EquityLine Mortgage Investment Corporation (ELMIC) and its manager EquityLine Services Corporation were able to escape a push by KSV Restructuring Inc to have both companies placed in receivership following a recent appearance in the Ontario Superior Court of Justice.

The request by KSV came in the recent proceedings of EquityLine SPV Limited Partnership versus Equitable Bank where KSV is currently the receiver of EquityLine SPV, which is indebted to Equitable to the tune of CA$10.07 million or $1.15 billion. EquityLine SPV is a special purpose vehicle which was used to expand ELMIC’s consolidated mortgage book with ELMIC being a limited partner and EquityLine SPV GP Inc being the general partner. ELMIC is a non-bank lender which provided residential and commercial real estate loans in Ontario, Canada. Its series A redeemable preference shares were listed on the Jamaica Stock Exchange (JSE) in February 2019, but were delisted on October 7 after it breached several JSE rules. Sergiy Shchavyelyev is the founder, president and CEO of the Equityline Group of Companies.

EquityLine SPV was placed in receivership in August after Equitable Bank learned of several unsettling developments, in particular, the fact that the information it was being provided on the status of the mortgage portfolio being largely in good health, was not actually accurate. That breached the reporting obligations and subsequent checks revealed that some of the mortgages Equitable thought were on EquityLine SPV’s books as its security were discharged or postponed without the knowledge of Equitable or Computershare Trust Company of Canada (CTCC), the custodian of the mortgages.

In its first report to the court, KSV noted that at an August 15 meeting, “Shchavyelyev advised the receiver that 24 of the remaining 25 mortgages in the mortgage portfolio are in varying stages of default. The receiver notes that the default rate in the MIC industry is approximately one per cent. The receiver understands that 20 of the 25 mortgages have not been serviced in over a year. The other five mortgages have outstanding balances ranging from one to seven months.”

This revelation was a sharp contrast to what was published in ELMIC’s 2023 audited financials, which noted CA$4.68 million of its CA$26.57 million mortgages were past due by 30 days and that no loans were in the default stage known as stage three. These audited financials were withdrawn when the auditor, Grant Thornton LLP, withdrew its auditors’ report and consent.

KSV’s investigation and the lack of responses by Shchavyelyev, the sole director of the referenced EquityLine companies, to their queries gave them credence to seek an amendment to the receivership order from the court. This amendment was to have KSV be appointed receiver of ELMIC and EquityLine Services Co, exercise investigative powers, including to examine under oath any person defined in the receivership order and approve the report and activities contained in it. The reasons KSV put forward for its recommended amendments were to facilitate the recovery of diverted funds, a transparent investigation, preservation of assets, preserving creditors rights and have objective management.

Shchavyelyev, who has not responded to queries by the Jamaica Observer, submitted an affidavit in court giving his stance on why the companies shouldn’t be placed in receivership and context on the preceding events. One such point was that EquityLine SPV sold an 80 per cent priority interest in six defaulting mortgages valued at CA$4.51 million on April 16 to Elle Mortgages Inc and that while it retained a 20 per cent interest in these mortgages, Equitable was paid CA$4.51 million. He also noted that there was sufficient security interest in EquityLine SPV that could be realised without needing to expand the receivership.

“Allowing the receiver to expand the receivership over Equityline MIC and Equityline Services is unnecessary and not practical. The receiver will only further ramp up the costs of enforcement and cherry pick the securities it wants so that it can prefer Equitable’s interests. There are many more stakeholders in Equityline MIC to balance, including investors, debenture holders and public shareholders. The Equityline MIC portfolio has a value of approximately $17,000,000 including investments in first and second mortgages and an equity ownership interest in an office tower at 478-490 Kingston Road in Pickering,” Shchavyelyev stated.

At the October 17 hearing heard before Justice Jessica Kimmel, it was revealed that EquityLine SPV’s legal team and KSV came to an agreement for KSV to receive its expanded investigative powers and that the balance of the relief which was being sought was withdrawn, subject to satisfaction on agreed settlement terms. The next court date is not yet known.

Despite that relative victory for the EquityLine team, one attorney is set to attend a series of hearing between January 13 to 24 before the Law Society Tribunal to learn if she will potentially lose her licence. Danielle Shannon Harrison, a young black woman who was called to the Bar in 2017, has been on an interlocutory suspension since March 4 after the Law Society of Ontario made an application to the courts as they investigate her involvement in several real estate transactions, one of which involved EquityLine SPV GP Inc.

The court stated, “However, and as explained above, we find that serious issues of integrity have been raised and that there is a real prospect of loss of licence. Until a hearing panel can make findings as to the merits, we find that the risk of harm to members of the public, and to the public interest in the administration of justice, requires an interlocutory suspension or restriction order.”

A hearing notice by the Law Society Tribunal stated that Harrison was involved in 41 mortgage transactions owned largely by senior citizens between June 2021 to March 2023, and breached the rules of professional conduct.

Fate of investors’ money

Jamaican investors continue to ‘suck salt’ as they’re left without any relevant updates by EquityLine Mortgage Investment Corporation on how they plan to repay US$5.37 million which was due in January. Whilst Sagicor Group Jamaica’s managed funds own two-thirds of the preference shares, the remaining regular investors are perturbed at the state of affairs as they have limited prospects for recovery. The absence of audited financial statements and the company being in Canada has created a legal quandary to recovery any money. This is worsened by the fact that the shares have been delisted from the JSE. ELMIC’s last disclosure to Jamaican investors was that the company would be winding up and that its affiliates had been served with legal action. Shchavyelyev previously appeared at the 2019 and 2021 JSE Regional Capital Markets conferences.

Equityline Capital Limited, a Jamaican company, was formed in May 2020 with the purpose of being involved in the securities business. Canadians Shchavyelyev and Earl Chapman along with Ian McNaughton were initial investors in the business. Livingstone Morrison and Adrian Thompson became shareholders two months later with Shchavyelyev resigning as a director on the same date. Its listed business address on the Companies Office website was 85 Hope Road, the same address as Sagicor Investments Jamaica.

The company has yet to file an annual return, but a general check of the company shows Morrison, Thompson and McNaughton as directors with Shchavyelyev as the company secretary.

Most information contained in this article was retrieved from
https://www.ksvadvisory.com/experience/case/equityline.