First Report of KSV Kofman Inc. as Trustee in Bankruptcy of IceGen Inc. and Ontario Limited. September 25, 2015

Transcription

1 First Report of KSV Kofman Inc. as Trustee in Bankruptcy of IceGen Inc. and Ontario Limited September 25, 2015

2 Contents Page 1.0 Introduction Purposes of this Report Currency Restrictions Background Background to these Proceedings Assets Creditors Bankruptcy Funding Rushlade Investments Limited Ford Credit Canada Leasing Other Secured Claims Other Creditors Sale Process Sale Process Summary Transaction Summary Recommendation Conclusion and Recommendation...8 Appendices Appendix Tab Certificate of Appointment dated July 9, A Certificate of Appointment dated July 11, B Resolution of the Inspectors dated July 30, 2015 re: Funding Arrangement... C Resolution of the Inspectors dated July 30, 2015 re: Sale Process... D Resolution of the Inspectors dated September 9, 2015 re: Auction... E Dr. Lionel Gerber Auction Participation Agreement...F Rushlade Investments Limited Auction Participation Agreement... G Asset Purchase Agreement... H ksv advisory inc. Page i of i

3 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) IN THE MATTER OF THE BANKRUPTCY OF ICEGEN INC., OF THE CITY OF MARKHAM, IN THE PROVINCE OF ONTARIO COURT FILE NO: AND - APPLICANT IN THE MATTER OF THE BANKRUPTCY OF ONTARIO LIMITED, OF CITY OF MARKHAM, IN THE PROVINCE OF ONTARIO FIRST REPORT OF KSV KOFMAN INC. AS TRUSTEE IN BANKRUPTCY OF ICEGEN INC. AND ONTARIO LIMITED RESPONDENT SEPTEMBER 25, Introduction 1. On June 8, 2015, IceGen Inc. ( IceGen ) filed a Notice of Intention to Make a Proposal ( NOI ) pursuant to Section 50.4(1) of the Bankruptcy and Insolvency Act ( BIA ). 2. On June 10, 2015, Ontario Limited ( 180 and jointly with IceGen, the Debtors ) filed a NOI. 3. Pursuant to an Order of the Ontario Superior Court of Justice ( Court ) made on June 12, 2015, the Debtors NOI proceedings were administratively consolidated. 4. Duff & Phelps Canada Restructuring Inc. ( D&P ) was appointed as the proposal trustee in the NOI proceedings of IceGen and 180 ( Proposal Trustee ). ksv advisory inc. Page 1 of 8

4 5. The Debtors did not seek an extension of time to file a proposal, nor did they file a proposal within the time frame prescribed by the BIA. Accordingly, IceGen and 180 were deemed to have filed assignments in bankruptcy on July 9, 2015 and July 11, 2015, respectively, and accordingly the Proposal Trustee became the Trustee in Bankruptcy ( Trustee ) of IceGen and 180 on those dates. Attached as Appendices A and B are copies of the Certificates of Appointment dated July 9, 2015 (IceGen) and July 11, 2015 (180) issued by the Office of the Superintendent of Bankruptcy Canada. 6. On June 30, 2015 (the Effective Date ), D&P was acquired by KSV Kofman Inc. ( KSV ). Pursuant to an Order of the Court made on July 10, 2015, KSV replaced D&P on D&P s mandates in progress on the Effective Date, including acting as Proposal Trustee. The licensed trustees/restructuring professionals overseeing this mandate prior to June 30, 2015 remain unchanged. 7. KSV s appointment as Trustee was affirmed at the First Meeting of Creditors on July 30, Also at the First Meeting of Creditors, five inspectors ( Inspectors ) were appointed. The Inspectors are: Dr. Lionel Gerber, Philip Heller, Chris Reed, Paul Harris and Sruli Wolff. 1.1 Purposes of this Report 1. The purposes of this Report are to: 1.2 Currency a) Provide background information about the Debtors; b) Provide background information regarding these proceedings; c) Summarize the Debtors assets and liabilities as at the date of bankruptcy; d) Update the Court on a sale process conducted by the Trustee for the Debtors business and assets ( Sale Process ); and e) Recommend that the Court issue an order vesting title in Rushlade Investments Limited ( Rushlade ), as of closing, to the Assets (defined in Section 8(1)(a)), free and clear of all liens, charges, security interests and other encumbrances. 1. All currency references in this Report are in Canadian dollars. ksv advisory inc. Page 2 of 8

