Alberta Securities Commission
The ASC keeps its investigations highly confidential and does not disclose information to the public about the status thereof. Due to the number of parties, properties and documents, this is a complex investigation even by ASC standards and it is not particularly surprising that allegations (charges) under the Securities Act have not yet been filed by the ASC. Based on our knowledge of the facts, we are expecting that the ASC will eventually either issue charges or enter into settlement agreements with the responsible parties. In a typical ASC settlement agreement, the respondents admit to Securities Act violations and penalties arising therefrom, generally including a fine as well as removal from the capital markets. Under ASC procedures, the first anyone will learn of either charges or a settlement will be a posting on the ASC website. While we anticipate that one of those two things will happen, we are not privy to the details of the ASC investigation and it is possible that the ASC could decide not to pursue enforcement action. From our perspective, this would be a surprising outcome.
Shire Properties
As many of you are aware from the periodic updates on the Ernst & Young website, progress has been slow with respect to the marketing and sale of the various Shire properties.
You will recall that Debtor In Possession (DIP) financing was obtained early in the CCAA proceedings, with the amount of the DIP loan currently being $2,200,000.00. The DIP financing, by court order, is secured first against Shire’s unencumbered properties and secondarily, against the properties that are subject to registered security such as mortgages. The DIP financing carries 18% interest.
The terms of the applicable court order provide that if an encumbered (mortgaged) property is sold, the proceeds will be paid towards the DIP financing, with the secured creditor then having a claim for the amount of their security, less a contribution to the DIP financing based on the value of the sale.
On September 13, 2010, we attended a court application in the CCAA action brought by Investit Financial to amend the formula so that a secured creditor would be paid out from a sale, less only a holdback for a potential contribution to the DIP financing based on the list price of the properties. The theory behind that is that the secured creditors may currently be reluctant to sell the properties or realize on their security out of a concern that they will bear a disproportionate contribution to the DIP financing by being first to sell.
Needless to say, from the investors’ perspective as unsecured claimants, the best outcome is for the properties to sell as quickly as possible, stop the accruing interest to the security holders and hope that the properties sell for a sufficient amount to retire the security, pay out the DIP financing and leave a balance for distribution to unsecured creditors. Therefore, we are supportive of any procedure or formula that expedites sales at a reasonable price.
The only property to have sold at the moment is the Winn River (Minaki Lodge) property.
On September 13, 2010 the court approved the sale of those lands for $1.2 million. This price was consistent with an appraisal that had been obtained for the property. The sale price will cover the amount outstanding on the mortgage to Kody Stokes and the amount allocated to the DIP financing, but will not leave much if any excess for unsecured creditors.
A sale of the Orillia Property is likely to occur at $1.7 million in mid-October when all sale conditions have been met. Other properties remain at various stages of listing and negotiation. We will continue to monitor those proceedings, with a view to taking whatever steps may be necessary to maximize possible return to the investors. For example, if a sale was proposed at an unreasonably low price, then, even if the price were satisfactory to the security holder in question or the DIP lender, we would oppose that.
