North American Fur Auctions Inc. (CCAA proceedings of NAFA)
Overview
On October 31, 2019, North American Fur Auctions Inc. (“NAFA”) obtained protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA). That same day, NAFA terminated the employment of most of its employees without paying any termination or severance pay.
Kokie Minsky LLP was retained by about 45 former NAFA employees in respect of severance and termination pay and other amounts owing to them.
Status of NAFA
While under CCAA protection, NAFA did not restructure and proceeded to sell its assets, the proceeds of which it applied to pay off its secured (i.e., priority) bank loan debt. The total secured debt amount was approximately $36M in November 2019. The secured bank debt amount has been paid off substantially by NAFA during the CCAA proceeding, with only about $4M still owing. However, unsecured creditors, such as the terminated employees, have not received any payment from NAFA with respect to the amounts owing to them.
Wage Earner Protection Program and payments to employees terminated in a CCAA proceeding
The Wage Earner Protection Program (“WEPP”) is a federal program that provides a payment to employees who have been terminated during the insolvency proceedings of their employer. In 2023, individuals are eligible to receive a WEPPA payment of up to $8,278.83.
Prior to November 20, 2021, terminated employees were eligible to receive a WEPP payment only if their previous employer was bankrupt or subject to a receivership, but not if the employer was under CCAA protection. On November 20, 2021, Parliament amended the Wage Earner Protection Program Act and the Wage Earner Protection Program Regulations to make a WEPP payment available to employees who are terminated in CCAA proceedings and are owed amounts for termination and severance pay. However, in a CCAA proceeding, an application to court must be made to request a judge to issue an order that WEPPA applies to the terminated employees.
Following discussions with our main client contact (Shan Cooper), on May 25, 2023 we brought a motion before the CCAA court for an order that terminated NAFA employees are eligible to apply for a payment from WEPP. The Court granted our motion. A copy of the court order can be obtained clicking here.
Pursuant to section 9(1)(c) of the Wage Earner Protection Program Regulations, terminated NAFA employees can apply for a WEPP payment within 56 days of the court order, which means that NAFA employees must submit an application by Thursday July 20, 2023.
WEPPA Applications can be completed online by clicking here.
According to Industry Canada’s CCAA Records List, the OSB File Number for NAFA is 0000443-2019-ON. Terminated NAFA employees should be able to enter that number under the “Estate ID” box to complete their WEPPA applications.
The case is being handled by Andrew J. Hatnay. If you have questions about the above please email: nafaemployees@kmlaw.ca
Creditors’ Claims Process
Also, on May 25, 2023, NAFA brought a motion before the CCAA Court for approval of a Claims Process for creditors’ claims. A claims process in a CCAA proceeding sets out the procedure for creditors, NAFA, and the CCAA monitor to follow in identifying and quantifying the claims of creditors. Once the claim amounts are finalized, those amounts will form the basis of the amount each creditor can receive in the future based on cents-on-the-dollar of the claim amount.
Under the NAFA claims process, each terminated NAFA employee is to receive an Employee Claim Statement from NAFA by June 12, 2023 which will identify the amount calculated as owing by NAFA to the former employee, including for termination and severance pay.
If a terminated NAFA employee disputes the amount they are owed according to their Employee Claim Statement prepared by NAFA, they are required to submit a Proof of Claim to the Monitor by email, prepaid registered mail, courier, or personal delivery to the court-appointed monitor at the following address by Thursday August 3, 2023 at 5:00 PM (ET Time):
DELOITTE RESTRUCTURING INC.
Attention: In its capacity as Court Appointed Monitor of North American Fur Auction Inc.
8 Adelaide Street West
Toronto, ON, M5H 0A9
Telephone: 1-888-221-0622
E-mail: nafa@deloitte.ca
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Latest Developments
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February 9, 2024
We are writing to report on the proceedings of North American Fur Producers Inc. et al. (“NAFA”) under the Companies’ Creditors Arrangement Act (RSC 1985, c C-36; “CCAA”).
To recap, on October 31, 2019, NAFA was insolvent and applied for protection from its creditors under the CCAA. Although the CCAA is a restructuring statute, NAFA proceeded to terminate the vast majority of its employees without paying severance pay and other amounts owing to them, and embarked on a process to liquidate its assets, shut down its operations and pay back its bank debt.
