Our summaries of recent Canadian insolvency filings.
January 7, 2020
Gozco, a Calgary, Alberta-based investment firm, filed for bankruptcy in March 2018. PwC was appointed trustee. George Gosbee, who passed away in November 2017, was the company's sole director, officer, and shareholder. Karen Gosbee, his spouse, is the personal representative of Mr. Gosbee's estate. On January 7, PwC filed an application for an order declaring, amongst other things, that certain transactions granted by the company in favour of BNS (collectively, the "BNS Transaction") constitute a transfer at undervalue and are void as against the trustee. Bowfort, the company's primary creditor, had provided to the company a loan of USD $5.0 million secured by a promissory note dated January 2014. This loan was advanced to the company to assist in funding its USD $7.5 million investment in a US business venture. The company did not make any repayments of the loan to Bowfort other than certain baseline annual interest payments. On August 10, 2017, the Gosbees entered into a commitment letter with BNS to open a private and personal overdraft lending account. At their direction, the company completed a series of transfers whereby USD $750.0 thousand belonging to the company was transferred into this personal account, to the detriment of the company's creditors. At the time the BNS Transaction was completed, the company was insolvent. It is alleged that there was no valid business purpose for the company entering the BNS Transaction, and by doing so, it breached its obligation to Bowfort. PwC alleges that the BNS Transaction was intended to defraud, delay, or hinder the company's creditors. Bennett Jones is counsel to the applicant.
December 30, 2019
Tough Mudder Events, the Canadian subsidiary of a US-based company, Tough Mudder, which organizes endurance events involving obstacle courses in the mud, filed an NOI on December 30. The US-based company has been ensnared in a shareholder dispute which has negatively affected its operations. On January 7, Valley Builders, Trademarc Associates, and David Watkins Homes - certain of the company's US creditors, which are owed in excess of $855.0 thousand - filed an involuntary petition for Chapter 11 bankruptcy in the US. The Canadian NOI was filed to stay creditors and allow the company to close an anticipated transaction for the non US-based businesses. Farber is the proposal trustee. TGF is counsel to the company.
December 30, 2019
Dion Global Solutions (Canada), the Canadian branch of a global financial technology company based in India, filed for bankruptcy on December 30, listing $4.5 million in liabilities, including $3.2 million to FTI Consulting Hong Kong and $1.3 million to FTI Consulting Singapore. Farber is the bankruptcy trustee.
December 25, 2019
Norcon, a Clarenville, Newfoundland and Labrador-based marine transportation company that operates passenger/freight and cargo ships, was deemed bankrupt on December 25. The company, which owes BDC over $1.4 million, has been negatively affected by the loss of government contracts of ferry services, the general downturn in the aquaculture business, and the need to write off a large debt from a related company. The company had previously filed an NOI on November 25 and subsequently attempted to transition its proposal proceedings into CCAA proceedings but was unsuccessful. BDC's application for a court-appointed receiver was also dismissed and it therefore turned to a privately appointed receiver to realize on its security. Deloitte is the bankruptcy trustee. Grant Thornton is the private receiver. Counsel is Boyneclarke for the company, Cox & Palmer for BDC, McInnes Cooper for the trustee, and Stewart McKelvey for BNS.
