IN THE SUPREME COURT OF BRITISH COLUMBIA IN BANKRUPTCY. In the matter of the proposal of TCE Trading (Canada) Inc. and

Transcription

1 Vancouver Registry Court No. B Estate No IN THE SUPREME COURT OF BRITISH COLUMBIA IN BANKRUPTCY In the matter of the proposal of TCE Trading (Canada) Inc. and In the matter of the proposal of TCE Property Investment Ltd. Trustee s Joint Report on the Proposals February 6, 2017 Submitted to: Submitted by: The Creditors of TCE Trading (Canada) Inc. & TCE Property Investment Ltd., and The Official Receiver of the Office of the Superintendent of Bankruptcy G. Powroznik Group Inc. of G-Force Group Licensed Insolvency Trustee for the Proposal

2 TRUSTEE S JOINT REPORT ON THE PROPOSALS OF TCE TRADING (CANADA) INC. & TCE PROPERTY INVESTMENT LTD. FEBRUARY 6, 2017 TABLE OF CONTENTS Page A. Background 3 B. Summary of Proposal s 6 C. Financial Position and Causes of Difficulties 7 D. Interim Receiver 8 E. Identification and Evaluation of Assets 8 F. Conduct of the Debtor(s) 9 G. Creditors Claims 10 H. Previous Business Dealings with the Debtor(s) 11 I. Informal Meetings with Major Creditors 11 J. Remuneration of Trustee 12 K. Other 12 L. Statement of Estimated Realization 13 M. Recommendations 13 Restrictions and Qualifications 13 G. Powroznik Group Inc. 2

3 TRUSTEE S JOINT REPORT ON THE PROPOSALS OF TCE TRADING (CANADA) INC. & TCE PROPERTY INVESTMENT LTD. FEBRUARY 6, 2017 A. Background TCE Trading (Canada) Inc. TCE Trading (Canada) Inc. ( TCE Trading ) is in the business of importing marble, stone and tile products and selling them to Canadian and U.S. wholesalers. The shares of TCE Trading are wholly-owned by Mr. Jian Yun Chen ( Mr. Chen ) who is the company s Chief Executive Officer ( CEO ) and sole director. TCE Trading has been in business for approximately seven years and had generally experienced increasing sales and profitable operations to April 30, 2014, its 2014 fiscal year end. Beginning in the 2015 fiscal year, despite increasing sales volumes, TCE Trading expanded resulting in higher costs and an operating loss in that year. It was expected by management that TCE Trading would experience a short-term period of operating losses, while it faced expansion, but ultimately expected that the expanded operation would normalize which would result in higher sales and higher profits over time. Also in 2015, due to a continually strengthening U.S. dollar against the Canadian dollar, TCE Trading began to experience significant foreign exchange losses due to having U.S. dollar bank debt and also due to paying its major Chinese supplier (the Chinese Supplier ) in U.S. dollars. As a result of the above, the TCE Trading audited 2015 financial statements report a net loss of over $2 million in fiscal TCE Trading continued to grow its business during its 2016 fiscal year and sales increased by $10.1 million dollars to $31.5 million, representing a 47% increase over the prior year. Despite having a 19% gross profit margin (i.e. sales minus direct costs of goods sold), other operating and administrative expenses continued to outweigh gross profit and it reported an operating loss of $250,000. TCE Trading continued to face significant challenges with foreign exchange losses, including the negative impact of repaying $8.4 million of U.S. dollar debt, resulting in a total recorded net foreign exchange loss of over $1.1 million for the year. According to its April 30, 2016 financial statements, the total net loss for the year was $1.34 million. Accordingly, the positive gains from operations and sales were eroded mainly by the negative impacts of currency fluctuations. TCE Trading has had revolving lines of credit and chattel lease obligations with the Royal Bank of Canada ( RBC ) since The outstanding balance on the RBC lines of credit, including overdrafts on the company s RBC bank accounts, was approximately $4.86 million at the 2016 year end. RBC was TCE Trading s primary secured creditor. TCE Trading also owed Business Development Bank of Canada ( BDC ) approximately $1.22 million as at April 30, BDC is also a secured creditor of TCE Trading with priority subordinate to that of RBC s. G. Powroznik Group Inc. 3

