IN THE MATTER OF GREAT LAKES BIODIESEL INC., EINER CANADA INC. AND BIOVERSEL TRADING INC. of the City of Toronto in the Province of Ontario

Transcription

1 Court File No.CV CL ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) IN THE MATTER OF GREAT LAKES BIODIESEL INC., EINER CANADA INC. AND BIOVERSEL TRADING INC. of the City of Toronto in the Province of Ontario FIRST REPORT TO THE COURT SUBMITTED BY KPMG INC., INTERIM RECEIVER September 18, LEGAL_1:

2 Table of Contents Page 1.0 Introduction and Purpose of Report Introduction the Parties and Background Information Purpose of Interim Receiver s First Report Terms of Reference Initial Activities Interim Court Officer s Initial Activities Interim Receiver s Initial Activities Cash and Banking Employees D&O Insurance Coverage Biodiesel Plant Monitoring Biodiesel Plant Maintenance and Repair Supplier and Creditor Notification Natural Resources Canada Contribution Agreement Independent Counsel Receiver s Borrowing Certificate Summary of Financial Position Financial Statements GLB Financial Situation Einer Canada Financial Situation Bioversel Trading Financial Situation Budget and Cash Flow for Interim Receivership Period Financing Efforts LEGAL_1:

3 Listing of Appendices Appendix A - Simplified Organization Chart Appendix B - GLB Consent Letter Appendix C - August 21 Order Appendix D - Initial Order Appendix E - TWD s Report dated August 26, 2014 Appendix F - TWD s Monitoring Proposal Appendix G - TWD s Reports dated September 4 and 11, 2014 Appendix H - MOE Provincial Officer s Order dated June 6, 2014 Appendix I - TSSA Order dated August 6, 2014 Appendix J - Schedule of Compliance and Production Disbursement Requests Appendix K - Affidavit of Mailing of s.245 Notices to Creditors Appendix L - June 11, 2014 NRCan Letter Appendix M - July 17, 2014 NRCan Letter Appendix N - Receiver s Borrowing Certificate Dated August 29, 2014 Appendix O - Interim Receiver s Cash Flow Budget for the Interim Receivership Period Page 1 LEGAL_1:

4 1.0 Introduction and Purpose of Report 1.1 Introduction the Parties and Background Information Great Lakes Biodiesel Inc. ( GLB ) is a corporation incorporated and existing under the laws of the province of Ontario. GLB s principal asset is a biodiesel refinery plant located in Welland, Ontario (the Biodiesel Plant ). GLB has its head office located at 77 Bloor Street West in Toronto, Ontario. The majority of the shares in GLB are owned by a UK company called Reneos Limited ( Reneos ). As discussed below, Heridge (defined below) alleges that GLB is indebted to Heridge in the approximate amount of US$10 million. This indebtedness is disputed by GLB as owing by another entity Einer Canada Inc. ( Einer Canada ) is a corporation incorporated and existing under the laws of the province of Ontario. Einer Canada is a holding company that owns 100% of the shares of Bioversel Trading Inc. Einer Canada s business address is 1200 Bay Street in Toronto, which is a virtual office that receives Einer Canada s mail. Einer Canada is a wholly owned subsidiary of Orense Investments Limited, a Cypriot company. Heridge asserts that Einer Canada is a guarantor of the disputed debt obligation of GLB referred to in section above Bioversel Trading Inc. ( Bioversel Trading ) is a corporation incorporated and existing under the laws of the province of Ontario. Bioversel Trading is a wholly owned subsidiary of Einer Canada. Bioversel Trading s business address is 1200 Bay Street in Toronto, which is a virtual office that receives Bioversel Trading s mail. Heridge asserts that Bioversel Trading is a guarantor of the disputed debt obligation of GLB referred to in section above A simplified organization chart showing the ownership of and relationship between GLB, Einer Canada and Bioversel Trading is attached as Appendix A Heridge S.a.r.l. ( Heridge ) is a corporation established under the laws of Luxembourg. It is a wholly owned subsidiary of Natech Limited, a corporation established under the laws of Cyprus. Heridge asserts that it loaned GLB US$20 million (the Loan ) to fund the purchase of equipment related to the construction of the Biodiesel Plant and for general working capital of GLB. Heridge asserts that it holds a debenture from GLB dated January 1, 2011 (the Debenture ) in respect of this debt, of which approximately US$10 million in principal and interest remains outstanding. Pursuant to this Debenture, Heridge alleges that Einer Canada and Bioversel Trading guaranteed GLB s obligations under the Debenture As described in the court materials of GLB, GLB, Einer Canada and Bioversel Trading (collectively, the Companies ) dispute the existence of the Loan to GLB On May 27, 2014, Heridge demanded payment of all amounts outstanding under the Debenture and on May 28, 2014 issued a Notice of Intention to Enforce Security pursuant to section 244 of the Bankruptcy and Insolvency Act (the BIA ). On May 30, 2014, Heridge engaged KMPG Inc. ( KPMG ) as a financial advisor to perform an independent review of GLB s business operations, assets and liabilities On June 24, 2014, GLB consented to KPMG s review of GLB. A copy of GLB s executed consent letter is attached as Appendix B. KPMG was unable to complete its review of GLB s financial situation at the time primarily due to the dispute between GLB and Heridge as to the LEGAL_1: Page 2

