports the acceptance of the
Harlowe Offer;
20. The Trustee delivered a notice to the Harlowe Individual Lenders on November 16, 2018
advising the Harlowe Individual Lenders of the Trustee’s recommendation in support of accepting
the Harlowe Offer and requesting the Harlowe Individual Lenders to provide their feedback,
whether for or against the acceptance of the Harlowe Offer, and any other general feedback (the
“Harlowe Consent Request”);
21. As described in the Fourth Report, the Trustee received 133 formal votes in response to
the Harlowe Consent Request. Over 98% of the Harlowe Individual Lenders that voted in response
to the Harlowe Consent Request, representing almost 99% in value of such loans, voted in favour
of the Trustee accepting the Harlowe Offer; whereas less than 2% of voting Harlowe Individual
Lenders, representing approximately 1% in value of such loans, voted against the Harlowe Offer;
22. The rate of response to the Harlowe Consent Request was approximately 44% of all
Harlowe Individual Lenders, which was slightly in excess of the rate of response received with
respect to the consent request relating to the proposed Braestone Settlement Agreement. Further,
this rate of response was much higher than the rate of response to other general notices or requests
for consent that the Trustee has sent to date;
23. Following receipt of feedback from the Harlowe Individual Lenders and Representative
Counsel, the Trustee has accepted the Harlowe Offer and the Trustee and OTC executed the
Harlowe Settlement Agreement. However, the Harlowe Settlement Agreement is only binding on
the Trustee, BDMC and OTC upon approval of the agreement by the Court. The Trustee is
therefore seeking the Harlowe Settlement Approval Order from the Court;
24. If the Court issues the proposed Harlowe Settlement Approval Order, then the settlement
set out therein would become effective upon the issuance by the Trustee of a Trustee’s certificate
confirming, among other things, the Trustee’s receipt of the $15,562,896.38 payment (the
“Trustee’s Certificate”);
8
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Need for Approval of Certain Realized Property Matters
25. The Trustee has determined that, should the $15,562,896.38 in Harlowe Realized
Property be received, it will be appropriate to further reduce the percentage of Realized Property
that it needs to retain to fund the Required Trustee Activities;
26. Therefore, the Trustee is seeking the Court’s authorization to, upon the filing of the
Trustee’s Certificate certifying, among other things, the receipt by the Trustee of the Harlowe
Realized Property, distribute an additional amount equal to 5% of the Realized Property held by
the Trustee on or after April 20, 2018, such that 85% of the Realized Property received to date will
have been distributed by the Trustee;
27. The Trustee is also, subject to the delivery of the Trustee’s Certificate, seeking a further
amendment to paragraph 3(b) of the Realized Property Order to authorize the Trustee to distribute
85% of any future Realized Property received by the Trustee after the date of the Harlowe
Settlement Approval Order;
28. As described in the Second Report, the Trustee predicts that there will be a limited
number of projects that give rise to recoveries in the near term and that recoveries on many of the
syndicated mortgage loans are at risk. The Trustee understands that Representative Counsel agrees
with the proposed retention of 15% of all Realized Property and the proposed distribution of all
other Realized Property in the circumstances;
General
29. The provisions of the MBLAA, including section 37 thereof;
30. The Appointment Order;
31. The Interim Stabilization Order;
32. The Realized Property Order;
33. The Braestone Settlement Approval Order;
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34. Rules 1.04, 1.05, 2.03, 3.02, 16, 37 and 41 of the Ontario Rules of Civil Procedure,
R.R.O. 1990, Reg. 194, as amended;
35. Sections 101 and 106 of the Ontario Courts of Justice Act, R.S.O. 1990, c. C.43 as
amended;
36. The inherent and equitable jurisdiction of this Honourable Court; and
37. Such further and other grounds as counsel may advise and this Court may permit.
THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing of this
motion:
1. The Fourth Report of the Trustee and the appendices thereto; and
2. Such further and other evidence as counsel may advise and this Court may permit.
December 13, 2018 OSLER, HOSKIN & HARCOURT LLP
Box 50, 1 First Canadian Place Toronto, ON M5X 1B8 Michael De Lellis (LSUC# 48038U) Jeremy Dacks (LSUC# 41851R) Patrick Riesterer (LSUC# 60258G) Tel: (416) 362-2111 Fax: (416) 862-6666 Lawyers for FAAN Mortgage Administrators Inc., in its capacity as Court-appointed Trustee
TO: SERVICE LIST
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TAB 2
Court File No. CV-18-596204-00CL
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
BETWEEN
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c.
29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
FOURTH REPORT OF THE TRUSTEE
DECEMBER 13, 2018
FAAN Mortgage Administrators Inc. Court-Appointed Trustee of the Respondent
12
TABLE OF CONTENTS
INTRODUCTION ............................................................................................................................... 1
PURPOSE OF THE FOURTH REPORT ................................................................................................ 4
SCOPE AND TERMS OF REFERENCE ................................................................................................ 6
HARLOWE SETTLEMENT OFFER ...................................................................................................... 7
RECOMMENDATION REGARDING REALIZED PROPERTY .............................................................. 14
CONCLUSION AND RECOMMENDATION ...................................................................................... 15
13
INDEX OF APPENDICES
Appendix 1 Appointment Order dated April 20, 2018
Appendix 2 Realized Property Order dated October 30, 2018
Appendix 3 Third Report of the Trustee dated November 19, 2018, without exhibits
Appendix 4 Braestone Settlement Approval Order dated November 28, 2018
Appendix 5 Harlowe Offer and Harlowe Settlement Agreement
Appendix 6 Harlowe Consent Request dated November 16, 2018
14
Court File No. CV-18-596204-00CL
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
BETWEEN
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c.
29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
FOURTH REPORT OF THE TRUSTEE
December 13, 2018
INTRODUCTION
1. On April 20, 2018, pursuant to an order (“Appointment Order”) of the Honourable Mr.
Justice Hainey of the Ontario Superior Court of Justice (Commercial List) (“Court”), FAAN
Mortgage Administrators Inc. (“FAAN Mortgage”) was appointed as trustee (“Trustee”)
over all of the assets, undertakings and properties of Building & Development Mortgages
Canada Inc. (“BDMC”) including, without limitation, all of the assets in the possession or
under the control of BDMC, its counsel, agents and/or assignees but held on behalf of any
other party, including, but not limited to, lenders under syndicated mortgage loans
(“Investors”), brokers, or borrowers, in each case whether or not such property was or is
held in trust or was or is required to be held in trust (collectively, the “Property”). The
Appointment Order was issued following an application made by the Superintendent of
Financial Services (“Superintendent”) pursuant to section 37 of the Mortgage
Brokerages, Lenders and Administrators Act, 2006 (Ontario), as amended, and section
101 of the Courts of Justice Act (Ontario), as amended. A copy of the Appointment Order
15
2
is attached as Appendix “1”.
2. On June 19, 2018, the Trustee submitted its first report in these proceedings (“First Report”). The First Report provided a comprehensive update on the Trustee’s activities
during the first two months of these proceedings, including additional background
information regarding BDMC and its business and updated information on the status of
the real estate development projects in which the Investors hold syndicated mortgage
loans.
3. On October 23, 2018, the Trustee submitted its second report in these proceedings
(“Second Report”). The Second Report provided a further comprehensive update on the
Trustee’s activities undertaken since the date of the First Report, including a detailed
description of the in-depth analysis the Trustee is conducting with respect to each real
estate development project and a status update for each of those projects. The Second
Report also included information in support of the Realized Property Order (described
below). Capitalized terms not otherwise defined in this Report have the meanings ascribed
to them in the Second Report, or other previous reports of the Trustee.
4. On October 30, 2018, this Court issued an Order (“Realized Property Order”) that,
among other things,
(a) required the Trustee to distribute (when aggregated with previous distributions)
70% of (I) all funds held or received by the Trustee as a result of a repayment (in
whole or in part) of principal on any loan or other indebtedness administered by
BDMC on behalf of Investors (including funds originally obtained with respect to
the Victoria Medical SML Loans), whether or not (i) secured by any Real Property
Charges in the name of BDMC or an RRSP Trustee, (ii) received before or after
the date of the Appointment Order, or (iii) paid or payable in trust, plus (II) all
interest paid or payable to BDMC or the Trustee at the time such repayment (in
whole or in part) of principal is made (collectively, “Realized Property”);
(b) required the Trustee to retain 30% of all Realized Property; and
(c) authorized the Trustee to use the retained Realized Property to aid the Trustee in
complying with the Appointment Order and in carrying out its mandate, as the
Trustee, in its sole discretion, considered necessary or desirable for the
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administration of the estate, including in respect of those matters set out in
paragraph 17 of the Interim Stabilization Order (collectively, the “Required Trustee Activities”).
A copy of the Realized Property Order is attached as Appendix “2”.
5. On November 19, 2018, the Trustee submitted its third report in these proceedings (“Third Report”). The Third Report provided the Court and the stakeholders with the Trustee’s
recommendation in favor of a settlement agreement reached with Braestone Development
Corporation (the “Braestone Borrower”) that provided for an early payout of the Investors
under the loan agreement dated December 1, 2012 between the Braestone Borrower and
BDMC (the “Braestone Settlement Agreement”). The Third Report also included
information in support of an Order of the Court (the “Braestone Settlement Approval Order”) approving, among other things: (i) the Braestone Settlement Agreement and the
transactions contemplated thereby; (ii) an amendment to the Realized Property Order that
would require the Trustee to distribute (when aggregated with previous distributions) 80%
of all Realized Property to Investors following receipt of the payment from the Braestone
Borrower; and (iii) the approval of the Trustee’s and its counsel’s activities and fees. A
copy of the Third Report, without exhibits, is attached as Appendix “3”. A copy of the
Braestone Settlement Approval Order dated November 28, 2018 is attached as Appendix “4”.
6. The Trustee indicated in the Third Report that it intended to return to Court in the near
term to seek this Court’s approval of a settlement agreement with respect to the obligations
owing by The Harlowe Inc. (“Harlowe”) to BDMC under the loan agreement dated June
10, 2013 (the “Loan Agreement”, and such obligations, the “Harlowe Loan”) relating to
Harlowe’s real estate development project situated at Bathurst and Richmond Street in
Toronto, Ontario (the “Harlowe Project”).
7. At the time of the Third Report, the Trustee had recommended that the Harlowe Investors
accept the Harlowe settlement and was seeking feedback from the Harlowe Investors in
that regard. This Fourth Report sets out the Trustee’s recommendation regarding the
Harlowe Project based on Investor feedback, and supports the Trustee’s motion for an
Order, among other things, approving the Settlement Agreement made as of November
6, 2018 (the “Harlowe Settlement Agreement”) among Harlowe, the Trustee and
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Olympia Trust Company (“OTC”) that provides for a payment to the Trustee of
$15,562,896.38 in full and final satisfaction of the Harlowe Loan Obligations, as more fully
described in this Fourth Report.
8. Materials filed with the Court with respect to these proceedings, including the First Report,
the Second Report, the Third Report, the affidavit of Brendan Forbes, legal counsel at the
Ministry of the Attorney General Civil Law Division, Financial Services Commission of
Ontario (“FSCO”) branch, sworn on April 19, 2018, the Superintendent’s application
record, the Appointment Order, the Interim Stabilization Order, the Realized Property
Order, the Braestone Settlement Approval Order and the endorsements issued by the
Court, are accessible on the Trustee’s website at: www.faanmortgageadmin.com
(“Trustee’s Website”). The Trustee intends to maintain the Trustee’s Website for the
currency of these proceedings and will be updating it as appropriate.
PURPOSE OF THE FOURTH REPORT
9. The purpose of this fourth report of the Trustee (“Fourth Report”) is to provide the Court
and stakeholders with the Trustee’s recommendation regarding the Harlowe Settlement
Agreement and to support the Trustee’s request for an Order (the “Harlowe Settlement Approval Order”) that, among other things:
(a) approves the Harlowe Settlement Agreement, with such minor amendments as the
Trustee and the other parties to the Harlowe Settlement Agreement may agree
upon to permit the completion of the transaction contemplated thereby; (ii) directs
Harlowe to pay $15,562,896.38 forthwith to the Trustee in accordance with the
terms of the Harlowe Settlement Agreement (such funds, the “Harlowe Realized Property”); and (iii) approves and ratifies the execution of the Harlowe Settlement
Agreement by the Trustee and OTC and authorizes and directs the Trustee and
OTC to comply with all of their obligations under the Harlowe Settlement
Agreement;
(b) releases, extinguishes, expunges and discharges all of Harlowe’s obligations to
BDMC, OTC, and the individual lenders under the Harlowe Loan Agreement
(“Harlowe Individual Lenders”), the Security and the Loan Documents (each as
defined in the Harlowe Loan Agreement) (collectively, the “Harlowe Loan
18
5
Obligations”) and all security interests granted to BDMC, OTC or the Harlowe
Individual Lenders in and to the assets of Harlowe to secure the Harlowe Loan
Obligations (the “Loan Encumbrances”) upon the delivery of a Trustee’s
certificate confirming, among other things, the Trustee’s receipt of the
$15,562,896.38 payment (the “Trustee’s Certificate”), and ordering that none of
the Trustee, BDMC, OTC or any Harlowe Individual Lender have any claim against
Harlowe in respect of the Harlowe Loan Obligations or the Loan Encumbrances;
provided, however, that Harlowe is not released from any obligations under the
Harlowe Settlement Agreement;
(c) declares that the release agreement (“Release Agreement”) to be given to the
Trustee, BDMC, OTC, and each Harlowe Individual Lender who loaned funds
through BDMC or OTC to Harlowe pursuant to the Loan Agreement and all related
Loan Documents, each of their respective officers, directors, agents, employees,
and each of their respective successors and assigns (collectively, the
“Releasees”) by Harlowe on behalf of itself, its affiliates, and their respective
shareholders, agents, directors, officers, employees, and each of their respective
successors and assigns (collectively, the “Releasors”) shall be binding and
effective on the Releasors in favour of the Releasees upon the delivery of the
Trustee’s Certificate;
(d) orders the Trustee to make a further distribution to Investors following the filing of
the Trustee’s Certificate certifying, among other things, the receipt by the Trustee
of the Harlowe Realized Property, with the Court in an amount equal to 5% of the
Realized Property held on or received after the date of the Appointment Order,
including the Realized Property obtained with respect to the Victoria Medical SML
Loans, pro rata to the Investors entitled to such funds, such that, when combined
with the distribution made pursuant to the Interim Stabilization Order, the Realized
Property Order and the Braestone Settlement Approval Order, 85% of such funds
shall have been distributed on a pro rata basis to the Investors entitled to such
funds; and
(e) further amends paragraph 3(b) of the Realized Property Order (which was initially
amended by paragraph 10 of the Braestone Settlement Approval Order) upon the
delivery of the Trustee’s Certificate certifying, among other things, the receipt by
19
6
the Trustee of the Harlowe Realized Property, to require the Trustee to distribute
85% of all other Realized Property obtained, including the Harlowe Realized
Property, pro rata to the Investors entitled to such funds, whether received before
or after the date of the proposed Harlowe Settlement Approval Order.
10. In support of the Trustee’s request for the Harlowe Settlement Approval Order, this Fourth
Report describes the following matters:
(a) The details of the Harlowe Settlement Agreement; and
(b) Information that supports the Trustee’s recommendation that the Harlowe Settlement Agreement be approved.
11. The Trustee is required under the Realized Property Order to report back to the Court by
no later than April 30, 2019 with a further comprehensive update regarding these
proceedings. The Trustee anticipates that it will likely be necessary to prepare additional,
shorter project specific reports similar to this Fourth Report or other general reports during
the intervening period and to attend before the Court to seek relief or advice and directions
from the Court regarding general file administration matters or project specific issues,
which may include the approval of settlement and repayment arrangements for other real
estate development projects.
SCOPE AND TERMS OF REFERENCE
12. In preparing this Fourth Report, the Trustee has relied upon unaudited financial
information provided by, inter alia, BDMC, Fortress, Canadian Development Capital &
Mortgage Services Inc. (“CDCM”), the mortgage brokerage who assumed the mortgage
brokerage duties of BDMC, Harlowe and certain other individual borrowers who have
borrowed funds from BDMC under various syndicated mortgage loans administered by
BDMC. While the Trustee reviewed various documents provided by BDMC, CDCM, and
applicable borrowers (including, among other things, unaudited internal information,
appraisals and financial projections), the Trustee’s review does not constitute an audit or
verification of such information for accuracy, completeness or compliance with Generally
Accepted Assurance Standards (“GAAS”), Generally Accepted Accounting Principles
(“GAAP”), or International Financial Reporting Standards (“IFRS”). Accordingly, the
Trustee expresses no opinion or other form of assurance pursuant to GAAS, GAAP or
IFRS, or any other guidelines, with respect to such information.
20
7
13. Some of the information used and relied upon in preparing this Fourth Report consists of
financial projections and other information received from various third parties, including
appraisals and project cost information. The Trustee cautions that the projections and
other information used and relied upon are generally based upon assumptions and
estimates about future events and/or market conditions that are not ascertainable or that
could change. As such, the information presented in this Fourth Report may vary from the
projections and information used to prepare this Fourth Report and the actual results may
differ both from the results projected therein and herein. Even if the assumptions relied
upon therein or herein materialize, the variations from the projections could be significant.
The Trustee’s review of the future oriented information used to prepare this Fourth Report
did not constitute an audit or review of such information under GAAS, GAAP or IFRS or
any other guidelines.
14. This Fourth Report has been prepared for the use of this Court and BDMC’s stakeholders
as general information relating to BDMC and the Harlowe Project and to assist the Court
with respect to the Trustee’s request for the proposed Harlowe Settlement Approval Order.
Accordingly, the reader is cautioned that this Fourth Report may not be appropriate for
any other purpose.
15. All references to dollars are in Canadian currency unless otherwise noted.
HARLOWE SETTLEMENT OFFER
16. As set out in the Second Report and the Third Report, the Trustee has been engaged in
negotiations with Harlowe for some time regarding the payment of the amounts due to
BDMC under the Loan Agreement. These negotiations commenced after the Trustee was
informed that Harlowe must enter into additional financing arrangements to fund costs
associated with holding and selling the remaining units in the Harlowe Project, and that
obtaining such financing would be difficult while the obligations under the Loan Agreement
remain outstanding.
17. The Trustee has provided information to Investors regarding certain matters related to the
Harlowe Project, primarily through previous Reports and responding to individual Investor
calls and emails.
21
8
18. On November 6, 2018, as part of the negotiations between the parties, Harlowe presented
the Trustee with an irrevocable offer to accept payment by Harlowe of $15,562,896.38 in
full satisfaction of the amounts due under the Loan Agreement and incorporating other
components negotiated by the Trustee (“Harlowe Offer”). The Harlowe Offer was open
for acceptance until November 30, 2018.
19. For the reasons set out below, the Trustee has accepted the Harlowe Offer and executed
the Harlowe Settlement Agreement. The Harlowe Settlement Agreement requires the
Trustee to use commercially reasonable efforts to seek the Harlowe Settlement Approval
Order, but the remaining terms of the Harlowe Settlement Agreement are only binding on
the Trustee, BDMC and OTC should the agreement be approved and ratified by the Court.
20. The Harlowe Offer and the Harlowe Settlement Agreement provide for a lump sum
payment by Harlowe of $15,562,896.38, which is approximately 98% of the outstanding
principal balance owing under the Loan Agreement of $15,863,400. The full amount due
under the Loan Agreement on project completion (including interest and certain deferred
lender fees) is estimated to be approximately $20.8 million. When previously paid interest
of approximately $2.7 million (“Paid Interest”) is factored into the analysis, the proposed
payout plus the Paid Interest already received would result in the full repayment of the
principal owing to the Harlowe Individual Lenders, plus a further 15% above the
outstanding principal amount.