4 During the current fiscal year, despite not missing any payments to RBC, TCE Trading went offside on its covenants under its loan agreement with RBC, and, for this reason, its loan went into default. RBC and TCE Trading executed a forbearance agreement in June 2016 and extended it in August On September 29, 2016, RBC commenced a foreclosure action relating to the debts of TCE Trading. On October 6, 2016, RBC served upon TCE Trading a 10-day notice of its intention to enforce security under section 244 of the Bankruptcy and Insolvency Act. The effect of the RBC demand was that TCE Trading was unable to pay its obligations generally as they become due. On October 14, 2016, TCE Trading filed an NOI pursuant to the Bankruptcy and Insolvency Act ( BIA ). G. Powroznik Group Inc. of G-Force Group was the Trustee for the NOI of TCE Trading 1. The company reported approximately $25.9 million in total debts on its list of creditors as at the NOI filing date. The secured debt of RBC and BDC was estimated at a total of $5.4 million. Of the total estimated unsecured debt of $20.5 million, the two largest unsecured creditors according to the list of creditors for TCE Trading were Mr. Chen for $11.5 million for shareholder loans/advances, and the Chinese Supplier with an estimated outstanding claim of approximately US$6.5 million. On January 30, 2017, TCE Trading filed its Proposal to creditors with the Office of the Superintendent of Bankruptcy. The First Meeting of Creditors, including the vote on the Proposal and affirmation of G. Powroznik Group Inc. as Proposal Trustee 2, will be held on February 16, Since TCE Trading filed its NOI, and prior to filing its Proposal, it has paid in full its debts to the RBC estimated at $4.2 million, including several leasehold obligations. On the Proposal listing of creditors for TCE Trading, RBC was reflected as an unsecured creditor for $1 because TCE Trading had also guaranteed the RBC loans to TCE Investment. However, since the time of the Proposal, TCE Investment has completed its refinancing (discussed below) and has paid out RBC in full; therefore, RBC is no longer a creditor of TCE Trading. The remaining claims against TCE Trading are summarized in Section G (Creditors Claims) below. TCE Property Investment Ltd. TCE Property Investment Ltd. ( TCE Investment ) is related to TCE Trading. Its principal business activities are property investment, management, and development. TCE Investment s shares are wholly owned by an entity known as TCE Group Holdings Ltd., which is wholly-owned by Mr. Chen. Mr. Chen is the CEO and sole director of TCE Investment. The company was incorporated in 2012 and has been in business since that time. TCE Investment also has an April 30th year end. 1 G. Powroznik Group Inc. will herein be defined as the NOI Trustee, with respect to the filing of an NOI by each of TCE Trading and TCE Investment. 2 G. Powroznik Group Inc. will herein be defined as the Proposal Trustee, with respect to the Proposal of each of TCE Trading and TCE Investment. G. Powroznik Group Inc. 4