5 existence of the Loan and GLB s unwillingness to provide KPMG with full information and access as a result thereof On August 20, 2014, Heridge served notice of its application for the appointment of KPMG as receiver over the property, assets and undertaking of the Companies (the Property ) before the Ontario Superior Court of Justice, Commercial List, pursuant to S. 243 of the BIA and 101 of the Courts of Justice Act (Ontario) (the Receivership Application ) On August 21, 2014, Mr. Justice McEwwan issued an interim order (the August 21 Order ) appointing KPMG as the Court s Officer (the Interim Court Officer ), on a without prejudice basis, pending the return of Heridge s application on August 27, 2014 (the Interim Period ). The August 21 Order empowered KPMG to, inter alia: (i) (ii) (iii) Monitor the Companies business affairs, including having unfettered access to the Biodiesel Plant and GLB s head office; Take inventory of all property on the Companies premises, including the books and records, to copy the data on the Companies computer systems and to copy the Companies records; and Prevent anyone from destroying any of the Companies records or removing them from the Companies premises, except to the extent such documents were required by, and kept in the control of, the Companies legal counsel. A copy of the August 21 Order is attached as Appendix C On August 27, 2014, Mr. Justice Pattillo of the Ontario Superior Court of Justice issued an order (the Initial Order ) appointing KPMG Inc. as interim receiver (the Interim Receiver ) of the Companies until September 24, 2014 (the Interim Receivership Period ), pending the return of the Receivership Application and the resolution of the dispute with respect to the indebtedness. A copy of the Initial Order is attached as Appendix D The Initial Order authorized the Interim Receiver, inter alia, to do the following: (i) (ii) (iii) (iv) (v) Take possession of and exercise control over the Property and any and all proceeds, receipts and disbursements arising out of or from the Property; Receive, preserve, and protect the Property, or any part or parts thereof; Engage consultants, appraisers, agents, experts, auditors, accountants, managers, legal counsel and such other persons from time to time and on whatever basis, including on a temporary basis, to assist with the exercise of the Interim Receiver's powers and duties; Contact the Ministry of the Environment or any applicable governmental body or agency with respect to the Property; and Borrow up to $1.5 million (or such greater amount as the Court may by further order authorize) to fund the Interim Receiver s disbursements and activities. Any amounts borrowed are secured by fixed charge on the Property. LEGAL_1: Page 3

6 1.2 Purpose of Interim Receiver s First Report This is the Interim Receiver s first report (the First Report ) to the Court. The First Report does not address, verify or confirm the legitimacy of any indebtedness that may be owing by GLB to Heridge. Accordingly, the Interim Receiver takes no position with respect to the dispute that is before the Court on the motion for the appointment of a receiver returnable September 24, The First Report is filed to: Report on the Interim Court Officer s activities since its appointment; Report on the Interim Receiver s activities since its appointment; and Report to the Court in respect of the current financial and operational status of the Companies. 1.3 Terms of Reference In preparing this report, the Interim Receiver has relied upon unaudited financial information from the Companies books and records, certain financial information prepared by the Companies and/or their representatives and discussions with the Companies management and/or representatives. The Interim Receiver has not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the financial information. Accordingly, the Interim Receiver expresses no opinion or other form of assurance on the financial information contained in this report or relied on in its preparation. Future oriented financial information reported or relied on in preparing this report is based on management s assumptions regarding future events; actual results may vary from forecast and such variations may be material The Interim Receiver is advised by representatives of the Companies that Bioversel Trading and Einer Canada are essentially holding companies with limited activity and staff (in 2014 Bioversel Trading had no staff and Einer Canada had two employees). Accordingly, the focus of this report is primarily on the activities and assets of GLB The Interim Receiver has reviewed the contents of the majority of the First Report with the CFO of GLB prior to finalizing the First Report. LEGAL_1: Page 4

7 2.0 Initial Activities 2.1 Interim Court Officer s Initial Activities Following the issuance of the August 27 Order, the Interim Court Officer immediately: (i) (ii) (iii) (iv) (v) (vi) Attended at the Biodiesel Plant and head office with security personnel to establish the security of each location and develop and implement a program to monitor the Property; Met with staff at each location to explain the Interim Court Officer s role and the information and cooperation that staff were required to provide, and to establish an emergency or material event protocol (i.e. that the Interim Court Officer was to be contacted if such events arose during the Interim Period); Imaged (i.e. copied) the Companies electronic records on computer hard drives (desktops and laptops) and servers at both the Biodiesel Plant and the head office. The Interim Court Officer inquired as to the existence of laptop and other computers and/or storage devices that may be held off-site and was advised that there were none. As the Companies electronic records were imaged and at a point in time a copy created, the Interim Court Officer did not, nor was it empowered to, restrict external access to the Companies computer systems; Imaged the accounts of the Companies staff at the Biodiesel Plant and the head office including the accounts of the CEO, CFO, in-house Counsel, EVP Strategic Partnerships, book-keepers, procurement staff, engineers, plant supervisors and other personnel at the Biodiesel Plant; Toured the Biodiesel Plant with the Plant Manager to confirm its idled status and that there were no material changes to the Biodiesel Plant since KPMG s tour of the facility in early July, The Interim Court Officer found the plant at this time to be, in its view, clean and adequately maintained, as it was when KPMG previously toured the facility; and Toured the office space at the Biodiesel Plant and head office to determine the existence and type of physical records in at these locations. The Interim Court Officer did not conduct a detailed inventory of the records in each office at the Companies locations, but rather confirmed the existence of records, performed a video recording of each office (including opening drawers, cabinets and cupboards) and took pictures of the contents of the offices. This was done to establish the existence of records at the Companies in an efficient and non-disruptive manner The Interim Court Officer arranged for 24-hour surveillance of the head office and Biodiesel Plant during the Interim Period. The purpose of the surveillance was to observe and report on any attempts to remove Property from the Companies premises and to report any adverse events at the Biodiesel Plant (e.g. fire, vandalism, asset removal) The Interim Court Officer did not receive any reports of the Companies property being removed or damaged during the Interim Period. The fire department did attend at the Biodiesel plant on August 23, 2014, at approximately 10:40 pm to respond to a fire alarm. The Interim Court Officer understands that an employee was power washing in a utility area and some of the water LEGAL_1: Page 5

