Executive Summary: Key Legal and Evidentiary Issues

• Harry Sherman Crowe Housing Co-Operative Inc. was placed under court-appointed receivership on March 14, 2023, following the City of Toronto's determination that the Co-op had failed to comply with the Housing Services Act, 2011.
• Central issues included inadequate financial management, governance failures, and operational deficiencies in administering the Co-op's Rent-Geared-to-Income portfolio.
• At issue was whether the Receiver's fees, disbursements, and activities as described in its Second Annual Report and supplemental reports should be approved by the court.
• Contested throughout these proceedings was the Receiver's proposed Request for Expressions of Interest and Qualifications (RFEIQ) process, which the elected Board of Directors opposed as exceeding the Receiver's mandate.
• The Board raised unsubstantiated allegations that the Receiver and its counsel were acting in bad faith, misrepresenting facts, and improperly profiting from the mandate.
• Governing the Receiver's authority were the Appointment Order, the Housing Services Act, 2011, and the Co-operative Corporations Act, R.S.O. 1990, c. C.35.

Facts of the case

The City of Toronto, acting as the designated service manager under the Housing Services Act, 2011 (the "HSA"), brought an application to appoint a Receiver and Manager over the property, assets, and undertaking of Harry Sherman Crowe Housing Co-Operative Inc. (the "Co-op"). The City had identified significant concerns with the Co-op's operations, including failures in financial management and controls, inadequate governance structures, and deficiencies in administering its Rent-Geared-to-Income ("RGI") portfolio. On March 29, 2021, the City sent the Co-op's Board a letter setting out alleged contraventions of the HSA, including the failure to adopt adequate policies and procedures, inadequate management and governance, and various operational failures. Unsatisfied with the Board's response, the City sought judicial intervention.

On March 14, 2023, the court issued an Appointment Order placing the Co-op under receivership. TDB Restructuring Limited was appointed as Receiver. Since that time, the elected Board of Directors (the "Board") had participated in the proceedings through independent legal counsel, frequently opposing relief sought by the City and the Receiver, though it ultimately withdrew many of its objections in the course of the proceedings. The Receiver retained Community First Developments Inc. ("CFDI") as property manager to assist in stabilizing the Co-op's operations.

Statutory and court-order framework

The Receiver's powers derived from the Appointment Order made pursuant to subsection 85(7) of the HSA. Under that order, the Receiver was empowered to manage, operate, and carry on the business of the Co-op, and to take steps reasonably incidental to the exercise of its statutory powers. It was also authorized to meet with and share information with any persons, including the Board and other members of the Co-op, subject to confidentiality terms, and to apply to the court at any time for advice and directions.

The court's April 2024 Endorsement — issued when the Receiver's First Annual Report was approved — had directed that the Receiver continue stabilizing the Co-op while beginning to work toward a plan for transitioning management back to board control. It also strongly recommended that the Board engage with available resources to understand what was required to successfully manage a co-op housing project, and that specific, identifiable metrics and milestones for the resolution of the triggering events be developed.

Reasoning and analysis

Before the court was the Receiver's motion seeking approval of its Second Annual Court Report, supplemental and quarterly reports, interim fees and disbursements, and a proposed RFEIQ process for identifying potential board candidates as a step toward transitioning the Co-op out of receivership.

On fees and conduct, the court found that the Receiver's activities had been conducted in a prudent and diligent manner within the scope of the Appointment Order. The court noted that professional fees were higher in the second year than the first because most court attendances were covered by second-year fees and because certain issues required specialized input across areas including corporate governance, construction, landlord and tenant, insolvency, and general litigation. Importantly, the court confirmed that the City — not the Co-op's operating funds — was paying the Receiver's fees and those of its counsel. The court found the fees fair, reasonable, and justified. It also took note of the Board's serious and unsubstantiated allegations against the Receiver and its counsel — including accusations of fee-milking, misrepresentation, and bad faith — observing that unfounded attacks on court officers can attract sanctions such as costs, though none were sought at that time.

On the RFEIQ process, the court examined the Receiver's three-phase proposal: an information phase involving FAQs and a Town Hall meeting; an identification phase to receive expressions of interest and qualifications from members; and an evaluation phase in which the Receiver would vet and assess individual candidates before reporting to the court. The Board opposed the second and third phases, arguing that they exceeded the Receiver's mandate, supplanted the statutory and corporate election processes under the Co-operative Corporations Act, and infringed upon members' democratic rights. The court found the Board's accusations of racial and socioeconomic bias to be inflammatory and without evidentiary foundation.

The court accepted the Receiver's position that the RFEIQ process fell within the scope of a motion for advice and directions under the Appointment Order and s. 101(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43. It assessed the proposed process using a framework analogous to the approval of a sales investment solicitation process, considering the fairness, transparency, and commercial efficacy of the process in light of the specific circumstances. The court found it premature, however, to approve at this stage the aspects of the second and third phases involving subjective vetting, independent research, and the Receiver's own assessments of individual candidates. It modified the process to focus on objective qualification criteria developed in consultation with the Cooperative Housing Federation of Canada and the Cooperative Housing Federation of Toronto, and shortened the timelines so that the Receiver would report to the court before the end of 2025. Under the modified process, individuals who submitted expressions of interest would not be named or identified in the Receiver's report, and the Receiver would not offer any subjective assessments of candidates.

The court also noted that the Board had not demonstrated a genuine willingness to engage with the Receiver after the April 2024 Endorsement, had not accessed available educational resources as recommended, and had not responded to invitations to comment on the RFEIQ process until it filed its opposition to this motion. The Board was accordingly prohibited from calling an annual general meeting or any other Co-op member meeting while the RFEIQ process remained ongoing, without leave of the court.

Ruling and overall outcome

The Receiver's motion was granted in part. The court approved the Second Annual Report, the supplemental and quarterly reports, the Receiver's activities and conduct described therein, and the fees and disbursements of both the Receiver and its counsel. The first two phases of the RFEIQ process were approved in amended form, with the subjective vetting and evaluation components of those phases carved out pending a further report from the Receiver to the court, expected before the end of 2025. The third phase was not approved at this time. The Receiver, as the substantially successful party on this motion, was not awarded costs — none having been sought — and no costs were awarded in favour of the Board either, given the timing of its withdrawal of opposition and the outcome on the RFEIQ issue. No specific monetary amount was ordered or awarded in these proceedings; the court's relief was procedural and supervisory in nature.