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31207949.2
COURT FILE NUMBER 1601-07750 COURT OF QUEEN'S BENCH OF ALBERTA JUDICIAL CENTRE CALGARY PLAINTIFF ROYAL BANK OF CANADA DEFENDANT WALTER HERRADOR PROFESSIONAL
CORPORATION and WALTER HERRADOR APPLICANT KPMG INC., IN ITS CAPACITY AS COURT-APPOINTED
RECEIVER AND MANAGER OF WALTER HERRADOR PROFESSIONAL CORPORATION.
DOCUMENT FIRST REPORT TO THE COURT SUBMITTED BY
KPMG INC., IN ITS CAPACITY AS COURT-APPOINTED RECEIVER AND MANAGER OF WALTER HERRADOR PROFESSIONAL CORPORATION DATED SEPTEMBER 12, 2016
ADDRESS FOR SERVICE AND KPMG INC. CONTACT INFORMATION OF 3100, 205 – 5 Ave. S.W. PARTY FILING THIS DOCUMENT Calgary, AB T2P 4B9 Att: Ryan Adlington/Neil Honess Telephone: 403-691-8504/403-691-8014
Facsimile: 403-691-8008 Email: [email protected]
CASSELS BROCK & BLACKWELL LLP
Suite 1250, Millennium Tower 440 – 2nd Avenue SW Calgary, AB T2P 5E9 Attn: Jeffrey Oliver
Danielle Marechal Telephone: 403-351-2921 Facsimile: 403-648-1151 Email: [email protected] [email protected]
31207949.2
Table of Contents Page
1. INTRODUCTION AND PURPOSE OF REPORT ......................................................................... 2
2. COMPANY’S PRIMARY ASSETS ................................................................................................ 4
3. COMPANY’S PRIMARY LIABILITIES ....................................................................................... 5
4. RECEIVER’S ACTIVITIES TO DATE .......................................................................................... 6
5. SALES AND MARKETING PROCESS ......................................................................................... 9
6. MEDICAL RECORDS .................................................................................................................. 12
7. RECOMMENDATIONS ............................................................................................................... 13
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Listing of Appendices
Appendix “A” - Receivership Order dated June 14, 2016
Appendix “B” - Notice and Statement of the Receiver (Form 87)
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1. INTRODUCTION AND PURPOSE OF REPORT
Introduction
1. Walter Herrador Professional Corporation (“WHPC” or the “Company”) is a private dental
practice in Calgary, Alberta. The Company’s principal assets include leasehold improvements, and
dental tools and equipment (X-rays, dental chairs etc.). All assets are located in Calgary, Alberta.
2. The Company’s primary secured lender is Royal Bank of Canada (“RBC”) who has advanced funds
of approximately $1.3 million to WHPC. These amounts were borrowed by WHPC pursuant to the
facility agreements between RBC and WHPC dated October 23, 2014 (the “Facility Agreement”).
3. The Company had a very limited customer list before commencing operations and experienced
difficulty attracting new patients to the practice. These low patient volumes resulted in significant
cash flow difficulties and the company was unable to make loan payments due or successfully
restructure its financing arrangement with RBC. Accordingly, the Company is and remains in
default of the Facility Agreement.
4. On March 18, 2016, RBC issued a demand for payment and notice of intention to enforce security
(the “RBC Notice”) pursuant to Section 244 of the Bankruptcy and Insolvency Act (“BIA”).
5. In June 2016, RBC commenced legal proceedings and sought to appoint KPMG Inc. (“KPMG”)
as receiver and manager of WHPC (the “Receiver”) pursuant to section 243 of the BIA and section
13(2) of the Judicature Act, RSA 2000, c J-2 to, inter alia, take possession of and exercise control
over the assets of the Company (including the shares of the Company) and any and all proceeds,
receipts and disbursements arising out of or from the assets (the “Property”).
6. On or around June 10, 2016, Dr. Walter Herrador (“Dr. Herrador”) has filed an assignment for
personal bankruptcy. Hardie & Kelly Inc. has been appointed as the trustee of the estate of Dr.
Herrador.
7. On June 14, 2016, the Court of Queen’s Bench of Alberta (“Court”) issued an order appointing
KPMG as the Receiver over all of the Property and undertakings of WHPC (the “Order”). A copy
of the Order is attached hereto as Appendix “A”.
