1670056 Ontario Inc. (the “Subsidiary Company”) operated the Pelee Days Inn & Conference Centre (the “Hotel”) located at 566 Bevel Line Road, Leamington, Ontario. The Subsidiary Company was engaged in managing the day-to-day operations of the Hotel, but did not own the land and building of the Hotel. The Subsidiary Company was wholly owned by 1670055 Ontario Inc. (the “Parent Company” and together with the Subsidiary Company, the “Companies”), which owned the Hotel’s land and building and was the Subsidiary Company’s landlord.
In December 2012, Roynat Capital, which provided a mortgage to the Parent Company to finance in part the purchase of the Hotel, issued notices of default, demands for repayment and enforcement of its security interests. The notices were also issued to the Subsidiary Company as guarantor of the mortgage. Following receipt of these notices, the Shareholder Group accelerated its efforts to sell the Hotel. In addition, the Shareholder Group agreed to loan to the Companies additional amounts to fund certain government remittances.
On May 8, 2013, the Parent Company’s shares were sold to Rattan Gupta (the “Purchaser”), owner of Sunray Group of Hotels. Proceeds from the sale of the Parent Company were used to repay the Roynat Capital mortgage and the recent secured loan made by the shareholders to the Parent Company.
As a condition to the sale, the Subsidiary Company was to be assigned into bankruptcy as the Subsidiary Company was insolvent. Therefore, immediately prior to the closing of the sale the directors of the Subsidiary Company passed a resolution at a meeting of its board of directors to assign the Subsidiary Company into bankruptcy as it could no longer meet its debts as they came due. On May 8, 2013, Dodick & Associates Inc. was appointed Trustee in Bankruptcy of the Subsidiary Company.