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Piikani Nation v Piikani Investment Corporation, 2012 ABQB 719

2012-11-20

Court of Queens Bench of Alberta

 

Citation: Piikani Nation v Piikani Investment Corporation, 2012 ABQB 719

 

 

                                                                                                                              Date:  20121206 

                                                                                                                          Docket: 0901 15297

                                                                                                                              Registry: Calgary

 

In the Matter of the Piikani Investment Corporation

 

  And in the Matter of the Winding up and Restructuring Act,

R.S.C. 1985, W‑11 (as amended)

 

Between:

 

Piikani Nation

 

                                                                                                               Applicant

                                                         - and -

 

 

Piikani Investment Corporation

 

                                                                                                            Respondent

 

 

 

 

 

 

Corrected judgment: A corrigendum was issued on December 3, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment.

 

 

 

                       _______________________________________________________

 

                                                      Memorandum of Decision

                                                         of the

                                   Honourable Mr. Justice R.A. Graesser

                       _______________________________________________________

 

 


Introduction

 

[1]        This is an application by the Piikani Nation for the appointment of a liquidator of Piikani Investment Corporation ("PIC") for the limited purpose of negotiating, drafting and (if applicable) implementation of a plan of reorganization for PIC under the provisions of the Bankruptcy and Insolvency Act.

 

[2]        The application is supported by the CIBC Trust in its capacity as Trustee of the Piikani Trust, a trust established a decade ago as a result of the settlement of various claims arising out of the development and construction of the Old Man River Dam.

 

[3]        Grant Thornton Alger Inc., successor to Alger & Associates Inc. (Alger), in its capacity as Investigator of PIC applied for a stay of proceedings in the usual form relating to claims against PIC, and I granted it, however, excluding Stan Knowlton from the impact of the stay.

 

[4]        The application for appointment of a liquidator is not opposed by counsel for PIC, although it is unclear how counsel obtains instructions because PIC has ceased to have a functioning board of directors.

 

[5]        Shelley Small Legs, a contingent creditor of PIC, was served by email addresses but not fully in accordance with earlier protocols. I deemed service good and sufficient on her.

 

[6]        Stan Knowlton, a claimant against PIC, was not served with notice of this application, so the stay of proceedings was not continued against him.

 

Background

 

[7]        In October, 2009 I appointed Alger & Associates Inc. to be the Investigator of PIC.

 

[8]        Pursuant to the provisions of the Piikani Trust, PIC was established to investigate and recommend potential investments to be funded by the Piikani Trust for the ultimate benefit of the beneficiaries of the Piikani Trust, the Piikani Nation. The ultimate shareholder of PIC is the Piikani Nation, although its issued shares have been held by a series of trustees. Over the period from its incorporation until the Investigator was appointed, PIC borrowed significant amounts from the Piikani Trust. PIC also caused other entities to be incorporated with the intent of holding investments obtained by Piikani Trust funding. These entities were generally wholly‑owned subsidiaries of PIC, although in some cases, the issued shares were held by trustees on behalf of the Piikani Nation.

 

[9]        Commonly, PIC borrowed money from the Piikani Trust, and loaned monies to these entities. Theoretically, the entities were to repay the funds and interest to PIC, which in turn would repay the funds it had borrowed from the Piikani Trust, with interest.

 


[10]      One of the most significant of the subsidiary entities was Piikani Energy Inc., which was set up to, amongst other things, acquire an interest in the Old Man River hydroelectric project.  That interest was part of the negotiated settlement in 2002 which permitted, but did not oblige, the Piikani Nation to acquire an interest in the hydroelectric project that resulted from the construction of the Old Man River Dam.

 

[11]      After some years of investigation, PEC, through PIC, borrowed funds from the Piikani Trust and purchased the interest. The investment has produced significant returns, although rather than use the returns to make loan payments to PIC, PEC used the funds for other purposes.  That meant that PIC did not have the necessary funds to make payments it owed to the Piikani

Trust. Indeed, of many millions of dollars that have been loaned from the Piikani Trust to PIC, virtually nothing has been returned to the Trust.

 

[12]      And of the many millions of dollars in investments made through PIC, PEC and the other related entities, the only investment with any current value is the interest in the Old Man River Hydro project. Because of the high yield on that investment, that investment is worth significantly more than the nearly $8,000,000 invested.

 

[13]      However, the failure of the other investments, the huge expenses incurred by PIC, PEC and other entities in a myriad of lawsuits, large payments to the Piikani Nation characterized as loans and not dividends or distributions, consulting fees, directors' fees and operating expenses, has left PIC unable to meet any of its obligations to the Piikani Trust.

