Our summaries of recent Canadian insolvency filings.
March 12, 2019
Imperial Tobacco, a Montreal, Quebec-based cigarette company that manufactures tobacco products for brands such as Marlboro and Pall Mall, filed for protection under the CCAA on March 12. The company leads the tobacco industry with roughly 48% market share of all legal sales in 2018. The two other major Canadian manufacturers and distributors of tobacco products are Rothmans Benson & Hedges and JTI-Macdonald, the latter of which was granted court protection under the CCAA on March 8. The company is currently facing an existential threat from litigation across Canada, including multiple class actions and government claims seeking to recover health care costs (collectively, the "Tobacco Litigation"). Earlier this month, the Quebec Court of Appeal upheld a 2015 ruling in a lower court that found the tobacco companies concealed the health risks of smoking from the public. The plaintiffs in the Tobacco Litigation are seeking hundreds of billions of dollars in damages, which significantly exceed the company's total assets. FTI Consulting was appointed monitor. Counsel is Osler for the company and Davies for the monitor.
March 11, 2019
Green Earth Stores and Green Earth Environmental Products, a Canadian specialty retailer of giftware, jewellery, collectibles and environmentally friendly products, which operates 29 stores across Canada, filed an NOI on March 4. As a result of the financial difficulties suffered due to reduced mall traffic and increased online competition, the London, Ontario-based Green Earth entities made the decision to conduct a store closing process commencing on March 8. On March 7, the Green Earth entities obtained court approval of, among other things, a Liquidation Process Order. The company has engaged FAAN Advisors Group as their chief restructuring advisor to assist with the NOI and store closure process. Crowe Soberman is the proposal trustee. Counsel is Miller Thompson for the company and Stikeman Elliott for the proposal trustee.
March 11, 2019
Distinct Infrastructure Group (TSX:DUG), a Toronto, Ontario-based infrastructure provider for Canadian utilities, municipal and provincial governments, was placed in receivership on March 11 on application by RBC, owed approximately $53.4MM. The company's major customers include Rogers, Bell, Manitoba Hydro and the Manitoba Water Services Board. RBC recently became aware that the company had significantly misstated its borrowing base calculations and accounts receivable in its reporting to RBC. This resulted in the company obtaining advances under an operating line of credit of at least $30.0MM more than was otherwise permitted under credit facilities available to the company. In December 2018, the company informed RBC that it and one of its subsidiaries, iVac West, wished to place certain of their equipment for sale with Richie Bros. Auctioneers. RBC agreed that the company would initially apply $2.0MM from the proceeds of the auction against the obligations owed to RBC. In January 2019, the company applied for an order directing Richie Bros. to distribute the sale proceeds to RBC. This application was stayed upon the granting of the receivership order. The appointment of a receiver was necessary as the company is currently experiencing a severely stressed liquidity position and does not have sufficient cash to support its ongoing operations. Deloitte was appointed receiver. Counsel is TGF for RBC, Stikeman Elliott for a special committee of the company and Aird & Berlis for the receiver.
March 8, 2019
JTI-Macdonald Corp., the third largest tobacco company in Canada, obtained protection under the CCAA on March 8. Based in Mississauga, Ontario, the company is indirectly owned by Japan Tobacco and has approximately 500 employees and 1,300 suppliers. Each year, it pays approximately $1.3B in taxes to the federal and provincial governments. The company, along with Imperial Tobacco Canada Limited and Rothmans, Benson & Hedges, are defendants in two significant class action proceedings that were tried in Quebec. In June 2015, the companies were found liable for moral damages. The defendants appealed, but learned earlier this month that their appeal had been rejected, making them liable for over $500B in estimated damages, with the judgment potentially becoming enforceable immediately. The company is also the subject of significant health care cost recovery litigation that was commenced as a result of legislation passed in various provinces related to alleged "tobacco related wrongs". Asserting that it has no liability in respect of the litigation claims, the company will attempt to appeal to the Supreme Court of Canada while under creditor protection. It will also use the proceedings as a platform to find a collective solution for the benefit of all stakeholders. Deloitte was appointed monitor. Counsel is TGF for the company and Blakes for the monitor. BlueTree Advisors was appointed CRO.
March 6, 2019
Skyventure Whitby, the operator of an iFLY indoor skydiving facility in Whitby, Ontario, filed an NOI on March 6, listing 10.7MM in liabilities, including $6.9MM to National Bank and $1.5MM to FTQ. Grant Thornton is the proposal trustee.