21. The Harlowe Offer is conditional, among other things, upon the release and discharge of
all Harlowe Loan Obligations and all Loan Encumbrances, and a Court order being
obtained providing that none of the Trustee, BDMC, OTC or any Harlowe Individual
Lenders have any claim against Harlowe in respect of the Harlowe Loan Obligations or
the Loan Encumbrances (though Harlowe is not to be released from any obligations under
the Harlowe Settlement Agreement) in consideration of the payment due under the
Harlowe Settlement Agreement.
22. The Harlowe Settlement Agreement also provides that Harlowe is to deliver a Release
Agreement to the Trustee providing that Harlowe, on behalf of itself and the other
Releasors, release all of the Releasees (namely, the Trustee, BDMC, OTC, and each
Harlowe Individual Lender who loaned funds through BDMC or OTC to Harlowe pursuant
to the Loan Agreement and all related Loan Documents, each of their respective officers,
22
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directors, agents, employees, and each of their respective successors and assigns) from
all obligations under the Harlowe Loan Documents.
23. Harlowe has also made certain customary representations and warranties and has agreed
to provide such further assurances as are necessary to effectuate the transaction set out
in the Harlowe Offer.
24. If the Court issues the proposed Harlowe Settlement Approval Order, then the settlement
set out therein will be effective upon the issuance by the Trustee of the Trustee’s
Certificate certifying that the conditions precedent set out in the Harlowe Settlement
Agreement are satisfied.
25. A copy of the Harlowe Offer, including the executed Harlowe Settlement Agreement, is
attached as Appendix “5”.
Overview of Current Status of Harlowe Project
26. Harlowe commenced construction on the Harlowe Project in the summer of 2016. The
Harlowe Project is 14 stories tall and contains 218 units, ranging from 489 sf to 1,535 sf.
Harlowe has advised that over 80% of the available units have been sold, with initial
occupancy having already commenced and registration of the building estimated to occur
in the summer of 2019. Upon registration of the building, the sale of the units subject to
existing sale agreements will be completed and the proceeds will be realized. The
proceeds from these sales will be used to repay the priority loans in the amount of $59.5
million.
27. The Trustee understands that there have been significant changes to the marketplace
since the commencement of the Harlowe Project, which have created difficulties in
completing the sale of outstanding units and have impacted project cash flows. Harlowe
has advised that the final sales of outstanding units of the Harlowe Project are unlikely to
be completed until the spring of 2021.
28. Harlowe has informed the Trustee that it requires additional financing (specifically, an
inventory loan) in order to complete the Harlowe Project and to fund the additional costs
associated with holding and selling the remaining units.
29. Without an inventory loan, Harlowe has advised that it will take substantially longer to pay
off the Harlowe Loan Obligations due to additional project proceeds being realized on a
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piece meal basis as individual units are sold. Harlowe estimates that, without an inventory
loan, the Harlowe Loan Obligations would not be paid off until the spring of 2021, or later.
30. The Trustee understands that, following recent media coverage relating to Fortress,
BDMC and the syndicated mortgage market generally, Harlowe has found it difficult to
obtain an inventory loan, as lenders are not willing to provide financing that would require
any portion of the Harlowe Loan Obligations to remain on title (even if such obligations are
subordinate to the new financing arrangements).
31. Therefore, in order to secure an inventory loan, Harlowe indicated that it would like to
repay the debt owing to the Harlowe Individual Lenders under the Loan Agreement at a
discount to the total amount that would be owing at the completion of the Harlowe Project,
in order to ensure that the Loan Encumbrances are released from title.
32. The Trustee engaged in discussions and negotiations with Harlowe and reviewed the
information provided to it with respect to the proposed payout. On the basis of these
discussions and information, the Trustee agreed that it would be unlikely that the proceeds
realized from the completion of the sales of previously sold units would be sufficient to pay
out the Harlowe Loan in full, and that it is unlikely that Harlowe will have sufficient
additional proceeds to repay the amounts due under the Loan Agreement in the near term.
33. The Trustee has been engaged in negotiations with Harlowe and its representatives
regarding the amount of any discount and the other terms of a potential settlement of the
Harlowe Loan. Harlowe has advised that it is unable to repay the full amount of the
Harlowe Loan; but has proposed a payout that would provide for payment of approximately
98% of the outstanding principal balance due. Taking into account the Paid Interest of
approximately $2.7 million, the payment of $15,562,896.38 pursuant to the proposed
Harlowe Offer would result in full repayment of the principal amount advanced and a net
return of approximately 15% on that principal amount. The return is calculated as follows:
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11
$ Principal outstanding (A) 15,863,400 Loan repayment 15,562,896 Interest paid 2,723,478 Total payments (B) 18,286,374 Net recovery in excess of principal (B-A) 2,422,974
34. Acceptance of the Harlowe Offer by the Trustee would result in the Harlowe Individual
Lenders foregoing certain amounts that would otherwise become due pursuant to the Loan
Agreement upon completion of the Harlowe Project, including if certain profit milestones
were achieved. These amounts, as estimated by the Trustee, are as follows:
$ Remaining principal 300,504 Accrued interest to October 15, 2018 2,695,184 Estimated deferred lender fee 2,220,876 Total potential foregone recoveries (before additional accrued interest) 5,216,564
35. As noted above, Harlowe has advised the Trustee that it does not expect the final unit
sales to be completed until the spring of 2021. Additional interest has continued to accrue
since October 15, 2018, and would continue to accrue until the date that the Harlowe Loan
was repaid. Harlowe ceased making interest payments due under the Loan Agreement as
of September 2, 2016 and has indicated to the Trustee that it does not intend to resume
paying interest but would instead accrue interest until the final units are sold and the
Harlowe Loan is repaid in full.
36. The deferred lender fee included in the table above is dependent upon the Harlowe Project
achieving certain profit milestones. These profit milestones are subject to market
fluctuations as the remaining units are sold, and if these milestones are not ultimately
achieved, the amount of deferred lender fees due under the Loan Agreement would
decrease.
37. The profits obtained by Harlowe are subject to changes in market conditions and the terms
of any additional financing it may be able to obtain. Accordingly, there can be no assurance
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12
that Harlowe will be able to repay all amounts due under the Loan Agreement upon
completion of the Harlowe Project.
Assessment of the Offer and Recommendation
38. The extended term of the Loan Agreement expired on September 1, 2017, and, as noted
above, Harlowe has advised that the Harlowe Project will not be completed in the near
term. The Trustee understands that Harlowe is unlikely to obtain an inventory loan in an
amount sufficient to pay out the Harlowe Loan Obligations in full prior to completion of the
final unit sales. Further, given the terms of the Loan Agreement and Harlowe’s expressed
need to obtain an inventory loan in order to hold and sell the remaining units on the
Harlowe Project, BDMC would likely be required to postpone and standstill to any such
loan that Harlowe is able to obtain, and the standstill agreement would likely remain in
effect until such time as the final unit sales have been completed and the inventory loan
is repaid (which the Trustee understands would not be until such time that the Harlowe
Project is completed). Accordingly, and based on the estimates provided by Harlowe, it is
possible that the amounts due under Loan Agreement may not be repaid until 2021 or
later and there is a risk that it will not be repaid in full at that time, or ever.
39. In completing its assessment of the Harlowe Offer, the Trustee engaged a real estate
appraiser to provide a current as-is appraised value of the property and the remaining
inventory. In the Trustee’s view, the appraised value provided supports the value attributed
by Harlowe to the remaining units, assuming a marketing period of at least 12 months.
Although the appraiser provided a shorter estimate of the time required to sell the units,
the potential sales prices (and, accordingly, the recoveries to Harlowe Individual Lenders)
would be subject to any changes in market conditions during this period, leaving the
Harlowe Individual Lenders at risk of lower realizations in the future. Based on its review
of the appraisal and taking into account the approximately $59.5 million of outstanding
debt ranking in priority to the BDMC Loan that would be required to be repaid prior to the
amounts due under the Loan Agreement, the Trustee is of the view that there is value in
the certainty and finality provided by accepting the Harlowe Offer and crystallizing returns
to Harlowe Individual Lenders at this time.
40. Given the above considerations and the general uncertainty as to the future of the market,
the Trustee is of the view that the Harlowe Offer is fair and reasonable in the
circumstances, despite providing potentially discounted returns to the Harlowe Individual
26
13
Lenders. Further, as noted above, the Harlowe Offer does result in an overall net positive
return of approximately 15% on the principal amount advanced by BDMC.
Consultation with Representative Counsel and Harlowe Individual Lenders
41. The Trustee consulted extensively with Representative Counsel regarding the Harlowe
Offer, and, following that consultation, delivered a notice to the Harlowe Individual Lenders
in the Harlowe Project on November 16, 2018 advising the Harlowe Individual Lenders of
the Trustee’s recommendation in support of accepting the Harlowe Offer and requesting
Harlowe Individual Lenders to provide their feedback, whether for or against the
acceptance of the Harlowe Offer, and any other general feedback (“Harlowe Consent Request”). Further, the Trustee advised that it would serve all Harlowe Individual Lenders
with its motion materials seeking approval of the Harlowe Settlement Agreement should
the Harlowe Offer be accepted. A copy of the Harlowe Consent Request is attached as
Appendix “6”.
42. Following the delivery of the Harlowe Consent Request, the Trustee and Representative
Counsel received and responded to a number of inquiries regarding the Harlowe Offer
and the Trustee’s and Representative Counsel’s views on the Harlowe Offer, including the
amounts that would become immediately payable to Harlowe Individual Lenders pursuant
to the terms of the Realized Property Order and the Braestone Settlement Approval Order.
43. As of December 13, 2018, the Trustee has received 133 formal votes in response to the
Harlowe Consent Request. 131 Harlowe Individual Lenders representing approximately
$6,800,450 of the $15,863,400 in principal outstanding under the Loan Agreement voted
in favour of the Trustee accepting the Harlowe Offer. 2 votes, representing approximately
$75,000 in principal outstanding under the Loan Agreement voted against the Trustee
accepting the Harlowe Offer. In summary, over 98% of Harlowe Individual Lenders voting
on the Harlowe Offer, representing almost 99% of the value of such loans, voted in favour
of the Trustee accepting the Harlowe Offer. Less than 2% of Harlowe Individual Lenders
voting on the Harlowe Offer, representing approximately 1% in value of such loans, voted
against the Trustee accepting the Harlowe Offer. The Harlowe Individual Lenders voting
in favour of the acceptance of the Harlowe Offer represent approximately 43% in number
and 42% in value of all Harlowe Individual Lenders under the Loan Agreement, whereas
Harlowe Individual Lenders voting against the acceptance of the Harlowe Offer represent
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14
less than 1% in number and less than 0.5% in value of all Harlowe Individual Lenders
under the Loan Agreement.
44. The Trustee notes that, similar to the Consent Request with respect to the Braestone
Settlement Agreement, the rate of response to the Harlowe Consent Request
(approximately 44% of Harlowe Individual Lenders) is much higher than the rate of
response to other general notices or requests for consent that the Trustee has sent to
date.
45. On the basis of the Trustee’s analysis of the facts and circumstances surrounding the
Harlowe Project and the overwhelming positive responses received from Harlowe
Individual Lenders, the Trustee determined that the Harlowe Offer should be accepted.
The Trustee has been informed by Representative Counsel that it also supports the
acceptance of the Harlowe Offer. While the Trustee recognizes that a small number of
Harlowe Individual Lenders have voted against the acceptance of the Harlowe Offer, the
Trustee must act in the best interests of all Harlowe Individual Lenders who made loans
in respect of the Harlowe Project notwithstanding the views expressed by certain Harlowe
Individual Lenders. The Trustee has determined that it is in the best interests of all Harlowe
Individual Lenders to accept the Harlowe Offer.
46. The Trustee therefore executed the Harlowe Settlement Agreement and has brought a
motion seeking this Court’s approval of the Harlowe Settlement Agreement and the
issuance of the Harlowe Settlement Approval Order.
RECOMMENDATION REGARDING REALIZED PROPERTY
47. The Trustee has determined that, should the $15,562,896.38 in Harlowe Realized
Property be received, it will be appropriate to further reduce the percentage of Realized
Property that it needs to retain to fund the Required Trustee Activities.
48. The Trustee is therefore seeking this Court’s authorization to, upon the filing of the
Trustee’s Certificate certifying, among other things, the receipt by the Trustee of the
Harlowe Realized Property, distribute an additional amount equal to 5% of the Realized
Property held by the Trustee on the date of the Appointment Order or received following
such date, including the Realized Property received in respect of the Victoria Medical SML
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15
Loans. Following this distribution, 85% of the Realized Property received to date will have
been distributed by the Trustee.
49. The Trustee is also, subject to the delivery of the Trustee’s Certificate, seeking a further
amendment to the Realized Property Order to authorize the Trustee to distribute 85% of
any future Realized Property received by the Trustee after the date of the Harlowe
Settlement Approval Order.
50. The Trustee has consulted with Representative Counsel regarding this recommendation,
and Representative Counsel agrees that the proposed retention of 15% of all Realized
Property and the proposed distribution of all other Realized Property is fair and reasonable
in the circumstances.
51. As noted in previous reports, the Trustee predicts that there will be a limited number of
projects that give rise to recoveries in the near term and that recoveries on many of the
syndicated mortgage loans are at risk. As such, the Trustee is of the view that it must
retain 15% of the Realized Property at this time and utilize the retained Realized Property
to maximize the recovery of additional Realized Property in the future.
52. The Trustee understands that these proceedings may have a disproportionate impact on
Investors whose projects have generated or will generate Realized Property at earlier
dates than other projects. As more fully described in the Second Report, the Trustee will
provide the Court with a recommendation regarding an appropriate allocation of the costs
that will be borne by specific projects, including the Harlowe Project, at a later date to fairly
and equitably allocate the use of Realized Property among Investors.
CONCLUSION AND RECOMMENDATION
53. The Trustee recommends that the proposed Harlowe Settlement Approval Order be
granted by the Court. The Trustee has negotiated the Harlowe Settlement Agreement and
has obtained an overwhelming positive response from affected Harlowe Individual
Lenders with respect to the execution and implementation of the terms of the Harlowe
Settlement Agreement. The Harlowe Settlement Agreement contemplates the payment
(when combined with Paid Interest) of the full principal amount due under the Loan
Agreement plus a further 15% recovery on that principal. If implemented, the Harlowe
Settlement Agreement will result in approximately $15.6 million of Harlowe Realized
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16
Property in the near term, which will permit the Trustee to make a further distribution of
Realized Property pro rata to Investors who are entitled to same. The Trustee is of the
view that it is in the best interests of all Investors to obtain the Harlowe Realized Property
now rather than to wait for an uncertain result in the future.
54. The process followed for approval of the Harlowe Settlement Agreement is substantially
similar to the process followed in respect of the Braestone Project, which led to the Court
approving the Braestone Settlement Agreement. The Trustee believes that this payout
process provides clarity for Investors and borrowers, and the Trustee intends to continue
to follow a similar approval process with respect to any other future repayment
opportunities. The Trustee will continue to attend to all BDMC matters in an effort to
maximize recoveries to Investors.
ALL OF WHICH IS RESPECTFULLY SUBMITTED this 13th day of December, 2018.
FAAN MORTGAGE ADMINISTRATORS INC., SOLELY IN ITS CAPACITY AS COURT-APPOINTED TRUSTEE OF BUILDING & DEVELOPMENT MORTGAGES CANADA INC., AND NOT IN ITS PERSONAL OR ANY OTHER CAPACITY
Faan Mortgage Administrators Inc.
30
Appendix 1:
Appointment Order dated April 20, 2018
31
Court File No. CV-18-596204-00CL
ONTARIOSUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE HONOURABLE MR. ) FRIDAY, THE 20™ DAY)
JUSTICE HAINEY ) OF APRIL, 2018
BETWEEN:
THE SUPERINTENDENT OF FINANCIAL SERVICES
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Applicant
Respondent
APPLICATION UNDER SECTION 37 OF THEMORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c.
29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
APPOINTMENT ORDER
THIS APPLICATION, made by The Superintendent of Financial Services (the
"Superintendent”), for an Order, inter alia, pursuant to section 37 of the Mortgage Brokerages,
Lenders and Administrators Act, 2006, S.O. 2006, c. 29, as amended (the “MBLAA”), and
section 101 of the Courts of Justice Act, R.S.O. 1990, c, C.43, as amended (the "CJA”), appointing FAAN Mortgage Administrators Inc. (“FAAN Mortgage") as trustee (in such capacity,
the “Trustee”), without security, of all of the assets, undertakings and properties of Building &
Development Mortgages Canada Inc. (the “Respondent”), was heard this day at 330 University
Avenue, Toronto, Ontario;
ON READING the affidavit of Brendan Forbes sworn April 19, 2018 and the exhibits
thereto (the "Supporting Affidavit") and the consent of FAAN Mortgage to act as the Trustee,
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and on hearing the submissions of counsel for the Superintendent, counsel for FAAN Mortgage
and such other counsel as were present, no one appearing for any other person on the service
list, as appears from the affidavit of service of Miranda Spence sworn April 19, 2018, filed;
SERVICE
1. THIS COURT ORDERS that the time for service and filing of the notice of application
and the application record is hereby abridged and validated so that this application is properly
returnable today and hereby dispenses with further service thereof.
APPOINTMENT
2. THIS COURT ORDERS that pursuant to section 37 of the MBLAA and section 101 of
the CJA, FAAN Mortgage is hereby appointed Trustee, without security, of all of the assets,
undertakings and properties of the Respondent, including, without limitation, all of the assets in
the possession or under the control of the Respondent, its counsel, agents and/or assignees but
held on behalf of any other party, including, but not limited to, lenders under any syndicate
mortgage ("Investors”), brokers, or borrowers, in each case whether or not such property is
held in trust or is required to be held in trust (collectively, the “Property”), which Property, for
greater certainty, includes any and all real property charges in favour of the Respondent (the
"Real Property Charges”), including, without limitation, any and all monetary and non-monetary
entitlements in respect to the assets and values thereunder, the period of which appointment
shall run from 12:01 a.m. on the date hereof until such date that all assets under all syndicated
mortgage loans have been realized and all Property has been distributed to those entitled to it.