 

[14]      The Piikani Trust has not pursued collection against PIC, as the Piikani Nation instructed CIBC Trust to forbear on taking any steps against PIC. Nevertheless, many millions of dollars remain owed by PIC, PIC is in arrears by many years in making payments to the Piikani Trust, and PIC has no present ability to make any payments. Just as I had no hesitation in finding that PEC was insolvent, I have no hesitation in concluding that PIC is insolvent.

 

[15]      I do not make these conclusions on my own. The finding of insolvency is exactly what was reported by Alger in its capacity as Investigator of PIC, and then as Receiver of  PEC.

 

[16]      While PEC had many creative arguments advanced in Re Piikani Energy Corporation, 2012 ABQB 187 , 2012 ABQB 187, as to why it was not and is not insolvent (which I rejected in that case), no such arguments have been advanced on behalf of PIC, and there is nothing to contradict Alger's reports to me as to PIC's insolvency.

 

[17]      One of the difficulties for the Piikani Trust, and the Piikani Nation which hopes to some day benefit from the Piikani Trust, is that no further investments can be made by the Piikani Trust as PIC is unable to perform the mandate given to it under the trust deed: to investigate and make investment recommendations. PIC's recommendation and approval is a condition of funds being paid out of the Piikani Trust.

 

[18]      An early consideration in the applications before me was whether or not PIC could be replaced as the investment advisor to the Piikani Trust, and if so, how that might be accomplished. That was in the context of whether PIC should be wound up, or restructured in some fashion.


 

[19]      Not all aspects of this matter have been dealt with in the court. I am aware that there have been discussions involving the Piikani Nation, CIBC Trust and other stakeholders as to how PIC might be restructured to maximize the return to its major creditor, Piikani Trust and its beneficiaries, the Piikani Nation.

 

[20]      Indeed, the next step in the investigation and status of PIC involves whether to liquidate it or to restructure it in some fashion acceptable to its creditors, stakeholders and to the Court.

 

[21]      Hence, the current application: to facilitate the finalization of the investigation process and explore whether there is a solution short of liquidation and winding up.

 

[22]      The application was supported by current Piikani Nation councillor Fabian North Peigan, who stated that previous consultations concerning the Piikani Trust with members of the Piikani Nation had been unfruitful, with only one percent of members showing any interest in the issues.  He sought approval of the application so that the Piikani Trust could continue to try to make investments for the benefit of the Piikani Nation and its members.

 

[23]      The application was opposed by a number of people. Dale McMullen, a director of PEC and a former director of PIC, opposed the application on the basis that there was no urgency to the application and as he has appealed the decision in Re Piikani Energy Corporation. In that case, I held that certain payments to Mr. McMullen and another former employee and officer of PEC were fraudulent preferences and had to be repaid. According to Mr. McMullen, the fact findings in my decision were incorrect, and this application should await the outcome of the appeal, presently set to be argued in March, 2013.

 

[24]      Mr. McMullen also took issue with the proposed appointment of Alger as Liquidator, on the basis of the numerous complaints made about Alger in Re Piikani Energy Corporation.  According to Mr. McMullen, the Court of Appeal may make unfavourable findings about Alger's work as Investigator of PIC and Receiver and Trustee in Bankruptcy of PEC.

 

[25]      Edwin Yellowhorn, a former director of PEC and a member of the Piikani Nation, opposed the application on a number of bases, including allegations of conflict of interest on the part of counsel for the Piikani Nation, the need for consultation with Piikani Nation members, allegations of mismanagement of the Piikani Trust, allegations that the funds disbursed from the Piikani Trust have not been accounted for and have been misappropriated, and that the issue of whether PIC can be replaced under the Piikani Trust should be determined.

 

[26]      Chief Gayle Strikes With a Gun, who is the current elected chief of the Piikani Nation but obviously opposed to the directions given to counsel by the majority of the elected Council, sought an adjournment so that she could consult with members of the Piikani Nation.

 


[27]      Kerry Scott, also a member of the Piikani Nation, spoke opposing the application and seeking the appointment of a receiver for Piikani Resource Development Ltd., the successor to PEC as the entity holding the Piikani Nation's investment in the Old Man River Hydro project.  He submitted that there were sufficient funds in PRDL to repay PIC's indebtedness, so the appointment of a liquidator and liquidation of PIC was unnecessary. I note that I have no materials before me to support the granting of any relief concerning PRDL. That would have to be the subject of separate proceedings, supported by appropriate materials.

