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Mohammed Haq looks out from the balcony of his current Scarborough, Ont., apartment on Feb. 16, 2019. Mr. Haq purchased two condominiums at the proposed 250 Danforth Road project by Forme Developments, which has now filed for bankruptcy and left Mr. Haq and others worried about their investments.

Andrew Ryan/The Globe and Mail

An Ontario judge has ordered the principals of Forme Development Group must be more transparent with the court-ordered monitor overseeing its Companies’ Creditors Arrangement Act process, and that any cash raised through the sale of any properties not connected to the insolvency proceedings will be held in trust until lenders with claims based on personal guarantees have been paid back.

There are more than 30 companies and 18 properties connected to the Forme insolvency, and in the case of a condominium project proposed for 250 Danforth Road there are close to 200 potential buyers who purchased presale contracts for 119 apartments and 69 townhouses that remain unbuilt. Dozens of lenders – among them Home Capital Group Inc., First Source Mortgage Corporation, Royal Bank of Canada and an array of private lenders – are owed more than $220-million. A sales process to unwind the company is under way with a deadline of March 27 for a package of the most valuable properties.

On Feb. 26, KSV Kofman Inc., the monitor overseeing the sale of some of the 18 properties assembled by businessman Yuan (Mike) Hua Wang, filed a report that raised an alarm about actions taken by Mr. Wang regarding some properties outside of Forme’s bankruptcy filings. After weeks of seeking more information on $2.3-million worth of transactions related to several properties on Old Kennedy Road and Steeles Avenue, the report says Forme Group’s real estate lawyer Yi Zhou sent copies of non-refundable deposit cheques written between Dec. 11 and Feb. 4 from companies connected to businessman Cheng Yi Wei, leading the monitor to believe Mr. Wang was attempting to sell several properties to Mr. Cheng.

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“It is noteworthy that [Mr.] Wang never disclosed these transactions to the Monitor notwithstanding that: two of the cheques are dated December 11, 2018, which is more than two months ago and only 11 days after the Initial Order was granted,” the report says. “The Monitor believes that if the cheques were not inadvertently disclosed to it, it would not have found out … until after they had closed. The Monitor is concerned about the possibility that [Mr.] Wang may seek to put any funds received by him as shareholder of the Non-Applicants beyond the reach of his creditors.”

The issue for lenders is that Mr. Wang had personally guaranteed some of the loans on properties that are under court protection. Any money that went to him in side-deals could potentially be owed to those lenders.

“In my view, the Monitor is quite correct in requesting the relief sought,” said David Morrison, president of Morrison Financial in an e-mailed response to a request for comment. “We are simply first mortgagee in respect to a different property [Mr. Morrison is owed $3-million by Forme company 1326 Wilson Development Inc.] we are confident will yield the full amount of our debt when sold. Thus, were the principal of our borrower to abscond with funds related to another property, it would have little or no impact on our ability to collect.”

Other lenders connected to Forme declined to comment.

Mr. Wang and Forme hired new lawyers before the Feb. 26 report, and on March 7, KSV announced that it had negotiated an undertaking with the new counsel Cassels Brock & Blackwell LLP to put tighter controls on Mr. Wang’s financial dealings.

On March 18, Justice Glenn Hainey endorsed the agreement, and ordered all proceeds of sales for non-applicant properties (in other words, properties not being sold through the court-protected insolvency process) must be placed in trust with Cassels Brock until Forme has satisfied all its lenders. It also appears to constrain Mr. Wang and Forme from taking out new mortgages on any non-applicant properties that would give any new lenders priority over Forme’s existing lenders.

The condo project at Danforth remains in limbo. There is little chance of construction under current management, but it is not yet cancelled by the developer and is as-yet unsold.

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Editor’s note: Due to a clerical error, Syndicate Mortgages Inc. was erroneously included in a list of the company's lenders. This online version has been corrected.

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