Real estate bankruptcy involving hundreds of northern Ont. properties enters final phase

A notorious real estate bankruptcy involving more than 400 properties in northern Ontario is inching toward a conclusion.

Most of the properties have now been sold – 321 – and prospective buyers have bid on another 12 in a second credit bid process.

That leaves 74 that will go through a separate liquidation process and will be sold on the open market.

The residences – including apartment buildings and single-family homes – are located in Timmins, Sault Ste. Marie, Sudbury, Kirkland Lake and Temiskaming Shores.

The final count included 407 properties comprising 631 residential units.

The bankruptcy under the Companies’ Creditors Arrangement Act (CCAA) began in January 2024. In total, 11 companies were involved in a process where the properties were supposed to be purchased at a lower cost, renovated and then rented at a profit.

However, a substantial amount of investors’ money was misused, according to an investigation by KSV Restructuring, the monitor of the CCAA process.

For example, the companies paid a separate corporation they set up themselves to administer the properties and do the renovations, charging themselves exorbitant administration fees in the process for work that often wasn’t completed.

There were also a number of questionable expenses – such as extravagant trips and luxury purchases – as well as large dividend payments when the companies weren’t making a profit.

In some cases, multiple mortgages were taken out on the same properties to keep the companies liquid.

When the companies filed for CCAA protection, the principals involved claimed the properties were worth $140 million – but that estimate proved far too high. KSV said it came from a group affiliated with the now bankrupt companies and helped the principals involved attract more financing.

Lack of proper record keeping

KSV also found “a pervasive lack of proper record keeping, particularly for a business with assets and liabilities with a book value in the hundreds of millions of dollars; and … a myriad of other deficient business practices.”

Those involved with the companies can’t face separate lawsuits until the CCAA process is completed. The new date for that to happen is Aug. 31, by which time KSV hopes to have sold the remaining properties.

There are 86 properties remaining and about half of them are occupied.

Bids have been made on 12 of the properties, seven of which have tenants. The remaining 74 are being put up for sale a few at a time to avoid flooding the market.

So far, 26 have been listed, with bids made on four of them.

At a court hearing April 14, KSV is looking for approval for a streamlined approach to approving the sale of the remaining properties, with the goal of selling them off as quickly as possible while incurring the lowest fees possible.

Revenue from the sales will be used to repay a lender that loaned the company money to continue operating through the CCAA process. The first DIP loan, as it’s called, was $15 million and it was repaid from proceeds from the sales of the 321 properties.

There is $3.7 million left to be repaid on the second DIP loan.

See all the CCAA documents here.