Court File No. CV-16-11399-00CL

ONTARIO

SUPERIOR COURT OF JUSTICE

(IN BANKRUPTCY & INSOLVENCY)

[COMMERCIAL LIST]

BETWEEN:

CENTRAL 1 CREDIT UNION

Applicant

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3778258 CANADA INC., 1420667 ONTARIO LTD.

and SEAM ENTERPRISES LTD.

Respondents

THIRD REPORT OF THE COURT-APPOINTED RECEIVER OF

3778258 CANADA INC., 1420667 ONTARIO LTD.

and SEAM ENTERPRISES LTD.

DATED JUNE 24, 2019

Table of Contents

Page No.

A. INTRODUCTION..............................................................................................................1

B. BACKGROUND ................................................................................................................3

C. OVERVIEW OF THE RECEIVER’S ACTIVITIES .....................................................3

D. COMPLETION OF THE RECEIVERSHIP ..................................................................5

E. PROFESSIONAL FEES AND DISBURSEMENTS ......................................................9

F. RECEIVER’S REMAINING ACTIVITIES AND DISCHARGE ..............................10

G. REQUESTS FOR APPROVAL......................................................................................11

Appendices

“A” - Receivership Order

“B” - First Report dated June 27, 2017

“C” - Court Order dated July 7, 2017

“D” - Second Report dated August 15, 2017

“E” - Court Order dated August 22, 2017

“F” - Final Statement of Receipts and Disbursements

“G” Security Review of 1000 Islands Development Corporation re: 1420667 Ontario

Ltd.

“H” Security Review of 1000 Islands Development Corporation re: SEAM Enterprises

Ltd.

“I” Copies of the 2014 Financial Statements of 142 and the Receiver’s Section 245(1)

report

“J” Direction to Release Surplus Funds to Counsel

“K” Fee Affidavit of the Receiver

“L” Fee Affidavit of Legal Counsel of the Receiver

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A. INTRODUCTION

1. Pursuant to the Order of Justice Swinton of the Ontario Superior Court of Justice (the

“Court”) dated June 6, 2016 (the “Receivership Order”), The Fuller Landau Group Inc.

(“FLG”) was appointed receiver (the “Receiver”), without security, of all of the assets,

undertakings and properties of 3778258 Canada Inc. O/A James Fire & Safety (“377”),

1420667 Ontario Ltd. (“142”), and SEAM Enterprises Ltd. (“SEAM”; and, together with

377 and 142, the “Debtors”). The Receivership Order was made upon an application by

the Central 1 Credit Union (“Central 1”) pursuant to section 243(1) of the Bankruptcy and

Insolvency Act, R.S.C. 1985 c. B-3, as amended (the “BIA”) and section 101 of the Courts

of Justice Act, R.S.O. 1990, c. C.43, as amended. A copy of the Receivership Order is

attached as Appendix “A”.

2. On June 27, 2017, the Receiver issued its First Report to Court (the “First Report”) in

support of a motion by the Receiver requesting, amongst other relief, an Order:

(a) declaring that Central 1’s involvement in the within proceedings as a creditor is

terminated; and

(b) authorizing and directing Central 1 to remit to the Receiver excess debt repayment

proceeds in its possession for use by the Receiver to fund ongoing costs, in

exchange for a Receiver’s certificate in respect of the same, in favour of Doyle

Salewski Inc. in its capacity as trustee of the bankruptcy estate of Henry O’Hare –

the original source of the excess funds paid to Central 1 and a stakeholder in the

receivership estate.

A copy of the First Report (without appendices) is attached as Appendix “B”.

3. On July 7, 2017, the Court issued an Order (the “July 7th Order”) granting the

administrative relief sought by the Receiver. A copy of the July 7th Order is attached as

Appendix “C”.

4. On August 15, 2017, the Receiver issued its Second Report to Court (the “Second

Report”) in support of a motion by the Receiver requesting, amongst other relief, an Order:

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(a) approving the APS, and vesting the Debtors’ right, title and interest in and to 142’s

real property in the Purchaser, upon the filing by the Receiver of a certificate with

this Court certifying, amongst other things, that the Transaction has been completed

to the satisfaction of the Receiver;

(b) sealing Confidential Appendices 1, 2 and 3 of the Second Report until completion

of the Transaction or further Order of this Court;

A copy of the Second Report (without appendices) is attached as Appendix “D”.

5. On August 22, 2017, the Court issued an Order (the “August 22nd Order”) granting the

relief sought by the Receiver. A copy of the August 22nd Order is attached as Appendix

“E”.

