First Report of KSV Kofman Inc. As Receiver of Audible Capital Corp
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First Report of May 26, 2020 KSV Kofman Inc. as Receiver of Audible Capital Corp., Avenir Trading Corp., 1892244 Alberta Ltd., Avenir Sports Entertainment Ltd., Avenir Sports Entertainment Corp. and Portland Winterhawks, Inc. Contents Page 1.0 Introduction .......................................................................................................... 1 1.1 Purposes of this Report ............................................................................ 2 1.2 Currency .................................................................................................. 2 1.3 Restrictions .............................................................................................. 3 2.0 Background ......................................................................................................... 3 3.0 Sale Process ....................................................................................................... 4 3.1 Sale Process Recommendation ............................................................... 7 4.0 Lausanne Transaction ......................................................................................... 7 4.1 Distribution ............................................................................................... 8 5.0 PPP Loan ............................................................................................................ 9 6.0 Conclusion and Recommendation ....................................................................... 9 Appendices Appendix Tab US Provisional Order dated May 7, 2020 .............................................................................. A Share Purchase Agreement dated April 29, 2020................................................................. B Ken Stickney’s curriculum vitae and a summary of transactions ......................................... C Sale Process Memo .............................................................................................................. D US Court Order dated May 21, 2020 .................................................................................... E ksv advisory inc. Page i of i COURT FILE NO.:CV-20-00640212-00CL ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) BETWEEN: BRIDGING FINANCE INC. AS AGENT. APPLICANT - AND - AUDIBLE CAPITAL CORP., AVENIR TRADING CORP., 1892244 ALBERTA LTD., AVENIR SPORTS ENTERTAINMENT LTD., AVENIR SPORTS ENTERTAINMENT CORP., AND PORTLAND WINTERHAWKS, INC. RESPONDENTS FIRST REPORT OF KSV KOFMAN INC. MAY 26, 2020 1.0 Introduction 1. This report (“Report”) is filed by KSV Kofman Inc. (“KSV”) in its capacity as receiver (the “Receiver”) of Audible Capital Corp. (“Audible”), Avenir Trading Corp. (“Avenir Trading”), 1892244 Alberta Ltd. (“189”), Avenir Sports Entertainment Ltd. (“ASE Canada”), Avenir Sports Entertainment Corp. (“ASE US”) and Portland WinterHawks, Inc. (“PWH”) (collectively, the “Companies”). 2. Pursuant to an order of the Ontario Superior Court of Justice (Commercial List) (the “Canadian Court”) made on May 7, 2020 (the “Receivership Order”), KSV was appointed Receiver of the Companies. 3. On May 7, 2020, the Receiver, as foreign representative of the Companies, commenced proceedings in the US Bankruptcy Court for the District of Oregon (“US Court”) seeking recognition of the Canadian receivership proceedings and the enforcement of the Receivership Order in the US under Chapter 15 of the US Bankruptcy Code. On the same date, the US Court entered an order granting provisional relief, subject to the US Court’s recognition of the Canadian receivership proceedings (the “US Provisional Order”). A copy of the US Provisional Order is attached as Appendix “A”. The hearing for the US Recognition Order is scheduled to be heard by the US Court on June 9, 2020. ksv advisory inc. Page 1 4. The principal asset owned by the Companies is the Portland Winterhawks franchise (the "Winterhawks"), a junior ice hockey team based in Portland, Oregon that plays in the Western Hockey League (the “WHL”). The principal purpose of the receivership proceedings is to allow PWH’s business to continue to operate while a Court-supervised sale process (the “Sale Process”) is carried out by the Receiver. 5. Prior to May 9, 2020, Audible owned the shares of Swiss Entertainment Company SA (“SEC”), a company incorporated in Switzerland. The principal asset owned by SEC was its indirect interest in the Lausanne Hockey Club, an ice hockey team that competes in the National League, the top tier of Swiss hockey. 