TRUSTEE’S POWERS
3. THIS COURT ORDERS that the Trustee is hereby empowered and authorized, but not
obligated, to act at once in respect of the Property and, without in any way limiting the generality
of the foregoing, the Trustee is hereby expressly empowered and authorized to do any of the
following where the Trustee considers it necessary or desirable:
(a) to take possession of and exercise control over the Property and any and all
proceeds, receipts and disbursements arising out of or from the Property;
(b) to receive, preserve, protect and maintain control of the Property, or any part or
parts thereof, including, but not limited to, the holding of mortgage security in
33
trust on behalf of Investors, the administering of the mortgages, the changing of
locks and security codes, the relocating of Property to safeguard it, the engaging
of independent security personnel, the taking of physical inventories and the
placement of such insurance coverage as may be necessary or desirable;
to manage, operate, and carry on the business of the Respondent, including,
without limitation, the powers to enter into any agreements, incur any obligations
in the ordinary course of business, cease to carry on all or any part of the
business, or cease to perform any contracts of the Respondent;
to engage consultants, appraisers, agents, experts, auditors, accountants,
managers, counsel and such other persons from time to time and on whatever
basis, including on a temporary basis, to assist with the exercise of the Trustee's
powers and duties, including, without limitation, those conferred by this Order;
to purchase or lease such machinery, equipment, inventories, supplies, premises
or other assets to continue the business of the Respondent or any part or parts
thereof;
to receive and collect all monies and accounts now owed or hereafter owing to
the Respondent and to exercise all remedies of the Respondent in collecting
such monies, including, without limitation, to enforce any security held by the
Respondent, including, without limitation, such security held on behalf of
Investors;
to settle, extend or compromise any indebtedness owing to the Respondent;
to execute, assign, issue and endorse documents of whatever nature in respect
of any of the Property, whether in the Trustee’s name or in the name and on
behalf of the Respondent for any purpose pursuant to this Order, including,
without limitation, any documents in connection with any registration, discharge,
partial discharge, transfer, assignment or similar dealings in respect of any
mortgage (“Land Title Document”) and, for greater certainty, the applicable land
registry office, registrar or other official under the Land Registration Reform Act
(Ontario), the Land Titles Act (Alberta), or any other comparable legislation in any
other jurisdiction be and is hereby directed, upon being presented with a certified
34
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true copy of this Order and such Land Title Document, to register, discharge,
partially discharge, transfer or otherwise deal with such mortgage in accordance
with such Land Title Document without any obligation to inquire into the propriety
of the execution or effect of such Land Title Document;
(i) to initiate, prosecute and continue the prosecution of any and all proceedings and
to defend all proceedings now pending or hereafter instituted with respect to the
Respondent, the Property or the Trustee, and to settle or compromise any such
proceedings. The authority hereby conveyed shall extend to such appeals or
applications for judicial review in respect of any order or judgment pronounced in
any such proceeding;
(j) to market any or all of the Property, including advertising and soliciting offers in
respect of the Property or any part or parts thereof and negotiating such terms
and conditions of sale as the Trustee in its discretion may deem appropriate;
(k) with the approval of this Court, to sell, convey, transfer, lease or assign the
Property or any part or parts thereof out of the ordinary course of business, and
in such case notice under subsection 63(4) of the Ontario Personal Property
Security Act or section 31 of the Ontario Mortgages Act, as the case may be,
shall not be required;
(l) with the approval of this Court, to restructure the Property in a manner that the
Trustee considers reasonable, including, without limitation, the conversion, in
whole or in part, of the Property or any part or parts thereof, out of the ordinary
course of business, into an alternative or different interest in the capital structure
of the Property or any part or parts thereof, including, without limitation, an
ownership interest therein;
(m) to apply for any vesting order or other orders necessary to convey the Property
or any part or parts thereof to a purchaser or purchasers thereof, free and clear
of any liens or encumbrances affecting such Property;
(n) to report to, meet with and discuss with such affected Persons (as defined below)
as the Trustee deems appropriate on all matters relating to the Property and the
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Trustee’s mandate, and to share information, subject to such terms as to
confidentiality as the Trustee deems advisable;
(o) to register a copy of this Order and any other Orders in respect of the Property
against title to any of the Property;
(p) to apply for any permits, licences, approvals or permissions as may be required
by any governmental authority and any renewals thereof for and on behalf of
and, if thought desirable by the Trustee, in the name of the Respondent;
(q) to enter into agreements with any trustee in bankruptcy appointed in respect of
the Respondent, including, without limiting the generality of the foregoing, the
ability to enter into occupation agreements for any property owned or leased by
the Respondent;
(r) to exercise any shareholder, partnership, joint venture or other rights which the
Respondent may have; and
(s) to take any steps reasonably incidental to the exercise of these powers or the
performance of any statutory obligations,
and in each case where the Trustee takes any such actions or steps, it shall be exclusively
authorized and empowered to do so, to the exclusion of all other Persons (as defined below),
including the Respondent, without interference from any other Person and without regard to any
arrangement in existence as of the date hereof between the Respondent and Investors as to
how and when such actions or steps are to be taken. For greater certainty, the Trustee shall be
and is empowered to take such actions or steps without seeking instructions from Investors
where the Trustee determines, in its sole discretion, that it is necessary and appropriate to do so
(having regard for the interests of Investors), and in all other cases, the Trustee is specifically
authorized to continue to comply with the existing arrangements, including any deemed consent
provisions contained therein.
DUTY TO PROVIDE ACCESS AND CO-OPERATION TO THE TRUSTEE
4. THIS COURT ORDERS that: (i) the Respondent; (ii) all of its current and former
directors, officers, employees, agents, accountants, legal counsel and shareholders, and all
other persons acting on its instructions or behalf; (iii) all other individuals, firms, corporations,
36
Ccn«lt«f)fc C^sM, 4 3€/’¥4|aIr^e,- 6 -
governmental bodies or agencies/or other entities having notice of this Order, including, without
limitation, Tsunami Technology ®roup Inc., Fortress Real Developments Inc. (“FRDI”), all of its
direct or indirect affiliates, and (any entity under common control with FRDI (collectively with
FRDI, the "Fortress Entities"), any entity that is a joint venture among a Fortress Entity and
another entity, and each director, officer, employee and agent of any Fortress Entity^aTofthe"
foregoing, collectively, being "Persons” and each being a "Person”) shall forthwith advise the
Trustee of the existence of any Property in such Person’s possession or control, shall grant
immediate and continued access to the Property to the Trustee, and shall deliver all such
Property to the Trustee upon the Trustee’s request.
5. THIS COURT ORDERS that, pursuant to and without limiting the generality of paragraph
4 of this Order, all Persons shall, unless otherwise instructed by the Trustee: (i) deliver to the
Trustee (or, in the case of RRSP or other registered funds administered by Olympia Trust
Company (“OTC") or Computershare Trust Company of Canada ("Computershare”), not
release to any Person without further Order of this Court) any and all monies held in trust that
are related to the Respondent or its business (collectively, the "Trust Funds’), which Trust
Funds, for greater certainty, include any and all monies in any OTC or Computershare account
that are purported to be held in trust for the Investors in or beneficiaries under any of the Real
Property Charges, including, without limitation, all monies held by way of interest reserves to
satisfy interest payments to such Investors or beneficiaries, which Trust Funds are to be held or
used by the Trustee in accordance with the terms of this Order and any further Order of this
Court; and (ii) upon the Trustee’s request, provide an accounting of all funds received from or
on behalf of the Respondent or its associated businesses.
6. THIS COURT ORDERS that all Persons shall forthwith advise the Trustee of the
existence of any books, emails, user accounts, documents, securities, contracts, orders,
corporate and accounting records, and any other papers, records and information of any kind
related to the business or affairs of the Respondent, and any computer programs, computer
tapes, computer disks, or other data storage media containing any such information, including
copies of any previously performed electronic back ups (the foregoing, collectively, the
"Records”) in that Person’s possession or control, and shall provide to the Trustee or permit the
Trustee to make, retain and take away copies thereof and grant to the Trustee unfettered
access to and use of accounting, computer, software and physical facilities relating thereto,
provided however that nothing in this paragraph 6 or in paragraph 7 of this Order shall require
the delivery of Records, or the granting of access to Records, which may not be disclosed or
37
-7-
provided to the Trustee due to the privilege attaching to solicitor-client communication or due to
statutory provisions prohibiting such disclosure.
7. THIS COURT ORDERS that if any Records are stored or otherwise contained on a
computer or other electronic system of information storage, whether by independent service
provider or otherwise, all Persons in possession or control of such Records shall forthwith give
unfettered access to the Trustee for the purpose of allowing the Trustee to recover and fully
copy all of the information contained therein whether by way of printing the information onto
paper or making copies of computer disks or such other manner of retrieving and copying the
information as the Trustee in its discretion deems expedient, and shall not alter, erase or
destroy any Records without the prior written consent of the Trustee. Further, for the purposes
of this paragraph, all Persons shall provide the Trustee with all such assistance in gaining
immediate access to the information in the Records as the Trustee may in its discretion require
including providing the Trustee with instructions on the use of any computer or other system and
providing the Trustee with any and all access codes, account names and account numbers that
may be required to gain access to the information. Paragraphs 6 and 7 of this Order do not
apply to any materials obtained by the Royal Canadian Mounted Police pursuant to any warrant
issued under the Criminal Code, R.S.C. 1985, c. C-46.
8. THIS COURT ORDERS that the Trustee shall provide each of the relevant landlords
with notice of the Trustee’s intention to remove any fixtures from any leased premises at least
seven (7) days prior to the date of the intended removal. The relevant landlord shall be entitled
to have a representative present in the leased premises to observe such removal and, if the
landlord disputes the Trustee's entitlement to remove any such fixture under the provisions of
the lease, such fixture shall remain on the premises and shall be dealt with as agreed between
any applicable secured creditors, such landlord and the Trustee, or by further Order of this
Court upon application by the Trustee on at least two (2) days’ notice to such landlord and any
such secured creditors.
NO PROCEEDINGS AGAINST THE TRUSTEE
9. THIS COURT ORDERS that no proceeding or enforcement process in any court or
tribunal (each, a "Proceeding”), shall be commenced or continued against the Trustee except
with the written consent of the Trustee or with leave of this Court.
38
NO PROCEEDINGS AGAINST THE RESPONDENT OR THE PROPERTY
10. THIS COURT ORDERS that, with the exception of the Suspension and Penalty Orders
(as such term is defined in the Supporting Affidavit): (i) no Proceeding against or in respect of
any of the Respondent, the Property or the Superintendent (in the last case, with respect to any
matters arising from the Respondent or the Property) shall be commenced or continued except
with the written consent of the Trustee or with leave of this Court; and (ii) any and all
Proceedings currently under way against or in respect of any of the Respondent or the Property
are hereby stayed and suspended pending further Order of this Court.
NO EXERCISE OF RIGHTS OR REMEDIES
11. THIS COURT ORDERS that, with the exception of the Suspension and Penalty Orders,
all rights and remedies against the Respondent, the Trustee, or affecting the Property
(including, without limitation, pursuant to any arrangement in existence as of the date hereof
between the Respondent and Investors as to how and when the actions or steps contemplated
by paragraph 3 of this Order are to be taken), are hereby stayed and suspended except with the
written consent of the Trustee or leave of this Court, provided however that this stay and
suspension does not apply in respect of any "eligible financial contract” as defined in the
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the “BIA”), and further
provided that nothing in this paragraph shall: (i) empower the Trustee or the Respondent to
carry on any business which the Respondent is not lawfully entitled to carry on; (ii) exempt the
Trustee or the Respondent from compliance with statutory or regulatory provisions relating to
health, safety or the environment; (iii) prevent the filing of any registration to preserve or perfect
a security interest; (iv) prevent the registration of a claim for lien; or (v) prevent the filing and
service of a statement of claim solely to permit the perfection of a lien, provided that no further
proceedings on such statement of claim shall be permitted other than pursuant to paragraph 10.
NO INTERFERENCE WITH THE TRUSTEE
12. THIS COURT ORDERS that no Person shall discontinue, fail to honour, alter, interfere
with, repudiate, terminate or cease to perform any right, renewal right, contract, agreement,
licence or permit in favour of or held by the Respondent, without written consent of the Trustee
or leave of this Court, including, for greater certainty, any licenses granted to the Respondent to
act as an administrator of or lender under or administer syndicated mortgage loans under the
MBLAA, The Mortgage Brokers Act (Manitoba), The Mortgage Brokerages and Mortgage
39
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Administrators Act (Saskatchewan), the Real Estate Act (Alberta), the Mortgage Brokers Act
(British Columbia) or any other comparable legislation in any other jurisdiction where the
Respondent is currently licensed.
CONTINUATION OF SERVICES
13. THIS COURT ORDERS that all Persons having oral or written agreements with the
Respondent, or statutory or regulatory mandates for the supply of goods and/or services,
including, without limitation, all computer software, communication and other data services
(including, for greater certainty, all goods and/or services provided by Tsunami Technology
Group Inc. in respect of the Respondent), centralized banking services, payroll services,
insurance, transportation services, utility or other services to the Respondent are hereby
restrained until further Order of this Court from discontinuing, altering, interfering with or
terminating the supply of such goods or services as may be required by the Trustee, and that
the Trustee shall be entitled to the continued use of the Respondent’s current telephone
numbers, facsimile numbers, internet addresses and domain names, provided in each case that
the normal prices or charges for all such goods or services received after the date of this Order
are paid by the Trustee in accordance with normal payment practices of the Respondent or
such other practices as may be agreed upon by the supplier or service provider and the
Trustee, or as may be ordered by this Court.
TRUSTEE TO HOLD FUNDS
14. THIS COURT ORDERS that all funds, monies, cheques, instruments, and other forms of
payments received or collected by the Trustee from and after the making of this Order from any
source whatsoever, including, without limitation, the sale of all or any of the Property and the
collection of any accounts receivable in whole or in part, whether in existence on the date of this
Order or hereafter coming into existence, shall be deposited into one or more accounts
controlled by the Trustee or, if the Trustee determines it is advisable, new accounts to be
opened by the Trustee (the “Post Trusteeship Accounts") and the monies standing to the
credit of such Post Trusteeship Accounts from time to time, net of any disbursements provided
for herein, shall be held by the Trustee to be paid in accordance with the terms of this Order or
any further Order of this Court.
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EMPLOYEES
15. THIS COURT ORDERS that all employees of the Respondent shall remain the
employees of the Respondent until such time as the Trustee, on the Respondent’s behalf, may
terminate the employment of such employees. The Trustee shall not be liable for any
employee-related liabilities, including any successor employer liabilities as provided for in
subsection 14.06(1.2) of the BIA, other than such amounts as the Trustee may specifically
agree in writing to pay, or in respect of its obligations under subsections 81.4(5) and 81.6(3) of
the BIA or under the Wage Earner Protection Program Act.
PIPEDA
16. THIS COURT ORDERS that, pursuant to clause 7(3)(c) of the Canada Personal
Information Protection and Electronic Documents Act and any other applicable privacy
legislation, the Trustee shall disclose personal information of identifiable individuals to
prospective purchasers or bidders for the Property and to their advisors, but only to the extent
desirable or required to negotiate and attempt to complete one or more sales of the Property
(each, a "Sale”). Each prospective purchaser or bidder to whom such personal information is
disclosed shall maintain and protect the privacy of such information and limit the use of such
information to its evaluation of the Sale, and if it does not complete a Sale, shall return all such
information to the Trustee, or in the alternative destroy all such information. The purchaser of
any Property shall be entitled to continue to use the personal information provided to it, and
related to the Property purchased, in a manner which is in all material respects identical to the
prior use of such information by the Respondent, and shall return all other personal information
to the Trustee, or ensure that all other personal information is destroyed.
LIMITATION ON ENVIRONMENTAL LIABILITIES
17. THIS COURT ORDERS that nothing herein contained shall require the Trustee to
occupy or to take control, care, charge, possession or management (separately and/or
collectively, "Possession”) of any of the Property that might be environmentally contaminated,
might be a pollutant or a contaminant, or might cause or contribute to a spill, discharge, release
or deposit of a substance contrary to any federal, provincial or other law respecting the
protection, conservation, enhancement, remediation or rehabilitation of the environment or
relating to the disposal of waste or other contamination including, without limitation, the
Canadian Environmental Protection Act, the Ontario Environmental Protection Act, the Ontario
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Water Resources Act, or the Ontario Occupational Health and Safety Act and regulations
thereunder (the "Environmental Legislation”), provided however that nothing herein shall
exempt the Trustee from any duty to report or make disclosure imposed by applicable
Environmental Legislation. The Trustee shall not, as a result of this Order or anything done in
pursuance of the Trustee’s duties and powers under this Order, be deemed to be in Possession
of any of the Property within the meaning of any Environmental Legislation, unless it is actually
in possession.
LIMITATION ON THE TRUSTEE’S LIABILITY
18. THIS COURT ORDERS that the Trustee shall incur no liability or obligation as a result of
its appointment or the carrying out the provisions of this Order, save and except for any gross
negligence or wilful misconduct on its part, or in respect of its obligations under subsections
81.4(5) or 81.6(3) of the BIA or under the Wage Earner Protection Program Act. Nothing in this
Order shall derogate from the protections afforded the Trustee by section 14.06 of the BIA or by
any other applicable legislation.
TRUSTEE’S ACCOUNTS
19. THIS COURT ORDERS that the Trustee and counsel to the Trustee shall be paid their
reasonable fees and disbursements, in each case at their standard rates and charges unless
otherwise ordered by the Court on the passing of accounts, which fees and disbursements shall
be added to the indebtedness secured by the Real Property Charges and that the Trustee and
counsel to the Trustee shall be entitled to and are hereby granted a charge (the Trustee’s
Charge") on the Property, as security for such fees and disbursements, both before and after
the making of this Order in respect of these proceedings, and that the Trustee’s Charge shall
form a first charge on the Property in priority to all security interests, trusts, liens, charges and
encumbrances, statutory or otherwise, in favour of any Person, but subject to subsections
' 4.06(7), 81.4(4) and 81.6(2) of the BIA.
20. THIS COURT ORDERS that the Trustee and its legal counsel shall pass their accounts
from time to time, and for this purpose the accounts of the Trustee and its legal counsel are
hereby referred to a judge of the Commercial List of the Ontario Superior Court of Justice.
21. THIS COURT ORDERS that prior to the passing of its accounts, the Trustee shall be at
liberty from time to time to apply reasonable amounts, out of the monies in its hands, against its
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fees and disbursements, including legal fees and disbursements, incurred at the standard rates
and charges of the Trustee or its counsel, and such amounts shall constitute advances against
its remuneration and disbursements when and as approved by this Court.
FUNDING OF THE APPOINTMENT
22. THIS COURT ORDERS that the Trustee be at liberty and it is hereby empowered to
borrow by way of a revolving credit or otherwise, such monies from time to time as it may
consider necessary or desirable, provided that the outstanding principal amount does not
exceed $1,000,000 (or such greater amount as this Court may by further Order authorize) at
any time, at such rate or rates of interest as it deems advisable for such period or periods of
time as it may arrange, for the purpose of funding the exercise of the powers and duties
conferred upon the Trustee by this Order, including interim expenditures. The whole of the
Property shall be and is hereby charged by way of a fixed and specific charge (the "Trustee’s
Borrowings Charge”) as security for the payment of the monies borrowed, together with
interest and charges thereon, in priority to all security interests, trusts, liens, charges and
encumbrances, statutory or otherwise, in favour of any Person, but subordinate in priority to the
Trustee's Charge and the charges as set out in subsections 14.06(7), 81.4(4) and 81.6(2) of the
BIA.
23. THIS COURT ORDERS that neither the Trustee’s Borrowings Charge nor any other
security granted by the Trustee in connection with its borrowings under this Order shall be
enforced without leave of this Court.
24. THIS COURT ORDERS that the Trustee is at liberty and authorized to issue certificates
substantially in the form annexed as Schedule “A” hereto (the “Trustee’s Certificates ”) for
any amount borrowed by it pursuant to this Order.
25. THIS COURT ORDERS that the monies from time to time borrowed by the Trustee
pursuant to this Order or any further order of this Court and any and all Trustee's Certificates
evidencing the same or any part thereof shall rank on a pari passu basis, unless otherwise
agreed to by the holders of any prior issued Trustee’s Certificates.