8. For further background information on WHPC and these receivership proceedings please refer to
the Receiver’s website www.kpmg.ca/walterherrador.
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9. In preparing this report, the Receiver has been provided with, and has relied upon, unaudited and
other financial information, books and records (collectively, the “Information”) prepared by the
Company and/or their representatives, and discussions with the Company’s management and/or
representatives. The Receiver has reviewed the Information for reasonableness, internal
consistency and use in the context in which it was provided and in consideration of the nature of
evidence provided to this Honourable Court. However, the Receiver has not audited or otherwise
attempted to verify the accuracy or completeness of the Information in a manner that would wholly
or partially comply with Canadian Auditing Standards (“CAS”) pursuant to the Chartered
Professional Accountants Canada Handbook and, accordingly, the Receiver expresses no opinion
or other form of assurance contemplated under the CAS in respect of the Information.
10. The information contained in this report is not intended to be relied upon by any prospective
purchaser or investor in any transaction with the Receiver.
11. All references to monetary amounts in this report are in Canadian dollars unless otherwise
specified.
Purpose of the Receiver’s First Report
12. This is the Receiver’s first report (the “First Report”) and is filed to provide this Honourable Court
with:
a) An update on the actions of the Receiver since the date of receivership;
b) Details and the results of a sales and marketing process (the “Sales Process”) undertaken
by the Receiver to solicit offers from parties interested in acquiring the assets of WHPC;
and
c) The Receiver’s recommendations.
13. A supplemental, confidential report (the “First Supplemental Confidential Report”) has been
prepared by the Receiver, which details the sales process undertaken in respect of the Company’s
assets and the proposed transactions pursuant to that process.
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2. COMPANY’S PRIMARY ASSETS
14. The Company’s primary assets consist of leasehold improvements and dental tools and equipment.
The Company does not own the land or building it operates out of, and the Company leased a
majority of its dental equipment. All of the Company’s assets are located in Calgary, Alberta.
Dental Tools and Equipment
15. All of WHPC’s Property is located in a leased office facility in Calgary, Alberta and includes:
a) Operatory chairs equipped with attachments for hygiene and general dentistry procedures
(leased from De Lage Landen Financial Services Canada Inc. (“De Lage”));
b) X-ray equipment including panoramic and intra-oral machines;
c) Dental tool kits capable of performing procedures such as dental hygiene, restorative
(including fillings/crown and bridges), oral surgery including wisdom teeth
extractions/periodontal surgery and prosthodontics;
d) Miscellaneous older dental equipment and accessories from WHPC’s prior location;
e) A telephone system (leased from National Leasing Group Inc. (“National Leasing”)); and
f) Miscellaneous office furniture and fixtures and electronic equipment.
Leasehold Improvements
16. The Company spent approximately $461,000 to convert the office space into a dental practice in
early 2016. Due to the specialized nature of the leasehold improvements, KPMG has determined
these assets to have minimal value if the leasehold improvements were removed and sold
separately.
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3. COMPANY’S PRIMARY LIABILITIES
17. The Company’s primary liabilities, based on the Company’s books and records, are as follows:
18. RBC extended credit facilities and related services to WHPC pursuant to a Commitment Letter,
dated October 23, 2014, (the “Loan Facility”). The Loan Facility is comprised of the following:
a) A revolving demand facility of $100,000;
b) A non-revolving term facility in the amount of $1.5 million; and
c) A corporate VISA credit facility of approximately $50,000.
19. As of March 18, 2016, WHPC owed RBC approximately $1.3 million plus interest, legal and other
costs.
20. While the Company’s records have the outstanding liability to De Lage at approximately $191,000,
the Receiver has been advised by De Lage and reviewed the lease contracts that the full remaining
value of the lease for a majority of the dental equipment was approximately $290,000.
21. The Receiver also understands that WHPC has a finance lease with BMW Canada Inc. secured
against a vehicle. The Receiver has confirmed with Dr. Herrador’s trustee that this vehicle was
consigned to Regal Auctions by Dr. Herrador pre-receivership.