6. The purpose of this Third Report of the Receiver (the “Third Report”) is to:

(a) report on the Receiver’s activities the receivership proceedings (the “Receivership

Proceeding”) since the Second Report; and

(b) request that this Court issue an Order:

a) approving this Third Report and the actions and activities of the Receiver as

described in the Third Report;

b) authorizing and directing the Receiver to complete a distribution of funds held

in the receivership estate of 142 to pay in full the known creditors of 142 and,

thereafter, to distribute the remaining funds to the life estate of the former

sole director, officer and shareholder of 142 (the “O’Hare Estate”), which

life estate paid a portion of the senior secured debt as guarantor of the same;

c) authorizing and directing the Receiver to cause SEAM to make an assignment

in bankruptcy for the purposes of facilitating a distribution;

d) approving the Receiver’s Final Statement of Receipts and Disbursements as

at June 24, 2019;

e) approving the fees and disbursements of the Receiver and its counsel; and

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f) an order discharging the Receiver upon the completion of the remaining

administrative activities described in the Third Report.

7. In preparing and filing this Third Report, the Receiver has relied upon unaudited financial

statements, internal financial information obtained from the Debtors’ books and records,

and discussions with former management, third parties and other creditors (collectively,

the “Information”). The Receiver has not audited, reviewed or otherwise attempted to

verify the accuracy or completeness of the Information and expresses no opinion, or other

form of assurance, in respect of the Information.

B. BACKGROUND

8. A description of the background of the Debtors and events leading up the Receiver’s

appointment was provided in the First Report and Second Report, which are attached

hereto, without appendices, as Appendix “B” and “D”, respectively.

C. OVERVIEW OF THE RECEIVER’S ACTIVITIES

9. Since the Second Report, the Receiver has:

(a) attended to complete with counsel, the closing of the sale of 142’s real property;

(b) terminated 142’s insurance and received a refund of premium’s paid;

(c) filed Notices of Objection and held several discussions with Canada Revenue

Agency (“CRA”) regarding the HST assessments and Notices of Objections filed

for SEAM and 377, and obtained extensions of the HST re-assessment appeal

periods;

(d) coordinated with Mr. Henry O’ Hare access to the Debtors’ books and records and

accounting information in respect of the reassessment of HST obligations;

(e) attended to meet with the Mr. Henry O’Hare and his counsel regarding the HST

assessments received, the status of the proceedings and a course of action regarding

the assessments and the proceedings;

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(f) held discussions with the trustee of the bankruptcy estates Mr. Henry O’ Hare and

the late Ms. Diane O’ Hare regarding funding received by way of Receiver

borrowing certificates, the estates’ entitlement to repayment of same and proceeded

to disburse the funds to repay the Receiver’s borrowing certificate advances to the

Trustee;

(g) opened a new bank account for 142 for the purpose of this engagement;

(h) held discussions with a representative of 1000 Islands Community Development

Corporation (“TIDC”) regarding various loans made to 142, SEAM and 337 and

reviewed amounts claimed as due to TIDC;

(i) arranged for and received security opinions from the Receiver’s counsel with

respect to security held by TIDC as against 142 and SEAM;

(j) searched computer backup files stored in hard drive to attempt to retrieve financial

data and information for 142 subsequent to the date of its last externally reviewed

financial statements as at June 30, 2014;

(k) attended to completion and filing of 142’s fiscal 2017 and 2018 tax returns

(l) attended to completion of 142’s and SEAM’s HST returns for the duration of the

receivership proceeding;

(m) held multiple discussions with the Receiver’s counsel regarding the status of the

receivership proceeding, the status of the remaining funds in the 142 estate and the

options to close out the receivership proceedings;

(n) maintained financial records for the receivership and prepared the Receiver’s Final

Statement of Receipts and Disbursements;

(o) prepared and filed the Receiver’s reports pursuant to Section 246(2) of the BIA;

(p) attended to all banking matters, deposited receipts and issued disbursements (incl.

WEPP payments) in respect of the ongoing activities of the Receiver; and

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(q) performed all other matters with respect to the Receiver’s appointment pursuant to

the Receivership Order, July 7th Order and August 22nd Order, including, without

limitation, preparing this Third Report.

D. COMPLETION OF THE RECEIVERSHIP

Sale of Remaining Assets

15. Following the August 22nd Order, and in accordance with the terms thereof, the Receiver

completed the sale of the last remaining asset of the Debtors, namely: 142s’s real property,

generating gross proceeds of $375,000 for the estate of 142.

Final Statement of Receipts & Disbursements

16. Attached as Appendix “F” is a copy of the Receiver’s Final Statement of Receipts and

Disbursements as at June 24, 2019 (the “Statement”), together with accompanying notes.

After allocating proceeds of sale from all the Debtors’ assets and the direct and indirect

realization costs and expenses among the three receivership entities, the Statement shows

an excess of receipts over disbursements of $158,187.46, available in the 142 estate.

