Diverging opinions have been presented to the Ontario Superior Court of Justice on whether or not a sale of Pride Group Logistics (PGL) – the trucking arm of Pride Group Entities – to members of the founding Johal family should proceed.
The sale, supported by bankruptcy Monitor Ernst & Young, is valued at $54.5 million and the closing date, pending approval, was recently extended to Oct. 16. The purchase price has been increased by $2 million and the Monitor argues the lenders/financiers “would do better in the aggregate under the going-concern scenario than they would under a wind-down scenario.”
(Pride Group Entity operations outside the scope of Pride Group Logistics are in the process of a wind-down, overseen by a third party. Most recently, Pride’s factoring business was sold to J.D. Factors).
A Factum of Employees submitted to the court on behalf of Pride Group Logistics employees outlines key reasons for the court to approve the going-concern sale.
The case for sale approval
The factum, said to represent 500 employees and employee-contractors, represents the interests of truck drivers, office staff, customers support and service reps, IT specialists, technicians and shop managers.
More than 370 of those employees have retained Koskie Minsky LLP to advocate for their continued employment and support for the going-concern sale to the Johal family.
Their argument centers around the fact the sale agreement: generates the highest recovery rate for creditors; has been recommended by the Monitor; preserves the value of the company going forward; avoids a complex, costly liquidation of 1,300 trucks and trailers (1,000 of which are active transit at any given time); and will prevent supply chain disruptions.
The factum notes “the purpose of CCAA (Companies’ Creditors Arrangement Act) is to avoid liquidation and preserve jobs” and that a liquidation of PGL would “lead to the mass unemployment of over 500 PGL workers and cause significant financial and other hardships for them and their families.”
It also questions whether a liquidation would result in greater recoveries for creditors. In many cases, the factum notes, multiple members of the same family work for PGL, exacerbating the impact a liquidation would have on their livelihoods.
The case for liquidation
The PGL equipment lenders, however, submitted their own factum which calls for the wind-down of PGL to be included in that of the broader business. They claim to be financiers for about 1,000 trucks – or 77% — of the equipment in use by PGL.
“The equipment lenders submit that the sales process should be terminated,” lenders said in their factum. “The process has been implemented in an unfair manner and without integrity.”
It claims the Johal family bid “provides for insufficient returns for the PGL financiers, is demonstrably impracticable and does not ensure the finality that is needed at this late stage to protect the interests of the PGL lenders.”
The lenders note the Johal sale is “practically impossible” as “the lines between PGL and the Pride Entities are too indistinct for PGL to be neatly extracted.”
They note nearly a third of the nearly 1,500 trucks and trailers in the PGL fleet are housed on lots owned or leased by Pride Entities.
“It does not appear as though any effort has been made to segregate the respective entities’ operations,” the factum notes, adding the Monitor “is seemingly unable to discern between which assets belong to which Pride entity.
The lenders also call into question the number of jobs that would be saved through a going-concern sale to the Johal family.
“In reality, PGL directly employs 73 office staff and 95 drivers for a total of 168 employees,” they claim, noting there are some 372 non-employment contractual relationships in place.
“The evidence before the court does not clearly demonstrate that a PGL sale will have a meaningful impact for PGL’s employees,” the lenders say, noting many of those employees also work for other Pride Entity operations presently being wound down, and that demand for truck drivers in Southern Ontario will allow them to “easily find work with other employers.”
Lenders also complained about the extensions granted to the sales process and the “modest” 4.87% increase to the offer price. The extensions, lenders argue, have resulted in further depreciation of the assets to which they lay claim and they worry that coming winter conditions will further degrade the condition of the assets in question.
Lenders conclude they will be more successful through a PGL wind-down in conjunction with the broader wind-down.
A court-appointed mediator heard both arguments on Sept. 9-10.
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