5 TCE Investment significantly increased the value of its real estate holdings during fiscal year 2015 when it purchased a development property in Burnaby, B.C. for approximately $9.3 million (the Burnaby Land ). RBC, who already had a credit facility with the company dating back to 2014, loaned TCE Investment an additional $6.0 million to help finance the purchase of the Burnaby Land. RBC was TCE Investment s primary secured creditor. It also appears that TCE Trading advanced intercompany loans to TCE Investment approximating $3.6 million to help finance the acquisition. TCE Investment also owns the TCE Group head office, located at 4000 No. 3 Road in Richmond, B.C. As of its April 30, 2016 year end, TCE Investment owed to RBC a sum of approximately $6.9 million. TCE Investment did not miss any bank payments but the term of the mortgage came up for renewal by RBC and was not renewed. Also, TCE Investment had guaranteed obligations of TCE Trading such that its loan went into default when the loan to TCE Trading went into default. RBC and TCE Investment executed a forbearance agreement on June 30, 2016 and extended it on August 16, 2016 such that the forbearance period was to expire on October 15, RBC accelerated the expiry date under the forbearance agreement on September 23, On September 29, 2016, RBC commenced a foreclosure action relating to the debts of TCE Investment. The reason for acceleration was failure by both TCE companies to produce a term sheet which would finance the repayment of the RBC loans. On October 6, 2016, RBC served upon TCE Investment a 10-day notice of its intention to enforce security under section 244 of the Bankruptcy and Insolvency Act ( BIA ). During the forbearance period (approximately 85 days), the two TCE companies paid all interest plus principal to RBC totalling approximately $1.250 million. These principal payments were in addition to the payments required under the original credit agreement. On October 16, 2016, TCE Investment filed an NOI pursuant to the BIA. G. Powroznik Group Inc. of G-Force Group was the Trustee for the NOI of TCE Investment. TCE Investment reported approximately $14.2 million in total debts on its list of creditors as at the NOI filing date, inclusive of the $6.9 secured debt of RBC. The company s largest unsecured creditor was TCE Trading in the amount of $5.1 million for intercompany loans/advances. On January 30, 2017, TCE Investment filed its Proposal to creditors with the Office of the Superintendent of Bankruptcy. The First Meeting of Creditors, including the vote on the Proposal and affirmation of G. Powroznik Group Inc. as Proposal Trustee, will be held on February 16, Since the filing of the NOI, TCE Investment has been in negotiation with several potential lenders with respect to refinancing its debts. In early January 2017, it executed a term sheet with IMOR Capital Corp., a private mortgage lender located in Vancouver, B.C., relating to a new $8.0 million loan ( Refinancing Loan ) secured by the Burnaby Land and the TCE Group head office property. The Refinancing Loan closed on February 3, 2017 and upon receipt of loan proceeds, TCE Investment has repaid its RBC loans in full. The remaining claims against TCE Investment are summarized in Section G (Creditors Claims) below. G. Powroznik Group Inc. 5

6 B. Summary of Proposals TCE Trading and TCE Investment (the Companies ) each have filed a Proposal to creditors. However, practically, their businesses and loans are intertwined and both of them have been involved in restructuring their debts to pay out the RBC since they filed NOIs in October The successful completion of the Companies Proposals has always been dependent upon completing a refinancing to pay out the RBC. The restructuring plan has proceeded as planned, resulting in the filing of the Proposals and an offer to pay creditors in full, subject to details included herein. In order to run the most efficient process possible, the Proposal Trustee is issuing a joint report and the First Meeting of Creditors will also be held concurrently. Further details on each Proposal are summarized below. TCE Trading As a result of filing its NOI, all amounts owing by TCE Trading as at October 14, 2016 ( Pre- NOI Claims ) were frozen. The Proposal offers creditors full payment of their Pre-NOI Claim amounts, except for those creditors excluded by the Proposal ( Excluded Creditors ), which are set out below. If the Proposal is accepted by the creditors, TCE Trading will make a lump sum payment to the Proposal Trustee, for the satisfaction of creditors claims, on or before February 28, 2017 which will be held in trust subject to Court approval of the Proposal. Court approval of the Proposal will be sought before March 10, 2017 and it is expected creditors will receive payment on account of Pre-NOI Claims by March 24, This timing may change slightly based on when the Court approval hearing date can be scheduled. Excluded Creditors Several creditors are excluded from the Proposal. A summary of the Excluded Creditors follows: 1. Suppliers/vendors who continued to do business with TCE Trading after October 14, 2016 (the Post-NOI Suppliers ) continue to be paid by the Company in the normal course of business and thus are excluded from the Proposal; 2. Business Development Bank of Canada is a secured creditor and is excluded from the Proposal as it continues to receive loan payments from TCE Trading in the normal course of business; 3. Any creditors who have leased assets ( Lessors ) are excluded. The Lessors will continue to receive lease payments from TCE Trading in the normal course of business and do not have Pre-NOI Claims; 4. The Director, Mr. Jian Yun Chen, has a significant shareholder loan to TCE Trading. He has agreed to postpone his claim and is thus excluded from the Proposal; 5. TCE Trading s main supplier of inventory has agreed to postpone its Pre-NOI and post NOI claim and is excluded from the Proposal; and G. Powroznik Group Inc. 6