SERVICE AND NOTICE
26. THIS COURT ORDERS that the E-Service Protocol of the Commercial List (the
“Protocol”) is approved and adopted by reference herein and, in these proceedings, the service
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of documents made in accordance with the Protocol (which can be found on the Commercial
List website at http://www.ontariocourts.ca/sci/practice/practice-directions/toronto/eservice-
commercial/) shall be valid and effective service. Subject to Rule 17.05 of the Rules of Civil
Procedure (the "Rules"), this Order shall constitute an order for substituted service pursuant to
Rule 16.04 of the Rules. Subject to Rule 3.01(d) of the Rules and paragraph 21 of the Protocol,
service of documents in accordance with the Protocol will be effective on transmission. This
Court further orders that a Case Website shall be established in accordance with the Protocol
with the following URL: www.faanmortgaqeadmin.com.
27. THIS COURT ORDERS that if the service or distribution of documents in accordance
with the Protocol is not practicable, the Trustee is at liberty to serve or distribute this Order, any
other materials and orders in these proceedings, any notices or other correspondence, by
forwarding true copies thereof by prepaid ordinary mail, courier, personal delivery or facsimile
transmission to the Respondent’s creditors or other interested parties at their respective
addresses as last shown on the records of the Respondent and that any such service or
distribution by courier, personal delivery or facsimile transmission shall be deemed to be
received on the next business day following the date of forwarding thereof, or if sent by ordinary
mail, on the third business day after mailing.
GENERAL
28. THIS COURT ORDERS that the Trustee may from time to time apply to this Court for
advice and directions in the discharge of its powers and duties hereunder.
29. THIS COURT ORDERS that nothing in this Order shall prevent the Trustee from acting
as a trustee in bankruptcy of the Respondent.
30. THIS COURT ORDERS that Confidential Exhibits (as defined in the Supporting Affidavit)
be and are hereby sealed until further Order of this Court.
31. THIS COURT HEREBY REQUESTS the aid and recognition of any court, tribunal,
regulatory or administrative body having jurisdiction in Canada or in the United States to give
effect to this Order and to assist the Trustee and its agents in carrying out the terms of this
Order. All courts, tribunals, regulatory and administrative bodies are hereby respectfully
requested to make such orders and to provide such assistance to the Trustee, as an officer of
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this Court, as may be necessary or desirable to give effect to this Order or to assist the Trustee
and its agents in carrying out the terms of this Order.
32. THIS COURT ORDERS that the Trustee be at liberty and is hereby authorized and
empowered to apply to any court, tribunal, regulatory or administrative body, wherever located,
for the recognition of this Order and for assistance in carrying out the terms of this Order, and
that the Trustee is authorized and empowered to act as a representative in respect of the within
proceedings for the purpose of having these proceedings recognized in a jurisdiction outside
Canada.
33. THIS COURT ORDERS that any interested party may apply to this Court to vary or
amend this Order on not less than seven (7) days’ notice, or such shorter period of time as the
Court may permit, to the Trustee and to any other party likely to be affected by the order sought
or upon such other notice, if any, as this Court m;
ENTERED AT /INSCRITATOHUmw
APR 2 Q 2018
mimi
45
SCHEDULE“A”
TRUSTEE CERTIFICATE
CERTIFICATE NO.______________
AMOUNT $______________________
1. THIS IS TO CERTIFY that FAAN Mortgage Administrators Inc., the Trustee (in such
capacity, the "Trustee") of all of the assets, undertakings and properties of Building &
Development Mortgages Canada Inc. (the "Respondent”), including, without limitation, all of the
assets in possession or under the control of the Respondent, its counsel, agents and/or
assignees but held on behalf of any other party, including, but not limited to, lenders under any
syndicate mortgage (“Investors”), brokers, or borrowers, in each case whether or not such
property is held in trust or is required to be held in trust (collectively, the “Property”) appointed
by Order of the Ontario Superior Court of Justice (Commercial List) (the "Court") dated the 20th
day of April, 2018 (the "Order”) made in an application having Court file number CV-18-596204-
OOCL, has received as such Trustee from the holder of this certificate (the "Lender”) the
principal sum of $<:*>|, being part of the total principal sum of $'<*> which the Trustee is
authorized to borrow under and pursuant to the Order.
2. The principal sum evidenced by this certificate is payable on demand by the Lender with
interest thereon calculated and compounded [daily][monthly not in advance on the <*>. day of
each month] after the date hereof at a notional rate per annum equal to the rate of <*>' per cent
above the prime commercial lending rate of Royal Bank of Canada from time to time.
3. Such principal sum with interest thereon is, by the terms of the Order, together with the
principal sums and interest thereon of ail other certificates issued by the Trustee pursuant to the
Order or to any further order of the Court, a charge upon the whole of the Property (as defined
in the Order), in priority to the security interests of any other person, but subject to the priority of
the charges set out in the Order and in the Bankruptcy and Insolvency Act, and the right of the
Trustee to indemnify itself out of such Property in respect of its remuneration and expenses.
4. All sums payable in respect of principal and interest under this certificate are payable at
the main office of the Lender at Toronto, Ontario.
5. Until all liability in respect of this certificate has been terminated, no certificates creating
charges ranking or purporting to rank in priority to this certificate shall be issued by the Trustee
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to any person other than the holder of this certificate without the prior written consent of the
holder of this certificate.
6. The charge securing this certificate shall operate so as to permit the Trustee to deal with
the Property (as defined in the Order) as authorized by the Order and as authorized by any
further or other order of the Court.
7. The Trustee does not undertake, and it is not under any personal liability, to pay any
sum in respect of which it may issue certificates under the terms of the Order.
DATED the_____ day of_______________ , 2018.
FAAN MORTGAGE ADMINISTRATORS INC.,solely in its capacity as Trustee of the Property (as defined in the Order), and not in its personal capacity
Per: ____________________________________Name:Title:
47
the
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48
Appendix 2:
Realized Property Order dated October 30, 2018
49
50
51
52
53
Appendix 3:
Third Report of the Trustee dated November 19, 2018, without exhibits
54
BETWEEN
Court File No. CV-18-596204-00CL
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
THE SUPERINTENDENT OF FINANCIAL SERVICES
- and
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Applicant
Respondent
APPLICATION UNDER SECTION 37 OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c.
29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
THIRD REPORT OF THE TRUSTEE
NOVEMBER 19, 2018
FAAN MORTGAGE
ADMINISTRATORS
FAAN Mortgage Administrators Inc. Court-Appointed Trustee of the Respondent
55
TABLE OF CONTENTS
INTRODUCTION ............................................................................................................................... 1
PURPOSE OF THE THIRD REPORT .................................................................................................... 4
SCOPE AND TERMS OF REFERENCE ................................................................................................ 6
BRAESTONE SETTLEMENT OFFER ................................................................................................... 7
NEGOTIATIONS REGARDING OTHER PAYOUTS ............................................................................. 13
RECOMMENDATION REGARDING REALIZED PROPERTY .............................................................. 15
APPROVAL OF THE TRUSTEE'S REPORTS, ACTIVITIES AND FEES .................................................. 16
CONCLUSION AND RECOMMENDATION ...................................................................................... 19
56
INDEX OF APPENDICES
Appendix 1
Appendix 2
Appendix 3
Appendix 4
Appendix 5
Appendix 6
Appendix 7
Appendix 8
Appendix 9
Appointment Order dated April 20, 2018
First Report of the Trustee dated June 19, 2018, without exhibits
Second Report of the Trustee dated October 23, 2018, without
exhibits
Realized Property Order dated October 30, 2018
Braestone Updates
Braestone Offer and Braestone Settlement Agreement
Braestone Consent Request dated October 23, 2018
Manzoor Fee Affidavit
De Lellis Fee Affidavit
57
BETWEEN
Court File No. CV-18-596204-00CL
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c.
29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
THIRD REPORT OF THE TRUSTEE
November 19, 2018
INTRODUCTION
1. On April 20, 2018, pursuant to an order ("Appointment Order'') of the Honourable Mr.
Justice Hainey of the Ontario Superior Court of Justice (Commercial List) ("Court"),
FAAN Mortgage Administrators Inc. ("FAAN Mortgage") was appointed as trustee
("Trustee") over all of the assets, undertakings and properties of Building &
Development Mortgages Canada Inc. ("BDMC") including, without limitation, all of the
assets in the possession or under the control of BDMC, its counsel, agents and/or
assignees but held on behalf of any other party, including, but not limited to, lenders
under syndicated mortgage loans ("Investors"), brokers, or borrowers, in each case
whether or not such property was or is held in trust or was or is required to be held in
trust (collectively, the "Property"). The Appointment Order was issued following an
application made by the Superintendent of Financial Services ("Superintendent")
pursuant to section 37 of the Mortgage Brokerages, Lenders and Administrators Act,
2006 (Ontario), as amended, and section 101 of the Courts of Justice Act (Ontario), as
58
amended. A copy of the Appointment Order is attached as Appendix "1".
2. On June 19, 2018, the Trustee submitted its first report in these proceedings ("First
Report"). The First Report provided a comprehensive update on the Trustee's activities
during the first two months of these proceedings, including additional background
information regarding BDMC and its business and updated information on the status of
the real estate development projects in which the Investors hold syndicated mortgage
loans. A copy of the First Report, without exhibits, is attached as Appendix "2".
3. On October 23, 2018, the Trustee submitted its second report in these proceedings
("Second Report"). The Second Report provided a further comprehensive update on the
Trustee's activities undertaken since the date of the First Report, including a detailed
description of the in-depth analysis the Trustee is conducting with respect to each real
estate development project and a status update for each of those projects. The Second
Report also included information in support of the Realized Property Order (described
below). A copy of the Second Report, without exhibits, is attached as Appendix "3".
Capitalized terms not otherwise defined in this Report have the meanings ascribed to
them in the Second Report.
4. On October 30, 2018, this Court issued an Order ("Realized Property Order") that,
among other things,
(a) required the Trustee to distribute (when aggregated with previous distributions)
70% of (I) all funds held or received by the Trustee as a result of a repayment (in
whole or in part) of principal on any loan or other indebtedness administered by
BDMC on behalf of Investors (including funds originally obtained with respect to
the Victoria Medical SML Loans), whether or not (i) secured by any Real Property
Charges in the name of BDMC or an RRSP Trustee, (ii) received before or after
the date of the Appointment Order, or (iii) paid or payable in trust, plus (II) all
interest paid or payable to BDMC or the Trustee at the time such repayment (in
whole or in part) of principal is made (collectively, "Realized Property");
(b) required the Trustee to retain 30% of all Realized Property; and
(c) authorized the Trustee to use the retained Realized Property to aid the Trustee in
complying with the Appointment Order and in carrying out its mandate, as the
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59
Trustee, in its sole discretion, considered necessary or desirable for the
administration of the estate, including in respect of those matters set out in
paragraph 17 of the Interim Stabilization Order (collectively, the "Required
Trustee Activities").
A copy of the Realized Property Order is attached as Appendix "4".
5. The Trustee indicated in the Second Report that it intended to return to Court in the near
term to seek this Court's approval of a settlement agreement with respect to the
obligations owing by Braestone Development Corporation ("Braestone") to BDMC under
the loan agreement dated December 1, 2012 ("Loan Agreement'') relating to
Braestone's real estate development project in Moonstone, Ontario ("Braestone
Project"), and to seek a further distribution of Realized Property to Investors upon
receipt of the payment contemplated by that settlement.
6. At the time of the Second Report, the Trustee had recommended that the Braestone
Investors accept the Braestone settlement and was seeking feedback from the
Braestone Investors in that regard. This Third Report sets out the Trustee's
recommendation regarding the Braestone Project based on Investor feedback, and
supports the Trustee's motion for an Order, among other things, approving the
Settlement Agreement made as of October 17, 2018 (the "Braestone Settlement
Agreement") among Braestone, the Trustee and Olympia Trust Company ("OTC") that
provides for a payment to the Trustee of $10 million in full and final satisfaction of
Braestone's obligations under the Loan Agreement, as more fully described in this Third
Report.
7. Materials filed with the Court with respect to these proceedings (other than confidential
materials filed under seal), including the First Report, the Second Report, the affidavit of
Brendan Forbes, legal counsel at the Ministry of the Attorney General Civil Law Division,
Financial Services Commission of Ontario ("FSCO") branch, sworn on April 19, 2018,
the Superintendent's application record, the Appointment Order, the Interim Stabilization
Order, the Realized Property Order and the endorsements issued by the Court, are
accessible on the Trustee's website at: www.faanmortgageadmin.com ("Trustee's
Website"). The Trustee intends to maintain the Trustee's Website for the currency of
these proceedings and will be updating it as appropriate.
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PURPOSE OF THE THIRD REPORT
8. The purpose of this third report of the Trustee ("Third Report") is to provide the Court
and stakeholders with the Trustee's recommendation regarding the Braestone
Settlement and to support the Trustee's request for an Order (the "Braestone
Settlement Approval Order") that, among other things:
(a) approves the Braestone Settlement Agreement, with such minor amendments as
the Trustee and the other parties to the Braestone Settlement Agreement may
agree upon to permit the completion of the transaction contemplated thereby; (ii)
directs Braestone to pay $10 million forthwith to the Trustee in accordance with
the terms of the Braestone Settlement Agreement (such funds the "Braestone
Realized Property"); and (iii) approves and ratifies the execution of the
Braestone Settlement Agreement by the Trustee and OTC and authorizes and
directs the Trustee and OTC to comply with all of their obligations under the
Braestone Settlement Agreement;
(b) releases, extinguishes, expunges and discharges all of Braestone's obligations to
BDMC, OTC, and the individual lenders under the Braestone Loan Agreement
("Braestone Individual Lenders"), the Security and the Loan Documents (each
as defined in the Braestone Loan Agreement) (collectively, the "Braestone Loan
Obligations") and all security interests granted to BDMC, OTC or the Braestone
Individual Lenders in and to the assets of Braestone to secure the Braestone
Loan Obligations (the "Loan Encumbrances") upon the delivery of a Trustee's
certificate confirming, among other things, the Trustee's receipt of the $1 O million
payment (the "Trustee's Certificate"), and ordering that none of the Trustee,
BDMC, OTC or any Braestone Individual Lender have any claim against
Braestone in respect of the Braestone Loan Obligations or the Loan
Encumbrances; provided, however, that Braestone is not released from any
obligations under the Braestone Settlement Agreement;
(c) declares that the release agreement ("Release Agreement") to be given to the
Trustee, BDMC, OTC, and each Braestone Individual Lender who loaned funds
through BDMC or OTC to Braestone pursuant to the Loan Agreement and all
related Loan Documents, each of their respective officers, directors, agents,
4
61
employees, and each of their respective successors and assigns (collectively, the
"Releasees") by Braestone on behalf of itself, its affiliates, and their respective
shareholders, agents, directors, officers, employees, and each of their respective
successors and assigns (collectively, the "Releasors'') shall be binding and
effective on the Releasers in favour of the Releasees upon the delivery of the
Trustee's Certificate;
(d) orders the Trustee to make a further distribution to Investors following the filing of
the Trustee's Certificate with the Court in an amount equal to 10% of the
Realized Property held on the date of the Appointment Order, including the
Realized Property obtained with respect to the Victoria Medical SML Loans, pro
rata to the Investors entitled to such funds, such that, when combined with the
distribution made pursuant to the Interim Stabilization Order and the Realized
Property Order, 80% of such funds shall have been distributed on a pro rata
basis to the Investors entitled to such funds; and
(e) amends paragraph 3(b) of the Realized Property Order upon the delivery of the
Trustee's Certificate to require the Trustee to distribute 80% of all other Realized
Property obtained, including the Braestone Realized Property, pro rata to the
Investors entitled to such funds, whether received before or after the date of the
proposed Braestone Settlement Approval Order.
9. In addition, the Trustee is seeking this Court's approval of the First Report, the Second
Report, the Third Report, the activities described in each of the Reports, and the
professional fees of the Trustee and its counsel for the period from the date of the
Appointment Order to September 30, 2018, as more fully described herein and in the fee
affidavits attached hereto.
10. In support of the Trustee's request for the Braestone Settlement Approval Order, this
Third Report describes the following matters:
(a) The details of the Braestone Settlement Agreement;
(b) Information that supports the Trustee's recommendation that the Braestone
Settlement Agreement be approved;
(c) A summary of the Trustee's activities to date: and
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62
(d) Information regarding the Trustee's and its counsel's fees and disbursements
from the date of the Appointment Order through to September 30, 2018.
11. The Trustee is required under the Realized Property Order to report back to the Court by
no later than April 30, 2019 with a further comprehensive update regarding these
proceedings. The Trustee anticipates that it will likely be necessary to prepare shorter
project specific reports similar to this Third Report during the intervening period and to
attend before the Court to seek relief or advice and directions from the Court regarding
project specific issues, which may include the approval of settlement and repayment
arrangements for other real estate development projects.
SCOPE AND TERMS OF REFERENCE
12. In preparing this Third Report, the Trustee has relied upon unaudited financial
information provided by, inter a/ia, BDMC, Fortress, Canadian Development Capital &
Mortgage Services Inc. ("CDCM"), the mortgage brokerage who assumed the mortgage
brokerage duties of BDMC, Braestone and certain other individual borrowers who have
borrowed funds from BDMC under various syndicated mortgage loans administered by
BDMC. While the Trustee reviewed various documents provided by BDMC, CDCM, and
applicable borrowers (including, among other things, unaudited internal information,
appraisals and financial projections), the Trustee's review does not constitute an audit or
verification of such information for accuracy, completeness or compliance with Generally
Accepted Assurance Standards ("GAAS"), Generally Accepted Accounting Principles
("GAAP"), or International Financial Reporting Standards ("IFRS"). Accordingly, the
Trustee expresses no opinion or other form of assurance pursuant to GAAS, GAAP or
IFRS, or any other guidelines, with respect to such information.
13. Some of the information used and relied upon in preparing this Third Report consists of
financial projections and other information received from various third parties, including
appraisals and project cost information. The Trustee cautions that the projections and
other information used and relied upon are generally based upon assumptions and
estimates about future events and/or market conditions that are not ascertainable or that
could change. As such, the information presented in this Third Report may vary from the
projections and information used to prepare this Third Report and the actual results may
differ both from the results projected therein and herein. Even if the assumptions relied
6
63
upon therein or herein materialize, the variations from the projections could be
significant. The Trustee's review of the future oriented information used to prepare this
Third Report did not constitute an audit or review of such information under GMS,
GMP or IFRS or any other guidelines.
14. This Third Report has been prepared for the use of this Court and BDMC's stakeholders
as general information relating to BDMC and the Braestone Project and to assist the
Court with respect to the Trustee's request for the proposed Braestone Settlement
Approval Order. Accordingly, the reader is cautioned that this Third Report may not be
appropriate for any other purpose.
15. All references to dollars are in Canadian currency unless otherwise noted.
BRAESTONE SETTLEMENT OFFER
16. As set out in the Second Report, the Trustee has been engaged in negotiations with
Braestone for some time regarding the payment of the amounts due to BDMC under the
Loan Agreement. These negotiations commenced after the Trustee was informed that
Braestone faces significant environmental issues on certain aspects of the Braestone
Project. The Trustee understands that these environmental issues will likely result in
material delays in the progress of the project and in the repayment of the BDMC loans
made to Braestone.
17. The Trustee has provided notices to Investors regarding certain matters related to the
Braestone Project, including through previous Reports and notices dated April 11, 2018
and May 31, 2018 ("Braestone Updates"). Copies of the Braestone Updates are
attached hereto as Appendix "5".