8 spray caused a short circuit in the electrical system that triggered the fire alarm. There was some minor damage to the area that did not affect the operations of the Biodiesel Plant The Interim Court Officer engaged TWD Technologies ( TWD ), an independent engineering consulting firm, to assist with monitoring the operation of the Biodiesel Plant. TWD was previously retained by GLB to assist with the design and construction of the Biodiesel Plant and is very familiar with the facility and its operations. TWD attended at the facility on August 26, 2014, to ascertain the general operating state of the facility, including touring the control room, main plant building, tank farm and rail loading facility. Overall, TWD found the Biodiesel Plant to be clean, adequately maintained, without the presence of strong odours or alarms and with appropriate spill kits and fire suppression equipment in place. A copy of TWD s report is attached as Appendix E. 2.2 Interim Receiver s Initial Activities Following the issuance of the Initial Order, the Interim Receiver immediately: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Attended at the Biodiesel Plant and head office to secure the Companies property, assets and books and records. The Interim Receiver continued to retain security personnel to attend at the Biodiesel Plant and to remain on-site at the plant on a 24/7 basis with one guard inside the office building and another outside performing routine patrols of the premises; Engaged locksmiths at the head office location and changed the locks. The locks were not changed at the Biodiesel Plant as onsite staff were cooperative, the facility is staffed 24/7 and the Interim Receiver arranged around-the-clock presence of security personnel at the facility; Toured the offices at the Biodiesel Plant and the head office and confirmed that the state of the offices and the records was consistent with the Interim Court Officer s observations during the Interim Period; Arranged its own insurance coverage of the Property until the incumbent insurer could be notified to add the Interim Receiver as a named insured on the GLB s existing policies (Property, Liability, Boiler and Machinery, and Umbrella), which occurred on August 28, The annual premiums totalling $334,270 were previously paid by GLB. The insurance coverage expires on October 11, 2014; Met with staff at the Biodiesel Plant to review and revise the incident reporting procedures to ensure that the Interim Receiver was notified immediately of any material events at the facility; Paid GLB s D&O insurance premium ($10,260) from GLB s funds on hand on the date of the Interim Receiver s appointment, as described more fully below; Imaged (i.e. copied) data from a laptop computer that contains the electronic records of Bioversel Trading and Einer Canada that was not imaged during the Interim Period. The Interim Receiver was advised of this laptop s existence after its appointment; Communicated to certain suppliers of GLB that KPMG was appointed as Interim Receiver and a stay of proceedings was in place; LEGAL_1: Page 6

9 (ix) (x) Delivered notices under s. 245 of the BIA to the Companies creditors; and Posted the materials on the website of KPMG pursuant to the Interim Receivership Order. 2.3 Cash and Banking Upon its appointment, the Interim Receiver contacted the Royal Bank of Canada ( RBC ) and opened new Canadian dollar and US dollar accounts for each of the Companies As the Interim Receiver s appointment was confirmed after banking hours on August 27, 2014, on August 28, 2014, the Interim Receiver directed the Bank of Montreal ( BMO ) to freeze all of GLB s accounts for deposit only. GLB maintained a Canadian dollar and a US dollar bank account at BMO. The Canadian dollar account had a balance of $65,901 and the US dollar account held US$6,133. As there were sufficient funds in the Canadian dollar account to fund the head office and Biodiesel Plant payrolls, the Interim Receiver authorized the release of these funds to the payroll provider. The balance of the funds in these accounts were transferred to the Interim Receiver s accounts at RBC As the Interim Receiver s appointment was confirmed after banking hours on August 27, 2014, on August 28, 2014, the Interim Receiver directed the Bank of Nova Scotia ( BNS ) to freeze all of GLB s accounts for deposit only. GLB maintained a Canadian dollar and a US dollar bank account at BNS. The Canadian dollar account had a balance of $289 and the US dollar account held US$4. BNS advises that GLB has a corporate credit card account with an outstanding balance of approximately $16,000. Accordingly, the funds in the BNS bank accounts have not been transferred to the Interim Receiver s accounts at RBC as BNS is determining if it can offset the deposit balances against the credit card account. On September 8, 2014, an HST refund of $5,616 was deposited to the Canadian dollar BNS account As the Interim Receiver s appointment was confirmed after banking hours on August 27, 2014, on August 28, 2014, the Interim Receiver directed Bank of Nova Scotia ( BNS ) to freeze all of Einer Canada s accounts for deposit only. Einer Canada maintained a Canadian dollar and a US dollar bank account at BNS. These accounts were closed by BNS in the week prior to the Interim Receiver s appointment following a review by BNS of the account. The Canadian dollar account had a balance of $344 and the US dollar account held US$0.15. These funds have been transferred to the Interim Receiver s accounts at RBC Einer Canada maintains a chequing account at Meridian Credit Union ( Meridian ) which is used to issue repayments to Meridian in respect of the loan from Meridian to Einer Canada which is guaranteed by GLB, which guarantee is secured by a mortgage on the Biodiesel Plant. Einer Canada would deposit funds into this account in order to make repayments to Meridian. On August 27, 2014, GLB deposited $5,000 to this account to fund Meridian s legal fees in respect of its monitoring of the mortgage and the proceedings before the Court. The balance in this account on August 29, 2014 was $4,499. To date, the Interim Receiver has not written to Meridian to seek recovery of these funds As the Interim Receiver s appointment was confirmed after banking hours on August 27, 2014, on August 28, 2014, the Interim Receiver directed Meridian to freeze all of Bioversel Trading s accounts for deposit only. Bioversel Trading maintained a Canadian dollar account at Meridian. The Canadian dollar account had a balance of $1,028. These funds were deposited to the Interim Receiver s accounts on September 12, 2014 when the Interim Receiver received the funds from Meridian. As described below, on September 17, 2014, the Interim Receiver was advised by the LEGAL_1: Page 7

