Revenue from Meadow Creek Cedar is being used to prop up its owner’s Surrey blueberry farm, which has filed for creditor protection.
Dale Kooner is also trying to sell several logging trucks and trailers belonging to affiliated companies that hauled for Meadow Creek before they were taken off the road for safety violations.
Court documents show the Canadian Imperial Bank of Commerce has applied to have Kooner’s Can-Pacific Farms placed in receivership and hired security guards to watch over the premises.
In March, a judge granted the bank’s application to name accounting firm KPMG receiver of the property as part of foreclosure proceedings. The order was delayed, however, while the company sought creditor protection.
BANK LOANS $10 MILLION
In an affidavit filed March 14, Kooner said Can-Pacific bought the 110-acre former vegetable farm in 2003 and planted a blueberry crop on 95 acres.
The same property also includes his home, staff housing, processing and storage space, and a freezer under construction.
The company hires up to 200 contract labourers at the height of the season to hand-pick blueberries, and in 2011, harvested 700,000 lbs.
However, in 2009, storage costs at a third-party freezer rose dramatically, so the company decided to build its own 30,000 square foot freezer to store produce in-house and also rent out space to other farmers. It was expected to cost about $800,000.
Work began in early 2010, and in April of that year, CIBC loaned Can-Pacific $10 million, guaranteed by Kooner, the sole shareholder.
Kooner also personally injected $5.6 million into the farm for capital projects and operations through a shareholder loan.
Three months later, the bank demanded repayment of the balance owing — about $7.4 million.
No payments were made, and foreclosure proceedings began. The parties struck a deal to give Can-Pacific a three month reprieve, but the company defaulted.
In the fall of 2010, Can-Pacific made loans to Meadow Creek Cedar to help fulfill its own bankruptcy proposal, filed the previous year.
“Meadow Creek was successfully financed out of bankruptcy and has returned to being a solvent operating business,” Kooner wrote. “All advances made to Meadow Creek were repaid to the company.”
However, the bank took issue with the advances. Foreclosure proceedings resumed in January 2011, but after further negotiations, Can-Pacific was granted six months to finish its refinancing arrangements.
FARM LISTED FOR SALE
In June, CIBC began placing 30-day holds on Can-Pacific cheques, which Kooner said “made it impossible to manage the company’s cash flow.”
As a result, Can-Pacific opened an account with the Bank of Nova Scotia. According to a court judgment, Can-Pacific deposited proceeds from its 2011 berry crop into this account, even though CIBC was entitled to the money.
CIBC then sought a court ordered-sale of the farm, which was appraised at $15 million assuming completion of the freezer, but was listed with Colliers International for $13.5 million and has since been reduced to $10.5 million.
Only two offers were received, of $8 million and $9 million. Taking into account the real estate commission, $25,000 in delinquent property taxes, $279,000 in builders’ liens, and the balance owed to CIBC, a sale of over $8.6 million was needed to clear the property’s debts.
“Any such sale would not provide payment for unsecured trade creditors of approximately $600,000 and [a] significant shareholders loan from Mr. Kooner,” wrote Justice Grant Burnyeat.
Including that loan, the company had overall liabilities of $15.2 million.
CIBC applied last February to have a receiver appointed, but Can-Pacific stalled the move by filing its own application under the Farm Debt Mediation Act. That stay was subsequently lifted and an appeal dismissed.
“What has happened between the parties makes the appointment of a receiver inevitable,” the judge wrote. “Can-Pacific has not met the onus of showing that there are compelling commercial or other reasons why such an order ought not be made.”
MONITOR APPOINTED
The receiver’s appointment was further delayed, however, because of Can-Pacific’s application for creditor protection.
The courts appointed bankruptcy firm Murphy and Associates to monitor the company’s activities.
The same firm handled Meadow Creek Cedar’s application for creditor protection in 2009, from which it was finally discharged last November, and acted as trustee for another related company in 2010-11.
A report filed by Lloyd Murphy on March 26 detailed plans for Can-Pacific Farms to create income through rentals, storage fees, and further shareholder’s loans, using Meadow Creek Cedar and other assets.
After reviewing Meadow Creek’s purchase orders and monthly budget, Murphy was satisfied enough money could be created to fund the loan.
Initially, it was expected to be a little under $100,000, but a revised projection pegged it at $161,000.
The ongoing suspension of Meadow Creek Cedar’s license wasn’t mentioned.
Kooner also planned to raise $350,000 by selling his share in a Richmond home. As of April 26, he had received bank drafts for $300,000, but there was an unexplained hold-up on the remaining $50,000. In the interim, Kooner received an advance from his two brothers to make up the balance.
Another $300,000 was to be made by up by selling three logging trucks and four trailers. One truck was registered to Partap Farm and Transportation, and the other vehicles to Daminis Transport, which both hauled for Meadow Creek Cedar.
Kooner is the sole owner of Daminis, while Kooner’s son Justej owns Partap.
The report noted neither company was in good standing, and “steps must be taken immediately” to resolve the situation, although Partap was in the process of being dissolved.
Four Daminis trucks were taken off the highway following a roadcheck by Kaslo RCMP and government inspectors in November 2010.
Daminis faced an audit, but refused to provide its records, so its trucks were suspended. Partap flunked an audit, and its safety certificate was subsequently cancelled.
According to Murphy’s April 27 report, Partap and Daminis have since been brought back into good standing with the registrar of companies.
The vehicles had a combined value of $280,000, and were expected to sell by the end of April, but the appraiser, who is also marketing them, said the market is slow and no sale is imminent.
However, he expected things to pick up as logging season begins at the end of May.
SECURITY GUARDS HIRED
Can-Pacific says completion of its freezer is key to its success, and is expected to generate another $600,000 per year.
Kooner’s affidavit says even while Colliers was trying to sell the farm, he was trying to obtain refinancing.
“Steps taken by the bank in the foreclosure proceedings made this difficult,” Kooner said. “However, I remain optimistic an arrangement can be reached if the company is given time to negotiate with its creditors and potential new investors and/or lenders to restructure business and financial affairs.”
Kooner said he’s been talking to potential investors, but if CIBC pushed ahead, “it’s my belief the creditor group will be highly prejudiced and some unsecured creditors will receive a zero return.”
Murphy, who inspects the farm weekly, noted the bank “is maintaining a security guard presence down the highway from the entrance to the farm.”
However, “We do not feel that there is a practical need for this security as the major value of the CIBC’s security is in the land, buildings and major pieces of equipment ... The monitor is of the view that the CIBC security service is no practical use and should not be retained.”
CIBC’s suit names Kooner as well as Manjeet and Raman Samra, who hold second mortgages on the property.
The stay of proceedings was extended to April 30, but the company was ordered in the meantime to pay $58,000 in three installments to CIBC to cover interest and the cost of the security company, plus interest to the Samras.
It’s unclear from court documents where things stand now.