Flex Modular: what the receiver did not find in Dundalk

The records KPMG Inc. read before it became receiver came from Royal Bank of Canada, and KPMG understood the companies themselves had prepared them. They indicated that the debtors "owned or utilized various items of machinery, equipment, inventory and other tangible assets" in their business. On March 10, 2026, KPMG attended the plant at 5 Keppel Street in Dundalk, Ontario, to inspect and secure the premises and collect the books and records from the companies' principal. "Upon attending the Dundalk Property during the March 10 Visit, the Receiver observed that the premises was substantially vacant," its First Report says. It identified no meaningful machinery, equipment or inventory, found no physical books and records, and says the condition of the premises "differed materially from the Receiver's expectations," per the First Report of the Receiver, July 9, 2026, paras. 17–19.

The plant was where 12466546 Canada Inc., trading as Flex Modular, manufactured and installed modular residential and non-residential buildings: single-family homes, townhouses, apartment buildings and condominium developments. It had approximately eleven employees, most of them laid off or terminated before the receiver arrived. A sister company, 2752172 Ontario Inc., owns the site, a manufacturing facility and a parking lot. A third, 1947366 Ontario Inc., traded as Oakwood Construction Management, a traditional construction company the receiver understands may have had a single active project, the rebuilding of a small commercial property destroyed by fire. The fourth debtor is T. Lawton Holdings Inc., and Timothy Lawton is the sole registered director of each, per the First Report of the Receiver, July 9, 2026, paras. 8–16. RBC's affiant says Mr. Lawton wholly owns all four, per the Affidavit of Jason Gagnon, Feb. 3, 2026, para. 6.

The bank's account

RBC's application of February 3 traces part of the trouble to Sudbury. There, according to Jason Gagnon, a senior manager in the bank's Special Loans & Advisory Services Group, Flex Modular fabricated modules as a subcontractor on a modular rental housing project at 1179 Lorraine Street. The original general contractor ceased operations owing it more than $850,000, and Flex Modular was then retained as general contractor to finish the job, "which caused further losses given the time-commitment necessary to complete the project and a shortfall in project funds." Flex Modular has sued a number of parties over the project, per the Affidavit of Jason Gagnon, Feb. 3, 2026, para. 20.

The group's combined compiled statements show revenue falling from $8,702,317 in 2023 to $5,260,876 in 2024, and a net loss of $3,007,055 for 2024, per the Affidavit of Jason Gagnon, Feb. 3, 2026, Ex. O. Flex Modular's own profit and loss statement for January through September 2025 shows sales revenue of $128,267.58 and a net loss of $1,812,270.79, per the Affidavit of Jason Gagnon, Feb. 3, 2026, Ex. P. Four of the companies' RBC credit cards were in overdraft and delinquent, and "limited business has been booked (signed) for 2026," Mr. Gagnon deposes, per the Affidavit of Jason Gagnon, Feb. 3, 2026, paras. 21–23.

RBC sent demand letters and notices of intention to enforce security on November 7, 2025. The defaults it cites under the real estate company's term loan are $48,604.43 in unpaid property taxes and the grant of a $600,000 second mortgage on the plant to Tokio Marine Canada Ltd., the surety. After the demands there were preliminary talks about forbearance, which RBC made conditional on Mr. Lawton providing further collateral; he had not agreed, and in Mr. Gagnon's view that was "indicative of Mr. Lawton's lack of faith in the viability of the Debtors' business going forward," per the Affidavit of Jason Gagnon, Feb. 3, 2026, paras. 25–26, 29. As of January 29, 2026, before legal fees, RBC was owed $810,380.75 under Flex Modular's credit agreement, $1,310,207.10 under the real estate company's and $339,735.85 under Oakwood's, secured by general security agreements, cross-guarantees and a first mortgage on the plant in the principal amount of $4,000,000, per the Affidavit of Jason Gagnon, Feb. 3, 2026, paras. 10–16, 30.

Justice L. McSweeney heard the application in person in Orangeville on February 23. The companies had counsel at WeirFoulds LLP, though no one appeared for them, and the order went out on consent with a condition attached: it would not be in force until 12:01 a.m. on March 10, and then only once RBC had delivered an affidavit that its debt remained unpaid. "In the event that the Applicant receives full payment, the Order shall be null and void and shall never become effective," per the Endorsement of Justice McSweeney, Feb. 23, 2026, paras. 2–7. Mr. Gagnon swore on March 10 that as of 12:01 that morning the indebtedness remained outstanding, per the Affidavit of Jason Gagnon, Mar. 10, 2026, para. 3.

What the receiver was told

After the visit, KPMG sent Mr. Lawton a list of information requests. In later conversations, the report says, he told the receiver that certain equipment and inventory previously at the plant were no longer on site at the date of appointment, and "that certain assets had allegedly been removed from the Dundalk Property prior to the receivership proceedings, including equipment that the Receiver understands may be subject to security interests registered by third parties." The report names no one. "The Receiver has not independently verified these assertions," it adds, and it continues to attempt to investigate the circumstances, per the First Report of the Receiver, July 9, 2026, paras. 20–21.

Mr. Lawton also told the receiver that the debtors had submitted, or intended to submit, an insurance claim in connection with certain missing property. KPMG had received no supporting documentation for any such claim, including details of the alleged loss, the assets involved or the status of any related coverage. Certain leased or financed equipment that information suggested should have been at the plant, including equipment subject to registrations under the Personal Property Security Act, was not found there during the receiver's attendance. KPMG later determined that certain of the debtors' insurance coverage had lapsed before its appointment, obtained replacement coverage, and is still trying to assess whether any claims arising before the lapse may exist and whether any proceeds may be recoverable, per the First Report of the Receiver, July 9, 2026, paras. 22–23. Shortly after the visit it made inquiries with individuals and businesses near the plant, and was told of "significant activity at the premises in the period leading up to the Date of Appointment, including the apparent removal of assets from the site," per the First Report of the Receiver, July 9, 2026, para. 24.

Reporting the debtors had previously provided to RBC identified machinery, equipment and other fixed assets with an estimated value totalling approximately $550,000, excluding real estate. In response to the information request list, the debtors provided a fixed asset listing that identified no material fixed assets. "The Receiver has been unable to reconcile this apparent discrepancy," per the First Report of the Receiver, July 9, 2026, paras. 34–35. As of July 9, despite multiple follow-ups, the receiver had received limited information from Mr. Lawton, the debtors or their representatives in answer to the list, including on the lack of machinery, equipment or inventory, and the absence of physical books and records had "materially limited" its ability to assess the companies' financial position, employee obligations, receivables and project claims, per the First Report of the Receiver, July 9, 2026, paras. 26, 28.