10 director of Bioversel Trading (Mr. Arie Mazur, Mazur ) that a deposit of approximately $2.1 million was deposited to this account in respect of a corporate income tax refund The Interim Receiver was advised by representatives of the Companies that there were no additional bank accounts held in the name of any of the Companies. 2.4 Employees The Interim Receiver met with the Biodiesel Plant and head office employees to explain the Initial Order and the Interim Receiver s appointment, noting that in general the Companies operations would continue as they had prior to the Interim Receiver s appointment. In particular, staff at the Biodiesel Plant were directed to continue their duties and to grant access to the Interim Receiver and its consultants (i.e. TWD). GLB employs 18 staff at the plant and four persons at the head office (CEO, CFO, General Counsel and a clerk) GLB pays hourly staff at the Biodiesel Plant bi-weekly and pays salaried staff at the plant and head office semi-monthly. Both payrolls were to be funded on August 28, 2014, for deposit to staff accounts on August 29, The gross plant and head office payrolls (i.e. wages, source deductions and employer amounts) are $34,583 and $17,345, respectively, or approximately $52,000 combined. To minimize disruption, the Interim Receiver arranged for the payroll funding to be withdrawn in the normal course from the GLB Canadian dollar bank account. The GLB payroll has continued to be funded on a gross basis (i.e. to ensure source deductions and employer contributions are remitted) since its appointment Einer Canada had two employees as of the date of the Interim Receiver s appointment. Einer Canada has no funds to make payroll. The Interim Receiver did not borrow funds to fund Einer Canada s payroll. One employee was a director who resigned as a director on August 28, 2014, and the other is Mazur The Interim Receiver has not terminated any of the Companies staff, nor has any staff resigned during the Interim Receivership period, other than the director referred to above in section GLB engages the services of four individual independent contractors as summarized below. GLB advises that the services provided by each of them are critical to the operation of GLB s business and, accordingly, the Interim Receiver has not terminated their services and will issue payment to them for their services during the Interim Receivership Period, except as noted below. Contractor Monthly Amount (excludes HST) Role / Services Provided Comments Ontario Inc. $10,333 Director of operations, accounting services, cash management and forecasting, banking, administrative duties Principal of contractor is the daughter of a former director of Einer Canada. The director resigned on August 28, The Interim Receiver agreed to pay Ontario Inc. s August invoice ($11,677 in two 50% installments, the second one payable on or before September 24, 2014) as representatives of the Companies advised that this consultant s LEGAL_1: Page 8

11 Contractor Monthly Amount (excludes HST) Role / Services Provided Comments services were critical to minimize disruption to the operation of the Companies. Alliance Consulting Ontario Inc. Basic Power Group Total Monthly (excl. HST) $5,833 Procurement & logistics $10,000 EVP Strategic Partnerships $25,000 EVP of Sales and Marketing $51,167 Total amount paid during Interim Receivership Period (incl. HST) Husband of principal of Ontario Inc. The Interim Receiver agreed to pay Alliance Consulting s August invoice ($9,322 in two 50% installments, the second one payable on or before September 24, 2014) as representatives of the Companies advised that this consultant s services were critical to minimize disruption to the operation of the Companies. Principal is the former CEO of GLB (May 28, 2007 to January 15, 2014). Director of GLB from May 28, 2007 to May 12, The Interim Receiver is paying for service provided during the Interim Receivership Period. Principal is also CEO of Atlantic Coast Renewables ( ACR ). ACR brokers GLB s biodiesel sales to end customers. The Interim Receiver is paying for service provided during the Interim Receivership Period. $72, D&O Insurance Coverage GLB obtained its initial D&O insurance coverage on May 25, 2014 and bound this coverage through a binder with the insurer notwithstanding that the premium was not remitted when the coverage was placed. Prior to the Interim Receiver s appointment, the insurer advised GLB that the policy would be terminated if the premium was not paid in full on August 28, On LEGAL_1: Page 9