5 2.0 Restrictions 1. In preparing this Report, the Trustee has relied upon unaudited financial information provided by the Debtors and its representatives, as well as the Debtors books and records. The Trustee has not performed an audit or other verification of such information and, accordingly, it expresses no opinion thereon. 3.0 Background 1. IceGen is an early stage business which designs and manufactures industrial scrape plate heat exchangers that are used to produce slurry ice, which is a pumpable ice solution that can be used for a variety of cooling and refrigeration applications maintains a portfolio of patents to protect the proprietary machine designs used by IceGen. 180 has granted IceGen an exclusive right and license to use its intellectual property. 3. IceGen s equipment and technology is mainly used in the citrus and food processing industry, the transport and logistics industry and the thermal storage industry. IceGen s technology, however, has wider potential applications. For example, it was used to make snow for the World Ski Jump Association and the Sochi Winter Olympics. 4. IceGen operates from a leased facility located at 176 Torbay Road in Markham, Ontario ( Leased Facility ). The Leased Facility is approximately 3,800 square feet and has a small section for manufacturing, as well as research and development ( R&D ) and administrative space. 5. IceGen has 10 employees. Four employees are focused on manufacturing and the others are focused on administration, engineering, R&D and sales. IceGen does not maintain any pension plans and its workforce is not unionized does not carry on active business operations and does not have any employees. It holds patents related to IceGen s products. 4.0 Background to these Proceedings 1. During the NOI proceedings, the Debtors sought the Court s approval of a sale and investor solicitation process, as well as a debtor-in-possession loan facility to fund their business and operations. 2. Due to a number of concerns raised during the NOI proceedings by Dr. Gerber, a shareholder of the Debtors, the Court did not approve the loan facility nor a sale and investor solicitation process. As a result of the Court s decision, the Debtors did not seek an extension of the deadline to file a proposal, nor did they file a proposal. ksv advisory inc. Page 3 of 8

6 3. Dr. Gerber s main concerns, as stated in materials filed with the Court, were as follows: a) the quantum and priority of Philip Heller s advances to IceGen Philip Heller is a shareholder of the Debtors and the father-in-law of the Debtors President, Motti Einhorn; b) the state of the Debtors books and records; c) access to review the Debtors books and records; and d) the timeline of the Debtors proposed sale and investor solicitation process. 4. The Trustee is in the process of reviewing all claims filed in these proceedings, including those of Philip Heller and any other related parties. The extent and priority of all claims brought forward against the Debtors (whether secured, unsecured or equity) will be determined by the Trustee in accordance with the BIA. 5. Dr. Gerber s other concerns were addressed by the Trustee during the Sale Process, as discussed in Section 7.1 below. 5.0 Assets 1. As at the date of bankruptcy, IceGen s records reflected: a) A cash balance of approximately $11,000; b) Accounts receivable with a book value of approximately $76,000; c) Inventory with a book value of approximately $400,000; and d) Office and computer equipment with a book value of approximately $70, has no assets other than its patents, which have not been independently valued. 6.0 Creditors 6.1 Bankruptcy Funding 1. IceGen required funding during its bankruptcy proceedings in order to continue to operate and to fund professional costs. Rushlade, a pre-filing secured lender owned by Anthony Heller (Philip Heller s brother) agreed to provide this funding on a senior secured basis ( Funding Arrangement ). ksv advisory inc. Page 4 of 8

