Finally... An update...

Please see the following update provided by the counsel for the class action lawsuit.  This update has been sent out by email as a courtesy to ALL members of the Shire Victim’s Group and now posted here on the blog.  Note, most updates such as this are only sent to members of the class action, but I recognize that this update gives a lot of information that all investors are seeking.

NOTE:  You are not represented in the class action automatically!  You must sign and return the retainer letter along with your payment directly to the lawyer’s office.   A letter (pdf) discussing this is available by emailing me at investor@telus.net.

I would appreciate if you could read the entire update.  For those of you who want this update in layman’s terms:

1. The CCAA (bankruptcy protection) is done.  We didn’t start it, we didn’t end it, but our lawyer represented our interests in the process.
2. Properties are moving into foreclosure.
3. Romspen is the receiver overseeing the foreclosures/sales.  Ernst & Young is involved to somewhat oversee the process.
4. Little money is expected to come out of the asset sales.
5. If you think that your investment is assured because you invested in one of the Olympia Trust mortgages, it is unlikely as the free intermingling of funds will likely prove that all investors have claim to all assets in all projects including the “mortgages”.  Essentially, we are all in the same boat.  (see the update for more details)
6. Our class action continues against the defendants the assorted defendants over and above the Shire group of companies.  For a complete list, please see the Statement of Claim online here.
   

UPDATE
De Wet, et al v. Shire, et al
January 25, 2010

PART I

The array of CCAA-related applications and procedures undertaken by Shire and its various creditors, monitor and stakeholders are now – hopefully – winding down, with a number of motions being heard on January 8, 2010.  A synopsis of these motions appears below in Part II.

In corporate collapses of Shire’s nature and magnitude, it is inevitable that proceedings of that nature will occur.  We, as investor representatives, did not initiate or pursue these steps, but it was incumbent upon us to pay attention, monitor the proceedings and occasionally make representations.

At least the legal fees we incurred on behalf of our group were but a fraction of those incurred by the numerous other players.  At one point, the court agreed with our request to indemnify the investors for up to $100,000 in fees from the DIP financing but unfortunately, it later reversed that decision.  As a consequence and purely as a gratuitous gesture to help the investors, our firm wrote off about 75 hours of lawyer time so as to preserve funds for the ongoing litigation against Shire, et al.

Nevertheless, the CCAA proceedings were invaluable in enabling us to gather information and documentation about the Shire story, the costs mostly being incurred by the Monitor and others.  Accordingly, the costs incurred by the Monitor and creditors (in effect paid from equity in the properties and therefore indirectly from some of the investors) were not wasted.

The documents and court proceedings reveal that Shire’s actual assets are not close to what they should be or what you were led to believe, in our opinion. It seems very doubtful that a liquidation of the properties will result in much if any recovery beyond the security registered on the properties.  That may be surprising to some (and a disappointment to all) based on what you had heard over the years.  The projects mortgaged to Olympia Trust seemingly have realizable value in the mortgages, but the others seem to be far more tenuous.

It is clear that Shire’s accounts were freely intermingled and therefore all investors can claim to have an interest in the secured properties.  In addition, of course, we can still pursue the monetary claims against the various defendants named in the action. The lawsuit is not limited to claims against the properties but also seeks monetary damages from the parties alleged to be responsible.  Now that the CCAA and information-gathering procedures have effectively run their course, we can pursue those claims against the assorted defendants.  We and our client will of course continue to monitor the procedure whereby Romspen (see below) will liquidate the Shire properties.
 

PART II

On Friday, January 8, 2010, the Court heard a number of motions concerning Shire. Briefly, the applications were as follows:

1. By Investit/Romspen (mortgagee over Bearspaw) to take over the debtor in possession (super priority) loan and obtain conduct of sale of certain of the lands;

2. By Investit to discharge the Receiver appointed under the CCAA;

3. By Echo (the DIP Lender) to appoint a receiver; and

4. By Ernst & Young to be discharged as Monitor.

The 4th motion was not contentious as the CCAA stay was not extended in December so Ernst & Young was discharged as Monitor without opposition.

Motions 1, 2 and 3 were all related.  They involved a request by a particular mortgagee to pay out the DIP loan, and to assume conduct of the sale of properties on the premise that this would be cheaper than having a full receiver in place.  There was concern expressed that given the interactions between the various Shire companies, and the complicated nature of the matter, that a receiver should be in place to oversee the sales of the various properties.  On Monday, January 11, 2010, the Court released its decision and agreed with Romspen.  It permitted Romspen to pay out the DIP loan (replacing Echo in effect), and to assume conduct of sale.  As safeguard, the Court agreed to the appointment of Ernst & Young as a receiver with a subordinated charge to the various mortgagees whereby Ernst & Young would receive and comment on offers for individual properties which would all be subject to individual approval by the Court.  The Court also ordered that Romspen furnish a report to it describing its progress in selling the properties within 90 days.

In summary, the CCAA process had the potential to recover more value for the assets, but ongoing issues over the amount of equity in the property and whether it was a restructuring or in reality a liquidation ended that process. The motions were really about who is now in charge of, and the process to be followed in selling, the properties.  The Court is permitting one mortgagee to take on this role, subject to safeguards in having Ernst & Young in a limited role as receiver and this mortgagee report its progress. The Court is doing this because it believes the process of selling the properties will be less costly this way.