12 August 27, 2014 GLB issued a cheque for the premium and made arrangements for the insurance broker to pick up the cheque the following day. The Interim Receiver did not release the cheque on August 28, 2014, and held several discussions with the insurance broker and management to understand the D&O policy history, coverage and consequences of the policy being terminated The Interim Receiver subsequently issued payment to the insurance broker to pay the D&O insurance policy premium as i) GLB s management requested that the D&O coverage remain in place, ii) GLB intended to pay the premium prior to the Interim Receiver s appointment, and iii) GLB had sufficient funds on hand to pay the premium as of the date of the Interim Receiver s appointment. 2.6 Biodiesel Plant Monitoring The Interim Receiver continued to engage TWD to monitor the Biodiesel Plant during the Interim Receivership Period. TWD s monitoring proposal includes the following procedures: (i) (ii) (iii) (iv) Implement a reporting template for plant personnel to complete and submit to TWD for review. TWD will alert the Interim Receiver to any red flag items along with a recommended course of remediation; Attend at the plant once a week to perform a general review of the plant operating conditions and identify any changes since TWD s previous attendance. TWD will also review the status of GLB s compliance with orders issued by the Ministry of the Environment ( MOE ) and the Technical Safety Standards Authority ( TSSA ); Provide other support as requested by the Interim Receiver (e.g. review GLB s maintenance, repair and capital expenditure requests); and Report weekly to the Interim Receiver on the above TWD s monitoring proposal is attached as Appendix F The Interim Receiver and TWD representatives attended at the facility on September 4, 11 and , in accordance with the monitoring plan described above. In general, TWD has found the plant to be adequately maintained and without urgent or priority alarms. TWD noted that the Certificate of Fire Systems control had lapsed on August 12, The Interim Receiver has arranged for the fire systems service provider to inspect the systems and issue a new certificate. A copy of TWD s reports dated September 4 and 11, 2014 are attached as Appendix G. A copy of TWD s report with respect to the September 18, 2014 plant visit has not yet been received by the Interim Receiver As noted in the TWD report dated September 4, 2014, GLB is subject to a Provincial Officer s Order (the MOE Order ) issued June 6, The MOE Order was issued primarily as a result of (i) GLB discharging contaminated storm water into the sanitary sewage system without a storm water discharge permit, (ii) oil leakage from the storage tanks, and (iii) oily water discharges to the natural environment as a result of overflow in the holding tank due to the ice melt and heavy rain experienced in the spring The Interim Receiver understands that GLB has implemented measures to comply with the MOE Order and provided a response plan to the MOE on July 10, The Interim Receiver contacted the MOE on September 2, 2014 to advise of its appointment in order to understand the MOE Order. GLB continues to effect its compliance plan and is awaiting the issuance by the LEGAL_1: Page 10

13 MOE of an Environmental Compliance Approval in order for the MOE Order to be vacated. As noted in the TWD report, the MOE officer advised that the MOE Order does not prevent the Biodiesel Plant from resuming production and that the officer is satisfied with GLB s cooperation with the MOE and compliance with the MOE Order. A copy of the MOE Order is attached as Appendix H The TWD report dated September 4, 2014 also notes that GLB is subject to an order from the TSSA (the TSSA Order ). The TSSA Order was issued on August 6, 2014 with a compliance date of September 10, The Interim Receiver has notified the TSSA of its appointment and spoken with the inspector to understand the nature of the non-compliance. GLB addressed several of the procedural items of non-compliance (i.e. items that did not require a capital outlay) prior the Interim Receiver s appointment. GLB was required to order a refrigeration gas detector and ventilation system and a low flow limiting device for the condenser and compressor cooling water system. These parts are required for the chiller system which is used to keep methanol cool as it is safer at a lower temperature. These items were not ordered by GLB prior to the Interim Receiver s appointment. The Interim Receiver has approved the ordering of these items. Notwithstanding that the delivery of these items will occur after the September 10, 2014 compliance date, the Interim Receiver has been advised by the TSSA inspector that GLB has been given an extension to October 10, 2014 to comply with the TSSA Order. A copy of the TSSA Order and an updated TSSA Order dated October 15, 2014, are attached as Appendix I. 2.7 Biodiesel Plant Maintenance and Repair As part of its monitoring program, the Interim Receiver has met with GLB management and TWD regularly to understand the ongoing maintenance required to comply with various regulations and certifications affecting the plant as well as any repairs required to address safety concerns and/or to properly maintain the plant and prevent degradation of any of its components At the Interim Receiver s request, management has provided a list of expenditures required i) to ensure that the plant is compliant with its certifications, the MOE and TSSA Orders and safety related issues (the Compliance Disbursements ), and ii) to ensure that the plant is ready to operate should GLB obtain the necessary working capital to buy raw materials and fund other operating expenses (the Production Disbursements ). The Compliance Disbursements and the Production Disbursements as presented to the Interim Receiver are estimated to cost approximately $56,000 and $1.2 million, respectively. A schedule of these items is attached as Appendix J Suppliers for the items that comprise the Compliance Disbursements have combined arrears in excess of $122,000. In addition, several of these suppliers are not subject to a contract with GLB. Accordingly, management and the Interim Receiver have not in all cases been able to compel these suppliers to supply GLB without partial or full payment of any outstanding amounts. As a result, the Interim Receiver has been presented with Compliance Disbursement requests from management of GLB for supplies and repairs for which the actual disbursement is considerably greater than the cost of the supplies and repairs alone. As such Compliance Disbursements are paid with borrowed funds, the Interim Receiver follows a strict review and approval process prior to approving purchases or repairs and the related expenditures The Interim Receiver seeks the input and advice of TWD prior to approving any Compliance Disbursements and has authorized GLB to order supplies and services for what are, in TWD and the Interim Receiver s view, repairs legitimately necessary to preserve the Biodiesel Plant, ensure the safety of staff and meet regulatory requirements. The Interim Receiver s process in this regard includes, among other procedures: LEGAL_1: Page 11