18. On October 17, 2018, as part of the negotiations between the parties, Braestone
presented the Trustee with an irrevocable offer to accept payment by Braestone of $10
million in full satisfaction of the amounts due under the Loan Agreement and
incorporating other components negotiated by the Trustee ("Braestone Offer"). The
Braestone Offer was open for acceptance until November 9, 2018. The Braestone Offer
was subsequently extended to November 16, 2018 by Braestone to permit OTC some
additional time to execute the Braestone Offer, subject to the terms of the Braestone
Settlement Approval Order.
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64
19. For the reasons set out below, the Trustee has accepted Braestone's offer and executed
the Braestone Settlement Agreement. The Braestone Settlement Agreement requires
the Trustee to use commercially reasonable efforts to seek the Braestone Settlement
Approval Order, but the remaining terms of the Braestone Settlement Agreement are
only binding on the Trustee, BDMC and OTC should the agreement be approved and
ratified by the Court.
20. The Braestone Offer and the Braestone Settlement Agreement provide for a lump sum
payment by Braestone of $1 O million in respect of the outstanding principal balance
owing under the Loan Agreement of $13.35 million. The full amount due under the Loan
Agreement on project completion (including interest and certain deferred lender fees)
exceeds $16 million; however, when previously paid interest of approximately $5.4
million ("Paid Interest") is factored into the analysis, the proposed payout plus the Paid
Interest would result in the full repayment of the principal owing to the SMLs, plus a
further 15% above the outstanding principal amount.
21. The Braestone Offer is conditional, among other things, upon the release and discharge
of all Braestone Loan Obligations and all Loan Encumbrances, and a Court order being
obtained providing that none of the Trustee, BDMC, OTC or any Braestone Individual
Lenders have any claim against Braestone in respect of the Braestone Loan Obligations
or the Loan Encumbrances (though Braestone is not to be released from any obligations
under the Braestone Settlement Agreement) in consideration of the payment due under
the Braestone Settlement Agreement.
22. The Braestone Settlement Agreement also provides that Braestone is to deliver a
Release Agreement to the Trustee providing that Braestone, on behalf of itself and the
other Releasers, release all of the Releasees (namely, the Trustee, BDMC, OTC, and
each Braestone Individual Lender who loaned funds through BDMC or OTC to
Braestone pursuant to the Loan Agreement and all related Loan Documents, each of
their respective officers, directors, agents, employees, and each of their respective
successors and assigns) from all obligations under the Braestone Loan Documents.
23. Braestone has also made certain customary representations and warranties and has
agreed to provide such further assurances as are necessary to effectuate the transaction
set out in the Braestone Offer.
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24. If the Court issues the proposed Braestone Settlement Approval Order, then the
settlement set out therein will be effective upon the issuance by the Trustee of the
Trustee's Certificate certifying that the conditions precedent set out in the Braestone
Settlement Agreement are satisfied.
25. A copy of the Braestone Offer, including the executed Braestone Settlement Agreement
is attached as Appendix "6".
Overview of Current Status of Braestone Project
26. Braestone has developed Phase 1 of the Braestone Project, but is awaiting approvals to
complete Phase 2. Braestone has advised that it will be unable to complete the
Braestone Project prior to July 2019, being the end of the extended term as set out in
the Loan Agreement, due to unexpected delays and challenging market conditions.
Therefore, Braestone does not expect to be able to pay the amounts due under the Loan
Agreement in full on the extended maturity date.
27. The Trustee therefore engaged in discussions and negotiations with Braestone and
reviewed the information provided to it. On the basis of these discussions and
information, the Trustee understands that the market and other challenges affecting the
completion of the Braestone Project include, but are not limited to:
(a) the slowdown in the overall real estate market in the area, which has resulted in
slower than expected home sales; and
(b) unforeseen environmental issues that have stalled the environmental approvals
required for the development of Phase 2. The Trustee understands that the
delay in environmental approvals relate to the following outstanding issues:
i. Species at risk (specifically, brown bats);
ii. Forestry at risk (specifically, butternut trees);
iii. Fisheries;
iv. Approval for a river crossing which accesses Phase 28; and
v. A re-assessment of previously approved wetland boundaries.
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Braestone has provided the Trustee with a copy of an environmental report dated May
11, 2018 prepared by its environmental consultants.
28. Braestone has advised that there are no established guidelines to resolve certain of
these environmental issues, and therefore longer than usual delays may result.
Braestone further advised that it has sought advice from environmental consultants and
has been informed that it could take 2 to 7 years to remedy the environmental conditions
and prepare the lands to commence construction of Phase 2.
29. As a result of these developments, Braestone is seeking to refinance the Braestone
Project, but has advised that it must reduce its overall debt in order to do so.
Accordingly, Braestone is seeking to repay the debt owing to the Braestone Individual
Lenders under the Loan Agreement at a discount to the total amount that would be
owing at the completion of the Braestone Project.
30. The Trustee has been engaged in negotiations with Braestone and its representatives
regarding the amount of any such discount and the other terms of a potential settlement
of the Braestone Loan Obligations. Braestone has advised that it is unable to repay the
full principal amount due under the Loan Agreement; however, given that BDMC
received the Paid Interest when due (up to and including the July 15, 2018 interest
payment) of approximately $5.4 million, the payment of $10 million pursuant to the Offer
plus the Paid Interest would result in full repayment of the principal amount advanced
and a net return of approximately 15% on that principal amount. The return is calculated
as follows:
Principal outstanding (A)
Loan repayment Interest paid Total payments (8)
Net recovery in excess of principal (8-A)
13,350,100
10,000,000 5,455,870
15,455,870
2,105,770
31. Acceptance of the Braestone Offer by the Trustee would result in the Investors foregoing
the amounts set out in the table below, which would otherwise become due pursuant to
the Loan Agreement if the amounts due were repaid on or about October 15, 2018
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(assuming, with respect to the deferred lender fee, that the project had been completed
by October 15, 2018).
Remaining principal Accrued interest to October 15, 2018 Extension fees (incl. additional deferred lender fee) Project completion/deferred lender fee Total potential foregone recoveries (before additional accrued interest)
$ 3,350,100
267,000 400,000
2,003,000 6,020,100
However, Braestone anticipates that the Braestone Project will not be completed for
many years and there can be no assurance that Braestone will be able to repay all
amounts due under the Loan Agreement upon completion of the Braestone Project.
32. Additional interest has continued to accrue since October 15, 2018, and would be
payable on the date that the BDMC Loan was repaid. As of July 15, 2018, Braestone
ceased paying interest due under the Loan Agreement. Braestone has advised that it
will not make further interest payments in the event the Braestone Offer is not accepted
and the Loan Agreement continues in force.
Assessment of the Offer and Recommendation
33. Braestone has advised that the Braestone Project will not be completed by the time the
Loan Agreement matures in July 2019, and that Braestone is unlikely to obtain
replacement financing sufficient to repay the amounts due under the Loan Agreement in
full on the maturity date. Further, given the terms of the Loan Agreement and
Braestone's expressed need to refinance the Braestone Project, BDMC would likely be
required to postpone and standstill to additional priority loans to permit the Braestone
Project to continue towards completion, and the standstill agreement would likely remain
in effect until such time as the priority loans are repaid (which the Trustee understands
would not be until such time that the Braestone Project is completed). Accordingly, and
based on the estimates provided by Braestone, it is possible that the amounts due under
Loan Agreement may not be repaid until 2025 and there is a risk that it will not be repaid
in full at that time, or ever.
34. In completing its assessment of the Braestone Offer, the Trustee engaged a real estate
appraiser to provide a current as-is appraised value of the property. Based on its review
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of the appraisal and taking into account the approximately $1 O million of outstanding
debt ranking in priority to the BDMC Loan that would be required to be repaid prior to the
amounts due under the Loan Agreement, the Trustee is of the view that the Braestone
Offer is reasonable in the circumstances.
35. Given the environmental issues encountered by Braestone, the uncertainty as to the
timing by which they will be remedied and the general uncertainty as to the future of the
market, the Trustee is of the view that, although the Braestone Offer potentially provides
discounted returns to the Investors, there is value in the certainty provided by accepting
the Braestone Offer and crystalizing the outcome of the Loan Agreement. Further, as
noted above, the Braestone Offer does result in an overall net positive return of
approximately 15% on the principal amount advanced by BDMC.
Consultation with Representative Counsel and Investors
36. The Trustee consulted extensively with Representative Counsel regarding the Braestone
Offer, and, following that consultation, delivered a notice to Investors in the Braestone
Project on October 23, 2018 advising the Investors of the Trustee's recommendation in
support of accepting the Braestone Offer and requesting Investors to provide their
feedback, whether for or against the acceptance of the Braestone Offer, and any other
general feedback ("Braestone Consent Request"). Further, the Trustee advised that it
would serve all Investors with its motion materials seeking approval of the Braestone
Settlement Agreement should the Braestone Offer be accepted. A copy of the Braestone
Consent Request is attached as Appendix "7".
37. Following the delivery of the Braestone Consent Request, the Trustee and
Representative Counsel received and responded to a number of inquiries regarding the
Offer and the Trustee's and Representative Counsel's views on the Braestone Offer,
including the impact of the Realized Property Order on the amounts immediately payable
to Investors.
38. As of November 13, 2018, the Trustee has received 86 formal votes in response to the
Braestone Consent Request. 83 Investors representing approximately $5,292,700 of the
$13,350,100 in principal outstanding under the Loan Agreement voted in favour of the
Trustee accepting the Braestone Offer. 3 votes (from 2 Investors), representing
approximately $49,500 in principal outstanding under the Loan Agreement voted against
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the Trustee accepting the Braestone Offer. In summary, over 96% of Investors voting on
the Braestone Offer, representing over 99% of the value of such loans, voted in favour of
the Trustee accepting the Braestone Offer. Less than 4% of Investors voting on the
Braestone Offer, representing less than 1 % in value of such loans, voted against the
Trustee accepting the Braestone Offer. The Investors voting in favour of the acceptance
of the Braestone Offer represent approximately 33% in number and 40% in value of all
Investors under the Loan Agreement, whereas Investors voting against the acceptance
of the Braestone Offer represent approximately 1 % in number and less than 0.4% in
value of all Investors under the Loan Agreement.
39. The Trustee notes that the rate of response to the Braestone Consent Request
(approximately of 34% of Investors) is much higher than the rate of response to any
other notice or request for consent that the Trustee has sent to date.
40. On the basis of the Trustee's analysis of the facts and circumstances surrounding the
Braestone Project and the overwhelming positive responses received from Investors, the
Trustee has determined that the Braestone Offer should be accepted. The Trustee has
been informed by Representative Counsel that it also supports the acceptance of the
Braestone Offer. While the Trustee recognizes that a small number of Investors have
voted against the acceptance of the Braestone Offer, the Trustee must act in the best
interests of all Investors who made loans to the Braestone Project notwithstanding the
views expressed by certain Investors. The Trustee has determined that it is in the best
interests of all Investors to accept the Braestone Offer.
41. The Trustee therefore executed the Braestone Settlement Agreement and has brought a
motion seeking this Court's approval of the Braestone Settlement Agreement and the
issuance of the Braestone Settlement Approval Order.
NEGOTIATIONS REGARDING OTHER PAYOUTS
42. Since the date of the Second Report, the Trustee has continued to engage in
negotiations with certain borrowers and with Fortress and CDCM on behalf of certain
borrowers regarding potential payouts of the applicable loans. As recoveries under
certain of the projects are uncertain, the Trustee has actively engaged in discussions
with respect to a number of payout opportunities. Many of the payout discussions remain
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at early stages, but the Trustee is seeking to advance these discussions in
circumstances where the Trustee believes a payout would be in the best interest of
Investors.
43. Notably, the Trustee has engaged in negotiations with The Harlowe Inc. ("Harlowe
Borrower") regarding the amounts due to BDMC under the loan agreement dated June
10, 2013 in respect of a real estate development project in Toronto, Ontario ("Harlowe
Project"). The Trustee understands that the Harlowe Borrower has sold over 80% of
available units for the Harlowe Project, and registration of the building is estimated to
occur in the summer of 2019. Upon registration of the building, the sale of the units
subject to existing sale agreements will be completed, at which time the majority of the
sale proceeds will be used to repay the priority loans. However, the Harlowe Borrower
has advised the Trustee that it must enter into an inventory loan to fund costs associated
with holding and selling the remaining units. The Harlowe Borrower has advised that
significant changes in the marketplace since the project commenced, combined with the
negative publicity related to Fortress and BDMC, has made it difficult to obtain additional
financing. In particular, the Harlowe Borrower advises that it cannot obtain an inventory
loan while any portion of the BDMC debt remains on title. The Harlowe Borrower has
also advised that the final sale of outstanding units of the Harlowe Project are unlikely to
be completed until spring of 2021.
44. The Trustee has negotiated a settlement agreement with the Harlowe Borrower whereby
the Harlowe Borrower would pay approximately $15.5 million to the Trustee in full and
final satisfaction and compromise of all the Harlowe Borrower's obligations to BDMC and
the individual lenders who loaned funds to the Harlowe Borrower under the applicable
loan agreement. The principal owing to BDMC under the Harlowe loan is approximately
$15.9 million. If the Harlowe Project had been completed on October 15, 2018, and
certain assumptions regarding profitability had been realized, the full amount due under
the Harlowe loan (including interest and certain deferred lender fees) is estimated to
exceed $20 million; however, when previously paid interest of approximately $2. 7 million
is factored into the analysis, the proposed payout would result in a full payment of the
principal owing to the Investors plus a further 15% above the principal amount. The
Trustee has recommended that the settlement agreement proceed and is currently
seeking feedback from Investors. The Trustee anticipates that it will be returning to Court
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in the near term to seek the Court's approval of the proposed settlement. Full details of
the proposed settlement will be provided when Court approval is sought.
45. As noted in the Second Report, the Trustee intends to follow a similar approval process
with respect to the potential payout by the Harlowe Borrower and other future repayment
opportunities in order to give clarity on the process to Investors and borrowers.
RECOMMENDATION REGARDING REALIZED PROPERTY
46. The Trustee has determined, based on its expectations regarding the ability to generate
further Realized Property in the next reporting period, that should the $10 million in
Braestone Realized Property be received, it will be appropriate to further reduce the
percentage of Realized Property that it needs to retain to fund the Required Trustee
Activities.
47. The Trustee is therefore seeking this Court's authorization to distribute an additional
amount equal to 10% of the Realized Property held by the Trustee on on the date of the
Appointment Order, including the Realized Property received in respect of the Victoria
Medical SML Loans. Following this distribution, 80% of the Realized Property received to
date will have been distributed by the Trustee.
48. The Trustee is also seeking an amendment to the Realized Property Order to authorize
the Trustee to distribute 80% of any future Realized Property received by the Trustee
after the date of the Braestone Settlement Approval Order.
49. The Trustee has consulted with Representative Counsel regarding this recommendation,
and Representative Counsel agrees that the proposed retention of 20% of all Realized
Property and the proposed distribution of all other Realized Property is fair and
reasonable in the circumstances.
50. As noted in the Second Report, the Trustee currently predicts that there will be a limited
number of projects that give rise to recoveries in the near term and that recoveries on
many of the syndicated mortgage loans are at risk. As such, the Trustee is of the view
that it must retain 20% of the Realized Property at this time and utilize the retained
Realized Property to maximize the recovery of additional Realized Property in the future.
As more Realized Property is generated, the Trustee will continue to reevaluate the
appropriate percentage of Realized Property that needs to be retained.
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51. The Trustee understands that these proceedings may have a disproportionate impact on
Investors whose projects have generated or will generate Realized Property at earlier
dates than other projects. As more fully described in the Second Report, the Trustee will
provide the Court with a recommendation regarding an appropriate allocation of the
costs that will be borne by specific projects, including the Braestone Project, at a later
date to fairly and equitably allocate the use of Realized Property among Investors.
APPROVAL OF THE TRUSTEE'S REPORTS, ACTIVITIES AND FEES
52. The Trustee is seeking the approval of the First Report, the Second Report, this Third
Report, its activities as set out in the First Report, the Second Report, and this Third
Report, and its fees and its counsel's fees from the date of the Appointment Order to
September 30, 2018.
53. The Trustee's activities are described at length in the First Report, attached hereto as
Appendix 2, the Second Report, attached hereto as Appendix 3, and this Third Report.
In summary, the Trustee's activities have included, among other things:
(a) attending the ordinary course administration duties required in connection with
BDMC's syndicated mortgage loans;
(b) communicating with Investors;
(c) sending 46 of notices to Investors as of November 13, 2018;
(d) holding meetings with certain Investors;
(e) communicating with borrowers, senior lenders and other lenders;
(f) responding to enforcement actions by senior lenders on distressed projects;
(g) negotiating with borrowers regarding potential payouts and settlement offers in
respect of certain BDMC loans;
(h) seeking to recover amounts advanced by Investors where standstill
arrangements do not prevent the Trustee from taking action;
(i) responding to requests for postponements and taking other actions to permit the
projects to continue and to prevent enforcement by senior lenders;
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U) performing an in-depth review of each real estate development project, including
obtaining new appraisals;
(k) investigating the BDMC loan structure;
(I) preparing three Reports to the Court and attending hearings before the Court;
(m)distributing 70% of the Realized Property to the applicable Investors pro rata as
required by the Interim Stabilization Order and the Realized Property Order;
(n) attending to partial discharges of BDMC's security interests to facilitate sales of
individual units or the development of properties;
(o) continuing to engage with other stakeholders of BDMC and related parties,
including Ms. lldina Galati, BDMC's shareholder, and her counsel, Fortress and
its counsel, and CDCM and its counsel, regarding refinancing efforts,
enforcement actions, regulatory matters and the funding of these proceedings;
(p) continuing to engage with borrowers and with CDCM, as broker to some of the
borrowers, regarding the postponements and enforcement matters noted above
and to obtain detailed updates on the progress on projects and associated
financial reporting;
(q) engaging with FSCO and its legal counsel;
(r) engaging with mortgage brokerage and administration licensing authorities
outside of Ontario to discuss the Trustee's mandate and the Appointment Order
and to address matters related to BDMC's licenses in such jurisdictions, including
regulators in Manitoba, Saskatchewan, Alberta and British Columbia; and
(s) supervising the day to day business activities of BDMC, including supervising the
payment of payroll, rent and related matters.
54. Pursuant to the terms of the Appointment Order, the Trustee and its legal counsel shall
be paid their reasonable fees and disbursements and shall pass their accounts from time
to time.
55. The Trustee and its legal counsel are tracking their time by project. For certain tasks that
affect all Investors, including general notices and the preparation of the First Report, the
Second Report and certain components of this Third Report and the related Court
materials, the time will be charged to a general account that will, at a later date once the
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totality of realizations are more clear, be allocated to the various projects based on
appropriate considerations and in accordance with further Court orders.
Trustee Fees
56. The fees (excluding HST) of FMN Mortgage Administrators Inc., in its capacity as
Trustee for the period April 20, 2018 to September 30, 2018, total $734,428.20; and HST
applicable to such amounts totals $95,475.67, for an aggregate amount of $829,903.87.
Invoices for the fees of the Trustee, including summaries of the activities of the Trustee
for the applicable period are provided in the affidavit of Naveed Manzoor ("Manzoor
Affidavit"), attached as Appendix "8".
57. Detailed docket information in respect of the fees and disbursements of the Trustee for
this period are included in the confidential exhibit to the Manzoor Affidavit that is being
filed separately with this Court ("Confidential Manzoor Exhibit"). The Trustee is
seeking a sealing order with respect to the Confidential Manzoor Exhibit due to the fact
that the information contained in the Trustee's detailed invoices includes privileged and
commercially sensitive information regarding the projects and BDMC generally, and the
disclosure of that privileged and/or commercially sensitive information could have a
material adverse effect on the recoveries that may ultimately be available to Investors in
these proceedings.
