Artic Machinery: the XCMG lawsuit proposal, amended after the vote

From 2017, Artic Machinery Ltd. was the sole dealer in British Columbia for the sale, rental and lease of machines and equipment made by XCMG, and its dealership arrangements restricted it to "selling XCMG equipment only." It worked from a head office in Prince George and locations in Chilliwack and Kelowna, kept about 20 full-time employees and ran a rental, repair and maintenance business for XCMG-made equipment, according to the first affidavit of Ryan Martin, a director and officer who swore that he has worked in the heavy machinery industry for more than 30 years. XCMG Canada, as he describes it, is the Canadian branch of a Chinese manufacturer, XuZhou Construction Machinery Group, per the Affidavit #1 of Ryan Martin, Oct. 28, 2025, paras. 5, 7, 9–12, 35.

Nearly a year after the company's notice of intention, what its proposal would pay affected creditors is, in the proposal trustee's words, "entirely dependent on the outcome" of a lawsuit against XCMG, and on the amounts that rank ahead of them, per the Trustee's Report on the Proposal, Apr. 17, 2026, para. 24(g). Those creditors voted for it on April 30. The trustee's application for court approval, filed May 5, has since been re-set four times, per the Requisition, Aug. 19, 2026, p. 1, and the company's Second Further Amended Proposal, dated September 29, changes what a related company would buy and who would be repaid the costs of the lawsuit.

The dealer's account

How the company got here is Mr. Martin's account. In September 2024 it signed a new dealership agreement with XCMG and a financing agreement with XCMG America Financial LLC. In February 2025 the managing partner of CanLift Equipment Ltd., which buys and rents out XCMG equipment in Ontario, told him of irregularities in serial numbers and year designations on several XCMG machines. The company raised its concerns, was told by XCMG's chief executive that the incidents were an isolated mistake, and carried on, per the Affidavit #1 of Ryan Martin, Oct. 28, 2025, paras. 13–19.

XCMG's failure to pay amounts owing to the company, Mr. Martin swore, "caused significant cash flow restrictions" and led to its inability to meet certain obligations as they became due, including payment to the Canada Revenue Agency. In September 2025, on assurances from XCMG's chief executive, the company paid XCMG approximately $500,000 on account of machines it had bought and sold, "as a good faith gesture." On September 26, XCMG America Financial served a demand and a notice of intention to enforce security under s. 244 of the Bankruptcy and Insolvency Act for US$5,468,450.09 and C$1,752,560.69. The company filed its notice of intention on October 10, 2025, and disputes that it owes XCMG America Financial anything. On October 22 Mr. Martin learned that XCMG had removed the company from the approved-dealer list on its website; he swore that, to his knowledge, the company has never received notice of termination of its 2024 dealership agreement, per the Affidavit #1 of Ryan Martin, Oct. 28, 2025, paras. 20, 22, 26–27, 30–31, 50.

Funded by related parties

On November 4, 2025, Justice Wilson authorized the company to borrow up to $400,000 from Seaton Forest Products Ltd., the advances not to bear interest, and secured them with an intercompany charge that "shall rank subordinate to all Encumbrances," per the Order, Nov. 4, 2025, paras. 7–9. Mr. Martin is a director and officer of Seaton Forest Products, a forestry business that he swore has historically funded the company as needed; in March he affirmed that it is "a company which I control," per the Affidavit #5 of Ryan Martin, Mar. 20, 2026, para. 9 and the Affidavit #1, paras. 74–75. The limit rose to $825,000 in December and $1,285,000 in February, when Mr. Martin and John Ross McMaster, the company's two directors, were added as alternative lenders, and to $1,810,000 on March 24, per the trustee's Material Adverse Change Report, July 16, 2026, paras. 6, 8, 10 and the Trustee's Report on the Proposal, Apr. 17, 2026, para. 5.

The claim against XCMG

On March 13, 2026, the company sued XCMG and others in the Supreme Court of British Columbia, Action No. S-261878, and on March 24 the court lifted the stay so that action could continue, keeping it against the execution of any judgment or award against the company, per the Trustee's Report on the Proposal, Apr. 17, 2026, paras. 15, 17. The proposal's Schedule "A" sets out what the company alleges: that XCMG and certain affiliates, directors, officers, employees and agents "undertook a systemic, coordinated course of misconduct," including supplying "defective and non-compliant equipment," failing to process and pay warranty claims and capital-cost reimbursements, and "serial number/VIN tampering." It claims breach of contract, rescission of a 2024 dealership agreement and a master financing agreement, and conspiracy. Its particulars of loss are $29,518,958.36 in past and future lost profits, $7,013,394.00 for the diminished value of XCMG equipment and parts the company owns, $6,000,000 in warranty claims, $1,897,148.11 in unreimbursed capital costs and $6,200,000.00 in "additional losses, damages, and expenses." According to the same schedule, Justice Crerar granted the company a Mareva injunction on March 25, 2026 against XCMG Canada Ltd. and XCMG America Financial, LLC, freezing assets in the amount of $32,456,992, "including on the basis that the Company demonstrated a strong prima facie case of the allegations," per the Second Further Amended Proposal, Sept. 29, 2026, Sched. "A". The March 25 order itself is not in the record read for this piece.

The XCMG defendants dispute the company's claim and have indicated that they intend to defend the action, the schedule says; the trustee's notice of application in May adds that they intend to do so "including by taking steps in relation to the Mareva Order," per the Notice of Application, May 5, 2026, Part 2, para. 19. The company estimates the litigation proceeds at between $32.5 million and $50 million and expects the claim to be resolved within three years, or sooner by settlement or sale, per the Second Further Amended Proposal, Art. 2.2. It told the trustee the costs of the litigation could reach approximately $1,935,000. The trustee, citing its experience that "the outcome and costs of litigation are uncertain," listed the recovery from the claim at nil in its low case and up to $50 million in its high one, per the Trustee's Report on the Proposal, para. 45(b).

The deal the creditors voted on

The company's statement of affairs as at April 10, 2026, as the trustee summarizes it, shows $3,411,009 owed to the CRA for source deductions, including interest and penalties, $5,189,146 of secured debt and $23,146,756 owed to approximately 47 unsecured creditors, $31,746,911 in all, per the Trustee's Report on the Proposal, Apr. 17, 2026, para. 36. The trustee's report to the court records the CRA claim under s. 60(1.1) of the BIA as declared and proved at $3,411,009, per the Report of Trustee on Proposal (Form 40), May 5, 2026, para. 14(b). In a bankruptcy, the trustee estimated with the company's assistance, the assets would realize between $1,982,004 and $2,197,355, the CRA would suffer a shortfall, and the affected creditors would receive no distributions, per the Trustee's Report on the Proposal, paras. 35, 45(d), 45(f).

The proposal's answer is a sale to Seaton Forest Products. If the proposal is approved, the company would sell its hard assets "for a purchase price equal to the amount of the Company's Crown Claims" under two agreements, subject to an approval and vesting order acceptable to the buyer, at a price the proposal says "exceeds the fair market value of the assets," with every payment made within six months of the approval order and paid to the trustee for the Crown. The first agreement covers 30 machines, listed by serial number, at $1,800,000. The second covers furniture, computers, shop tools, welders, presses and two forklifts for $1,611,009, "or such amount as otherwise required to pay the Crown Claims," in four monthly payments of $100,000 beginning 60 days after the approval order and $1,211,009 at 180 days, per the Further Amended Proposal, Apr. 29, 2026, Art. 2.2 and Sched. "B".