7 2. A summary of the funding provided by Rushlade in these proceedings is as follows: a) $150,000 on July 9, 2015 to fund operations prior to the First Meeting of Creditors 1 pursuant to a Third Party Guarantee and Deposit Agreement between the Trustee and Anthony Heller dated July 8, 2015; and b) $500,000 on August 12, 2015 which, along with the Funding Arrangement, was approved by the Inspectors at an Inspectors meeting convened on July 30, A copy of the July 30, 2015 Inspectors resolution is attached as Appendix C. 6.2 Rushlade Investments Limited 1. IceGen is also indebted to Rushlade in respect of pre-bankruptcy borrowings in the amount of $1 million plus interest and costs. 2. The Trustee has performed a review of advances made by Helmsbridge Holdings Limited ( Helmsbridge ). Helmsbridge is owned by Anthony Heller. The Trustee s review identified that: a) Helmsbridge made three advances to IceGen between July and October, 2014 totalling $1 million; and b) Cancelled cheques and wire transfer details were provided in respect of the three advances. The advances can also be identified in IceGen s bank statements. 3. IceGen provided Helmsbridge with a General Security Agreement dated July 23, 2014 pursuant to which IceGen granted a security interest over all of its assets in favour of Helmsbridge. Helmsbridge assigned its debt and security to Rushlade in March, The Trustee reviewed the loan, security and assignment documents and no issues with respect to these transactions were identified. 4. Chaitons LLP has provided the Trustee with an opinion that, subject to the usual assumptions and qualifications, the security held by Rushlade is valid and enforceable as against the Trustee. 6.3 Ford Credit Canada Leasing 1. Ford Credit Canada Leasing has a secured claim against IceGen in respect of a vehicle. 1 As noted in Section 5.0 there was minimal cash on hand to fund IceGen s operations from the date of bankruptcy to the First Meeting of Creditors. ksv advisory inc. Page 5 of 8

8 6.4 Other Secured Claims 1. Philip Heller submitted a secured claim in the amount of approximately $3.4 million for funds advanced directly and/or indirectly to IceGen and 180 between 2007 and As stated above, the Trustee is in the process of reviewing this claim as well as all other claims filed in these proceedings. 6.5 Other Creditors 1. As at the date of bankruptcy, the Debtors books and records reflected unsecured claims totaling approximately $1.024 million. 7.0 Sale Process 1. On July 30, 2015 the Inspectors passed a resolution authorizing the Trustee to conduct the Sale Process for the business and assets of the Debtors (the Property ). The Trustee provided the Inspectors with a summary of the Sale Process in advance of the Inspectors meeting. A copy of the July 30, 2015 Inspectors resolution approving the Sale Process is attached as Appendix D. 7.1 Sale Process Summary 1. The Trustee compiled a list of 72 prospective purchasers (collectively, the Prospective Purchasers ). The list included parties identified by the Debtors, as well as parties who contacted the Trustee or the Debtors on an unsolicited basis. 2. The Trustee sent a brief interest solicitation letter detailing this opportunity to all of the Prospective Purchasers, including a confidentiality agreement ( CA ). All parties interested in performing due diligence were required to execute a CA. Each Prospective Purchaser that signed a CA is referred to herein as an Interested Party. 3. The Sale Process provided Prospective Purchasers with an opportunity to submit offers to purchase some or all of the Property. 4. The Trustee published a newspaper advertisement on August 19, 2015 in the Globe and Mail concerning this opportunity. 5. The Trustee provided each Interested Party with a confidential information memorandum and access to an electronic data room (which included financial and other information with respect to the Debtors). 6. The Trustee offered each Interested Party an opportunity to meet with members of IceGen s management. 7. The Trustee provided each Interested Party with a standardized form of purchase and sale agreement ( APS ) this was also included in the data room. 8. The deadline for submission of offers was September 3, 2015 at 4 p.m. ( Offer Deadline ). ksv advisory inc. Page 6 of 8