 

[28]      Stanford Plain Eagle, a member of the Piikani Nation, advised that he was opposed because members of the Piikani Nation were being kept in the dark about problems with the Piikani Trust.

 

[29]      Dominic Crowshoe was opposed, stating that Council had violated tradition by not properly consulting with the members of the Piikani Nation, and he had 400 signatures on a petition to remove them.

 

[30]      One of the speakers was opposed on the basis that CIBC Trust should be replaced as trustee, alleging that CIBC Trust had improperly applied trust funds against outstanding mortgage payments, amongst other issues related to mismanagement of the Trust by PIC, PEC and former Piikani Nation Councils.

 

[31]      Diane North Peigan, also a member of the Piikani Nation, was opposed to the application, and  advised that she had just filed an application, returnable some time in early December, for an injunction against any matters relating to the Piikani Trust proceeding in court. That pending application is no sufficient basis for me to adjourn this application, or decline to grant the relief sought.

 

[32]      Affidavits in opposition to the application were filed by Mr. Yellowhorn, Chief Gayle Strikes With a Gun and Stanford Plain Eagle, all members of the Piikani Nation.

 

Analysis

 

[33]      It is obvious from the submissions made on behalf of several of the Piikani Nation members that there is a lot of misinformation surrounding the Piikani Trust. It is also obvious that there are a number of factions within the Piikani Nation.

 

[34]           There is no basis for me to doubt that the current elected Piikani Nation Council has instructed its lawyer to bring this application. Other members of Council, including the current Chief, may well be opposed to this application, but the lawyer representing the Piikani Nation must take his instructions from its elected council. Council operates by way of a Band Resolution, which is in evidence before me, supporting this application.

 


[35]      Consultation with Piikani Nation members is a political issue, and Council does not need to consult before giving instructions to its lawyer. While the 3600 or so members of the Piikani Nation have an interest in these proceedings, and might be considered to be akin to shareholders in a corporation in receivership or bankruptcy, insofar as being able to speak for the Piikani Nation, that is the role and responsibility of Council. I reject Chief Strikes With a Gun's request for time to consult as being a valid basis for delaying consideration of this application on its merits.

 

[36]           It was not clear to me in argument why Mr. McMullen believes that the application should wait for the Court of Appeal's decision in PEC's fraudulent preference action against him.  I reject the idea that pending appeal by Mr. McMullen of a decision against him in favour of PEC's trustee in bankruptcy, has relevance to whether and how PIC might be restructured. In any event, I do not see that Mr. McMullen has any status to intervene in these proceedings. He is not a director of PIC (although he once was); he is not a creditor of PIC, and is not a member of the Piikani Nation. His only opposition was in relation to the status of his appeal, and I do not see that the outcome of the appeal, even if favourable to him, will have any impact on PIC's legal status.  The arguments on his behalf are rejected.

 

[37]           Mr. McMullen objected to Alger being appointed liquidator because of criticisms of Alger’s work in the PIC investigation and PEC receivership, and he suggested that Alger may be in conflict if he is appointed liquidator for the purposes of a potential proposal. I am satisfied through my involvement for the past three years in this matter, as well as the PEC matters, that there is no principled basis for any objection to Alger's ongoing involvement. He has, over the past three years, through his extensive investigations of PIC and PEC, gained the greatest knowledge of the affairs of PIC and PEC of anyone. PIC and PEC's finances were in a state of disarray when he was appointed. Financial statements had not been prepared for either corporation for some time. He brought a level of objectivity to his tasks. While his work in these matters has not been without some errors, having regard to the state of record keeping in PIC and PEC, perfection would be a baseless expectation.

 

[38]           I find that Alger is the most appropriate person or entity to be Liquidator in these circumstances. He has a great a knowledge of the financial affairs of PIC and the Piikani Trust as anyone. It would be financially prohibitive to appoint someone else, as that person or entity would have to get up to speed, which would be a time-consuming and expensive task.  There is only one source of funds here – the Piikani Trust.

 

[39]           Despite the arguments made by Mr. Yellowhorn and others that funds taken from the Piikani Trust need to be replaced, the accounting by Alger shows that all of the funds from the Piikani Trust went firstly to PIC. Expenditures, payments and loans were authorized by PIC's board of directors from time to time. Loans were made to other Piikani Band entities and to the Piikani Nation. Funds in the hands of Piikani Band entities have essentially been accounted for, mainly in the form of payments to directors, officers, employees and contractors, all presumably authorized by the board of directors of those entities. Funds loaned to the Piikani Nation through its Chief and Council from time to time have not been specifically accounted for, but were presumably spent as authorized by various Chiefs and Councils.