7 6. Any customers of TCE Trading who have made a prepayment for future inventory purchases ( Customer Deposits ) either pre- or post-noi are excluded as all of the Customer Deposits continue to be used in the normal course of business. TCE Trading will be required to honour its commitments to Excluded Creditors in the normal course of its business or under any contractual arrangements it has with them. TCE Investment The Proposal offers creditors full payment of all claims by unrelated parties. After filing its Proposal, TCE Investment completed a refinancing and paid all its secured creditors in full except Canada Jiapeng Investment Group and Tayva Investment Inc. who each have a residual claim of $1,100 for the purposes of voting on the Proposal. There are no other unpaid unrelated unsecured creditors. Excluded from the Proposal are TCE Trading, who is a related party and cannot vote in favour of the Proposal in any event, and IMOR Capital Corp. ( IMOR ) who is the new primary secured lender, effective as of February 3, If the Proposal is accepted by the creditors, TCE Investment will make a lump sum payment to the Proposal Trustee, for the satisfaction of creditors claims, on or before February 28, 2017 which will be held in trust subject to Court approval of the Proposal. Court approval of the Proposal will be sought before March 10, 2017 and it is expected creditors will receive payment on account of Pre-NOI Claims by March 24, This timing may change slightly based on when the Court approval hearing date can be scheduled. C. Financial Position and Causes of Difficulties There is a significant amount of information with respect to the causes of the Companies financial difficulties in Section A (Background) above. Generally, the Proposal Trustee s view is that the financial difficulty facing the two TCE entities was attributed to the following factors: a) TCE Trading was a profitable, but smaller, business in the first few years of its operation. Management decided to rapidly expand the business in 2015 and 2016, including into two U.S. markets, resulting in increased sales volumes but also significantly-higher overhead. Particularly in the last two years, the Company has experienced operating losses as a result of overall business volume not catching up to the expansion and related costs. Despite management s confidence that the expansion will ultimately lead to increased profitability, which seems to be the case so far in fiscal 2017, the early years of the expansion have caused a negative impact on cash flows; b) Relating to the above, the two TCE U.S. markets (Washington State and San Francisco, CA) have not been successful as quickly as TCE Trading had hoped, G. Powroznik Group Inc. 7

8 resulting in TCE Trading having to fund the operations of the U.S. markets for longer than expected; c) TCE Trading faced significant foreign exchange losses on U.S. dollar transactions over the past two years, including the repayment of $8 million in U.S. bank debt, leading to increased losses and further cash flow pressures; and d) Further stress was put on the TCE Trading cash flows when TCE Investment purchased the Burnaby Land in fiscal The purchase was partially funded by TCE Trading which was already experiencing its own operating losses and pressure on cash flows. TCE Trading has also funded TCE Investment s expenses including the holding costs of its real estate assets, by way of intercompany advances. Traditionally, TCE Investment had negligible cash and no operating assets, other than its real estate holdings, so it could not quickly repay advances from TCE Trading or the demands for repayment of its loans from RBC. As a result of the above factors and the subsequent RBC demands resulting from the loan covenant defaults, TCE Trading and TCE Investment became insolvent and were unable to pay their obligations generally as they become due. The insolvency of the two companies resulted in the NOI filings on October 14, 2016 and October 16, 2016, respectively. Notwithstanding the above, since the start of TCE Trading s fiscal 2017 year on May 1, 2016, its operating results and cash flows have significantly improved which have contributed to the success of the restructuring to date. For the eight months ending December 31, 2016, TCE Trading reported total sales (unaudited) of $25.58 million and net income (unaudited) of $2.48 million. Projected financial results for the full 2017 fiscal year are significantly stronger than those of the 2016 fiscal year. D. Interim Receiver An interim receiver has not been appointed relating to either Debtor. This section is not applicable to either of the Proposals. E. Identification and Evaluation of Assets Generally, this section of a Proposal Trustee s report is intended to outline a debtor s assets with estimated values or ranges of values so that a creditor can evaluate whether the debtor s proposal contains terms that are more favourable than what would otherwise be received in a forced liquidation (i.e. bankruptcy) scenario. In the case of TCE Trading and TCE Investment, all arms-length creditors, except those creditors noted as Excluded Creditors, are offered full recovery on their pre-noi claims in the respective Proposals. Therefore, there can be no better outcome for the creditors than what is offered currently. Further, all armslength Excluded Creditors of TCE Trading have been paid in the normal course of business or entered into a specific agreement with the company. However, for the purposes of disclosure, the assets of each of the Companies are summarized below. G. Powroznik Group Inc. 8