58. The average hourly rate for the Trustee over the referenced billing period was
approximately $350.48/hour.
Fees of the Trustee's Counsel
59. The fees (excluding disbursements and HST) of Osler, Hoskin & Harcourt LLP ("Osler")
as counsel to the Trustee for the period April 20, 2018 to September 30, 2018, total
$782,270.50; Osler incurred $6,288.38 disbursements during the period; and HST
applicable to such amounts totals $102,427.65, for an aggregate amount of
$890,986.53. Invoices for the fees, reimbursable expenses and applicable taxes of
Osler, including summaries of Osier's the activities in respect of the invoices, are
provided in the affidavit of Michael De Lellis ("De Lellis Affidavit"), attached as
Appendix "9".
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60. Full accounts in respect of the fees and disbursements of Osler for this period are
included in the confidential exhibit to the De Lellis Affidavit that is being separately filed
with this Court ("Confidential De Lellis Exhibit"). The Trustee is seeking a sealing
order with respect to the Confidential De Lellis Exhibit due to the fact that the information
contained in Osier's detailed invoices includes privileged and commercially sensitive
information regarding the projects and BDMC generally, and the disclosure of that
privileged and/or commercially sensitive information could have a material adverse effect
on the recoveries that may ultimately be available to Investors in these proceedings.
61. The average hourly rate for Osler over the referenced billing period was $691.91/hour.
62. The Trustee is of the view that the hourly rates charged by Osler are consistent with the
rates charged by major law firms practicing in the area of insolvency and restructuring in
the Toronto market, and that the fees charged are reasonable in the circumstances.
Fee Recoveries
To date, the Trustee and its counsel have recovered approximately $153,500 on account of
professional fee reimbursements in connection with postponements, refinancings and other
significant transactions. The Trustee has succeeded in negotiating these fee recoveries on a
case by case basis and continues to seek to recover fees when appropriate.
CONCLUSION AND RECOMMENDATION
63. The Trustee recommends that the proposed Braestone Settlement Approval Order be
granted by the Court. The Trustee has negotiated the Braestone Settlement Agreement
and has obtained an overwhelming positive response from affected Investors with
respect to the execution and implementation of the terms of the Braestone Settlement
Agreement. The Braestone Settlement Agreement contemplates the payment (when
combined with Paid Interest) of the full principal amount due under the Loan Agreement
plus a further 15% recovery on that principal. If implemented, the Braestone Settlement
Agreement will result in $10 million of Braestone Realized Property in the near term,
which will permit the Trustee to make a further distribution of Realized Property pro rata
to Investors who are entitled to same and will also provide additional funding for these
proceedings to facilitate Required Trustee Activities. The Trustee is of the view that it is
in the best interests of Investors to obtain the Braestone Realized Property now rather
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than to wait for an uncertain result in the future. The Trustee also seeks approval of its
activities to date and the fees and disbursements of the Trustee and its legal counsel in
connection with those activities. The Trustee will continue to attend to all BDMC matters
in an effort to maximize recoveries to Investors.
ALL OF WHICH IS RESPECTFULLY SUBMITTED this 19th day of November, 2018.
FAAN MORTGAGE ADMINISTRATORS INC.,
SOLELY IN ITS CAPACITY AS
COURT-APPOINTED TRUSTEE OF
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.,
AND NOT IN ITS PERSONAL OR ANY OTHER CAPACITY
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Appendix 4:
Braestone Settlement Approval Order dated November 28, 2018
78
Court File No.: CV-18-596204-00CL
ONTARIOSUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE HONOURABLE MR WEDNESDAY, THE 28TH
JUSTICE HAINEY DAY OF NOVEMBER, 2018
BETWEEN
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
-and-
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THEMORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006,
c.29 and, SECTION 101 OF TIJE COURTS OF JUSTICE AC?i R.S.O. 1990 c. C.43
BRAESTONE SETTLEMENT APPROVAL ORDER
THIS MOTION, rnade by FAAN Mortgage Administrators Inc. ("FAAN Mortgage"),
in its capacity as Court-appointed trustee (in such capacity, the "Trustee"), of all of the assets,
undertakings and properties of Building 8. Development Mortgages Canada Inc. (the
"Respondent") pursuant to section 37 of the Mortgage Brokerages, Lenders and Administrators
Act, 2006, S.O. 2006, c. 29, as amended (the "MBLAA"), and section 101 of the Courts of
Justice lcl, R.S.O. 1990, c. C.43, as amended, for an Order, inter alia, (i) approving and
ratifying the Settlement Agreernent dated as of October 77, 2078 (the "Braestone Settlement
)
)
)
,EURç, ¡€
5þ,
c,OUlf
(,m
79
2
Agreement") among Braestone Development Corporation ("Braestone"), the Trustee and
Olympia Trust Company ("OTC"); (ii) ordering Braestone to pay $10 million to the Trustee
pursuant to the Braestone Settlement Agreement; (iii) ordering Braestone, the Trustee and OTC
to comply with the Braestone Settlement Agreement; (iv) authorizing the Trustee to make a
further distribution of Realized Property to Investors; and (v) approving the Trustee's activities,
and the fees and disbursements of the Trustee and its Legal Counsel, was heard this day at 330
University Avenue, Toronto, Ontario;
ON READING the Third Report of the Trustee dated November 19,2018 (the "Third
Report"), the affidavit of Naveed Manzoor swom November 19,2078 and attached as Appendix
"8" to the Third Report (the "Manzoor Affidavit") and the affrdavit of Michael De Lellis sworn
November 19,2018 and attached as Appendrx"g" to the Third Report (the "De Lellis Affidavit"
and, collectively, with the Manzoor Affidavit, the "Fee Affidavits"), and on hearing the
submissions of counsel for the Trustee, Chaitons LLP, in its capacity as Representative Counsel,
counsel for The Superintendent of Financial Services, counsel to Braestone and such other
counsel as were present, no one appearing for any other person on the service list, as appears
from the affidavit of service of Justine Erickson swom November 22,2018, filed;
SERVICE AND INTERPRETATION
1. THIS COURT ORDERS that the time for service of the Notice of Motion, the Motion
Record and the Third Report is hereby abridged and validated so that this Motion is properly
returnable today and hereby dispenses with further service thereof.
2. THIS COURT ORDERS that all capitalized terms used but not defined herein shall
have the meanings given to them in the Third Report and the Braestone Settlement Agreement.
APPROVAL OF THE BRAESTONE SETTLEMENT AGREEMENT
3. THIS COURT ORDERS that (i) the Braestone Settlement Agreement be and is hereby
approved in its entirety, with such minor amendments as the Trustee and the other parties to the
Braestone Settlement Agreement may agree upon to permit the completion of the transaction
contemplated thereby; (ii) Braestone is hereby directed to pay $10 rnillion forthwith to the
Trustee in accordance with the terms of the Braestone Settlement Agreement (such funds the
"Braestone Realized Property"); and (iii) the execution of the Braestone Settlement Agreement
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^-J-
by the Trustee and OTC is hereby ratifìed and approved, and the Trustee and OTC are hereby
authorized and directed to comply with all of their obligations under the Braestone Settlement
Agreement.
4. THIS COURT ORDERS AND DECLARES that upon the delivery of a Trustee's
certificate to Braestone substantially in the form attached as Schedule "A" hereto (the "Trustee's
Certificate"), all of Braestone's obligations to Building & Development Mortgages Canada Inc.
("BDMC"), OTC, and the individual lenders (the "Braestone Individual Lenders") under the
Loan Agreement dated as of December l, 2012 between BDMC and Braestone (the "Loan
Agreement"), the Security and the Loan Documents (each as defined in the Loan Agreement)
(collectively, the "Braestone Loan Obligations") and all security interests granted to BDMC,
OTC or the Braestone Individual Lenders in and to the assets of Braestone to secure the
Braestone Loan Obligations and related registrations on title (the "Loan Encumbrances") are
hereby released, extinguished, expunged, discharged and deleted and that none of the Trustee,
BDMC, OTC or any Braestone Individual Lender shall have any claim against Braestone in
respect of the Braestone Loan Obligations or the Loan Encumbrances; provided, however, that
Braestone shall not be released from any obligations under the Braestone Settlement Agreement.
5. THIS COURT ORDERS AND DECLARES that upon the delivery of the Trustee's
Certifìcate, the Braestone Realized Property is and shall be deemed to be "Realized Property" as
defined in the Order of this Court dated June 26,2018 (the "Interim Stabilization Order") and
that all of the Braestone Individual Lenders' rights and claims under the Loan Agreement, the
Security and the Loan Documents shall attach to the Braestone Realized Property and shall have
the same nature and priority as they had prior to the consummation of the Braestone Settlement
Agreement, including pursuant to the Appointment Order and the Interim Stabilization Order.
6. THIS COURT ORDERS that upon the registration in the Land Registry Office for the
Registry Division of Sirncoe (#51) of an Application for Vesting Order in the form prescribed by
the applicable Land Registry Office and attaching a copy of this Order and the executed
Trustee's Certificate, the Land Registrar is hereby directed to delete and expunge from title to the
real property identified in Schedule "B" hereto (the "Real Property") all of the Loan
Encumbrances listed in Schedule"C2' hereto.
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l. THIS COURT ORDERS that upon the delivery of the Trustee's Certifìcate, the release
agreement in the form attached as Schedule "D" hereto ("Release Agreement") to be given to
the Trustee, BDMC, OTC, and each Braestone Individual Lender who loaned funds through
BDMC or OTC to Braestone pursuant to the Loan Agreement and all related Loan Documents,
each of their respective officers, directors, agents, employees, and each of their respective
successors and assigns (collectively, the "Releasees") by Braestone on behalf of itself, its
affiliates, and their respective shareholders, agents, directors, offtcers, employees, and each of
their respective successors and assigns (collectively, the "Releasors") shall be binding and
effective on the Releasors in favour of the Releasees.
8. THIS COURT ORDERS AND DIRECTS the Trustee to file with the Court a copy of
the Trustee's Certificate, as soon as practicable after delivery thereof.
REALIZED PROPERTY
9. TIIIS COURT ORDERS that upon the delivery of the Trustee's Certificate, the Trustee
shall make a further distribution to Investors in an amount equal Io 10o/o of the Realized Property
held on the date of the Appointment Order, including the Realized Property obtained with
respect to the Victoria Medical SML Loans, pro rata Io the Investors entitled to such funds, such
that, when combined with the distributions made pursuant to the Interim Stabilization Order and
the Order of this Court dated October 30, 2018 ("Realized Property Order"), 80% of such
funds shall have been distributed on a pro rata basis to the Investors entitled to such funds.
10. THIS COURT ORDERS that upon the delivery of the Trustee's Certificate, paragraph
3(b) of the Realized Property Order is hereby amended to provide that the Trustee shall distribute
80% of all other Realized Property obtained, including the Braestone Realized Property, pro rata
to the Investors entitled to such funds, whether received before or after the date of this Order.
TRUSTEE'S ACTIVITIES, FEES AND DISBURSEMENTS
11. THIS COURT ORDERS that the First Report, the Second Report and the Third Report
and all of the actions, conduct and activities of the Trustee as set out in therein, are hereby
approved.
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12. THIS COURT ORDERS that the fees and disbursements of the Trustee and its counsel,
as set out in the Third Report and the Fee Affidavits, are hereby approved, as follows:
(a) The following fees and disbursements of the Trustee for the period from April 20,
2018 to September 30,2018 are approved: fees of 5734,428.20 (plus applicable
taxes of 995,475.67 for an aggrega|e amount of $829,903.87); and
(b) The following fees and disbursements of Osler, Hoskin & Harcourt LLP, counsel
to the Trustee, for the period from April 20, 2018 to September 30, 2018 are
approved: fees of 5782,270.50 and disbursements of $6,288.38 (plus applicable
taxes of $102,421.65 for an aggregate amount of $890,986.53).
SEALING
13. THIS COURT ORDERS that the Conhdential Manzoor Exhibit and the Confidential
De Lellis Exhibit shall be sealed, kept confidential and not form part of the public record, but
rather shall be placed, separate and apart from all other contents of the Court file, in a sealed
envelope attached to a notice that sets out the title of these proceedings and a statement that the
contents are subject to a sealing order and shall only be opened upon further Order of the Court.
AID AND RECOGNITION OF FOREIGN COURTS
14. THIS COURT HEREBY REQUESTS the aid and recognition of any court, tribunal,
regulatory or administrative body having jurisdiction in Canada or in the United States to give
effect to this Order and to assist the Trustee and its agents in carrying out the terms of this Order.
All courts, tribunals, regulatory and administrative bodies are hereby respectfully requested to
make such orders and to provide such assistance to the Trustee, as an officer of this Court, as
may be necessary or desirable to give effect to this Order or to assist the Trustee and its agents in
carrying out the terms of this Order.
15. THIS COURT ORDERS that the Trustee be at liberty and is hereby authorized and
empowered to apply to any court, tribunal, regulatory or administrative body, wherever located,
for the recognition of this Order and for assistance in carrying out the terms of this Order, and
that the Trustee is authorized and ernpowered to act as a representative in respect of the within
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proceedings for the pu{pose of having these proceedings recognized in a jurisdiction outside
Canada.
e.
ßl/FEB/PAB;
84
Schedule ('A') - Form of Trustee's Certificate
Court File No.: CV-18-596204-00CL
ONTARIOSUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
-and-
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THEMORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006,
c.29 and SECTION 101 OF TH.E COURTS OF JUSTICE AC4 R.S.O. 1990 c. C.43
TRUSTEE'S CERTIFICATE
RECITALS
A. Pursuant to an Order of the Honourable Justice Hainey of the Ontario Superior Court of
Justice fCommercial List] (the "Court") dated April 20, 2018, FAAN Mortgage Administrators
Inc. was appointed as the trustee (the "Trustee") of the undertaking, property and assets of
Building & Development Mortgages Canada Inc. ("BDMC").
B. Pursuant to an Order of the Court dated IDATE] (the "Braestone Settlement Approval
Order"), the Court approved and ratified the Settlement Agreement made as of Octob er 77 ,2018
(the "Braestone Settlement Agreement") among Braestone Development Corporation
("Braestone"), the Trustee and Olympia Trust Cornpany ("OTC") and ordered that all of
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Braestone's obligations to BDMC, OTC, and the individual lenders ("Braestone Individual
Lenders") under the Loan Agreement, the Security and the Loan Documents (each as defined in
the Loan Agreement) (collectively, the "Braestone Loan Obligations") and all security interests
granted to BDMC, OTC or the Braestone Individual Lenders in and to the assets of Braestone to
secure the Braestone Loan Obligations (the "Loan Encumbrances") are hereby released,
extinguished, expunged and discharged and that none of the Trustee, BDMC, OTC or any
Braestone Individual Lender shall have any claim against Braestone in respect of the Braestone
Loan Obligations or the Loan Encumbrances; provided, however, that Braestone shall not be
released from any obligations under the Braestone Settlement Agreement; and that the release of
the Braestone Loan Obligations and the Loan Encumbrances is to be effective upon the delivery
by the Trustee to Braestone of a certificate confirming (i) the payment of $10 million to the
Trustee by Braestone; (ii) that the conditions precedent to the Braestone Settlement Agreement
as set out in section 9 of the Braestone Settlernent Agreement have been satisfied or waived by
the Trustee; and (iii) the settlement has been completed to the satisfaction of the Trustee.
C. Unless otherwise indicated herein, terms with initial capitals have the meanings set out in
the Braestone Settlement Approval Order.
THE TRUSTEE CERTIFIES the following:
Braestone has paid and the Trustee has received $10 million pursuant to the BraestoneSettlement Agreement;
Braestone has provided the Release Agreement to the Releasees;
Braestone has certified that all of the representations and warranties contained in thisBraestone Settlement Agreement continue to be true as of the Effective Date;
Braestone continues to be, in the reasonable opinion of the Trustee, in compliance withall of the terms of the Braestone Settlement Agreement;
The other conditions set out in the Braestone Settlernent Agreement have been satisfiedor waived by the Trustee; an
6. The settlement has been completed to the satisfaction of the Trustee.
1
2
J
4
5
This Certificate was delivered by the Trustee at ITIME] on IDArE]
86
9
FAAN Mortgage Administrators Inc., solelyin its capacity as Court-appointed Trustee ofthe undertaking, properfy and assets ofBuilding & Development Mortgages CanadaInc., and in no other capacity
Per
Name:
Title:
87
10
Schedule ((B') - Real Property
PIN DESCRIPTION REGISTERED OWNER
s8532-02r4 (LT) LOT 10, PLAN 5lMl 1 1 3; TOWNSHIPOF ORO-MEDONTE
BRAESTONEDEVELOPMENTCORPORATION
s8s32-021s (LT) LOT 11, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-02t6 (LT) LOT 12, PLAN 5lMl113; TOV/NSHIPOF ORO-MEDONTE
s8s32-02n (LT) LOT 13, PLAN 5lMl113; TOWNSHIPOF ORO-MEDONTE
s8s32-0218 (LT) LOT 14, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0219 (LT) LOT 15, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0220 (LT) LOT 16, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0221 (LT) LOT 17 , PLAN 51M1 1 13; TOWNSHIPOF ORO-MEDONTE
58s32-0222 (LT) LOT 18, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0223 (LT) LOT 19, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0224 (LT) LOT 20, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0225 (LT) LOT 21, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0226 (LT) LOT 22, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0221 (LT) LOT 23, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0228 (LT) LOT 24, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0236 (LT) LOT 32, PLAN 51M I I 1 3; TOWNSHIPOF ORO-MEDONTE
s8s32-0244 (LT) LOT 40, PLAN 5lMI113, SAVING AND
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11
PIN DESCRIPTION REGISTERED OWNER
RESERVING FROM THE E 1I2LT2CON 9, ALL MINES AND MINERALS,WHETHER SOLID, LIQUID ORGASEOUS, WHICH MAY BE FOUNDTO EXIST WITHIN, UPON OR UNDERSUCH LANDS T/W FULL POWER TOWORK THE SAME AND FOR THISPURPOSE TO ENTER UPON, USE ANDOCCUPY THE SAID LANDS OR SOMUCH THEREOF AND TO SUCHEXTENT AS MAY BE NECESSARYFOR THE EFFECTUAL WORKINGAND EXTRACTING OF THE SAIDMINERALS, AS DESCRIBED INORO17078; TOWNSHIP OF ORO-MEDONTE
s8s32-02s3 (LT) LOT 49, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-02ss (LT) LOT 51, PLAN 5lMl113;TOWNSHIPOF ORO-MEDONTE
s8s32-02s6 (LT) LOT 52, PLAN 5lMl l13; TOWNSHIPOF ORO-MEDONTE
s8s32-0257 (LT) LOT 53, PLAN 51Ml113; TOWNSHIPOF ORO-MEDONTE
s8s32-02s8 (LT) LOT 54, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-02s9 (LT) LOT 55, PLAN 5lMl113; TOWNSHIIOF ORO-MEDONTE
s8s32-0260 (LT) LOT 56, PLAN 5lMl113; TOWNSHIPOF ORO.MEDONTE
s8532-0261 (LT) LOT 5'7, PLAN 51M1113; TOWNSHIPOF ORO-MEDONTE
s8s32-0262 (LT) LOT 58, PLAN 5lMl113; TOWNSHIIOF ORO-MEDONTE
s8s32-027s (LT) PCL2-I SEC 51-ORO-9; LT 3 CON 9
ORO BEING THE E 112 &.W 112;LT 2
CON 9 ORO BEING THE E 112 &.W 112;
PT 1, 51R21804, EXCEPT PT 1,
s1R28741& EXCEPT PLAN 51M1070 8.