9 9. The Trustee received offers from two Interested Parties. The offers were from Dr. Gerber and from Rushlade. 10. Both offers were submitted in the form of, or incorporated by reference, the APS without any material changes. The offers were substantively close in value and neither had onerous conditions. 11. Subsequent to the Offer Deadline, Dr. Gerber requested a meeting with the Debtors management team to perform further due diligence. This meeting was convened on the Labour Day holiday, being Monday September 7, A representative of the Trustee attended the meeting. 12. Prior to the Offer Deadline, Dr. Gerber and Anthony Heller requested that if there were going to be additional rounds of bidding, that the process be fully transparent. Accordingly, the Trustee recommended to the Inspectors that Dr. Gerber and Rushlade be invited to participate in an auction ( Auction ). The Inspectors accepted this advice and on September 9, 2015 the Inspectors passed a resolution authorizing the Trustee to determine and accept the best offer at the Auction. A copy of the September 9, 2015 Inspectors resolution is attached as Appendix E. 13. In order to participate at the Auction, both bidders were required to execute an Auction Participation Agreement that the Trustee and its counsel prepared. The final form of Auction Participation Agreement incorporated comments made by Dr. Gerber and Anthony Heller. Copies of the Auction Participation Agreement signed by Dr. Gerber and Anthony Heller are attached respectively as Appendices F and G. 14. Both bidders participated in the Auction which was held on September 16, Multiple bids were submitted by both bidders. Ultimately, Rushlade submitted the highest offer in the amount of $4.15 million ( Purchase Price ), which the Trustee accepted. 8.0 Transaction Summary 1. A copy of the asset purchase agreement ( Agreement ) between the Trustee and Rushlade is included as Appendix H. A summary of the Agreement is as follows: a) The transaction is for an acquisition by Rushlade of the Debtors right, title and interest in and their business and assets, including acquired contracts, personal property, acquired personal property leases, the premises lease, intellectual property, inventories, receivables and books and records ( Assets ). b) The proposed closing date of the transaction is on or before October 9, 2015 ( Closing Date ); c) Rushlade has paid a deposit of 15% of the Purchase Price as set out in the Agreement. ksv advisory inc. Page 7 of 8

10 d) An amount equal to all outstanding indebtedness owing by the Debtors to Rushlade ( Rushlade Debt ) as at the Closing Date will be paid to the Trustee by way of cancellation of the Rushlade Debt. The balance of the Purchase Price will be paid by Rushlade upon closing. e) The only significant condition is the issuance of a vesting order by the Court. f) The Assets are being sold on an as-is, where is basis. 8.1 Recommendation 1. For the following reasons, the Trustee respectfully recommends that the Court issue an order vesting in Rushlade all right, title and interest in and to the Assets: a) The Sale Process provided an appropriate mechanism to expose the Debtors business and assets to the market for a reasonable period of time; b) The Sale Process was approved by the Inspectors; c) Acceptance of the highest bid at the Auction was approved by the Inspectors; d) Prior to the Auction, Interested Parties, including Dr. Gerber, were provided access to a data room, they had ample time to perform diligence, all requests for information were responded to on a timely basis by the Trustee, and members of management made themselves available to meet with Interested Parties, including Dr. Gerber; and e) Rushlade will continue to operate the Debtors former business as a going concern, which will preserve the employment of IceGen s employees. 9.0 Conclusion and Recommendation 1. Based on the foregoing, the Trustee respectfully recommends that this Court make an order granting the relief detailed in Section 1.1(1)(e) of this Report. All of which is respectfully submitted, * * * KSV KOFMAN INC. IN ITS CAPACITY AS TRUSTEE IN BANKRUPTCY OF ICEGEN INC. AND ONTARIO LIMITED AND NOT IN ITS PERSONAL CAPACITY ksv advisory inc. Page 8 of 8

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