The Ontario Court of Appeal dismissed a motion for a stay upon finding that the interests of justice weighed against staying a receivership order acquired by the Ontario Securities Commission (OSC) after an investigation found concerns regarding improper inter-party transfers.
In Ontario Securities Commission v. Cacoeli Asset Management Inc., 2025 ONCA 465, the appellants were companies and partnerships under the Cacoeli banner that purchased and redeveloped residential real estate properties.
The appellants included entities that acquired, held, and managed residential projects in southern Ontario via limited partnerships, with a corporation acting as the general partner for each limited partnership.
The present proceedings revolved around two officers: the appellants’ chief operations officer and Cacoeli Asset Management Inc.’s (CAM) president and chief executive officer, who both served as shareholders of CAM and the directors and/or officers for each general partner.
Since 2015, around 53 investors have collectively funded at least $13 million for purchasing and redeveloping real estate projects through the limited partnerships.
In December 2023, the respondent OSC received a complaint from Cacoeli’s former chief financial officer regarding the appellants’ activities. The OSC initiated an ongoing investigation into the two officers.
As the regulator of the province’s capital markets under Ontario’s Securities Act, 1990, the OSC applied to appoint a receiver over Cacoeli in February 2025. The OSC alleged that its investigators had found evidence of the fraudulent diversion of investor funds.
Last April, Grant Thornton Limited, as the appointed monitor, gave the court its first report to raise specific concerns. According to the report, the two officers:
- offered incomplete answers to Grant Thornton’s questions
- took a lengthy time to respond to information requests
- paid related parties without notifying the monitor
- repeatedly refused to explain the reasoning behind these payments
- made such payments while mortgages on Cacoeli properties remained unpaid or underpaid
- used “Account 526,” a bank account they personally controlled, to receive and handle Cacoeli funds
In May, Justice Jana Steele granted a receivership order over all the appellants. First, she noted that the OSC only needed to show serious concerns of potential statutory breaches since the relevant evidentiary standard was a “serious issue to be tried,” not a “prima facie case.”
Justice Steele explained that the OSC did not need to establish a Securities Act breach to obtain an order under s. 129(2) of the Securities Act, which required the court to find a receiver’s appointment in the creditors’ best interests or appropriate for the due administration of Ontario securities law.
Justice Steele determined that the OSC complied with s. 129(2) by showing serious concerns of Cacoeli’s possible Securities Act breaches.
Based on the evidence, Justice Steele found that the appellants repeatedly diverted investor funds from limited partnerships to other Cacoeli entities and investments – an invalid use of funds, as the marketing materials and subscription agreements signed by investors did not permit such diversion.
On June 5, Justice Steele appointed a receiver under s. 129 of the Securities Act. The appellants challenged the receivership order and moved to stay it.
On June 9, Justice Patrick Monahan issued an interim stay in the appellants’ favour until the court could fully determine their stay motion. He ordered the continuation of the monitorship and the disclosure of statements for Account 526 and banned payments from the appellants to CAM or other related parties without the monitor’s authorization.
On June 16, the monitor issued a second report stating that the related-party transactions diverted significant funds from real properties and endangered the limited partnerships’ ability to make mortgage payments on time and in full.
Stay denied
The Court of Appeal for Ontario dismissed the motion seeking a stay upon assessing the factors of the three-part test in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311.
First, the appeal court acknowledged a serious question on appeal, specifically the appellants’ argument that Justice Steele incorrectly found that the OSC did not need to show a prima facie case to obtain a receivership order. The OSC conceded that the appellants met the test’s first prong.
Second, the appeal court saw little compelling evidence that the appellants would suffer significant irreparable harm through the operation of the receivership order in the intervening two to three months without a stay.
The appeal court said the evidence failed to show it was highly probable that a receivership order would put Cacoeli out of business. The appeal court noted that the receiver had no interest in liquidating Cacoeli or shutting it down if its operations were viable.
Third, the appeal court ruled that the balance of convenience did not favour granting a stay, which would harm the interest of promoting public confidence in the integrity of capital markets and the rigorous enforcement of the laws regulating such markets.
The appeal court held that a stay would impact the mortgagees, who could not take steps to enforce their security interests under the monitorship order’s terms and would benefit in a receivership since the receiver had to safeguard the interests of all stakeholders, including creditors.
Lastly, the appeal court said the partial stay proposed by the appellants would not serve the interests of justice, given the statements in the monitor’s second report about the rising rate of related-party transfers and personal payments from Account 526.