Since 2019, NAFA’s primary activity has been overseeing auctions to monetize pelts to pay off its secured Syndicate debt, which was initially approximately $32M. Over the course of the past 4 years, NAFA has mostly repaid its Syndicate debt which is now down to approximately $3.6M, of which $2.4M will be advanced as an unsecured claim in the upcoming Plan of Compromise, discussed below.
1. Claims of Terminated NAFA Employees for amounts owing
Since the terminated NAFA employees have not been paid any amount by NAFA, on May 25, 2023, we brought a motion before the Ontario Superior Court of Justice (Commercial List), which the court granted, for a court order that the Wage Earner Protection Program (“WEPP”) applied to the CCAA proceedings of NAFA and therefore the terminated NAFA employees are eligible to apply to the federal government for a payment under the Wage Earner Protection Program Act (SC 2005, c 47, s 1). In 2023, WEPPA paid a maximum amount of $8278.83 to eligible terminated employees. WEPP involves a two-stage process. First, the Monitor (Deloitte Restructuring Inc.) must submit claims to Service Canada verifying that an employee is owed a certain amount by their former employer. Second, each employee is required to submit their own WEPP application form.
To facilitate the WEPP application process, in August 2023, the Monitor sent each terminated NAFA employee an “Employee Claim Statement” where it “estimated” the amount of severance each employee is owed by NAFA. To apply for a payment under WEPP, terminated NAFA employees were instructed to sign and return the Employee Claim Statement to the Monitor if they did not dispute the amount estimated. Since WEPP pays a maximum of $8278.83, any claim estimate that was higher than that amount would entitle the employee to receive the WEPP maximum.
Although at that time this approach by the Monitor assisted former employees in obtaining a WEPP payment of up to $8278.83, depending on an employee’s claim amount, the amounts estimated by the Monitor in the Employee Claim Statement have not been confirmed to determine whether those amounts accurately represent the full amounts owed to each terminated NAFA employee.
2. The NAFA CCAA Plan and distributions to all creditors
On January 17, 2024, NAFA announced that it wished to bring forward a “CCAA Plan of Compromise” whereby all its creditors (including employees and the Syndicate Lenders) could, for the first time in this proceeding, be eligible to receive a distribution from NAFA ranging from 3.6-11 cents on the dollar of their claims. On January 17, 2024, NAFA brought a motion before the Ontario Superior Court of Justice (Commercial List) to file its Plan of Compromise and to hold a Meeting of Creditors for creditors to vote on the CCAA Plan. The Meeting is scheduled for February 21, 2024 at 10 AM ET and will be presented in a hybrid format by being held at both, the office of the Monitor and by way of videoconference.
Since the claim amount of each employee is now relevant to the amount of the distribution received under the CCAA Plan, at the same court hearing on January 17, 2024, we advised the Court that we intend to file an Amended Proof of Claim on behalf of employees to accurately confirm the amounts owing to each employee. We wrote a letter to the Monitor confirming this which is attached here and in which we asked for the methodology that the Monitor used to estimate each employee’s claim. To date, the Monitor has not responded.
Along with our letter, we sent counsel for the Monitor and NAFA an Amended Proof of Claim in the form of a “placeholder” to be able to amend any employee’s claim as may be necessary to obtain a distribution from the CCAA Plan.
3. Voting on the CCAA Plan
In order to become effective, a CCAA Plan must first pass a vote of the creditors at the Meeting of Creditors scheduled for February 21, 2024. At this stage, we are still reviewing the CCAA Plan and are in discussions with an ad hoc employee committee to formulate our advice as to whether employees should vote in favour of the Plan or not. We will advise further on this shortly.
As for voting logistics, as a creditor, you can attend the Meeting of Creditors and vote on your own, or you can send us a Proxy form and we can vote on your behalf. If you want us to vote on your behalf, please complete the “Affected Class Proxy Form” and list Andrew J. Hatnay as your Representative. Please note that you are not required to indicate whether you vote for or against the plan.
Affected Class Proxy Forms are required to be submitted to the Monitor (nafa@deloitte.ca) by February 16, 2024 at 5 PM ET. If you wish to appoint us as a Proxy, please provide our firm with a copy of the completed form by emailing nafaemployees@kmlaw.ca.
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February 9, 2024
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Documents
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Contacts
Email: nafaemployees@kmlaw.ca
Toll Free Hotline: 1-855-595-2627