[40]           Litigation has drained PIC and PEC of large sums of money, although the various law suits were commenced or defended under the direction of the boards of directors, and the various law firms involved were hired by PIC's and PEC's senior officers or otherwise authorized by their boards of directors.

 


[41]           Only one asset of significance remains from the various investments: the interest in the Old Man River Hydro Project. That is held for the Piikani Nation by a band entity, Piikani Resource Developments Ltd., established under the authority of the Chief and Council in late 2009. 

 

[42]           The Limitations Act may well apply to any attempts to recover payments from directors, officers, employees and contractors. If it were found that the Piikani Nation owed PEC or PEC funds, and those funds should be collected and repaid to the Piikani Trust, it is unclear where the Piikani Nation would get those funds. The information before me suggests that the Piikani Nation's financial position is not strong, and that any funds received by it from PIC, PEC or PRDL have been spent as authorized by various Chiefs and Councils.

 

[43]           The situation is not a happy one, but in my view, if anything good is to come out of the Piikani Trust, it will be by clarifying how investments may be made by it, and clarifying how and by whom investment decisions may be made on behalf of the Piikani Trust. The starting point for this is sorting out the status of PIC, and determining whether PIC will be able, through restructuring and reorganizing, to effectively fulfil the mandate given to it under the 2002 trust agreement.

 

[44]           As to urgency, I agree with those who submitted that there is no great urgency in this matter. Three years have passed since Alger was appointed Investigator of PIC. The funds remaining in the Piikani Trust have essentially been frozen since then, but for payment of Alger's costs. A delay of a few weeks or months would not appear to be significant in the life of the Piikani Trust.

 

[45]           Nevertheless, there needs to be a reason to delay. The absence of prejudice to a delay does not constitute a reason. I do not see that Mr. McMullen's appeal will have any bearing on the issues to be determined in the PIC investigation or in its restructuring, if that is to occur.  Consultation can take place at anytime before approval of a proposal. If Chief Strikes With a Gun and others want to initiate public or stakeholder consultations, they can do so as they see fit. In my view, however, consultation when there is a proposal to consult about would make more sense than a general consultation as to what the members would like to see. That is something the members presumably elected the Chief and Council to do on their behalf, and at this stage, I would leave consultation processes to the elected members of the Piikani Nation to consider and implement.

 

[46]           Mr. Yellowhorn's other concerns are answered by the nature of this application. The application is not for approval of a proposal, it is not for the winding up or liquidation of PIC. It is for the appointment of a Liquidator whose powers would be limited to pursuing the viability of making a proposal for reorganization of PIC under the provisions of the Bankruptcy and Insolvency Act. The appointment of a Liquidator does not ensure that a proposal will actually be made. If an application is made (which appears likely based on the representations made to me

on the status of discussions involving the Piikani Nation Council, CIBC Trust and other stakeholders), it will still require court approval. 

 


[47]           Court approval would only be granted if PIC's creditors are in favour of the proposal AND if the Court finds the proposal to be appropriate.

 

[48]           Concerns over past management issues, accounting issues and conflict of interest issues are not relevant to this application. Alger, in its capacity as Investigator of PIC, and Receiver and Trustee in Bankruptcy of PEC, has fulfilled its functions in a manner wholly satisfactory to this Court.

 

Result

 

[49]           For the reasons above, I grant the application to have Alger appointed Liquidator of PIC for the purpose of considering, making and (if approved) implementing a proposal under the Bankruptcy and Insolvency Act.

 

[50]           The form of order, with the changes discussed at the hearing on November 15, is approved. 

 

[51]           Having regard to the impact these proceedings may have on the individual members of the Piikani Nation, I would encourage the parties to discuss an effective means of making information regarding any proposal for which approval may be sought from the court readily available to individual members of the Piikani Nation. I can foresee difficulties with court approval of any proposal in the absence of a transparent process which might include some form of public hearing. It is not my intention to invade the role and responsibilities of the Piikani Nation's elected Chief and Council, but the approval process is not a "rubber stamp" and there may be many interested parties who are entitled to (and wish to) express their opinions on a proposal which may affect them.

 

[52]           There shall be no costs of this application, apart from those of Alger and its counsel who are entitled to be made whole either by the Piikani Nation or the Piikani Trust, as may be agreed by the parties or by me on application.