March 6, 2019
York Rio Resources and Brilliante Brasilcan Resources, two Ontario-based corporations, had all of its funds placed in receivership on March 6 on application by the OSC. These funds, which are worth approximately $5.2MM, were recovered by the OSC relating to investment schemes by the two companies. Between May 2004 and October 2008, various companies were found to have violated the Ontario Securities Act in raising about $180.0MM from investors. Other than two respondents who entered into approved settlement agreements, the OSC concluded that the remaining companies had violated the Act by, amongst other things, (1) trading in securities without registration and filing a prospectus; and (2) engaging in a course of conduct they knew or ought to have known would perpetrate a fraud on investors. In a sanctions decision released in 2014, an OSC panel ordered that the companies fully disgorge certain amounts, some on a joint and several basis with York Rio and Brilliante. The OSC now wishes to proportionally distribute the proceeds to investors in York Rio and Brilliante securities. Farber was appointed receiver. Counsel is Gowling WLG for the OSC.
March 4, 2019
Divestco (TSX:DVT), a Calgary, Alberta-based energy geoscience services company that provides a comprehensive and integrated portfolio of data software and services to the oil and gas industry, filed for protection under the CCAA on March 4, listing approximately $20.9MM in liabilities. The company has been significantly impacted by the ongoing financial downturn affecting the oil and gas industry in Canada. This decrease in revenue, coupled with legacy administrative overheads, has placed significant stress on the company's cash flow. As a result, the company has needed to raise significant amounts of capital to fund the business losses, placing the company at a competitive disadvantage. The holders of secured loans that had been funding the company to continue its operations are no longer willing to provide further funding without a restructuring. Through these CCAA proceedings, the company expects to secure commitments for up to an aggregate amount of $1.5MM in DIP financing from certain of its directors, officers and existing shareholders. Grant Thornton was appointed monitor. Field Law is counsel to the company.
March 1, 2019
Joe Books, a Toronto, Ontario-based leading independent publisher of graphic novels, comics and novels, filed for bankruptcy on March 1. FTI Consulting is the bankruptcy trustee.
March 1, 2019
Ascent Industries (CSE:ASNT), which is in the business of cultivating, producing, processing, developing and distributing cannabis and cannabis-based products in British Columbia and Nevada, US, filed for protection under the CCAA on March 1, owing approximately $7.0MM to Gulf Bridge, a Cayman Islands-based company. Since cannabis is a regulated product, the company's ability to generate revenue is largely dependent on its holding the necessary licences. In September 2018, Health Canada partially suspended the company's cannabis licences, which are held by its subsidiary Agrima Botanicals, as a result of Agrima's failure to meet certain compliance requirements. In November 2018, Health Canada further notified Agrima of its intention to revoke its licences for alleged contraventions of the Cannabis Act. Due to Health Canada's suspension and proposed revocation of the company's cannabis licences, the company is no longer able to legally produce or distribute cannabis in Canada. This has decimated the company's ability to generate positive cash flow, and is the primary cause of its financial difficulties and corresponding insolvency. In addition, the suspension and proposed revocation of the licences has made it virtually impossible for the company to raise money through the capital markets to resolve its liquidity problems. The company engaged Clarus Securities to assist it in conducting a sale and investment solicitation process for its business. Although the company was ultimately unable to conclude a sale transaction, a number of potential purchasers remain interested. EY was appointed monitor. Counsel is BLG for the company and Fasken for Gulf Bridge.
February 28, 2019
Hutchens et al., a group of individuals who allegedly orchestrated a fraudulent loan scheme, was placed in interim receivership on February 28 on application by Gary Stevens, Linda Stevens and 1174365 Alberta ("117 Alberta") (collectively, the "Applicants"). Gary and Linda, residents of Alberta, are the sole shareholders of 117 Alberta. The Applicants sought a receivership order to protect their ability to enforce two final judgments against Tanya Hutchens and Sandy Hutchens from a US federal court in Pennsylvania. The Applicants were defrauded by the Respondents in a fraudulent scheme disguised as a financing enterprise for real estate transactions. In October 2014, the Applicants sought refinancing for mortgage loans on property they were developing in Saskatchewan. They were referred to Westmoreland Equity Fund, which required the Applicants to pay large advance fees for the financing they sought. Over the following months, Westmoreland reneged on its promises to provide financing, changing the amount it said it would loan from $13.9MM (CAD) to $7.5MM (CAD), on conditions Westmoreland knew the Applicants could not meet. The Applicants realized that Westmoreland was the front for a fraudulent scheme orchestrated by the Hutchenses. Westmoreland would first issue loan commitments that it could neither fund nor intended to. Then, it would create a pretext to find fault with the borrowers' loan applications, which it used to justify imposing further monetary conditions. Finally, Westmoreland would assert its victims had not satisfied these new conditions in order to terminate the loan application process, after which Westmoreland would keep all the monies advanced. The Applicants brought a claim against Westmoreland and the Hutchenses in the Pennsylvania State Court because the company was registered as operating in Pennsylvania. Farber was appointed interim receiver. Counsel is Necpal Litigation for the Applicants and Naymark Law for the interim receiver.