The June 11, 2024 investigative report
The Monitor's Fourth Report examined the companies' pre-filing transactions. The companies disputed it in writing and in sworn evidence. The court made no finding on the disputed points.
Dates
The deadline for letters of intent in the sale process was 5pm on June 10, 2024. The Fourth Report is dated June 11, 2024. The secured lenders brought a motion to expand the Monitor's powers on June 14, and the Monitor's Fifth Report of June 17 supported it. The order was made on consent on June 25, 2024.
No draft was shared with the companies before the report was served on the service list.
The companies consented to the investigation
The investigation power was granted with the companies' consent, and the principals sat voluntary interviews from April 25 to May 6, 2024.
The companies' evidence states that the investigation was insisted upon by the secured lenders' representatives, and that the companies consented to it and cooperated voluntarily "in a good-faith effort" to address lender concerns, with the impression that their renovation work could proceed under the Monitor's oversight.
The report in court
The investigative report is the Monitor's Fourth Report in the proceeding, posted on the Monitor's case website. The Monitor uploaded it to the court's CaseLines system for a June 14, 2024 scheduling appointment, where a motion to seal portions of the report and its accompanying brief was scheduled.
On June 24, 2024 the court adjourned the contested motions, holding that the companies "are entitled to test the evidence put against them by parties adverse in position, by cross-examination". The next day the parties advised that the motions had been resolved, and the orders were made on consent without a further hearing. The endorsement states: "Given the nature of the Fourth Report, no approval is sought at this time with respect to the Fourth Report or the activities summarized therein." A consent order of the same date provides that none of the companies or their principals "shall be required to take any further steps in connection with, or respond to any requests made pursuant to" the investigation power. No endorsement posted on the case website through July 2026 refers to an approval of the Fourth Report. The report itself says that portions of it "could be subject to revision".
The request to correct the report
On June 13, 2024 the Monitor's counsel wrote that the report "accurately reflects the facts". On June 19 the companies sent a letter listing more than 30 corrections and asked for a revised report. In its June 23 supplement the Monitor did not revise the report.
How the investigation began
The investigation was ordered on February 15, 2024. The Globe and Mail reported that the companies' counsel told the court the companies were "pleased to see this investigation taking place" and did not expect it to turn anything up. The same article states: "The claims made in the legal filings haven't been tested in court."
What the Monitor had been told
The companies did not see the report before it was filed. The Monitor's supplement of June 23, 2024 records that a draft of the Fourth Report "was not provided to any party (including the Applicants) prior to it being filed with the Court".
On May 8, 2024, five weeks before the report, the broker told the Monitor's counsel under oath that the Core Sale funds paid to her firm were "immediately disbursed" to the lenders. On June 10, 2024 the companies wrote that the $11,082,375.97 had been paid to The Lion's Share Group and enclosed the cheques. The report issued the next day states that the amount "appears to have been paid to the Applicants in the form of promissory notes".
What the report called personal
For scale: $1 million is 1.4 per cent of the $69.7 million of disbursements the Monitor reviewed, and under 1 per cent once the roughly $81.5 million of mortgage proceeds that went directly to the real estate lawyers is counted. It is less than the $1.58 million the Monitor and its counsel billed in April and May 2024, and about one eleventh of the $11.6 million the Core Sale left for the sellers after the lenders were repaid. The report accepts that purchases at Home Depot and from contractors "may be legitimate business expenses".
The report said "in excess of $1 million" of payments appeared personal in nature. By May 31, 2024 the fees of the Monitor and its counsel had reached $2,773,557, and by July 31, 2024, $3,919,782. The Monitor said its fees included a material amount of investigation time. No filing reviewed separates the cost of the investigation, or of the companies' response to it, from other professional fees.
About $4.4M of the payments the report grouped as related-party disbursements were business expense reimbursements.
After the report
Under the June 25, 2024 order, the companies' management and renovation companies continued to provide services to the portfolio at the Monitor's direction until a transition certificate ended them on December 20, 2024.
The report says the Monitor "makes no findings in respect of" funds that did not flow through the companies' bank accounts, and that it "did not trace funds directed from Windrose to the Applicants' real estate lawyers".
Other than interviewing Ms. Drage, the Monitor "performed limited investigative activities concerning Lion's Share and related parties as it was outside the scope of the Investigation".
What the same report concluded about the money for the homes
The report's own conclusion states: "The funds that were used to purchase and renovate the Applicants' properties do not appear to have been used for an improper purpose." The same paragraph goes on to allege that significant funds were regularly diverted to the principals and their corporations, and that the explanations given were in large part inadequate.
The next paragraph states: "The Monitor accepts that some payments to the Principals may have been justified as reimbursement for the Principals' use of personal credit cards to make bona fide business purchases for the Applicants."
- The Fourth Report says it appears the principals "diverted, misused or misappropriated" funds, and sets out the transactions it relies on. Fourth Report of the Monitor, redacted (Jun 11, 2024), s.2.4 para 6
- The court referred to "the very serious nature of the allegations" and recorded that the stakeholders "have lost all confidence in management of the Applicants". Endorsement of Justice Osborne (Jun 24, 2024), para 14; Endorsement of Justice Osborne (Jun 25, 2024), para 5
- The order expanding the Monitor's powers was made on consent. Endorsement of Justice Osborne (Jun 25, 2024), paras 2 to 4