The Financial Crisis Faced by Ontario Landlords: Can They Save Their Business?

With a mounting debt of over $144 million, a group of landlords in Ontario is facing a financial crisis, leaving them unable to repay loans and entangled in numerous lawsuits. Dylan Suitor, Ryan Molony, and Aruba Butt, the brains behind 11 insolvent corporations, find themselves in a dire situation, with only $100,000 in their bank accounts, according to documents filed with the Ontario Superior Court of Justice.

The landlords have sought protection under the Companies' Creditors Arrangement Act (CCAA), commonly known as bankruptcy protection. Justice Jessica Kimmel has granted them court-ordered protection until March 2024, allowing them to temporarily halt any legal action from creditors and seek ways to salvage their business. Currently, there are 32 ongoing lawsuits against the corporations across various courthouses in Ontario.

These landlords and their corporations, based in the Hamilton area, specialize in acquiring and renovating distressed residential real estate in undervalued markets. These markets include Timmins, Sault Ste. Marie, Sudbury, and smaller communities like Kirkland Lake, Temiskaming Shores, and Val Caron. Currently, they own a staggering 406 properties where 1,000 tenants reside, making them one of the largest residential real estate holders in Ontario.

Unfortunately, the situation is not entirely in their favor. Existing court documents reveal that over 200 rental units owned by these landlords are currently vacant, resulting in a loss of $350,000 in monthly revenue. Additionally, they owe $2.8 million in unpaid municipal taxes, utility bills, and corporate income taxes, along with $600,000 to contractors, trades, and service providers. Moreover, they have outstanding payroll deductions of $55,000 to the federal government.

Despite their current financial debacle, the landlords have been granted access to a $12-million loan, which will be used to cover the costs of court proceedings and complete necessary renovations. They will also explore comprehensive refinancing or restructuring options, aiming to reach a consensual plan of compromise with lenders to continue their operations.

Filing for creditor protection is often seen as a last resort for companies facing bankruptcy. Lawyer Karen Fellowes, an expert in restructuring and insolvency, explains that companies may choose this route strategically when they foresee a potential liquidation crisis and need time to restructure. In this case, the success of the landlords in saving their business will depend on whether the 300 lenders agree to support them. They may also request an extension for creditor protection and consider selling some properties as part of their recovery plan.

Tenants, on the other hand, have rights that protect them in such scenarios. Even if the landlords' properties are sold, tenants can still remain in their homes unless the court orders their eviction. However, for tenants residing in properties not involved in the proceedings, such as the one at 1083 Main St. E. in Hamilton, the impact is less likely as those buildings are owned by separate corporations.

Real estate investors often employ strategies to limit their liability, creating multiple corporations to manage their assets. This practice, while not uncommon, can result in a complex corporate structure and make it challenging to untangle the links between companies, as Fellowes explains.

The outcome of this financial struggle remains uncertain, and it will ultimately depend on the lenders and the decisions made by the court. Only time will tell if these landlords can overcome their liquidity crisis and save their business, providing relief for themselves, their creditors, and the tenants who call their properties home.

Caption: Robby Clark (left) and Dylan Suitor. Robby Clark is the founder of SID Developments, which provides renovation and management services to corporations owned by Suitor and now under bankruptcy protection.