Operators of northern Ontario power plant forced into bankruptcy

New jobs coming to Iroquois Falls Validus Power is set to bring over 50 new jobs to Iroquois Falls, as it purchases the town's power plant to power two data centres.

Validus Power Corp., which operates a power plant in northern Ontario, has been forced into receivership.

Validus ran the power plant under an agreement with Macquarie Equipment Finance Ltd. In April 2022, Macquarie bought the turbines, plant and equipment from Iroquois Falls Power Corp. for $45 million, then leased it back to Validus to operate.

Under the lease agreement with Validus, Macquarie was to receive monthly rent payments, with the understanding that the corporation could be forced into bankruptcy if it defaulted.

By the time the company was forced into interim receivership in August of this year, Macquarie was still owed more than $40 million.

“Events of default have clearly occurred,” the judge reviewing the case said.

“In addition to the fundamental monetary defaults in the form of the failure to repay amounts when due, there are additional covenant and operating defaults, including the failure to pay rent, the failure to remit HST and other taxes, the breach of an agreement with a key customer, and the failure to properly maintain books and records and to maintain insurance.”

When problems emerged early this year, the sides reached a new agreement in February, but the terms of that deal have also been violated.

Attempts to sell the assets have foundered, in part, because of the chaotic state of the business.

“There is no apparent liquidity in the property of the debtors, the books and records are in disarray with the result that an accurate valuation is difficult if not impossible,” the court decision said.

“The principals of the debtors are alleged to have misappropriated and failed to return funds from a bank account to which they were erroneously granted access (CIBC) and are alleged to have failed to provide benefits and RRSP contributions to their unionized employees pursuant to a collective bargaining agreement.”

Macquarie said it made several attempts to help Validus, including granting a four-month rent holiday in February, trying to help with a sale and paying the power plant’s debts in the amount of more than $1.4 million.

'DISARRAY IN MANAGEMENT'

In ruling in favour of Macquarie, the judge said there is real concern about the way the plant is being run.

“I am satisfied that … there is disarray in management of the (power plant),” the judge said, “and also to the stability of the operations of the debtors in the sense of a real risk that the existing employees may leave.

“That would, without question, destabilize if not impair irrevocably the operation.”

Macquarie, the judge noted, has made arrangements with a licensed operator who can assume control of the power plant.

“For all of these reasons, I am satisfied that the receiver should be appointed on the terms set out in the order agreed as to form and content (without, for the time being, the authority to commence a CCAA proceeding),” the judge wrote.

Read the full decision here.