14 (i) (ii) (iii) (iv) (v) (vi) (vii) Understanding how long the repair has been outstanding; Determining if the supplier has a contract or agreement to supply with GLB and is therefore required under the Initial Order to continue to supply GLB (on payment terms acceptable to the supplier); Negotiating with existing suppliers that are unwilling to supply GLB without payment of the outstanding amounts due to them; Determining if there are alternate suppliers in place where there is no contract with existing suppliers that have outstanding amounts due to them; Consulting with TWD to assess the need for the repair and whether it is urgent or not; Determining when the supplier can provide the goods and/carry out the repairs; and Reviewing the required repair with TWD and GLB plant personnel when they are present on-site to tour the facility Throughout the Interim Receivership Period, GLB s management routinely asserts that the Compliance Disbursements must be immediately approved (and the suppliers arrears satisfied) on the basis that these repairs are required for safety reasons or that the Biodiesel Plant will be irreparably damaged if the repairs are not undertaken as soon as possible. The Interim Receiver notes that a number of these requested repairs have been outstanding for several days or months prior to the appointment of the Interim Receiver The Interim Receiver is of the view that the process for monitoring the Biodiesel Plant and evaluating and approving Compliance Disbursements established by the Interim Receiver is reasonable in the circumstances. During the remainder of the Interim Receivership Period, the Interim Receiver intends to continue to address the backlog of repair, maintenance and compliance issues at the plant. The Interim Receiver will continue to work with TWD engineers and GLB plant personnel to evaluate and, where appropriate, approve and fund all reasonably necessary remediation steps in this regard The Interim Receiver provided the schedule of the Production Disbursements to TWD for their input and comment; however given that the Interim Receivership Period is relatively short, the Interim Receiver does not anticipate that any material Production Disbursements will be approved prior to the expiry of the Interim Receivership Period During the Interim Receivership Period, GLB management has regularly stressed the necessity to authorize and fund the Production Disbursements, notwithstanding that, absent the Interim Receiver s borrowings, GLB does not have sufficient funding to pay for the Production Disbursements. GLB management has also explained that the shareholders have been unwilling to invest any further capital into the company to fund pre-production expenditures pending the return of the Receivership Application due to the risk that Heridge s application for the appointment of a receiver is successful. 2.8 Supplier and Creditor Notification Following its appointment, the Interim Receiver notified certain key suppliers (i.e. utilities (gas, hydro and water), fire monitoring supplier, landlord, rail car lessor) of the Interim Receiver s LEGAL_1: Page 12

15 appointment and made arrangements with these suppliers to pay for their services during the Interim Receivership Period GLB leases 25 specialized rail cars for the transport of biodiesel to customers. The monthly lease cost is US$1,550/rail car or US$38,750/month. Management advises that it took approximately eight months to source these rail cars and that there is limited availability of such cars in the market. Accordingly, management has strongly recommended that the lease payment due during the Interim Receivership Period be made Prior to the Interim Receiver s appointment, the sub-lessor ( Dyno Nobel ) of these rail cars had written to GLB to advise that it would re-possess the rail cars on August 29, 2014 as GLB was in arrears on the sub-lease in the amount of US$258,400 or the equivalent of over six months lease payments. The lease was entered into in February 2014 and GLB has not made any payments on the lease The Interim Receiver notified Dyno Nobel of its appointment on August 28, On September 8, 2014, counsel to Dyno Nobel wrote the Interim Receiver s counsel requesting return of the rail cars, or in the alternative, payment of the monthly lease amount. On September 16, 2014, the Interim Receiver issued payment to Dyno Nobel in respect of the amounts owing for the Interim Receivership Period The Interim Receiver s budget and cash flow for the Interim Receivership Period discussed below details the payments issued to date to suppliers and service providers The Interim Receiver has issued a notice pursuant to Section 245 of the Bankruptcy and Insolvency Act to all known secured and unsecured creditors of the Companies to provide notice of its appointment. A separate Section 245 Notice was sent for each of the Companies. An affidavit of mailing and copies of each of the Companies notices is attached as Appendix K. Subsequent to the issuance of these notices, the Interim Receiver has responded to several calls from the Companies creditors. 2.9 Natural Resources Canada Contribution Agreement GLB sought and obtained funding to construct the Biodiesel Plant from Natural Resources Canada ( NRCan ) by way of an eco-energy incentive. Pursuant to a non-repayable contribution agreement dated December 12, 2011 (the Contribution Agreement ), NRCan agreed to advance approximately $65 million to GLB subject to certain terms and conditions relating to the construction and operation of the Biodiesel Plant and such funding was payable monthly based on biodiesel sales As noted in the affidavit of Ildar Uzbekov, sworn August 20, 2014, NRCan unilaterally terminated the Contribution Agreement on October 30, 2013, on the basis that GLB had failed to fully commission the Biodiesel Plant in accordance with the requisite timelines in the Contribution Agreement. GLB advises that the term commissioning was not clearly defined in the Contribution Agreement which led to a different interpretation by both NRCan and GLB. Accordingly, GLB delivered a notice of arbitration to NRCan on May 12, On June 11, 2014 (the June 11 NRCan Letter ), NRCan wrote to GLB s counsel to propose, as an alternative to arbitration, terms that provide the basis for a negotiated settlement of the dispute and the reinstatement of the subsidy. A copy of the June 11 NRCan Letter is attached as Appendix L. LEGAL_1: Page 13