December 23, 2019
Nemaska Lithium (TSX: NMX), a Montreal, Quebec-based minerals mining company, obtained protection under the CCAA on December 23. The company is is in the process of developing a mine in the James Bay Region of Quebec that it hopes will enable it to become one of thew world's most significant lithium salts producer and supplier to the emerging lithium battery market. To date, over $616.0 million has been spent on construction and engineering costs, funded by a combination of debt and equity from government and private sources, including Softbank. In February 2019 it was determined that additional funds of approximately $375.0 million were required to complete construction of the mine and processing plant. Significant efforts were undertaken to find investors, buyers or partners but to date no binding agreements have been reached. Despite a strong long-term outlook for lithium, prices have recently plummeted as a result of increased supply, primarily from Australia, where producers have lower extraction costs and are in closer proximity to the Chinese markets. The mine is currently in a care and maintenance program as the company seeks to conserve cash while it evaluates its restructuring options. PwC is the monitor. Counsel is McCarthy Tétrault for the company, Goodmans and Woods for Nordic Trustee AS, Miller Thomson for Bird Civil & Mines, Torys for OMF Fund II (N) Ltd., Dentons for Chubb Insurance, Norton Rose Fulbright for Investissement Québec and Lavery for Allied World Specialty Insurance
December 23, 2019
Lydian International (TSX: LYD), a Toronto, Ontario-based gold exploration and development company focused on construction of a gold mine in south-central Armenia, obtained protection under the CCAA on December 23. The company obtained an exploration license in 2006 and since then has invested more than $400.0 million in the project. The mine was 75% complete in May 2018 when a new prime minster came to power in Armenia. After the change in government, demonstrations and road blockades occurred sporadically throughout Armenia, including at the company's project. In addition to the blockades, additional audits and investigations have been imposed on the company, and a material water supply agreement was unilaterally terminated. As a result of these external factors, the company has dismissed more than 90% of its workforce and terminated substantially all of its supply relationships. The group has also defaulted on substantially all of its obligations to its lenders. Since October 2018, the company has entered into multiple forbearance agreements with its lenders, the most recent of which expired on December 20. 2019. While under creditor protection, the company will continue discussions with stakeholders in an attempt to restart construction. It will simultaneously canvas the market for parties interested in funding either the project or the company's potential international arbitration proceedings against the Armenian government. Edward Sellers of Black Swan Advisors is the company's interim president and CEO. Alvarez & Marsal is the monitor. Counsel is Stikeman Elliott for the company, TGF for the monitor, Blakes for Resource Capital Fund VI L.P., Norton Rose Fulbright for OSISKO Bermuda Limited, Torys for ORION Capital Management and DLA Piper for ING Bank N.V./ ABS Svensk Exportkrerdit (publ).
December 20, 2019
DGSTS Services Group, formally known as DGSTS Group, a British Columbia-based international engineering services company, was placed in receivership on December 20 on application by RBC, owed approximately $419.1 thousand. RBC also received judgment against the company’s guarantor, DGS Technical Services. RBC had granted the company certain credit facilities under a loan agreement. As security for this agreement, the company provided a general security agreement and two mortgages registered on title to commercial property it owned in Ottawa, Ontario. The company failed to fulfill its financial obligations to RBC under the loan agreement, and the guarantor did not make payment on account of its guarantee to RBC. Following service of the Application Record, counsel for the company advised RBC that refinancing would be available within a week. However, as of December 17, RBC has yet to receive a term sheet with proof of financing or any evidence of viable refinancing. Grant Thornton was appointed receiver. Counsel is Lerners for the applicant and Pelech, Otto, Powell & Ketsetzis for the company.
December 19, 2019
F1rst Auto Rentals +, a Saskatoon, Saskatchewan-based car rental company with a fleet of approximately 66 vehicles, was placed in receivership on December 19 on application by BMO, owed approximately $2.1 million. The application was made after it was uncovered that the debtor had ceased operations and had begun liquidating its assets without advising BMO. Grant Thornton was appointed receiver. Counsel is MLT Aikins for the applicant and Dentons for the receiver.
December 17, 2019
8318085 Canada, a Montreal, Quebec-based company which designs, imports and distributes women’s outerwear garments, its main focus being coats, filed an NOI on December 17, listing $10.8 million in liabilities, including $2.1 million to RBC and $1.1 million to Jiangsu Sainty Glorious Trade. Several factors led to the company’s insolvency, including a reduction in sales as well as the introduction of a new software system that resulted in inaccurate reporting of the business’ performance. Although the company is currently still in operation, it must promptly complete its activities related to the spring and winter 2020 seasons - such as booking orders and making purchases - in order to maintain viability. As part of the restructuring, the company will undergo a sale and solicitation process to market the business to potential acquirers, investors, or strategic partners. KPMG is the proposal trustee. Kugler Kandestin is counsel to the company.
December 16, 2019
CMS Toys/Halloween Alley, an Edmonton, Alberta-based toy distributor and novelty retailer, filed an NOI on December 16, listing $8.1 million in liabilities. The Bowra Group is the proposal trustee.