Court approves sale of Pride Group Logistics to Johal family

The Ontario Superior Court of Justice has approved the sale of Pride Group Logistics – the trucking division of Pride Group Entities, currently under CCAA creditor protection – to the founding Johal family.

The sale was hotly contested and opposed by creditors and others within the industry. However, a going-concern sale, valued at more than $56 million and endorsed by bankruptcy monitor Ernst & Young, was seen by Justice Peter Osborne as the best outcome. The alternative, he said, would be a costly and complex wind-down of its operations and the loss of related jobs.

“The practical but inevitable reality is that, following a court-approved open sale process, the market has spoken,” Osborne said in his ruling. “While far from perfect, the transaction represents the only going-concern option available, and is, by far, a bid that is superior to the others received (of which there were only two), neither of which provided for a going-concern outcome.”

Osborne also said: “The significant cost of the alternative – a wind-down – together with the attendant chaos is all avoided.”

The court pointed out that financiers opposed to the transaction, did so even before they were presented with a recovery analysis by the Monitor, and suggested opposition was largely motivated by the fact the going-concern offer came from the Johal family. (The Monitor’s analysis indicated creditors would receive a greater return through the Johal family sale).

“Emotions are high, issues are hotly contested (and they are arising literally on a daily basis) and it is clear to this court that there remains significant animus on the part of many stakeholders towards the principals of the Pride Entities,” Osborne wrote. “It is clear to me that many of the objections to the proposed transaction might not be so vehemently held but for the fact those principals are involved.”

In previous court monitor reports, it was noted that many of the vehicles held by Pride Group Entities were multi-collateral vehicles, those to which several lenders laid claim. There was an obvious distrust between the parties involved during the court proceedings. There were even attempts by trucking industry insiders to block the sale.

Challenger affidavit

An affidavit filed by Bank of Nova Scotia on behalf of Challenger Motor Freight founder Dan Einwechter and president Jim Peeples downplayed the impact a wind-down would have on the industry, the supply chain and PGL employees. However Osborne was dismissive of those claims.

“Challenger is a direct competitor of PGL,” the judge wrote. “Mr. Einwechter states in his own letter that if PGL does not continue as a going concern, the business will be picked up by others in the industry: ‘drivers will be hired, the freight will be moved, and services will continue, hopefully by bona fide carriers.’ Even leaving aside the inference that PGL is not a bona fide carrier, this statement is really an expression of interest from a direct competitor that it and others will attempt to get the business of PGL.”

Osborne also noted there was no specific commitment by Challenger to hire any PGL employees. The extent and impact of those job losses was a point of contention.

Those in favor of the sale noted 500 jobs would be saved. Those opposing it, noted most of those 500 jobs were held by independent contractors. To the judge, it made little difference.

Oct. 16 closing

“With respect to the loss of jobs, the submission that some of the affected individuals who will be indisputably put out of work and suffer the loss of their livelihood are independent contractors rather than employees is, in these particular circumstances, a distinction without a difference,” Osborne wrote. “The evidence is also that all of these contractors work solely for the Pride Group upon which they rely for their and their families’ income.

“First, even if I were to accept the submission about the difference between employees and contractors (which I do not, in the circumstances), there are still almost 200 employees. Second, the evidence is also to the effect that a number of employees and contractors work alongside spouses and other relatives at PGL, such that a shutdown and loss of jobs would have a magnified effect on those families and their aggregate income.”
The judge pointed to an argument by the Monitor that the Johal family sale was the best option even if there was to be no impact on employees, “given the attendant chaos and instability in respect of all of the Pride Entities and increased costs that would result from a shutdown of operations.”
And so, the sale to the founding family has been approved, with a closing date of Oct. 16. There could be further extensions, the judge acknowledged.