9 TCE Trading As at January 30, 2017, TCE Trading disclosed the following assets on its Statement of Affairs: Estimated cash on hand of $200,000 and $3,438,800 on deposit with its counsel for refinancing TCE Investment s secured debt; Accounts receivable from arm s length parties of $428,000 and from related parties of $11.25 million; Inventory of $13.6 million; Prepaids and deposits of $468,000; Equipment, vehicles and leasehold improvements with an estimated realization value of $828,933; and Tools, furniture and sundry warehouse and office assets of $133,000. As at February 3, 2017, all assets of TCE Trading are pledged as security for TCE Trading s guarantee of the debt due to the secured lender of TCE Investments, IMOR. TCE Investment As of January 30, 2017, TCE Investment discloses the following assets on its Statement of Affairs: Estimated cash on hand of $4,535; TCE Group head office property with an estimated market value of $1.425 million and which is carried on the financial statements at $1.285 million; and Burnaby Land, which based upon a recent appraisal commissioned, has a current market value estimated at $20.0 million. F. Conduct of the Debtor The Trustee has found Mr. Chen, the TCE Companies, their employees and counsel to be very co-operative and forthcoming about the Companies affairs, as well as the affairs of related companies. They have provided the Trustee with answers to all its questions and supporting information and documents through the NOI and now Proposal processes. Mr. Chen and the TCE Companies have acted in good faith and with due diligence in refinancing its secured debt with RBC, in preserving its going-concern operations and in filing Proposals with their creditors. The Proposal Trustee has been monitoring the financial, operational and refinancing affairs and activities of the TCE Companies since their respective NOI filings. Based on our review, the Companies continue to pay post-noi filing suppliers in the normal course of business on standard trade terms as agreed with those suppliers, with the exception of the Chinese Supplier who has agreed to postpone its claim against TCE Trading. There have been several transactions by TCE Trading with Mr. Chen that has resulted in his investment in the company G. Powroznik Group Inc. 9

