First Report of the Court-Appointed Receiver Of
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Action No. 0801-05811 IN THE COURT OF QUEEN’S BENCH OF ALBERTA JUDICIAL DISTRICT OF CALGARY Between: ALBERTA TREASURY BRANCHES Plaintiff (Applicant) -and- PENN-TEK TRUSS & FLOOR SYSTEMS INC., 1006459 ALBERTA LTD., ARNOLD AND DOROTHY PENNER Defendants (Respondents) FIRST REPORT OF THE COURT-APPOINTED RECEIVER OF PENN-TEK TRUSS & FLOOR SYSTEMS INC. DELOITTE & TOUCHE INC. July 3, 2008 TABLE OF CONTENTS INTRODUCTION AND BACKGROUND .......................................................................................................1 Introduction .........................................................................................................................1 Notice to Reader .................................................................................................................1 Background .........................................................................................................................1 RECEIVER’S APPOINTMENT......................................................................................................................2 Powers of the Receiver.......................................................................................................2 Possesion and Control……………………………………………………………...…...……….2 ASSETS ............................................................................................................................................2 Manufacturing Assets..........................................................................................................2 Accounts Receivable…………………………………………………………………………......3 Finished Goods Inventory………………………………………………………………………..3 Leased Assets…………………………………………………………………………………….3 LIABILITIES…………....................................................................................................................................3 Priority Creditors .................................................................................................................3 Secured Creditors…..………………………………………………………………………….....4 Preferred and Ordinary Unsecured Creditors .....................................................................4 STATEMENT OF RECEIPTS AND DISBURSEMENTS ..............................................................................4 SALE PROCESS ..........................................................................................................................................5 CONCLUSION ............................................................................................................................................6 SCHEDULES Schedule 1 Correspondences from Canada Revenue Agency dated June 25 and June 26, 2008 Schedule 2 Receiver’s Statement of Receipts and Disbursements for the Interim Period from May 16, 2008 to June 30, 2008 Schedule 3 Notice of Sale of Assets dated June 2, 2008 Schedule 4 June 9, 2008 newspaper advertisements (Calgary Herald and Edmonton Journal) Schedule 5 Information Memorandum dated June 2, 2008 First Report of the Court-Appointed Receiver July 3, 2008 Page 1 INTRODUCTION AND BACKGROUND Introduction 1. On May 16, 2008, Deloitte & Touche Inc. (“Deloitte”) was appointed by the Court of Queen’s Bench of Alberta, Judicial District of Calgary (the “Court”) as Receiver and Manager (the “Receiver”) of all of the current and future assets, undertakings and properties of Penn-Tek Truss & Floor Systems Inc. (“Penn-Tek” or the “Company”). A copy of the Receivership Order can be found on the internet at www.deloitte.ca under the Insolvency and Restructuring link. 2. On June 17, 2008, the Court of Queen’s Bench of Alberta granted a Bankruptcy Order in respect of Penn-Tek and Deloitte was appointed as Trustee of the estate of the bankrupt. 3. Both the Receivership Order and the Bankruptcy Order were the result of applications by Alberta Treasury Branches (“ATB”), who hold security over all of Penn-Tek’s current and future assets, undertakings and properties. It is anticipated that ATB will suffer a substantial shortfall with respect to their secured claim. Notice to Reader 4. This report constitutes the First Report of the Court-Appointed Receiver. Background 5. Penn-Tek is a privately-owned manufacturing company that produced both trusses and floor joists for all areas of construction. The Company was originally incorporated in Alberta in March 2007 and operated out of Olds, Alberta. 6. Penn-Tek commenced operations in 2007 but failed to meet anticipated production and revenue targets. The Company indicated that difficulties arose in areas, including the staffing of key management and sales personnel, software implementation (resulting in incorrect order pricing) and in securing favourable pricing on raw materials and transportation. 