6. Pursuant to a share purchase agreement (“SPA”) dated April 29, 2020, the shares of SEC and certain loans (totalling approximately $20 million) owing to Audible by SEC were sold to Petr Svobda, Gregory Finger and Zdenek Bakala (the “Purchasers”) (the “Lausanne Transaction”). A copy of the SPA is attached as Appendix “B”. The Lausanne Transaction was scheduled to close prior to the receivership, but closed on May 9, 2020, two days after the issuance of the Receivership Order. The closing date of the Lausanne Transaction is retroactive to April 30, 2020. As part of the Lausanne Transaction, the net sale proceeds (approximately $5.7 million) were distributed directly to Bridging Finance Inc. (the “Agent”), the Companies’ principal secured creditor (the “Distribution”). 1.1 Purposes of this Report 1. The purposes of this Report are to: a) provide background information about these proceedings; b) summarize the proposed Sale Process; c) summarize the terms of the Lausanne Transaction; d) provide an update on the receivership proceedings, including an order issued by the US Court, inter alia, authorizing the Receiver to retain and use advances in the amount of USD$422,000 which were loaned to PWH by Banner Bank, a US-based bank, prior to the commencement of the receivership proceedings; e) recommend that the Court issue an order: i. approving the Sale Process; and ii. retroactively approving the Lausanne Transaction and the Distribution. 1.2 Currency 1. All amounts in this report are expressed in Canadian Dollars, unless otherwise noted. ksv advisory inc. Page 2 1.3 Restrictions 1. In preparing this Report, the Receiver has relied upon the Companies’ unaudited financial statements, their books and records and discussions with representatives of the Agent, the Companies, (including Ken Stickney, a former employee of one of the Companies), and the Companies’ Swiss legal counsel. 2. The Receiver has not audited, or otherwise attempted to verify, the accuracy or completeness of the financial information relied on to prepare this Report in a manner that complies with Canadian Auditing Standards (“CAS”) pursuant to the Chartered Professional Accountants of Canada Handbook and, accordingly, the Receiver expresses no opinion or other form of assurance contemplated under the CAS in respect of such information. Any party wishing to place reliance on the financial information should perform its own diligence. 2.0 Background 1. Audible is a holding company which is wholly-owned by William Gallacher. Audible is the direct parent company of ASE Canada, Avenir Trading and 189. Each of Audible, Avenir Trading, 189 and ASE Canada is a company incorporated in Alberta. ASE Canada is the parent company of ASE US, a Nevada corporation. ASE US is the parent company of PWH, an Oregon corporation, which owns the Winterhawks. The corporate chart is provided below. Audible Capital Corp. 100% 100% 100% Avenir Trading Corp. 1892244 Alberta Ltd. Avenir Sports Entertainment Ltd. 100% Avenir Sports Entertainment Corp. 100% Portland Winter Hawks, Inc. ksv advisory inc. Page 3 2. The Companies’ senior secured creditor is the Agent, which was owed approximately $20.5 million as of the date of the Receivership Order. The amount owing to the Agent has been reduced by the Distribution. The Agent has a charge on substantially all of the assets of the Companies, including, among other things, the shares and assets of PWH. 3. The only other known secured creditors of the Companies are Bank of Montreal (“BMO”), Ford Credit Canada Leasing (“Ford”) and Travelers Finance Ltd. ("Travelers"). Ford and BMO have both registered financing statements against Audible under the Alberta Personal Property Security Act while Travelers has registered a financing statement against 189 under the Ontario Personal Property Security Act. Based on the Companies’ records, no amounts are owing to BMO, the debt owing to Ford relates to a 2018 Ford Escape and the debt owing to Travelers relates to a 1998 Sikorsky Aircraft. 4. Additional information about the Companies and these receivership proceedings is provided in the Affidavit of Lekan Temidire, a representative of the Agent, sworn April 28, 2020 (the “Temidire Affidavit”). Copies of all Court materials filed in these proceedings, including the Temidire Affidavit, and the ancillary US proceedings, are available on the Receiver’s website: https://www.ksvadvisory.com/insolvency- cases/case/audible-capital-corp. 3.0 Sale Process 1. Immediately following the Receivership Order, the Receiver contacted the WHL to, among other things, discuss the terms of a potential sale process. Pursuant to the WHL’s League By-Laws, no franchise can be sold without, inter alia, approval from the WHL’s Board of Governors. The Receiver has discussed the terms of the proposed Sale Process detailed in this Report with the WHL, and the Receiver understands the WHL supports the process. 2. The Receiver will offer prospective purchasers the opportunity to purchase the shares of PWH or the business and assets owned