An Ontario court has ordered that the Ontario Securities Commission (OSC) can continue to freeze the assets of several companies and individuals facing enforcement action by the regulator, in a decision that sets out a test for these sorts of asset freezes.

The Divisional Court ruled in favour of the OSC, which sought to continue freeze directions against several firms — Future Solar Developments Inc., Cenith Energy Corporation, Cenith Air Inc., and Angel Immigration Inc., and Xundong Qin (aka Sam Qin) — who are facing allegations that they traded without registration and engaged in an illegal distribution.

Those allegations have not been proven, but the respondents have had their assets frozen since mid-February by the OSC. The commission sought to have the freeze extended, while the respondents in the case brought a motion to revoke the freeze, or at least to allow them to pay ordinary expenses and legal fees.

According to the decision OSC v Future Solar, the respondents in the case argued that they are legitimate businesses and that they have been unable to carry on business since the freeze was imposed. Ultimately, the court sided with the commission, ruling that it is in the public interest to continue the freeze; and, it dismissed the respondents’ motion.

In reaching that decision, the court said that “given the draconian nature” of an asset freeze, that the commission must establish that there is a serious issue to be tried in the case; that there is some connection between the frozen assets and the conduct in question; and, that it is necessary to freeze assets to properly regulate the markets and protect investors. In this case, the court found that the commission met each of those criteria.

At the same time, the court dismissed the respondents’ motion, saying that it has no jurisdiction, and that the motion should instead be brought before the commission. So, it dismissed their motion without prejudice to them bringing it before the commission.

Citing the novel issues raised by the OSC’s application, the court ordered no costs in the case.

The OSC’s next hearing in the case is scheduled for June 8.