16 2.9.3 On July 17, 2014, NRCan wrote to advise that any settlement discussions contemplated by the June 11 NRCan letter were suspended pending the resolution of criminal proceedings under the Customs Act involving parties related to GLB. A copy of the July 17, 2014 letter issued by NRCan is attached as Appendix M The Interim Receiver has inquired and been advised by GLB management that there has been no discussions or correspondence with NRCan since the issuance of the July 17, 2014 letter referenced above Independent Counsel The Interim Receiver has retained Osler, Hoskin & Harcourt LLP ( Oslers ) as independent legal counsel and has consulted with Oslers throughout the Interim Receivership Period Receiver s Borrowing Certificate The Interim Receiver issued its first Receiver s Borrowing Certificate to Heridge on August 29, 2014, in the amount of $750,000. This funding is required to fund the operations of the Companies as described herein, and to pay the professional fees of the Interim Receiver and its independent legal counsel. The Receiver s Borrowing Certificate is attached as Appendix N. LEGAL_1: Page 14

17 3.0 Summary of Financial Position 3.1 Financial Statements Immediately following its appointment, the Interim Receiver directed the Companies management and/or other representatives to prepare updated internal financial statements for the period January 1 to August 27, 2014 ( Fiscal 2014 ) The administrative and accounting function for GLB is completed from the head office by GLB employees. The administrative and accounting functions for Bioversel Trading and Einer Canada are performed by certain of the independent contractors listed above. Einer Canada and Bioversel Trading s records are maintained by the directors of those companies. 3.2 GLB Financial Situation The most recent internally prepared and available financial statements were dated August 27, Bank reconciliations were last prepared as at July 31, GLB incurred a loss of $4.5 million for the almost eight month period ended August 27, Total sales were approximately $7.7 million while cost of goods sold were approximately $7.4 million resulting in a gross margin of $340,000 or 4.4%. General and administration expenses were $3.3 million and amortization was $1.5 million resulting in the loss of $4.5 million GLB operated the plant over a five month period in Fiscal 2014 at varying production capacities to produce approximately 6 million litres of biodiesel. The nameplate capacity of the Biodiesel Plant is 170 million litres per year. During this production run, GLB depleted substantially all of its raw materials inventory and production was stopped primarily due to a lack of working capital to purchase additional raw materials GLB s combined bank balances at the time of the Interim Receiver s appointment were approximately $72,561. As noted above, the Interim Receiver funded GLB s payrolls on August 28 with the funds that GLB had on deposit at the time of the Interim Receiver s appointment. The Interim Receiver also funded GLB s D&O insurance premiums from these on hand funds. The remaining funds were transferred to the Interim Receiver s account Accounts Receivable as at August 27, 2014 were approximately $2.1 million; approximately $1.4 million was due from Atlantic Coast Renewables ( ACR ) and the balance consisted of various credits and subsidies receivable, including $582,000 due from NRCan As at August 27, 2014, the book value of GLB s combined feedstock, chemical, work in process and biodiesel inventory was approximately $186, GLB s accounts payable as at August 27, 2014 were approximately $2.6 million. The GLB accounts payable sub ledger shows that over 87% of the GLB trade payables were aged in excess of 90 days. Management advises that 92% of these aged payables relate to the commissioning period and that most accounts of the suppliers required for operating the plant are relatively current. Several creditors had issued payment demand notices and/or notified GLB prior the appointment of the Interim Receiver that they intended to take legal action or place liens on GLB s property. Management informed the Interim Receiver that there are two liens registered against the company: Quantum Murray LP in the amount of $1,137,305 and Conestogo Electric Inc. in the amount of $281,567. LEGAL_1: Page 15

