Hazelton Development: the RVO is granted over the surety's objection

Justice Kimmel has approved Firm Capital Mortgage Fund Inc.'s credit bid for Hazelton Development Corporation, whose Highlight of Mississauga condominium complex on Dixie Road could not be completed, by an approval and reverse vesting order whose face reads "Wednesday, the 4th day of November, 2026" (Approval and Reverse Vesting Order, Nov. 4, 2026, p. 1, para. 2; Endorsement, Oct. 30, 2026, paras. 6, 11, 22). The supplemental endorsement issued with it, dated November 5 after attendances on November 3 and 4 and cited as In Re Hazelton Development Corporation, 2026 ONSC 6254, ends: "The revised form of ARVO dated November 4, 2026 and signed by me today may issue" (Supplemental Endorsement, Nov. 5, 2026, p. 1, para. 28).

On October 30 the court had declined the order in the form then proposed, a decision reported here on October 31; as the supplemental endorsement recalls, "I would have granted the proposed ARVO if it had not been for the concern that the lien claimants might be worse off" (Supplemental Endorsement, Nov. 5, 2026, para. 14). In the days between, Firm Capital negotiated carve-outs with counsel for the construction trades holding lien claims. The one participating stakeholder that did not accept the revised order was the surety on the lien bonds, Aviva Insurance Company of Canada, and its objection is what the supplemental endorsement decides (Supplemental Endorsement, Nov. 5, 2026, paras. 4–5, 9).

The order approves the amended and restated subscription agreement dated as of September 28, 2026, whose price, as the October 30 endorsement sets it out, includes the plan sponsor's debt of approximately $73.5 million as of September 30, 2026, and $802,000 in cash. At closing, Hazelton's existing shares are cancelled for no consideration, new shares are issued to Firm Capital, its plan sponsor, and the excluded assets, contracts and liabilities move to 18266565 Canada Inc., added to the proceeding as ResidualCo, and the monitor, Grant Thornton Limited, is directed to terminate and disclaim Hazelton's agreements of purchase and sale with buyers of units (Approval and Reverse Vesting Order, Nov. 4, 2026, p. 1, paras. 3, 6, 22(b), 37; Endorsement, Oct. 30, 2026, para. 28).

Meetings over a weekend

The October 30 endorsement left two issues, as the supplemental endorsement restates them: preserving the lien claimants' ability to reach the lien bonds, and exempting the bonds and alleged breach of trust claims under Part II of the Construction Act from the draft order's releases (Supplemental Endorsement, Nov. 5, 2026, para. 3). Firm Capital's counsel met counsel for various lien claimants, including lead counsel for the Ad Hoc Group of Lien Claimants, "over the course of the weekend and throughout the day on November 2, 2026, and again on November 3, 2026." The two issues "were eventually addressed to the satisfaction of counsel for the Plan Sponsor/Purchaser and lien claimants who participated in the meetings," and the monitor supports the result (Supplemental Endorsement, Nov. 5, 2026, para. 4). Aviva, the endorsement says, "did not immediately respond with substantive comments" when the changes were put to it. When the parties returned to court on November 4, the revised order "was reported to be acceptable to all participating stakeholders except Aviva" (Supplemental Endorsement, Nov. 5, 2026, para. 5).

What the lien claimants kept

Paragraph 16(f) of the order keeps the lien claimants' claims with Hazelton as retained liabilities "solely for the purpose of and to the extent that it is necessary for the Lien Claimants to obtain judgment as against the Company" in order to recover from security posted under s. 44 of the Construction Act. The order calls that security the Lien Bonds, and it includes the security Aviva posted for the lien claims of City Electric Inc., Stellar Formwork Ltd. and Gillam Urban Constructors Inc. (Approval and Reverse Vesting Order, Nov. 4, 2026, para. 16(f)). Paragraph 17 makes the bonds retained assets "solely for the purpose of preserving the rights of Lien Claimants." A judgment binds Hazelton, but any balance left once the bond security is exhausted "shall not be recoverable from any asset of the Company," "no writs shall be issued" on any such judgment, and no bond may be returned, reduced or cancelled without a further order (Approval and Reverse Vesting Order, Nov. 4, 2026, para. 17). Hazelton "shall remain the principal under the Lien Bonds at all times" and must preserve the books and records in its possession or control "reasonably required to determine the rights of Lien Claimants in respect of the Lien Bonds" (Approval and Reverse Vesting Order, Nov. 4, 2026, paras. 20–21).