22. WHPC has approximately 27 unsecured creditors consisting primarily of professional services
firms, dental equipment and service providers and other trade suppliers.
Summary of Company's Primary Liabilities
Secured Creditors Amount
RBC Loan Facility 1,285,481
De Lage Financial Services Lien on equipment 190,566
BMW Canada Inc. Lien on Vehicle 131,000
National Leasing Group Lien on equipment 268
Total secured creditors 1,607,315
Unsecured creditors
Unsecured trade creditors 703,197
Total unsecured creditors 703,197
Total Liabilities 2,310,511
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4. RECEIVER’S ACTIVITIES TO DATE
23. Subsequent to its appointment, the Receiver undertook the actions described below.
Day One Activities
24. Immediately upon appointment the Receiver:
a) Attended WHPC’s premises in Calgary, Alberta;
b) Secured the premises and the assets therein, changing locks and arranging for security
coverage where necessary;
c) Inventoried assets;
d) Removed and secured patients’ records; and
e) Communicated to the employees regarding the receivership and terminated certain
employees.
25. The Receiver retained certain employees to assist with the exercise of the Receiver’s powers and
duties as detailed below.
Cash and Banking
26. The Receiver immediately arranged for the opening of a new bank account in the name of the
receivership estate to facilitate future receipts and disbursements with respect to the administration
of the receivership.
27. The Receiver requested all amounts in WHPC’s existing bank accounts be transferred to the
Receiver (such funds being received on June 21, 2016).
Books and Records
28. As at the receivership date, WHPC had books and records, including medical records for current
and former patients.
29. The Receiver made arrangements to restrict access to the server maintained at the office. The
Receiver took a back-up of the server and ensured no remote-access could be obtained.
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Insurance
30. Insurance is in place in respect of WHPC’s Property. The Receiver has been added as a loss payee
to all relevant policies. WHPC’s insurance coverage consists primarily of broad form office
contents protection, practice interruption and commercial general liability. All policies expire on
December 31, 2016.
31. The Receiver has reviewed the policies for adequacy of protection and cancelled coverage no
longer required.
Notice
32. The Receiver has issued the prescribed notice and statement pursuant to Sections 245 and 246 of
the BIA to all known secured and unsecured creditors of the Company, providing notice of its
appointment. A copy of the notice and statement is attached hereto as Appendix “B”.
Management, Employees and Contractors
33. As at the date of receivership, WHPC had six employees. The Receiver attended the Calgary office
to advise of the appointment and the termination of the employment of the employees. The Receiver
also contacted each employee that was not on site and advised them of the same. The Receiver has
gathered information regarding to wages owed to employees pre-receivership and determined, in
coordination with RBC, to pay-out amounts owed as opposed to filing for WEPP claims. The
Receiver received consent release forms from all employees and proceeded to issue payment.
34. Subsequently, the Receiver engaged with Dr. Herrador and the former receptionist of WHPC, both
of whom have detailed knowledge of WHPC’s business processes and assets to assist with the sales
process and collection of accounts receivable.
Appraisal
35. The Receiver contracted a reputable appraisal service company to perform an appraisal of the assets
located at the Calgary clinic.
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Security Review
36. The Receiver’s legal counsel has undertaken a review of the validity and enforceability of the
security held by RBC, De Lage and National. Counsel has advised that all parties had a valid
security interest in the right, title and interest of WHPC in its applicable real and personal property,
subject to certain standard assumptions and qualifications.
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5. SALES AND MARKETING PROCESS
37. Upon appointment, the Receiver in consultation with RBC developed an efficient single phased
Sales Process focusing on local and multi-location dentistry clinics to market and sell the Property
of WHPC. The Sales Process was designed to solicit and entertain offers on any of the assets
individual or collectively in an attempt to maximize value for the Company’s stakeholders in a
period of five weeks as the ongoing operating costs, principally rent, were significant and being
funded wholly by RBC.
38. A bid deadline for written offers to be received was set at July 22, 2016 at 4:00pm Mountain Time
(“Bid Deadline”). Interested parties were required to provide:
a) An irrevocable bid detailing which assets are included and the portion of the bid relating
to each asset;
b) Proof of funding for the entirety of the proposed transaction; and
c) Any conditions in respect of the purchase including timing.