10 increasing substantially. Similarly there have been several transactions between TCE Trading and TCE Investments to continue to pay the latter s overhead and to refinance its secured debt. The Trustee has not performed any analysis of preferential payment(s), settlement(s) or reviewable transaction(s) that either debtor may have been a party to because the effect of the debtors activities has always appeared to be consistent with refinancing their secured debt and paying their non-related creditors in full. Further, with respect to these types of transactions, each Proposal specifically excludes the consideration of sections of the BIA. The Proposal Trustee has not noted any offences made by the Companies or Mr. Chen under the BIA since it was first consulted in October G. Creditors' Claims TCE Trading Beyond the Excluded Claims described below, there are only four other parties having claims as at the date of the NOI filing being: Canada Brightway Shipping Ltd.; CTC Logistics (Canada) Inc.; Hellmann Worldwide Logistics; and Portside Custom Brokers Ltd. Although Canada Revenue Agency (GST and payroll deductions) and the Ministry of Finance (provincial sales tax) are disclosed on the list of creditors as having pre-noi Claims, those amounts have subsequently been paid. To date, all of those parties have submitted a voting letter in favour of the Proposal. Accordingly, the Proposal of TCE Trading is expected to be accepted at the First Meeting of Creditors. TCE Trading has repaid its debts to RBC and was released from its guarantee of TCE Investment s debt to RBC on February 3, 2017, after it filed its Proposal. Excluded Claims As set out in Section B, TCE Trading has other secured creditors and lessors who are excluded from its Proposal as it will continue paying those parties in the normal course of business. In addition, TCE Trading had a number of customers listed on its NOI List of Creditors who had who had made prepaid deposits ( Deposits ) for the future purchase of inventory. These parties were, at the time of the NOI filing, listed as Other Liabilities as the company was in progress of reconciling its sales in order to determine the true extent of the Deposits. On the Proposal Statement of Affairs, the customers having made Deposits are now listed at their full Deposit value as it existed at the time of the NOI filing, however all of these claims are excluded from the Proposal because during the NOI those customers have continued to apply G. Powroznik Group Inc. 10

11 their Deposits against purchases of inventory in the normal course of business and will be allowed to continue to do so after the Proposal is completed to the extent they have any Deposits remaining. Similarly, any customers who made Deposits after the filing of the NOI have been allowed to continue applying the Deposits against inventory purchases and will continue to do so after the Proposal is completed. Finally, the Chinese Supplier has agreed to postpone in full its claim against TCE Trading. Accordingly, that party is also excluded from the Proposal. TCE Investment TCE Investment has paid its secured creditors, including RBC, in full, except each of the following parties has a residual $1,100 claim for the purposes of voting on the Proposal: Canada Jiapeng Investment Group Ltd.; and CATS. As of the date of this Report, each of those parties has returned a Voting Letter indicating they vote in favour of acceptance of the Proposal. Accordingly, the Proposal of TCE Investment is expected to be accepted at the First Meeting of Creditors. TCE Trading is a non-arm s length creditor and accordingly cannot vote in favour of the Proposal. As part of the refinancing of TCE Investment s debt with IMOR, TCE Trading has confirmed that it will not vote against the Proposal. H. Previous Business Dealings with the Debtor The Proposal Trustee had no prior business dealings with TCE Trading, TCE Investment, Mr. Chen or any related companies before the Companies approached G. Powroznik Group Inc. to discuss restructuring options under the BIA in October I. Informal Meetings with Major Creditors The Proposal Trustee has not held meetings with any creditors other than responding to certain creditor questions since the filing of the NOIs. Due to the nature of the Proposals (i.e. offering payment of 100 cents on the dollar), and the filing of voting letters in favour of the Proposals by all creditors entitled to vote, the Proposal Trustee expects the Companies Proposals to be approved by their respective creditors. Prior to the filing of the Proposals, the Companies legal counsel has been corresponding with major creditors including RBC and the other secured creditors in TCE Investment, as well as certain unsecured creditors in TCE Trading, and was involved in the formulation of a Postponement Agreement between TCE Trading and the Chinese Supplier. TCE and its legal counsel have kept the Proposal Trustee fully informed of the status of discussions and agreements with the creditors. G. Powroznik Group Inc. 11

