The ties between the owner of the Exhibition Place club Muzik, Zlatko Starkovski, and the Telios family, which owns the Club Paradise strip club, date back to 1997.
"I have a great deal of knowledge of Mr. Starkovski's business affairs," states John Telios in a sworn affidavit, filed in 2010 in Ontario Superior Court.
The business relationship included loans from the Telios family to Mr. Starkovski in 2005, for assistance in getting Muzik off the ground. By the end of 2006, he was advanced a total of $700,000, for which he signed a promissory note, according to court documents.
When Mr. Starkovski allegedly refused to repay the money in full, Penny Telios, the sister of John, launched a court action.
The Ontario Court of Appeal ultimately upheld a lower-court ruling and in February, 2010, ordered Mr. Starkovski to pay Penny Telios $740,000 (including interest charges).
Mr. Starkovski responded to the court's decision by filing for bankruptcy protection, on behalf of Hypnotic Clubs Inc., one of three clubs incorporated by Mr. Starkovski in 2002 (along with Muzik Clubs Inc. and God the Nightclub and Restaurant Inc.).
Lease documents filed in court indicated that Hypnotic was the tenant of the building and it owed nearly $1.5-million to Muzik, which was listed as the landlord. Mr. Starkovski's signature is on both the landlord and tenant sections of the document. The sub-lease imposed a sliding scale of rent for Hypnotic that was to rise to $80,000 per month, by 2010.
The rental agreement and the money owed by Hypnotic to Muzik were described as a "complete fabrication" by John Telios in his affidavit. The bankruptcy filing was "designed to frustrate my family's effort to collect our judgment [debt]," he alleged.
In response, Mr. Starkovski accused Mr. Telios of making "unfounded" allegations and a "scorched earth" legal strategy. Both men made references to other joint business ventures, which were not specified in the court documents.
An initial offer by Muzik to purchase the assets of Hypnotic was rejected by a Superior Court judge. But an extension of time was also granted and ultimately the creditors, including the Telios family, accepted a $150,000 offer to settle all debts. Muzik waived the money allegedly owed to it by Hypnotic.
The company was discharged from bankruptcy in August, 2010, and within two years Muzik was seeking to extend its lease.
Dianne Young, chief executive officer of Exhibition Place, said she was not aware of the bankruptcy filing or the court action filed by the Telios family against Mr. Starkovski.
John Telios and the lawyer acting for the family in the bankruptcy proceeding did not respond to requests for comment.
With research from Stephanie Chambers. Shannon Kari is a freelance writer.