Security Review re: TIDC

17. As set out in the First Report, the Debtors’ indebtedness to the senior secured creditor –

Central 1 – was satisfied in full through the bankruptcy estate of Ms. Diane O’Hare, the

principal of the Debtors and guarantor of the obligations to Central 1. This equated to a

payment of approximately $80,000 by Ms. O’Hare’s estate under the guarantee with

respect to 142’s indebtedness to Central 1.

18. In view of the satisfaction of Central 1, anticipating a distribution to TIDC – the second-

ranking secured creditor – the Receiver directed its counsel to review the security held by

TIDC in respect of 142 and SEAM. A copy of counsel’s review of such security is

appended hereto as Appendix “G” and “Appendix “H”, respectively. Counsel has

concluded that, subject to the ordinary assumptions, the security held by TIDC as against

each of 142 and SEAM is valid and enforceable.

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Funds Available for Distribution

19. As set out in the Statement, the estate of 142 is the only estate of the Debtors for which the

Receiver presently holds funds. Specifically, there is $158,187.46 available for

distribution, before payment of the Receiver and its counsels’ future estimated fees of

$11,300 to complete this matter, as set out in Paragraph 24 (net funds available would

amount to $146,887.46). In addition, HST refunds of approximately $14,000 are not

accounted for as receipt from CRA is uncertain.

Creditors and Stakeholders of 142

20. Upon the commencement of the receivership, the Debtors books and records were not

current. The last externally reviewed financial statement available is for the year ended

June 30, 2014 (the “2014 Financial Statements”). In addition, the Receiver has been

unable to obtain creditor information subsequent to that date, other then as disclosed by

Diane to enable the Receiver to issue its Section 245(1) report pursuant to the Bankruptcy

and Insolvency Act. Copies of the 2014 Financial Statements of 142 and the Receiver’s

Section 245(1) report are attached as Appendix “I”.

21. A summary of 142’s creditors as at May 10, 2016, updated for information received

subsequently from certain creditors and the results of the Receiver’s activities is

summarized in the table below:

Secured or Trust Creditors [see notes a – c] $

Canada Revenue Agency - HST 3,810.13

1000 Islands Community Development Corporation (as at January 15, 2019) 19,732.99

O’Hare Estate (as payor under a guarantee to 142’s senior secured creditor) 80,691.45

Total Secured and Trust Creditors 104,234.57

Unsecured Creditors

Canada Revenue Agency 14,349.38

S.E.A.M Enterprises Ltd. 37,572.40

Total Unsecured Creditors 51,921.78

Grand Total 156,156.35

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NOTES:

(a) Interest continues to accrue on the amounts due to CRA and the TIDC secured debt.

(b) No details exist for accounts payable in the June 30, 2014 financial statements

totalling $11,019. The Receiver has not received any creditor enquiries other than

from CRA and TIDC.

(c) The O’Hare Estate holds this claim as payor, under a guarantee, of a portion of 142

debt to its senior secured creditor, Central 1 (who has been satisfied in full).

22. As reported previously, Ms. Diane O’ Hare (“Diane”), who operated the Debtors, and her

husband Mr. Henry O’ Hare (“Henry”) filed Assignments in Bankruptcy with trustee

Doyle Saleweski (“DS”) in or about August 2016. Unfortunately, also as reported

previously, Diane passed away in 2016. DS has advised that all of Diane’s creditors have

been paid in full and that her estate has been discharged from bankruptcy and that any

assets in the Trustee’s possession were released back to her life estate – the O’Hare Estate.

Additionally, DS advises that Henry’s creditors have been paid in full, and Henry has

received a discharge from bankruptcy and that any assets in the Trustee’s possession were

released back to him.

23. The Receiver is advised that Henry is the executor and sole beneficiary of the O’Hare

Estate.

Proposed Distribution

24. The Receiver and its legal counsel estimate that the fees, disbursements, and applicable

taxes from June 1, 2019 to the completion of the administration (Refer to Section F below)

will not exceed $11,300 (inclusive of HST). After payment of these amounts, $146,887.46

would be available for distribution to the known creditors which total approximately

$156,156.35 (without accounting for the aforementioned potential HST refunds, which

may be pursued by 142).

25. In order to complete distributions on a cost-efficient basis the O’Hare Estate has agreed

that all other creditors will be paid in full, with the cash balance remaining thereafter

available for distribution to the O’Hare Estate. To effect such distributions, the Receiver

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has requested and received a direction from the O’Hare Estate to deliver all such remaining

funds payable to counsel, Fitzpatrick & Culic, in trust. A copy of such direction is attached

as Appendix “J”

26. Set out below is a summary of the estimated net cash position of 142 after the distributions

to known creditors, other then the O’Hare estate, and payment of the Receiver and its

counsel’s fees and disbursements (subject to court approval):

$

Excess of Receipts over Disbursements 158,187.46

Less: Estimated Receiver fees and Legal fees (11,300.00)

Estimated Balance Available 146,887.46

Less: Estimated Payments to Other Known

Creditors

(75,464.90)

Estimated Available Funds for the O’Hare

Estate

71,422.56

27. Based on the above, and subject to payment of approved Receiver and legal fees, the

Receiver is proposing that it:

(i) distribute the amounts payable to known creditors, other then the O’Hare Estate,

of 142 as set out in the tables in paragraphs 21 and 26 above; and

(ii) thereafter distribute the estimated available funds remaining in its possession (the

“Estimated Available Funds”) to the O’Hare Estate, by way of payment of such

funds counsel, in trust, in accordance with the direction referenced in paragraph 25

above.