7. The Company eventually defaulted on the terms of their General Security Agreement with ATB. On April 28, 2008, ATB issued a formal demand for payment, as well a Notice of their Intention to Enforce Security pursuant to Section 244 of the Bankruptcy and Insolvency Act, leading to the May 16, 2008 application for a Receivership Order. First Report of the Court-Appointed Receiver July 3, 2008 Page 2 RECEIVER’S APPOINTMENT Powers of the Receiver 8. The Receiver’s powers are detailed in Paragraph 3 of the Receivership Order. They include the power to take and maintain possession and control of the Company’s property, the power to receive and collect all monies and accounts due to the Company, and the power to market and sell the Company’s property, subject to Court approval as required by the Court Order. Possession and Control 9. Immediately following its appointment on May 16, 2008, the Receiver attended Penn-Tek’s premises and secured all of the assets located therein. The Receiver also took possession of the Company’s books and records, including obtaining a computer back-up on May 21, 2008. 10. Penn-Tek’s operations were immediately discontinued and all of the Company’s twenty-four employees were terminated as at the date of Receivership. 11. Penn-Tek was operating out of a facility in Olds, Alberta. The landlord was notified of the Receivership and arrangements were made for ongoing occupation. Rent has been paid from the date of Receivership until July 15, 2008, by which time the Receiver anticipates that the sale of Penn- Tek’s assets will have been completed. 12. Penn-Tek’s insurance provider has been notified of the Receivership. Coverage has been continued under the company’s existing commercial insurance policy and the Receiver has been added as a loss payee. Insurance premiums have now been paid in full until July 15, 2008. ASSETS Manufacturing Assets 13. Penn-Tek’s major assets consist of manufacturing equipment used in the production of trusses and floor joists, as well as inventories of plates and raw materials and office furniture and equipment (the “Manufacturing Assets”). 14. The Receiver engaged Century Services Inc. to conduct an appraisal of the Manufacturing Assets, which was completed on May 29, 2008 (the “Appraisal”). The results of the Appraisal are not being disclosed here; however, they will be discussed in the Confidential Supplementary Report of the Court-Appointed Receiver (the “Confidential Report”) to be filed in conjunction with this report. The Receiver will be requesting that the Confidential Report be sealed by the Court in order to avoid tainting any future sale process that may be required. First Report of the Court-Appointed Receiver July 3, 2008 Page 3 Accounts Receivable 15. In addition to the Manufacturing Assets, Penn-Tek’s records indicated accounts receivable of $299,044 as at the date of Receivership. To date, accounts receivable totaling $143,885 have been collected. Certain set-offs are being claimed in respect of the remaining accounts receivable and the Receiver currently estimates additional collections will range between $28,100 and $52,700. Finished Goods Inventory 16. Penn-Tek also held finished goods inventory totaling approximately $104,177 as at the date of Receivership. The finished goods inventory was made based on specifications provided by the end users, limiting its resale value to alternate purchasers. In addition, the lack of any ongoing operations or warranties complicated the sale of the finished goods inventory. To date, the sale of finished goods inventory has generated net proceeds of $72,108 and the Receiver currently estimates further collections of approximately $8,000. Leased Assets 17. As at the date of receivership, Penn-Tek had entered into leases with MCAP Leasing Inc., National Leasing Group and 941315 Alberta Ltd. o/a Prime Capital Consulting in regards to the following respective assets: a. A Kaiser rotary screw compressor, b. 2 – 2007 Apollo saws; and c. A 2007 Zoom Boom respectively (the “Leased Assets”). The various leasing companies registered specific security against the Leased Assets, which security was reviewed by the Receiver’s legal counsel. The Leased Assets were determined to have no equity and the Receiver has now released its interest in them to the lessors. LIABILITIES Priority Creditors 18. Canada Revenue Agency (“CRA”) has completed an audit of Penn-Tek’s payroll records and has claimed a deemed trust in the amount of $227,646 ($223,820 – RP0001 account, $3,826 – RP0002 account). Copies of correspondences from CRA, dated June 25 and June 26, 2008, detailing their outstanding claims, are attached as “Schedule 1”. The Receiver will be making an application to pay CRA’s deemed trust claim in full at such time as the sale of the Manufacturing Assets has been completed. 19.