The October 30 endorsement had said the carve-outs "might include" agreement to "preserve the Lien Bonds, Hazelton's position as principal and preservation of the necessary records" and to "exempt the Lien Bonds and alleged Part II trust liabilities from the paragraph 27 releases." Each of those items has a paragraph in the signed order (Endorsement, Oct. 30, 2026, para. 99; Approval and Reverse Vesting Order, Nov. 4, 2026, paras. 17, 20–21, 31). The draft the court declined would instead have sent the lien claims to ResidualCo, and Aviva had objected to substituting ResidualCo for Hazelton under the bonds (Endorsement, Oct. 30, 2026, para. 12). That structure, the supplemental endorsement says, "could not be implemented due to Aviva's unwillingness to consent" (Supplemental Endorsement, Nov. 5, 2026, para. 7).

The trust claims

The second carve-out deals with what the October 30 endorsement gave as one of its reasons for not approving the order: the release of Firm Capital "in respect of potential trust claims under the Construction Act in respect of holdbacks from its construction financing." The releases in that draft expressly excluded claims arising from fraud, gross negligence or wilful misconduct (Endorsement, Oct. 30, 2026, para. 106). Paragraph 31 of the signed order releases the monitor, the transaction advisor and Firm Capital as purchaser and plan sponsor, among others, but provides that nothing in the order will "waive, discharge, release, cancel, prejudice or bar any claim for fraud, gross negligence, breach of trust or wilful misconduct or any claim on the Lien Bonds" (Approval and Reverse Vesting Order, Nov. 4, 2026, para. 31).

Under paragraph 32, "the court may make a finding as to whether the Company breached its trust obligations in any action against any party who is alleged to be and subsequently may be found liable for a breach of trust by the Company without the Company or ResidualCo being named as a party in such an action." No order, judgment or declaration against Hazelton or ResidualCo is recoverable from Hazelton's assets after the approval, and no writs issue on one (Approval and Reverse Vesting Order, Nov. 4, 2026, para. 32). In the supplemental endorsement's words, "Firm Capital has accepted the economic risk of continuing trust claims against it" (Supplemental Endorsement, Nov. 5, 2026, para. 7).

The surety's indemnity

The endorsement describes the shift in one sentence: "One problem is solved for the lien claimants (with respect [to] the need for them to obtain a judgment against the Company in order to make their claims under the Lien Bonds), only for a new problem to emerge (with respect to the Surety's ability to claim under the Indemnity against the Company)" (Supplemental Endorsement, Nov. 5, 2026, para. 10).

The bonds were provided by Westmount Guarantee Services Inc. as agent for a group of sureties including Aviva, Intact Insurance Company of Canada and Liberty Mutual Insurance Company of Canada (Supplemental Endorsement, Nov. 5, 2026, para. 3). Paragraph 17 of the order leaves the bonds, "including the obligations, rights and remedies of any issuer of a Lien Bond," unaffected, "save and except that no claims for indemnity may be asserted by any issuer of a Lien Bond against the Company and any such claims for indemnity are Excluded Liabilities." Paragraph 18 adds, "for greater certainty," that no such claims "shall be enforceable against the Company." An excluded liability passes to ResidualCo, where the claim keeps "the same rights, priority and entitlement" it had against Hazelton (Approval and Reverse Vesting Order, Nov. 4, 2026, paras. 16(c)–(d), 17–18).