 

Heard on the 15th day of November, 2012.

Dated at the City of Calgary, Alberta this 20th day of November, 2012.

 

 

 

 

 

 

 

 

Robert A. Graesser

J.C.Q.B.A.

 


Appearances:

 

Michael L. Pflueger

for the Applicant

 

Mark Klassen (McMillan LLP)

 for Piikani Investment Corporation

 

Andrew R. Robertson, Q.C. (Norton Rose Canada LLP)

for Dale McMullen

 

Kelly J. Bourassa (Blake, Cassels & Graydon LLP)     for CIBC Trust

 

Mark G. Damm (Caron & Partners LLP)

            for Alger

 

 

 

 


______________________________________________________

 

Corrigendum of the Memorandum of Decision

of

The Honourable Mr. Justice R.A. Graesser

_______________________________________________________

 

Paragraph [3] was changed to read as follows:

 

[3]      Grant Thornton Alger Inc., successor to Alger & Associates Inc. (Alger), in its capacity as Investigator of PIC applied for a stay of proceedings in the usual form relating to claims against PIC, and I granted it, however, excluding Stan Knowlton from the impact of the stay.

 

Paragraph [4] was changed to read as follows:

 

[4]        The application for appointment of a liquidator is not opposed by counsel for PIC, although it is unclear how counsel obtains instructions because PIC has ceased to have a functioning board of directors.

 

Paragraph [7] was changed to read as follows:

 

[7]        In October, 2009 I appointed Alger & Associates Inc. to be the Investigator of PIC.

 

Paragraph [15] was changed to read as follows:

 

[15]     I do not make these conclusions on my own. The finding of insolvency is exactly what was reported by Alger in its capacity as Investigator of PIC, and then as Receiver of  PEC.

 

Paragraph 20 was changed to read as follows:

 

[20]      Indeed, the next step in the investigation and status of PIC involves whether to liquidate it or to restructure it in some fashion acceptable to its creditors, stakeholders and to the Court.

 

Paragraph [21] was changed to read as follows:

 

[21]      Hence, the current application: to facilitate the finalization of the investigation process and explore whether there is a solution short of liquidation and winding up.

 

Paragraph [24] was changed to read as follows:

 

[24]     Mr. McMullen also took issue with the proposed appointment of Alger as Liquidator, on the basis of the numerous complaints made about Alger in Re Piikani Energy Corporation.  According to Mr. McMullen, the Court of Appeal may make unfavourable findings about Alger's work as Investigator of PIC and Receiver and Trustee in Bankruptcy of PEC.

Paragraph [37][ was changed to read as follows:


[37]     Mr. McMullen objected to Alger being appointed liquidator because of criticisms of Algers work in the PIC investigation and PEC receivership, and he suggested that Alger may be in conflict if he is appointed liquidator for the purposes of a potential proposal. I am satisfied through my involvement for the past three years in this matter, as well as the PEC matters, that there is no principled basis for any objection to Alger's ongoing involvement. He has, over the past three years, through his extensive investigations of PIC and PEC, gained the greatest knowledge of the affairs of PIC and PEC of anyone. PIC and PEC's finances were in a state of disarray when he was appointed. Financial statements had not been prepared for either corporation for some time. He brought a level of objectivity to his tasks. While his work in these matters has not been without some errors, having regard to the state of record keeping in PIC and PEC, perfection would be a baseless expectation.

 

Paragraph [45] was changed to read as follows:

 

[45]   Nevertheless, there needs to be a reason to delay. The absence of prejudice to a delay does not constitute a reason. I do not see that Mr. McMullen's appeal will have any bearing on the issues to be determined in the PIC investigation or in its restructuring, if that is to occur.  Consultation can take place at anytime before approval of a proposal. If Chief Strikes With a Gun and others want to initiate public or stakeholder consultations, they can do so as they see fit. In my view, however, consultation when there is a proposal to consult about would make more sense than a general consultation as to what the members would like to see. That is something the members presumably elected the Chief and Council to do on their behalf, and at this stage, I would leave consultation processes to the elected members of the Piikani Nation to consider and implement.

 

Paragraph [48] was changed to read as follows:

 

[48]      Concerns over past management issues, accounting issues and conflict of interest issues are not relevant to this application. Alger, in its capacity as Investigator of PIC, and Receiver and Trustee in Bankruptcy of PEC, has fulfilled its functions in a manner wholly satisfactory to this Court.

 


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