Bankruptcy of SEAM

28. As set out above, SEAM is a creditor of 142. Following the distribution of the funds in the

142 estate (including to SEAM), the Receiver will hold $37,572.40 in the SEAM estate,

which will be available for distribution to SEAM’s creditors, including TIDC as the senior

secured creditor of the SEAM estate. As at November 22, 2017, TIDC is owed

$151,964.75 by SEAM, on a secured basis.

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29. Pursuant the July 7th Order, the Receiver was authorized, but not directed, to file

assignments in bankruptcy on behalf of the Debtors, should the Receiver deem it

appropriate to facilitate a distribution.

30. TIDC has contacted the Receiver and requested that the Receiver make an assignment in

bankruptcy on behalf of SEAM, in order to address a distribution of funds held by the

Receiver on behalf of SEAM and the priority between TIDC’s security and a claim for

unpaid HST. Such a step would be, in the Receiver’s view, consistent with TIDC’s legal

rights and prevailing insolvency practice.

31. The Receiver notes that, but for the stay of proceedings herein, TIDC would be capable of

petitioning SEAM into bankruptcy.

32. In view of the request of TIDC, and the foregoing, the Receiver requests a direction from

the Court to cause SEAM to make an assignment in bankruptcy, naming The Fuller Landau

Group Ltd. as trustee in bankruptcy.

E. PROFESSIONAL FEES AND DISBURSEMENTS

33. The Receiver seeks the approval of its professional fees and disbursements and the fees

and disbursements of its legal counsel.

34. Attached as Appendix “K” is a copy of the Receiver’s detailed statement of accounts for

the period May 9, 2016 to May 31, 2019 together with a summary of the time charges and

applicable hourly rates and an Affidavit of Gary Abrahamson in connection with the

Receiver’s fees and disbursements.

35. The Receiver’s estimates that its fees, disbursements, and applicable taxes from June 1,

2019 to the completion the within receivership will not exceed $5,650 (inclusive of HST).

36. The Receiver’s requests approval of its fees and disbursements in the amount of

$129,431.92 (comprising fees of $112,314.45, disbursements of $2,227.07, and HST of

$14,890.40) covering the period May 9, 2016 to May 31, 2019 and approval of its

estimated fees, disbursements, and applicable taxes to a maximum of $5,650.00

(comprising fees of $5,000.00 and HST of $650.00) to complete the Receivership of 142.

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37. Attached as Appendix “L” is a copy of the Receiver’s legal counsel, Loopstra Nixon LLP

(“LN”) detailed statement of accounts for the period May 9, 2016 to May 31, 2019

together with a summary of the time charges and applicable hourly rates and an Affidavit

of Derek Van Doorn in connection with the same.

38. The Receiver’s legal counsel estimates that, its fees, disbursements, and applicable taxes

from June 1, 2019 to the completion the within receivership will not exceed $5,650.00

(inclusive of HST).

39. The Receiver has reviewed the detailed statements of account provided by legal counsel

and confirms that the services detailed in those documents were in fact provided to the

Receiver. The Receiver is of the view that the time and disbursements incurred, and

hourly rates charged by legal counsel are fair and reasonable in all respects. The Receiver

respectfully requests approval of LN’s fees and disbursements in the amount of

$35,046.90 (comprising fees of $29,869.50, disbursements of $1,163.82 and HST of

$4,013.58) and approval of its estimated fees, disbursements, and applicable taxes to a

maximum of $5,650.00 (comprising fees of $5,000.00 and HST of $650.00) to complete

the Receivership of 142.

F. RECEIVER’S REMAINING ACTIVITIES AND DISCHARGE

40. The Receiver’s remaining activities (the “Remaining Activities”) to complete the

administration, principally comprise:

(a) attending at Court with respect to this hearing;

(b) distributing 142 funds to the known creditors of 142 and releasing the Estimated

Remaining Funds to the O’Hare Estate, payable to counsel, in trust;

(c) filing the receiver’s Section 246 (3) report pursuant to the BIA and outstanding HST

returns;

(d) causing SEAM to make an assignment in bankruptcy; and

(e) filing the Receiver’s Discharge Certificate with the Court.