39. The Receiver undertook the following steps to execute the Sales Process:
a) Commencing on or about June 17, 2016, the Receiver in consultation with RBC and Dr.
Herrador identified and contacted approximately 70 potential interested parties primarily
local dental offices and dental groups both provincially and nationally who operate
multiple practices. The Receiver also contacted the current landlord;
b) With the assistance of Dr. Herrador, the Receiver developed a sale opportunity teaser (the
“Teaser”) which articulated the key attributes of the dental clinic, including state of the art
equipment, location, parking, etc.;
c) All potential purchasers interested in the opportunity were provided a copy of the Teaser
and a non-disclosure agreement (the “NDA”). In total 47 parties received a copy of the
Teaser and the NDA;
d) 24 NDA’s were signed and returned to the Receiver, and all of these 24 parties were
provided access to the virtual data room; and
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e) During July 2016, the Receiver made contact with each of the potential purchasers to
ascertain interest and assist with provision of information and coordinated visits to the
clinic.
Outcome of the Sales Process
40. On or around the bid deadline on July 22, 2016, the Receiver received five conditional letters of
intent (“LOI”) for the Property of WHPC.
41. Of these, the Receiver, in discussion with RBC, identified two that were of most interest as they
were offers for the entire clinic. Both LOIs were subject to certain conditions.
42. The Receiver clarified the conditions of the LOIs and then pursued one of the LOIs as:
a) The quantum of this particular LOI was considerably in excess of the other leading bids.
The Receiver noted that this favourable offer would, if completed, still result in a
significant shortfall to RBC’s outstanding amounts; and
b) The bidder was a reputable company that owns multiple dental offices in Calgary, Alberta.
43. On July 26, 2016, the Receiver entered into an exclusivity agreement with the bidder to assist in
removing the conditions of its LOI, allowing this bidder until August 10, 2016 (the “Exclusivity
Period”) to contact the landlord and renegotiate the terms of the lease. During the Exclusivity
Period, the Receiver did not consider any other bids.
44. At the end of the Exclusivity Period, the bidder was unable to waive its condition and withdrew
from the Sales Process.
45. After the withdrawal of that bidder from the sales process, the Receiver re-engaged with certain
other prospective purchasers, including the existing landlord, to obtain further and final offers.
46. Subsequent to these conversations, an acceptable bid for the entire dental clinic including leased
equipment was received and the Receiver is proceeding to obtain Court approval for the sale
transaction (the “Successful Bidder”).
47. To facilitate the sale, the Receiver entered into negotiations with both leasing companies, De Lage
and National Leasing, and has conditional agreements with both these parties to obtain these assets
free and clear upon closing of the sale transaction.
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48. A condition of the offer from the successful bidder was that the purchase price was to remain
confidential. As such, the Receiver has provided further detailed information on the Sales Process
in the First Supplemental Confidential Report dated September 12, 2016.
49. No recovery for the unsecured creditors is anticipated.
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6. MEDICAL RECORDS
50. The Receiver is maintaining all medical records as confidential and providing former patients the
ability to retrieve their medical records upon request. The Receiver has received several requests
from former patients to obtain their medical records held at WHPC. To date the Receiver has
received six signed medical record release forms from former patients of WHPC and the Receiver
has provided these records to the patients.
51. The Receiver will retain the medical records for 6 months after the date of the discharge of the
Receiver to provide an opportunity for the former patients to request their medical records.
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7. RECOMMENDATIONS
52. We submit this First Report in support of our Application respectfully requesting this Honourable
Court to:
a) Approve the First Report and the activities of the Receiver described herein; and
b) Approve the sale of the WHPC assets to the Successful Bidder, where the identity and the
details of the Sales Process is described in the First Supplemental Confidential Report dated
September 12, 2016.
All of which is respectfully submitted this 12th day of September, 2016.
KPMG INC., COURT-APPOINTED RECEIVER AND MANAGER OF WALTER HERRADOR PROFESSIONAL CORPORATION, and not in its personal capacity
Per: Ryan J. Adlington Senior Vice President
Per: Neil A. Honess Senior Vice President
APPENDIX A
Receivership Order dated June 14, 2016
APPENDIX B
Notice and Statement of the Receiver (Form 87)