12 J. Remuneration of Trustee Notice of Intentions The Companies provided the NOI Trustee with a $100,000 retainer prior to the two NOI filings in order to cover the NOI Trustee's initial fees and costs relating to the restructuring process. Mr. Chen also agreed to postpone his claims to the fees and disbursements of the NOI Trustee and Proposal Trustee and indemnify the Trustee where the fees and disbursements are not otherwise paid out of the assets of the Companies. Further, TCE Trading and TCE Investment both provided registered security to the Trustee and to their legal counsel for fees and disbursements relating to the NOI and Proposal proceeding and related restructuring activities. The total amount of fees, disbursements and taxes charged by the NOI Trustee prior to the filing of the Proposals is as follows: TCE Trading: $112,656.91; and TCE Investment: $23, All fees of the NOI Trustee have been paid as at the date of this Report, with the exception of its most recent invoices issued to TCE Trading and TCE Investment for $2, and $1,445.38, respectively. Proposals TCE Trading and TCE Investment are required to pay the Proposal Trustee s fees, charged using the standard hourly rates of its professional staff, any out-of-pocket costs incurred, and applicable taxes. Because each Proposal offers a full recovery to creditors, the fees and costs of the Proposal Trustee will not impact the ultimate realization. However, for the purposes of disclosure, the Proposal Trustee expects that its estimated fees to complete its administration of both Proposals will be $65,000-$75,000 depending on the nature and complexity of issues that arise during the process. All fees of the NOI Trustee and the Proposal Trustee must be taxed by the Court prior to discharge of the Trustee. K. Other The Companies have agreed to pay the fees and disbursements of the Trustee and to pay priority claims under section 136 of the BIA, both in priority ahead of the claims of unsecured creditors. However, these specific terms are not contained in the respective Proposals but are required to be. Accordingly, the Companies will table amendments to the Proposals at the first meeting of creditors to correct these omissions. No priority claims under section 136 are anticipated. The Trustee is of the opinion that these amendments will not have a negative or detrimental effect on the Companies creditors or Proposals. G. Powroznik Group Inc. 12

13 The Proposal Trustee is not aware of other pertinent facts, such as legal proceedings or contract arrangements in which either TCE Trading or TCE Investment is involved, that have not otherwise been disclosed herein or that may influence the creditors' decision on the Proposal. L. Statement of Estimated Realization Section B above outlines the payment terms of the Proposals for TCE Trading and TCE Investment. All arm s-length creditors of each of the Companies, except those otherwise noted as Excluded Creditors, will receive full payment of pre-noi claims. Also, the required 5% Levy payment pursuant to section 147 of the BIA will be remitted. No realization schedule is required as creditors will not suffer any shortfall on claims, other than the deduction of the 5% Levy. The recovery for unsecured creditors under a forced liquidation which would occur through a bankruptcy if the Proposals were not accepted would likely be much lower. M. Recommendation TCE Trading TCE Trading is offering full payment to its pre-noi Filing creditors, not including any Excluded Creditors noted herein. TCE Trading will be required to honour its commitments to the Excluded Creditors in the normal course of its business or under its contractual arrangements with them. It is the Trustee's opinion that the TCE Trading Proposal is to the advantage of creditors as the recovery for the creditors under a bankruptcy would be lower. TCE Investment TCE Investment is offering full payment to its pre-noi Filing creditors, not including any excluded creditors noted herein. TCE Investment will be required to honour its commitments to the excluded creditors under its contractual arrangements with them. It is the Trustee's opinion that the TCE Investment Proposal is to the advantage of creditors as the recovery for the creditors under a bankruptcy would be lower. RESTRICTIONS AND QUALIFICATIONS This joint report on the Proposal of TCE Trading (Canada) Inc. and the Proposal of TCE Property Investment Ltd. summarizes the Proposal Trustee s findings and conclusions from its review of the Companies records and other information received, and from its investigations since the date of the filing of the Notice of Intention to make a proposal by each company. It is subject to change based on subsequent findings or receipt of additional information. It is customary in an insolvency proceeding for new or changing information to constantly surface and supersede any previous information that may have been received and/or reported. Readers are cautioned accordingly. In conducting our research and preparing our report, we obtained certain information and representations from the Director, creditors and other third parties. Information, data and documentation furnished by others was presumed to be reliable and, G. Powroznik Group Inc. 13

14 except as expressly noted in our report, was not verified. Accordingly, the Proposal Trustee assumes no responsibility for the accuracy of third party information provided. We are pleased to answer any questions you may have. All of which is respectfully submitted this 6 th day of February, G. Powroznik Group Inc. in its capacity as Trustee for the Proposals of TCE Trading (Canada) Inc. and TCE Property Investment Ltd. and not in its personal capacity G. Powroznik Group Inc. 14