89
12
PIN DESCRIPTION REGISTERED OWNER
51M1113; SAVING AND RESERVINGFROM THE E II2 LT2 CON 9, ALLMINES AND MINERALS, WHETHERSOLID, LIQUID OR GASEOUS, WHICHMAY BE FOUND TO EXIST WITHIN,UPON OR UNDER SUCH LANDS T/WFULL POWER TO V/ORK THE SAMEAND FOR THIS PURPOSE TO ENTERUPON, USE AND OCCUPY THE SAIDLANDS OR SO MUCH THEREOF ANDTO SUCH EXTENT AS MAY BENECESSARY FOR THE EFFECTUALWORKING AND EXTRACTING OFTHE SAID MINERALS, ASDESCRIBED IN OROll}lS; ORO-MEDONTE TOWNSHIP OF ORO-MEDONTE; SUBJECT TO ANEASEMENT IN GROSS OVER PT EII2LOT 2 CON 9 ORO BEING PT 1 ON PLs1R40262 AS IN 5C1266952
90
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Schedule '(C)) - Loan Encumbrances
Resístrøtíon No. Døte Tvpe of Instruntentsc1039835 2013 02 0l Charge/Mortgagesc122810s 20t5 07 20 Transfer Of Charge
sc1039845 2013102107 Transfer Of Charge
sct043202 20t3103101 Transfer Of Charge
sc1047816 2013103128 Transfer Of Charge
sc10s3414 2013/04129 Transfer Of Charge
sc10s5391 201310s108 Noticesc1055397 201310s108 Transfer Of Charge
sc10s8805 2013losl28 Transfer Of Charge
sc1064131 2013106/20 Noticesc1065073 2013106125 Transfer Of Charge
sc10698s0 2013107115 Transfer Of Charge
sc1079799 2013108123 Transfer Of Charge
sc1087288 20t3109124 Transfer Of Charee
sc1092496 20t3lr0lr6 Noticesc1101397 2013/1y26 Transfer Of Charee
sctrÙ7522 2013112120 Transfer Of Charee
scl113714 2014102103 Transfer Of Charee
sc112s391 2014104116 Transfer Of Charge
sc1128168 20t410sl0t Transfer Of Charge
sc1 159897 2014109115 Postponement Of Interest
sc122810s 2015107120 Transfer Of Charge
sc1237512 201s107130 Postponement Of Interest
sc1295590 20161041t3 Postponement Of Interest
scl331143 20r61081t2 Application To Change Name-Instrument
sc1339671 20r6/09106 Postponement Of Interest
scl421440 2017106119 Postponement Of Interest
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Schedule '(D" - Release Agreement
IDate]
TO: FAAN Mortgage Administrators Inc. (the "Trustee")
AND TO: Olympia Trust Company ("OTC")
Re: Release granted in connection with repayment and settlement of the Obligationspursuant to Braestone Settlement Agreement
Dear Sirs/Mesdames
Reference is made to the Loan Agreement dated as of December l, 2012 (the "LoanAgreement") between Braestone Development Corporation ("Braestone") and Building &Development Mortgages Canada Inc. ("BDMC") and the related Security and Loan Documents.
All capitalized terms used in this agreement (the "Release Agreement") shall, unless otherwise
defined herein, have the same meanings given to them in the Loan Agreement or the Settlement
Agreement dated as of [date] among Braestone, the Trustee and OTC (the "SettlementAgreement").
1. Braestone hereby certifies that all of the representations and warranties contained in the
Settlement Agreement are true and accurate as of the date hereof and that it is incompliance with all covenants, terms and provisions of the Settlement Agreement.
2. Braestone has paid the Trustee $10,000,000 pursuant to the Settlement Agreement and
waives any right of set-off or any other defence.
In consideration of the acceptance of $10,000,000 in fuIl and final satisfaction ofObligations payable to BDMC by Braestone under the Loan Agreement in excess of516,020,120 and for other good and valuable consideration, the receipt and sufficiency ofwhich is hereby acknowledged, Braestone (on behalf of itself, its affiliates, and theirrespective shareholders, agents, directors, officers, employees, and each of theirrespective successors and assigns) (collectively, the "Releasors")) hereby releases,
discharges and acquits the Trustee, BDMC, OTC, and each lender or investor who loaned
funds through BDMC or OTC to Braestone pursuant to the Loan Agreement and allrelated Loan Documents, each of their respective officers, directors, agents, employees,
and each of their respective successors and assigns (collectively, the "Releasees") fromany and all claims, demands, rights, liabilities, and causes of action, whether in law or inequity, whether known or unknown, that any Releasot, at any time had or has, or that
they or their respective successors or assigns hereafter have or may have against the
Releasees directly or indirectly arising out of or in any way related to the LoanAgreernent, the Loan Documents, the proceedings initiated by the Order of the Ontario
Superior Court of Justice (Comrnercial List) dated April 20, 2078, or any transactions
hereunder or thereunder.
aJ
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This Release Agreement shall be effective immediately upon the delivery of the Trustee'sCertificate and may be relied upon by any of the Releasees, whether or not such Releasee is aparty to this Release Agteement or the Settlernent Agreement.
This Release Agreement may be executed in any number of counterparts and by the differentparties hereto in separate counterparts, and may be executed and delivered by facsimile or .pdffile transmitted by email, and all such counterparts, .pdf files and facsimiles when so executed
and delivered shall be deemed to be an original and all of which when taken together shallconstitute but one and the same Release Agreement.
This Release Agreement shall be construed in accordance with and governed by the laws of theProvince of Ontario.
Yours truly,
BRAESTONE DEVELOPMENTCORPORATION
By:
Name:
Title:
Accepted and agreed to by:
FAAN MORTGAGEADMINISTRATORS INC., solely in itscapacity as Court-appointed Trustee ofBuilding & Development Mortgages CanadaInc. and in no other capacity
By:
Name:
Title:
93
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Appendix 5:
Harlowe Offer and Harlowe Settlement Agreement
95
96
97
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99
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Lana Bezner Managing Director
103
Appendix 6:
Harlowe Consent Request dated November 16, 2018
104
FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
November!16,!2018!
Dear!Lender:!
Re: Syndicated Mortgage Loan (“Loan”) made to The Harlowe Inc. (the “Borrower”)
pursuant to the loan agreement dated June 10, 2013 (“Loan Agreement”) regarding the
property located at 604-618 Richmond Street W, Toronto, ON (“Harlowe Project” or
“Property”)
Request for approval regarding the Syndicated Mortgage Loan to Harlowe Development
Corporation.
As!you!are!aware,!on!April!20,!2018,!FAAN!Mortgage!Administrators!Inc.!(�FAAN Mortgage�!or!the!�Trustee�)!was!appointed!as!trustee!over!the!assets,!property!and!undertakings!of!Building!&!Development! Mortgages! Canada! Inc.! (�BDMC�)! under! a! court! order! (�Appointment Order�)!issued!pursuant!to!section!37!of!the!Mortgage Brokerages, Lenders and Administrators Act, 2006
and! section! 101!of! the!Courts of Justice Act.! By!order! of! the!Ontario! Superior! Court! of! Justice!(Commercial!List)!(�Court�)!dated!June!26,!2018,!Chaitons!LLP!was!appointed!as!representative!counsel! to!persons!who!made! loans!through!BDMC!(�Representative Counsel�).!Notices!have!previously! been! sent! to! you! regarding! the! appointment! of! FAAN!Mortgage! as! Trustee! and! of!Chaitons!LLP!as!Representative!Counsel.!
We!are!writing!to!you!in!our!capacity!as!Trustee!regarding!the!syndicated!mortgage!loan!made!by!you!as!a!syndicated!mortgage!lender!(�SML�)!to!the!Borrower!in!respect!of!the!Harlowe!Project!pursuant! to! the! Loan! Agreement! between! BDMC! and! the! Borrower! (�BDMC Loan�),! and! the!various!associated!documents.!!
The!Borrower!has!presented!the!Trustee!with!an!offer!for!the!repayment!of!the!BDMC!Loan.!For!the!reasons!set!out!below,!the!Trustee!recommends!accepting!the!offer!in!full!satisfaction!of!all!amounts!due!or! that!may!become!owing! to!you!under! the!Loan!Agreement,!and!would! like! to!request!your!feedback!in!advance!of!accepting!the!offer.!
The! offer! provides! for! payment! by! the! Borrower! of! $15,562,896.38! (�Offer�),! which! is!approximately!98%!of!the!outstanding!principal!balance!of!the!BDMC!Loan.!!The!full!amount!that!would! be! due! at! this! time! under! the!BDMC!Loan! assuming! that! the! project! had! already! been!completed!is!estimated!to!be!$20.8!million!(including!accrued!interest!and!certain!deferred!lender!fees!assuming!profit!targets!were!met);!however,!when!previously!paid!interest!of!approximately!$2.7!million!(“Paid Interest�)!is!factored!into!the!analysis,!the!Offer!plus!the!Paid!Interest!would!result!in!the!full!repayment!of!the!principal!owing!to!the!SMLs,!plus!approximately!15%!above!the!outstanding!principal.!The!Offer! is! conditional!upon!Court!approval! and!a!release!of!all! future!obligations!of!the!Borrower!with!respect!to!the!Loan!Agreement!and!the!BDMC!Loan.!!
The!Offer!also!includes!the!extinguishment!of!all!further!rights!and!obligations!of!BDMC!and!the!
105
FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
SMLs!under!the!Loan!Agreement,!related!documents!and!the!associated!mortgage!on!the!Property.!If!approved,!payment!is!expected!to!be!made!by!the!Borrower!to!the!Trustee!shortly!following!Court!approval.!
A!copy!of!the!Offer!is!attached!hereto!as!Schedule!�A�.!
Overview of Current Status of Harlowe Project
The!Borrower!began!construction!on! the!Property! in! the!summer!of!2016.! !The!Borrower!has!advised!that!over!80%!of!available!units!for!the!Harlowe!Project!have!been!sold,!with!occupancy!expected! to! be! completed! for! these! units! by! the! end! of! 2018! and! registration! of! the! building!estimated!to!occur!in!the!summer!of!2019.!Upon!registration!of!the!building!the!sale!of!the!units!subject! to! existing! sale! agreements!will! be! completed,! at! which! time! the!majority! of! the! sale!proceeds!will!be!used!to!repay!the!priority!loans.!!!
The!Borrower!advised!that!it!intends!to!obtain!an!inventory!loan,!secured!against!the!remaining!units,!to!fund!costs!associated!with!holding!and!selling!the!remaining!units!as!the!last!step!in!the!completion!of! the!Harlowe!Project.!The!Borrower!has!also!advised!that! it!has! faced!significant!changes! in! the!marketplace! since! the!project!commenced!and! is! therefore! currently!unable! to!enter!into!an!acceptable!inventory!loan!because!lenders!are!unwilling!to!provide!a!loan!while!any!portion!of!the!BDMC!Loan!charge!remains!on!title.!
The!Borrower!has!advised!that,!without!an!inventory!loan,!it!will!take!substantially!longer!to!repay!the! BDMC! Loan,! as! the! BDMC! Loan! would! need! to! be! repaid! over! time! from! the! sale! of! the!remaining!units.! The!Borrower! estimates! that! repayment! could!be!delayed!until! the! spring! of!2021,!or!longer.!
Accordingly,! the! Borrower! is! seeking! to! repay! the! debt! owing! to! the! SMLs! under! the! Loan!Agreement!at!a!discount.!!The!Borrower!has!advised!that!it!is!unable!to!repay!the!full!amount!of!the!BDMC!Loan;!however,! if! interest!previously!paid!to!BDMC!of!approximately!$2.7!million! is!taken!into!account!the!Offer!would!result!in!full!repayment!of!the!principal!amount!advanced!by!BDMC!and!a!net!return!of!approximately!15%!on!that!principal!amount.!!
The!return!is!calculated!as!follows:!
! !Principal!outstanding!(A)! 15,863,400!! !Loan!repayment! 15,562,896!Interest!paid! 2,723,478!
Total!payments!(B)! 18,286,374!! !Net!recovery!(B-A)! $2,422,974!
!%!recovery!(B/A)!
!115%!
! !
106
FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
Assessment of the Offer and Recommendation!
The! Borrower! has! advised! that! the! final! sale! of! outstanding! units! of! the!Harlowe! Project! are!unlikely!to!be!completed!until!spring!of!2021.!Failure!of!the!Borrower!to!acquire!an!inventory!loan!to!facilitate!the!repayment!of!the!BDMC!Loan,!would!delay!the!repayment!of!the!BDMC!Loan!until!the!unit!sales!are!completed.!Accordingly,!and!based!on!the!estimates!provided!by!the!Borrower,!it!is!possible!that!the!BDMC!Loan!would!not!be!repaid!until!2021,!or!later.!
Further,! the!Borrower! ceased!making! interest!payments!due!under! the!Loan!Agreement!as! of!September!2,!2016!and!has!indicated!that!it!does!not!intend!to!resume!paying!interest!but!will!instead!accrue!interest!until!the!final!units!are!sold!and!the!BDMC!Loan!is!repaid!in!full.!
Acceptance!of!the!Offer!by!the!Trustee!would!result!in!the!SMLs!foregoing!the!following!amounts,!which!would!otherwise!become!due!on!the!BDMC!Loan!if!the!project!was!completed!and!certain!profit!milestones!were!achieved,!and!the!BDMC!Loan!was!repaid!on!or!about!October!15,!2018:!!
! !Estimated!Deferred!Lender!Fee! 2,220,876!Accrued!interest!(September,!2016!to!October!15,!2018)! 2,695,184!
Total!potential!foregone!recoveries!! $4,916,060!
! !
!
Since!October!15, 2018,!additional!interest!has!continued!to!accrue!and!would!be!payable!on!the!date!that!the!BDMC!Loan!was!repaid.!!
The!following!considerations!were!taken!into!account!by!the!Trustee!in!completing!its!assessment!of!the!Offer:!
· The!Trustee! engaged! an! independent! real! estate! appraiser! to! provide! a! current! �as! is�!appraisal!of!the!remaining!inventory.!!The!appraised!value!provided!substantially!supports!the!value!attributed!by!the!Borrower!to!the!remaining!units,!assuming!a!marketing!period!of!at!least!12!months;!!
· The!Offer!provides!certainty!regarding!the!amount!and!time!frame!for!the!repayment!of!the!BDMC!Loan.!Absent!the!acceptance!of!the!Offer,!the!repayment!of!the!BDMC!Loan!would!be! dependent! upon! the! sale! of! the! remaining! units.! Although! the! appraiser! provided! a!shorter!estimate!of!the!time!required!to!sell!the!units,!continuing!to!wait!for!the!sale!of!the!units!to!be!completed!leaves!the!SMLs!vulnerable!to!market!conditions,!which!could!result!in!a!lower!realization!at!a!later!date;!!
· The!approximately!$59.5!million!of!debt!that!ranks!in!priority!to!the!BDMC!Loan;!
· Approximately!45%!of! the! forgone! recoveries!outlined! in! the!chart!above! is!dependent!upon!the!project!achieving!certain!profit!milestones.!If!those!milestones!are!ultimately!not!
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FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
achieved,!the!ultimate!recoveries!would!be!lower;!and!!
· The!Offer!results!in!a!net!positive!return!of!approximately!15%!on!the!BDMC!Loan.!
Given!the!above!considerations,!in!addition!to!the!market!changes!encountered!by!the!Borrower,!and!the!Borrower�s!advice!that!it!is!unable!to!obtain!an!acceptable!inventory!loan!in!the!current!circumstances,!the!Trustee!is!of!the!view!that,!although!the!Offer!potentially!provides!discounted!returns!to!the!SMLs,!there!is!value!in!the!certainty!provided!by!accepting!the!Offer!and!crystalizing!the!outcome!of!the!BDMC!Loan.!Further,!as!noted!above!the!Offer!does!result! in!an!overall!net!positive!return!of!approximately!15%!on!the!principal!amount!advanced!by!BDMC.!!
Next Steps
At! this! time,! you! should! review! this! notice! and! the! Offer! carefully! and! arrange! to! obtain!independent!legal!advice!regarding!these!matters.!If!desired,!you!can!consult!with!Chaitons!LLP,!in!its!capacity!as!Representative!Counsel.!Representative!Counsel�s!contact!information!is!below.!
Attached! as! Schedule! �B�! hereto! is! an! instruction! letter! to! the! Trustee! that! gives! you! an!opportunity!to!indicate!whether!you!are!in!favour!of!or!against!the!acceptance!of!the!Offer!in!full!satisfaction!of!your!investment!under!the!BDMC!Loan.!!
If you have any objections to the acceptance of the Offer described herein, you should
return the instruction letter to us by mail, email, or fax, within ten (10) days.!If!you!agree!with!the!Trustee�s!recommendation!to!accept!the!Offer,!please!also!return!the!instruction!letter!to!us!by!mail,!email,!or!fax,!within!ten!(10)!days!to!indicate!your!agreement.!
After!ten!(10)!days,!the!Trustee,!in!consultation!with!Representative!Counsel,!will!decide!whether!to!accept!the!Offer!by!an!exercise!of!the!discretion!granted!to!the!Trustee!under!the!Appointment!Order.!Any!acceptance!by!the!Trustee!of!the!Offer!would!not!be!binding!on!the!Trustee!or!the!SMLs!until!the!Offer!is!approved!by!the!Court.!In!the!event!that!the!Trustee!accepts!the!Offer,!copies!of!the!Court!materials!will!be!served!upon!you!prior!to!the!proposed!Court!date.!
A!prompt!response!is!required!in!the!circumstances.!!
! !
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FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
Should! you! have! any! questions! of! the! Trustee,! our! contact! information! is! below! (if! you! are!contacting!us!by!phone!or!email,!please!reference!Harlowe Project).!!!
Email:!!! ! ! ! [email protected]!Local!Telephone!Number:! ! 416-606-3338!Toll-Free!Telephone!Number:!! 1-833-495-3338!
Should!you!wish!to!contact!Representative!Counsel,!their!contact!information!is!below!(if!you!are!contacting!Representative!Counsel!by!phone!or!email,!please!reference!Harlowe Project).!
Email:!!! ! ! ! [email protected]!Toll-Free!Telephone!Number:!! 1-888-203-0509!
!
Yours!very!truly,!
!
FAAN MORTGAGE ADMINISTRATORS INC.
SOLELY IN ITS CAPACITY AS COURT-APPOINTED TRUSTEE OF
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
AND IN NO OTHER CAPACITY
Faan Mortgage Administrators Inc.
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FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
Schedule “B”
Harlowe Project Instruction Form
Re: Harlowe Project Notice & Request for Approval
TO: FAAN Mortgage Administrators Inc. (“Trustee”), in its capacity as Court-appointed trustee of Building & Development Mortgages Canada Inc. (“BDMC”)
RE: Repayment of the BDMC loan made to The Harlowe Inc. (“Borrower”)
I, ______________________ (Lender Name) have received a request for the following:
my authorization to the Trustee:
(i) to accept the $15,562,896.38 offer (“Offer”) made by the Borrower for the repayment of the loan advanced by BDMC to the Borrower under the Loan Agreement dated June 10, 2013 (“Loan Agreement”) in substantially the form attached as Schedule “A” to the Notice to Lenders dated November 16, 2018, which includes a release of BDMC, the Trustee and individual lenders with respect to all rights and obligations under the Loan Agreement and related documents; and
(ii) to negotiate, on my behalf, matters related to the Offer and all agreements reasonably needed in connection with same.
