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Former child actor Robby Clark, one owner of a sprawling and now insolvent real estate investment enterprise that owns 405 rental properties in Northern Ontario, is shown in a video on X enjoying a lavish lifestyle of huge houses, yachts and private jets.Handout

A Superior Court judge has authorized an investigation into the use of $144-million in borrowed money by the companies and individuals at the centre of a sprawling and now insolvent real estate investment enterprise that owns 405 rental properties in Northern Ontario.

Justice Jessica Kimmel of the Ontario Superior Court of Justice extended the stay of proceedings last week against the enterprise, referred to collectively in court documents as Balboa et al, until March 28 as it seeks court protection while it reorganizes. There are currently more than 30 civil claims filed against the various companies. The court has also enhanced the oversight powers of appointed monitor KSV Consulting Inc. to include investigations and consent on the spending of interim financing obtained for the ongoing operations of the rental properties spread across cities and towns such as Sudbury, Sault Ste. Marie and Timmins.

The addition of an investigative mandate is unusual though not unprecedented in a Companies’ Creditors Arrangement Act proceeding and gives KSV broad latitude to trace funds, property transactions and “such other matters as may be requested by the lender representatives and agreed by the monitor, in each case, to the extent such investigation relates to the property, the business or such other matters as may be relevant to the proceedings.”

A mix of lenders, lawyers and media were in attendance at a hearing on Feb. 15. The principal borrowers – former child actor Robby Clark, his partner Aruba Butt Clark, realtor Dylan Suitor and Ryan Molony – did not appear, though their lawyer Sean Zweig of Bennett Jones LLP said his clients were looking forward to the investigation.

“We do not expect the investigation to turn anything up. The applicants’ perspective is that all monies, all funds, that were raised were dealt with properly,” said Mr. Zweig. “And in fact, the applicants are pleased to see this investigation taking place because there have been some suggestions or allegations among certain lenders and in the media of impropriety, which is of course, not helpful for people personally.”

The claims made in the legal filings haven’t been tested in court.

In the days since filing for insolvency, multiple social media videos have surfaced showing Mr. Clark and his co-applicants flying on private jets, sailing on yachts and partying at huge galas in Las Vegas.

The bulk of the financing for purchases of single-family homes and rental properties came from nonbank private mortgages lent by individuals – 390 of them are first mortgages worth $81.5-million – most of which appear to be brokered by The Windrose Group and principal broker Claire Drage. A recent town hall meeting of these first-position or secured lenders had more than 160 lenders in attendance. There are also 121 second mortgages on the properties, worth about $8.6-million, brokered by Lift Capital Inc. principal Avinash Rajkumar. Many of those second mortgages are syndicated, and it’s not yet clear how many people are a party to them. Ms. Drage has not responded to requests for comment since the financial issues with Mr. Clark’s companies came to light.

Open this photo in gallery:

A mix of lenders, lawyers and media were in attendance at a hearing on Feb. 15, but the principal borrowers, including Robby Clark, pictured, his partner Aruba Butt Clark, realtor Dylan Suitor and Ryan Molony, did not appear.Handout

There’s also a third group of unsecured lenders who lent $54-million by way of 802 promissory notes that were not registered on title of the properties. George Benchetrit of Chaitons LLP was initially appointed on Jan. 23 to represent the interests of all the lenders, but in consultation with the secured lenders and the monitor, on Thursday the court approved a motion to remove Chaitons as counsel for those unsecured lenders.

Issues of potential conflict and the more tenuous legal position of the promissory note lenders were at the root of the move. At present, there is no replacement counsel for those lenders though KSV undertook to arrange meetings with them soon.

“We know that there are many individual unsecured lenders with many questions about this process and concerns regarding their rights and potential outcomes,” Mr. Benchetrit said in court.

He said a complicating factor is that Ms. Drage and her promissory note company, Lion’s Share Group Inc., make up about 70 per cent of the unsecured notes. “Another issue I think is causing a lot of confusion is that there are many concerned individuals that are holding unsecured promissory notes that are actually not creditors of these applicants,” Mr. Benchetrit said. “We may well see a separate proceeding down the road to deal with that debt.”

According to Ontario’s mortgage broker regulatory body, the Financial Services Regulatory Authority of Ontario, Ms. Drage’s promissory note activities at Lion’s Share fall under the enforcement mandate of the Ontario Securities Commission but it is acting on other complaints about her mortgage business.

“As of Feb. 16, 2024, FSRA has received five complaints regarding this broker,” according to FSRA spokesperson Russ Courtney. “FSRA is currently conducting a thorough review of the activities of Claire Drage to assess her conduct. … However, it would be inappropriate to provide further details at this time while our review is ongoing.”

A key part of the investigation by KSV will be whether there were transactions ahead of the CCAA filing that removed rental properties from the dozen or so insolvent companies – which are Balboa Inc., DSPLN Inc., Happy Gilmore Inc., Interlude Inc., Multiville Inc., The Pink Flamingo Inc., Hometown Housing Inc., The Mulligan Inc., Horses In The Back Inc., Neat Nests Inc. and Joint Captain Real Estate Inc.

The court order states KSV should examine “prefiling transactions conducted by the applicants and/or their principals and affiliates” and report to the court or lender’s counsel when appropriate.

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