18 3.2.8 In addition to the trade payable noted above, GLB is indebted to Reneos, ACR and Einer Energy Holdings in the approximate amounts of $6.8 million, $4.8 million and $542,000 respectively, as at August 27, In Fiscal 2014 GLB made loan repayments as follows: (i) (ii) (iii) During January of 2014, GLB made loan repayments to Orense totalling $1.3 million. This brought the loan balance from $9.3 million to $8.0 million; In April 2014 the loan payable to Orense in the amount of $8.0 million was transferred to Reneos and since that time GLB made payments of $1.2 million against this loan to reduce the obligation to $6.8 million; Repayments to Einer Canada totalling $437,238, repaying this loan in full; (iv) Repayments to Einer Energy S.a r.l. (Luxembourg) ( Einer Energy ) totalling $329,746, bringing the loan balance from $871,959 to $542,212; and (v) Repayments to Einer Energy Holdings totalling $400,136, repaying this loan in full In Fiscal 2014, GLB s source of funding has been ACR, which has provided GLB with approximately US$9.1 million. The funds were provided to GLB in the form of payment for material purchases ($5.45 million) and as a loan ($3.65 million). ACR sells GLB s product to obligated parties and biodiesel traders in the United States through ACR. GLB is required to sell through a company registered with the Environmental Protection Agency (the EPA ) in order to qualify for various credits and subsidies in the United States. GLB advises that ACR is registered with the EPA. 3.3 Einer Canada Financial Situation Representatives of Einer Canada advise that it is primarily an investment holding company with limited transactions. Accordingly, the financial statements are only prepared annually At the time of the Interim Receiver s Appointment, financial statements were not available. The most recent bank statements were dated July 31, Management advised that bank reconciliations were not prepared as the bank accounts were relatively inactive. The Interim Receiver requested that representatives of Einer Canada prepare financial statements for the period ended August 27, Einer Canada reported revenue of $0 and a net loss of $1.27, million for the almost eight month period ended August 27, The expenses incurred were primarily in respect of payroll and benefits ($325,000), accounting, legal and consulting ($635,000), travel ($175,000), interest and bank charges ($83,000) and other ($50,000) Einer Canada s combined bank balances at the time of the Interim Receiver s appointment were approximately $344 at BNS and $4,499 at Meridian. As discussed above, the BNS funds were transferred to the Interim Receiver s account The Interim Receiver has been advised by representatives of the Company that there are no other bank accounts at other financial institutions The Interim Receiver understands from representatives of Einer Canada that the company has loan receivables of approximately $8.6 million due from shareholders and/or parties related to Einer Canada as follows: LEGAL_1: Page 16

19 Debtor Amount Relationship Orense Investments Limited $7,233,353 Orense controls 100% of Einer Canada Einer Energy $1,299,063 The Interim Receiver understands that Orense is related to Einer Energy Arie Mazur $77,351 Former director of Einer Canada (resigned April 19, 2012) Total 8,609, Einer Canada s accounts payable as at August 27 are approximately $965,000. Included in this balance is approximately $267,000 due to Canada Revenue Agency in respect of unremitted payroll source deductions Einer Canada s financial statements show a bank loan payable to Meridian in the amount of $960,599 which is guaranteed by GLB, which guarantee is secured by a mortgage on the Biodiesel Plant Einer Canada is also indebted to the following creditors: Creditor Amount due as at August 27, 2014 GLB $78,820 Bioversel Trading $2,357,356 Sergey Akulov (director and employee; resigned as director August 28, 2014) Praveen Investing Inc. (a shareholder of Orense as described below) $4,814,029 $78, Bioversel Trading Financial Situation The Most recent internally prepared and available financial statements were dated August 27, 2014 and most recent bank statements were dated July 31, Management advised that bank reconciliations were not prepared monthly as the bank accounts were relatively inactive. The statements of Bioversel Trading reflect a company with very little activity in 2013 and 2014 and representatives of the company confirms that this is accurate Bioversel Trading s sources of cash historically were from the trading of biodiesel. LEGAL_1: Page 17

20 3.4.3 Bioversel Trading reported revenue of $10,000 in respect of a deposit refund and expenses of $85,417 for a net loss of $75,417 for the almost eight month period ended August 27, The expenses incurred were primarily in respect of general and administrative charges Bioversel Trading s combined bank balances were $1, as at August 27, 2014 and the account was still active. The Interim Receiver has transferred these funds to its accounts The Interim Receiver understands from representatives of Bioversel Trading and the internally prepared financial statements provided to the Interim Receiver that the company has loan receivables of approximately $8.9 million due from shareholders and/or parties related to Bioversel Trading that includes: Debtor Amount Relationship Sergey Akulov $4,805,239 Shareholder and former director of Einer Canada (resigned August 28, 2014) Einer Canada $2,357,456 Controlling shareholder (100%) of Bioversel Trading Arie Mazur $1,021,905 Director of Bioversel Trading Barry Kramble $756,794 Former CEO of GLB and currently GLB s EVP Strategic Partnerships Ildar Uzbekov $22,331 Representative of Heridge Constantin Lutsenko $19,250 Possible shareholder of Reneos Total $8,893, Bioversel Trading s liabilities as at August 27, 2014 consist of: Creditor Amount Relationship / Details Accounts payable, accrued liabilities and a provision for settlement of a disputed amount with a creditor $5,821,433 Includes suppliers and amounts due to Praveen Investing Inc. (US$1,500,000) and Roadhouse Enterprises (US$750,000) The Interim Receiver has been advised by Mazur that Praveen Investing Inc. and Roadhouse Enterprises are shareholders of Orense and the amounts due to these creditors is in respect of consulting services and working capital funding provided to Bioversel Trading Orense $1,014,514 Controlling shareholder of Bioversel Trading through Einer Canada LEGAL_1: Page 18