Kitimat Development Group: a $1.4 million letter of credit, returned

The brochure that marketed two Kitimat motels and a pair of vacant lots for sale by court order in 2015 opened with the town. Kitimat, it said, "until recently, was a sleepy little town in the North West corner of BC which has quickly become the energy hub for B.C.'s West Coast," with "some $40 Billion in potential projects on the drawing board," LNG Canada and Rio Tinto Alcan's smelter modernization among them, per the Follow-up brochure, Aug. 21, 2015, p. 2.

The motels were the City Centre Motel, downtown, and the North Star Inn. On July 15, 2026, eleven years after Grant Thornton Limited was appointed receiver of their owners, Kitimat Development Group Inc. and Hotels and Resorts of Kitimat (AB/BC) Inc., Justice B.B. Johnston of the Court of King's Bench of Alberta approved its accounts, directed it to pay out what remained and approved its discharge on the filing of a certificate, per the Discharge Order, July 15, 2026, paras. 3–10. What remained was $42,754: $16,959 for pre-receivership GST, $5,203 for pre-receivership PST, the rest for the receiver's and its counsel's remaining fees, and nothing for the secured creditor, Backstop Holdings Corp., per the Fourth Report, July 6, 2026, paras. 35–37, App. 8.

Backstop had bought the motels in 2015 by credit bid, and with the bid came a $1.4 million letter of credit, security in case the court cut Backstop's debt below $4 million in a lawsuit the companies had brought against it. The receivership then stayed open, as the receiver said in November 2015 it would, "in a limited manner until the Pre-Receivership Action has been resolved in order to allow the Receiver to cancel or draw on the Backstop Letter of Credit," per the Third Report, Nov. 2, 2015, paras. 10, 14(c) and the Fourth Report, July 6, 2026, para. 26.

A lender with half the shares

Backstop's case for a receiver was sworn on July 25, 2014 by Michael Steele, a director of Backstop who had also been, at all material times, a director of both Kitimat companies. Hotels and Resorts of Kitimat held title to the two properties and Kitimat Development Group was their beneficial owner. Backstop financed the purchases in September and November 2013, lending $1,750,000 for the City Centre Motel and the lots beside it and $1,960,000 for the North Star, each for 36 months at 6.25%, secured by guarantees, general security agreements and two $7,000,000 mortgages, per the Steele Affidavit, July 25, 2014, paras. 1, 5, 7, 9, 14–15, 18, 23–24. The shareholder agreement exhibited to the affidavit makes Backstop an owner as well, setting the interests in Kitimat Development Group at 50% for Backstop and 50% for Aberfeld Inc., and has Backstop, "as Lender," commit to lend up to $4,100,000, per the Steele Affidavit, July 25, 2014, Ex. I, ss. 3.1(d), 4.1.

Kitimat Development owed Backstop $4,100,000 as of July 12, 2014, Steele swore, with interest running at $730 a day; it had a working capital deficiency of approximately $600,000 and needed an additional $1.7 million to finish construction and renovations, money with no prospect of being secured, per the Steele Affidavit, July 25, 2014, paras. 30, 32, 34. Its two directors, Steele and one other, were "completely at odds," and "management is deadlocked and Kitimat Development is paralyzed and incapable of taking any corporate decisions or actions, as the approval of both directors is needed to do so." He wanted a receiver before winter; otherwise "the uncompleted hotels will need to go through the entire winter in an incomplete state, without revenue, and at increased risk of deterioration over the winter months," per the Steele Affidavit, July 25, 2014, paras. 42–43. That is Backstop's account; the pleadings in the companies' own action against Backstop are not in the record read for this piece.

Consent, without admission

The order came on June 16, 2015. Madam Justice Strekaf appointed Grant Thornton receiver of both companies' property under s. 243 of the Bankruptcy and Insolvency Act, s. 13(2) of Alberta's Judicature Act and s. 65(7) of its Personal Property Security Act, on Backstop's application and with the companies' consent through Borden Ladner Gervais LLP. Paragraph 25 dealt with the lawsuit. The quantum of Backstop's debt was "in dispute, such dispute being litigated by the Debtors and other third parties" in Action No. 1401-13817; the order "shall in no way represent an admission by the Debtors as to the quantum of the indebtedness" and was "without prejudice to the rights of the Plaintiffs in the Action to continue the Action." It authorized the receiver, if it thought fit, to assign conduct of the action for the companies to the other plaintiff, Aberfeld, and gave the parties leave to take the dispute to the Commercial List, per the Consent Receivership Order, June 16, 2015, paras. 2, 25 and p. 9.

The receiver's reports of 2015 and 2026 describe the action in nearly the same words: brought by the companies against Backstop and others before the receivership, and involving real property and companies outside it. "One of the many allegations in the Pre-Receivership Action is that Backstop agreed to convert a portion of its secured claim to non-voting preferred shares in KDG. This impacts the Receivership in that it may reduce the quantum of the secured claim of Backstop," per the Second Report, Oct. 23, 2015, para. 12 and the Fourth Report, July 6, 2026, para. 16. The books of Hotels and Resorts of Kitimat showed $4,252,443 owing on Backstop's mortgage; Backstop's updated statement put it at approximately $4.7 million. Unsecured claims in the same records totalled approximately $1,016,187, per the First Report, July 31, 2015, paras. 23, 30.

The receiver found the City Centre to be "a fully operating 22 unit motel facility," with occupancy "at, or close to 100%" as of July 31. The North Star had a 16-unit motel running on a limited basis beside a 47-unit dorm-style hotel closed "due to unfinished renovations," per the First Report, July 31, 2015, paras. 8–9, 11(b).

Three thousand memoranda, two offers

Justice LoVecchio approved a sale procedure on August 6, 2015 that entitled any secured creditor "to submit a credit bid up to the amount of their proven secured debt," per the Second Report, Oct. 23, 2015, para. 2, App. 1, Sch. "A". The receiver had been advised that Backstop might bid by cancelling its debt. Its agent, Macdonald Commercial Real Estate Services Ltd., would earn 4% of a cash offer or, "in the event of a successful credit bid," a flat fee of $50,000, per the First Report, July 31, 2015, paras. 15, 20.

The information memorandum went to over 3,000 parties. Twenty-seven contacted the agent, 11 signed confidentiality agreements and five arranged tours. By the September 21 deadline two offers had arrived, one of them a credit bid, and none for the North Star. Two more came after the deadline, outside the procedure: one for the City Centre Motel and a credit bid for all of the properties. "The Respondents are supportive of one of the non-conforming bids while Backstop wishes for the Receiver to accept its credit bid," the receiver reported, and it asked the court for advice and directions, per the Second Report, Oct. 23, 2015, paras. 20–22. The offers, its appraisals and its recommendation went to the court in a confidential supplemental report, which it asked to have sealed until the sales closed, per the Second Report, Oct. 23, 2015, paras. 23–24 and the Application for Advice and Directions, Oct. 23, 2015, para. 1(d). By then the North Star was vacant and being winterized, and the receiver warned that without a sale soon it would need interim funding or be "forced to cease operations," per the Second Report, Oct. 23, 2015, paras. 16–18.