((i) and (ii) hereinafter collectively called the “Proposal”).
Acceptance of the Proposal:
The undersigned hereby provides the following feedback with respect to all of its interest in the Loan Agreement as described above (mark one only):
Yes, I agree with the Trustee’s recommendation to accept the Proposal as described above; or
No, I object to the acceptance of the Proposal as described above.
If you have additional feedback with respect to the Proposal and the proposed acceptance thereof, please provide full details regarding the nature of your feedback, question or concern below:
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FAAN MORTGAGE ADMINISTRATORS INC. | 920-20 Adelaide Street East Toronto, Ontario, M5C 2T6
Certification:
By returning this instruction form and signing below, I certify that (a) I have full power and authority to give instructions with respect to the Proposal and its effect on my investment under the Loan Agreement; (b) I have read this Notice & Request for Approval and the Trustee’s Notice to Lenders dated November 16, 2018; (c) I have obtained such independent legal advice as I believe is necessary in the circumstances; and (d) I hold the following interest in debt administered by BDMC under the Loan Agreement:
Debt in the amount of $_______________________.
Name_________________________________
Signature_______________________________
Date___________________________________
Please return this form using one of the following methods:
i) if by email: [email protected] Subject line “Harlowe Approval Form”
ii) if by mail to the following address:
Building & Development Mortgages Canada Inc.
c/o FAAN Mortgage Administrators Inc.920-20 Adelaide St. E.Toronto, ON M5C 1H6
Attention: Harlowe Approval Form
iii) if by fax: 905-508-3957, attention Harlowe Approval Form
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ONTARIO SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE HONOURABLE MR.
JUSTICE HAINEY
) ) )
THURSDAY, THE 20TH
DAY OF DECEMBER, 2018
BETWEEN:
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006,
c. 29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
HARLOWE SETTLEMENT APPROVAL ORDER
THIS MOTION, made by FAAN Mortgage Administrators Inc. (“FAAN Mortgage”),
in its capacity as Court-appointed trustee (in such capacity, the “Trustee”), of all of the assets,
undertakings and properties of Building & Development Mortgages Canada Inc. (the
“Respondent”) pursuant to section 37 of the Mortgage Brokerages, Lenders and Administrators
Act, 2006, S.O. 2006, c. 29, as amended (the “MBLAA”), and section 101 of the Courts of
Justice Act, R.S.O. 1990, c. C.43, as amended, for an Order, inter alia, (i) approving and
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ratifying the Settlement Agreement dated as of November 6, 2018 (the “Harlowe Settlement
Agreement”) among The Harlowe Inc. (“Harlowe”), the Trustee and Olympia Trust Company
(“OTC”); (ii) ordering Harlowe to pay $15,562,896.38 to the Trustee pursuant to the Harlowe
Settlement Agreement; (iii) ordering Harlowe, the Trustee and OTC to comply with the Harlowe
Settlement Agreement; and (iv) authorizing the Trustee to, upon the delivery of the Trustee’s
Certificate (as defined below), make a further distribution of Realized Property to Investors, was
heard this day at 330 University Avenue, Toronto, Ontario;
ON READING the Fourth Report of the Trustee dated December 13, 2018 (the “Fourth
Report”), and on hearing the submissions of counsel for the Trustee, Chaitons LLP, in its
capacity as Representative Counsel, counsel to Harlowe and such other counsel as were present,
no one appearing for any other person on the service list, as appears from the affidavit of service
of Justine Erickson sworn December , 2018, filed;
SERVICE AND INTERPRETATION
1. THIS COURT ORDERS that the time for service of the Notice of Motion, the Motion
Record and the Fourth Report is hereby abridged and validated so that this Motion is properly
returnable today and hereby dispenses with further service thereof.
2. THIS COURT ORDERS that all capitalized terms used but not defined herein shall
have the meanings given to them in the Fourth Report and the Harlowe Settlement Agreement.
APPROVAL OF THE HARLOWE SETTLEMENT AGREEMENT
3. THIS COURT ORDERS that (i) the Harlowe Settlement Agreement be and is hereby
approved in its entirety, with such minor amendments as the Trustee and the other parties to the
Harlowe Settlement Agreement may agree upon to permit the completion of the transaction
contemplated thereby; (ii) Harlowe is hereby directed to pay $15,562,896.38 forthwith to the
Trustee in accordance with the terms of the Harlowe Settlement Agreement (such funds the
“Harlowe Realized Property”); and (iii) the execution of the Harlowe Settlement Agreement by
the Trustee and OTC is hereby ratified and approved, and the Trustee and OTC are hereby
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authorized and directed to comply with all of their obligations under the Harlowe Settlement
Agreement.
4. THIS COURT ORDERS AND DECLARES that upon the delivery of a Trustee’s
certificate to Harlowe substantially in the form attached as Schedule “A” hereto (the “Trustee’s
Certificate”), all of Harlowe’s obligations to Building & Development Mortgages Canada Inc.
(“BDMC”), OTC, and the individual lenders (the “Harlowe Individual Lenders”) under the
Loan Agreement dated as of June 10, 2013 between BDMC and Harlowe (the “Loan
Agreement”), the Security and the Loan Documents (each as defined in the Loan Agreement)
(collectively, the “Harlowe Loan Obligations”) and all security interests granted to BDMC,
OTC or the Harlowe Individual Lenders in and to the assets of Harlowe to secure the Harlowe
Loan Obligations and related registrations on title (the “Loan Encumbrances”) are hereby
released, extinguished, expunged, discharged and deleted and that none of the Trustee, BDMC,
OTC or any Harlowe Individual Lender shall have any claim against Harlowe in respect of the
Harlowe Loan Obligations or the Loan Encumbrances; provided, however, that Harlowe shall
not be released from any obligations under the Harlowe Settlement Agreement.
5. THIS COURT ORDERS AND DECLARES that upon the delivery of the Trustee’s
Certificate, the Harlowe Realized Property is and shall be deemed to be “Realized Property” as
defined in the Order of this Court dated June 26, 2018 (the “Interim Stabilization Order”) and
that all of the Harlowe Individual Lenders’ rights and claims under the Loan Agreement, the
Security and the Loan Documents shall attach to the Harlowe Realized Property and shall have
the same nature and priority as they had prior to the consummation of the Harlowe Settlement
Agreement, including pursuant to the Appointment Order and the Interim Stabilization Order.
6. THIS COURT ORDERS that upon the registration in the Land Registry Office for the
Registry Division of Toronto (#66) of an Application for Vesting Order in the form prescribed
by the applicable Land Registry Office and attaching a copy of this Order and the executed
Trustee’s Certificate, the Land Registrar is hereby directed to delete and expunge from title to the
real property identified in Schedule “B” hereto (the “Real Property”) all of the Loan
Encumbrances listed in Schedule “C” hereto.
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7. THIS COURT ORDERS that upon the delivery of the Trustee’s Certificate, the release
agreement in the form attached as Schedule “D” hereto (“Release Agreement”) to be given to
the Trustee, BDMC, OTC, and each Harlowe Individual Lender who loaned funds through
BDMC or OTC to Harlowe pursuant to the Loan Agreement and all related Loan Documents,
each of their respective officers, directors, agents, employees, and each of their respective
successors and assigns (collectively, the “Releasees”) by Harlowe on behalf of itself, its
affiliates, and their respective shareholders, agents, directors, officers, employees, and each of
their respective successors and assigns (collectively, the “Releasors”) shall be binding and
effective on the Releasors in favour of the Releasees.
8. THIS COURT ORDERS AND DIRECTS the Trustee to file with the Court a copy of
the Trustee’s Certificate, as soon as practicable after delivery thereof.
REALIZED PROPERTY
9. THIS COURT ORDERS that upon the delivery of the Trustee’s Certificate, the Trustee
shall make a further distribution to Investors in an amount equal to 5% of the Realized Property
held on the date of the Appointment Order, including the Realized Property obtained with
respect to the Victoria Medical SML Loans, pro rata to the Investors entitled to such funds, such
that, when combined with the distributions made pursuant to the Interim Stabilization Order, the
Order of this Court dated October 30, 2018 (“Realized Property Order”) and the Order of this
Court dated November 28, 2018, 85% of such funds shall have been distributed on a pro rata
basis to the Investors entitled to such funds.
10. THIS COURT ORDERS that upon the delivery of the Trustee’s Certificate, paragraph
3(b) of the Realized Property Order is hereby further amended to provide that the Trustee shall
distribute 85% of all other Realized Property obtained, including the Harlowe Realized Property,
pro rata to the Investors entitled to such funds, whether received before or after the date of this
Order.
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AID AND RECOGNITION OF FOREIGN COURTS
11. THIS COURT HEREBY REQUESTS the aid and recognition of any court, tribunal,
regulatory or administrative body having jurisdiction in Canada or in the United States to give
effect to this Order and to assist the Trustee and its agents in carrying out the terms of this Order.
All courts, tribunals, regulatory and administrative bodies are hereby respectfully requested to
make such orders and to provide such assistance to the Trustee, as an officer of this Court, as
may be necessary or desirable to give effect to this Order or to assist the Trustee and its agents in
carrying out the terms of this Order.
12. THIS COURT ORDERS that the Trustee be at liberty and is hereby authorized and
empowered to apply to any court, tribunal, regulatory or administrative body, wherever located,
for the recognition of this Order and for assistance in carrying out the terms of this Order, and
that the Trustee is authorized and empowered to act as a representative in respect of the within
proceedings for the purpose of having these proceedings recognized in a jurisdiction outside
Canada.
____________________________________
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Schedule “A” – Form of Trustee’s Certificate
Court File No.: CV-18-596204-00CL
ONTARIO SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE SUPERINTENDENT OF FINANCIAL SERVICES
Applicant
- and -
BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Respondent
APPLICATION UNDER SECTION 37 OF THE
MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006, S.O. 2006, c. 29 and SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990 c. C.43
TRUSTEE’S CERTIFICATE
RECITALS
A. Pursuant to an Order of the Honourable Justice Hainey of the Ontario Superior Court of
Justice [Commercial List] (the “Court”) dated April 20, 2018, FAAN Mortgage Administrators
Inc. was appointed as the trustee (the “Trustee”) of the undertaking, property and assets of
Building & Development Mortgages Canada Inc. (“BDMC”).
B. Pursuant to an Order of the Court dated [DATE] (the “Harlowe Settlement Approval
Order”), the Court approved and ratified the Settlement Agreement made as of November 6,
2018 (the “Harlowe Settlement Agreement”) among The Harlowe Inc. (“Harlowe”), the
Trustee and Olympia Trust Company (“OTC”) and ordered that all of Harlowe’s obligations to
BDMC, OTC, and the individual lenders (“Harlowe Individual Lenders”) under the Loan
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Agreement, the Security and the Loan Documents (each as defined in the Loan Agreement)
(collectively, the “Harlowe Loan Obligations”) and all security interests granted to BDMC,
OTC or the Harlowe Individual Lenders in and to the assets of Harlowe to secure the Harlowe
Loan Obligations (the “Loan Encumbrances”) are hereby released, extinguished, expunged and
discharged and that none of the Trustee, BDMC, OTC or any Harlowe Individual Lender shall
have any claim against Harlowe in respect of the Harlowe Loan Obligations or the Loan
Encumbrances; provided, however, that Harlowe shall not be released from any obligations
under the Harlowe Settlement Agreement; and that the release of the Harlowe Loan Obligations
and the Loan Encumbrances is to be effective upon the delivery by the Trustee to Harlowe of a
certificate confirming (i) the payment of $15,562,896.38 to the Trustee by Harlowe; (ii) that the
conditions precedent to the Harlowe Settlement Agreement as set out in section 9 of the Harlowe
Settlement Agreement have been satisfied or waived by the Trustee; and (iii) the settlement has
been completed to the satisfaction of the Trustee.
C. Unless otherwise indicated herein, terms with initial capitals have the meanings set out in
the Harlowe Settlement Approval Order.
THE TRUSTEE CERTIFIES the following:
1. Harlowe has paid and the Trustee has received $15,562,896.38 pursuant to the Harlowe Settlement Agreement;
2. Harlowe has provided the Release Agreement to the Releasees;
3. Harlowe has certified that all of the representations and warranties contained in this Harlowe Settlement Agreement continue to be true as of the Effective Date;
4. Harlowe continues to be, in the reasonable opinion of the Trustee, in compliance with all of the terms of the Harlowe Settlement Agreement;
5. The other conditions set out in the Harlowe Settlement Agreement have been satisfied or waived by the Trustee; and
6. The settlement has been completed to the satisfaction of the Trustee.
This Certificate was delivered by the Trustee at ________ [TIME] on _______ [DATE].
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FAAN Mortgage Administrators Inc., solely in its capacity as Court-appointed Trustee of the undertaking, property and assets of Building & Development Mortgages Canada Inc., and in no other capacity
Per: Name: Title:
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Schedule “B” – Real Property
PIN 21239-0519 (LT)
PART OF LOTS 21 TO 26 PLAN D111, PARTS 1, 3, 4, 5, 6, 7 AND 8 PLAN 66R29958; SUBJECT TO AN EASEMENT AS IN AT3640549; SUBJECT TO AN EASEMENT IN FAVOUR OF LOT 8 PLAN D111 AS IN AT4127651; SUBJECT TO AN EASEMENT OVER PART 3 PLAN 66R29958 IN FAVOUR OF PART OF LOTS 21 TO 26 PLAN D111, PART 2 PLAN 66R29958 AS IN AT4939549; TOGETHER WITH AN EASEMENT OVER PART OF LOTS 21 TO 26 PLAN D111, PART 2 PLAN 66R29958 AS IN AT4939549
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Schedule “C” – Loan Encumbrances
Registration No. Date Type of Instrument AT3428381 October 10, 2013 Charge AT3428575 October 10, 2013 Transfer of Charge AT3436925 October 24, 2013 Transfer of Charge AT3439420 October 28, 2013 Transfer of Charge AT3485881 December 20, 2013 Transfer of Charge AT3497057 January 13, 2014 Transfer of Charge AT3530200 February 28, 2014 Notice of Amending Agreement AT3530201 February 28, 2014 Transfer of Charge AT3537271 March 13, 2014 Transfer of Charge AT3561924 April 22, 2014 Transfer of Charge AT3624957 July 4, 2014 Notice of Amending Agreement AT3671510 August 26, 2014 Transfer of Charge AT3706643 October 3, 2014 Transfer of Charge AT3728529 October 31, 2014 Transfer of Charge AT3738320 November 12, 2014 Transfer of Charge AT3749625 November 26, 2014 Transfer of Charge AT3763762 December 11, 2014 Transfer of Charge AT3783153 January 9, 2015 Transfer of Charge AT3811062 February 13, 2015 Notice of Amending Agreement AT3812523 February 18, 2015 Transfer of Charge AT3945778 July 14, 2015 Notice of Amending Agreement AT3945995 July 14, 2015 Transfer of Charge AT3974731 August 12, 2105 Transfer of Charge AT4014833 September 21, 2015 Notice of Amending Agreement AT4020009 September 28, 2015 Transfer of Charge AT4095416 December 15, 2015 Transfer of Charge AT4127132 January 26, 2016 Postponement AT4138805 February 5, 2016 Postponement AT4166503 March 14, 2016 Transfer of Charge AT4197452 April 20, 2016 Transfer of Charge AT4224419 May 24, 2016 Transfer of Charge AT4233310 June 1, 2016 Transfer of Charge AT4271518 July 7, 2016 Transfer of Charge AT4282089 July 18, 2016 Transfer of Charge AT4483560 February 9, 2017 Transfer of Charge AT4486694 February 14, 2017 Transfer of Charge
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Schedule “D” – Release Agreement
[Date]
TO: FAAN Mortgage Administrators Inc. (the “Trustee”)
AND TO: Olympia Trust Company (“OTC”)
Re: Release granted in connection with repayment and settlement of the Obligations pursuant to Harlowe Settlement Agreement
Dear Sirs/Mesdames
Reference is made to the Loan Agreement dated as of June 10, 2013 (the “Loan Agreement”) between The Harlowe Inc. (“Harlowe”) and Building & Development Mortgages Canada Inc. (“BDMC”) and the related Security and Loan Documents. All capitalized terms used in this agreement (the “Release Agreement”) shall, unless otherwise defined herein, have the same meanings given to them in the Loan Agreement or the Settlement Agreement dated as of November 6, 2018 among Harlowe, the Trustee and OTC (the “Settlement Agreement”).
1. Harlowe hereby certifies that all of the representations and warranties contained in the Settlement Agreement are true and accurate as of the date hereof and that it is in compliance with all covenants, terms and provisions of the Settlement Agreement.
2. Harlowe has paid the Trustee $15,562,896.38 pursuant to the Settlement Agreement and waives any right of set-off or any other defence.
3. In consideration of the acceptance of $15,562,896.38 in full and final satisfaction of Obligations payable to BDMC by Harlowe under the Loan Agreement in excess of $20,779,460 and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Harlowe (on behalf of itself, its affiliates, and their respective shareholders, agents, directors, officers, employees, and each of their respective successors and assigns) (collectively, the “Releasors”)) hereby releases, discharges and acquits the Trustee, BDMC, OTC, and each lender or investor who loaned funds through BDMC or OTC to Harlowe pursuant to the Loan Agreement and all related Loan Documents, each of their respective officers, directors, agents, employees, and each of their respective successors and assigns (collectively, the “Releasees”) from any and all claims, demands, rights, liabilities, and causes of action, whether in law or in equity, whether known or unknown, that any Releasor, at any time had or has, or that they or their respective successors or assigns hereafter have or may have against the Releasees directly or indirectly arising out of or in any way related to the Loan Agreement, the Loan Documents, the proceedings initiated by the Order of the Ontario Superior Court of Justice (Commercial List) dated April 20, 2018, or any transactions hereunder or thereunder.
This Release Agreement shall be effective immediately upon the delivery of the Trustee’s Certificate and may be relied upon by any of the Releasees, whether or not such Releasee is a party to this Release Agreement or the Settlement Agreement.
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This Release Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, and may be executed and delivered by facsimile or .pdf file transmitted by email, and all such counterparts, .pdf files and facsimiles when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same Release Agreement.
This Release Agreement shall be construed in accordance with and governed by the laws of the Province of Ontario.
Yours truly,
THE HARLOWE INC.
By:
Name:
Title:
Accepted and agreed to by:
FAAN MORTGAGE ADMINISTRATORS INC., solely in its capacity as Court-appointed Trustee of Building & Development Mortgages Canada Inc. and in no other capacity
By:
Name:
Title:
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OLYMPIA TRUST COMPANY
By:
Name:
Title:
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THE SUPERINTENDENT OF FINANCIAL SERVICES - and - BUILDING & DEVELOPMENT MORTGAGES CANADA INC.
Applicant Respondent Court File No. CV-18-596204-00CL
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
Proceedings commenced at Toronto
MOTION RECORD OF FAAN Mortgage Administrators Inc., in its capacity
as Court-appointed Trustee
OSLER, HOSKIN & HARCOURT LLP P.O. Box 50, 1 First Canadian Place Toronto, ON M5X 1B8
Michael De Lellis (LSUC# 48038U) Jeremy Dacks (LSUC# 41851R) Patrick Riesterer (LSUC# 60258G) Tel: (416) 362-2111 Fax: (416) 862-6666 Lawyers for FAAN Mortgage Administrators Inc., in its capacity as Court-appointed Trustee of Building & Development Mortgages Canada Inc.