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Court File No. CV-14-10672-00CL
ONTARIOSUPERIOR COURT OF JUSTICE
(Commercial List) B E T W E E N:
HERIDGE S.A.R.L.
Applicant
- and -
GREAT LAKES BIODIESEL INC.,EINER CANADA INC. and BIOVERSEL TRADING INC.
Respondents
FACTUM OF THE RESPONDENTS
GOWLING LAFLEUR HENDERSON LLP
Barristers and Solicitors1 First Canadian Place100 King Street West, Suite 1600TORONTO, OntarioM5X 1G5
Clifton P. Prophet (LSUC #34845K)[email protected]
Nicholas Kluge (LSUC #44159T)[email protected]
Telephone: (416) 862-3509Facsimile: (416) 862-7661
SOLICITORS FOR THE RESPONDENTS
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Court File No. CV-14-10672-00CL
ONTARIOSUPERIOR COURT OF JUSTICE
(Commercial List) B E T W E E N:
HERIDGE S.A.R.L.
Applicant
- and -
GREAT LAKES BIODIESEL INC.,EINER CANADA INC. And BIOVERSEL TRADING INC.
Respondents
FACTUM OF THE RESPONDENTS
PART I: OVERVIEW
1. This is an application by Heridge S.A.R.L. (“Heridge” or the “Applicant”) to appoint
KPMG Inc. as receiver and manager of all the property, assets and undertakings of Great
Lakes Biodiesel Inc. (“GLB”), Einer Canada Inc. (“Einer”) and Bioversel Trading Inc.
(“Bioversel”, together, with GLB and Einer, the “Respondents”).
2. The core contention of the Respondents is that a debenture signed by GLB and Heridge
in May of 2011 (the “Debenture”) is not enforceable against GLB or its property because
no debt or obligation is owed by GLB to Heridge. The Debenture was intended to
document a transaction which never occurred.
3. $20 million was actually advanced (the “Jaya Loan”) but it was:
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a. not advanced by Heridge, but rather by Jaya Services Limited (“Jaya”), a
company under the management and control of Heridge’s principal, Ildar
Uzbekov (“Uzbekov”);
a. not advanced to GLB in any amount; and
b. advanced to or for the benefit of Orense Investments Limited (“Orense”), Einer
Energy Holding S.a.r.l. (“Einer Energy Europe”), Bioversel Trading Inc.
(“BTI”) and Verdeo Inc. (“Verdeo”) with the knowledge and acquiescence of
Jaya and Uzbekov.
4. In late 2010, Uzbekov and Arie Mazur (“Mazur”), who had an existing business and
personal relationship, formed an intention that money available to Uzbekov and
ultimately sourced in his father-in-law, Mr. Alexander Shchukin, a Russian oligarch in
the coal business, would be invested in biodiesel businesses. At the time, active biodiesel
businesses were being carried on by Einer Energy Europe, BTI and Verdeo. Also at the
time, it was intended that GLB would develop in the future a biodiesel production plant
in Ontario.
5. The monies to be invested in biodiesel businesses by Uzbekov and the companies he
controlled were originally intended to be available to fund the construction of the GLB
biodiesel plant.
6. The $20 million advanced under the Jaya Loan was never used for the purposes of the
construction of the biodiesel plant, or as Uzbekov now alleges to help secure the
government subsidy for biodiesel. Instead, with the agreement of the parties, these
monies were fully applied in tranches to provide working capital for the biodiesel trading
activities of Einer Energy Europe, BTI, and Verdeo, and for the general working capital
needs of Einer Energy Europe, including needs associated with the acquisition and
operation of a biodiesel production plant in Norway.
7. The subsidy agreement with the Canadian government was not concluded until December
6, 2011 – 10 months after the $20 million Jaya Loan had been advanced and disbursed.
Negotiations and discussions with the government, including with respect to the financial
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assurance required by the government, were on-going throughout 2011. When the
subsidy agreement was actually concluded and signed, none of the monies provided by
Jaya were available to provide financial assurance for GLB or its guarantor, Bioversel
Inc., in relation to the government subsidy program. As set out above, all of these monies
had been fully expended on the working capital needs of Einer Energy Europe, BTI and
Verdeo. None of these monies found their way to GLB.
8. While the negotiations with the Canadian government for the subsidy agreement were on-
going through 2011, the parties entered into the Heridge Debenture in May of 2011,
which was intended to document and provide security for a transaction that would have
seen $20 million advanced to construct a biodiesel plant. When the plant construction
actually began and the government actually needed assurances about GLB’s financial
capacity, however, no third party support from Heridge or any other party was required.
The shareholders of GLB had the financial capacity to finance all of GLB’s activities and
actually did so.
9. GLB neither guaranteed nor otherwise made itself liable for the loans that Jaya made to
Orense, Einer Energy Europe, BTI and Verdeo.
10. Following a refusal by Uzbekov and his companies to honour an agreement to restructure
the amounts remaining outstanding from the Jaya Loan to Orense, Einer Energy Europe,
BTI and Verdeo, and after the shareholders of GLB had fully financed the construction of
its $50 million plant, Uzbekov attempted to assert that the Debenture, in fact, related to
the Jaya Loan. Uzbekov has tried to relate the Debenture to the Jaya Loan to provide
himself with a financial advantage and create security for the Jaya Loan, which he
otherwise does not have.
11. Uzbekov and the companies he controls may have an unsecured claim with respect to any
amounts that remain outstanding under the Jaya Loan. That claim does not lie against
GLB. This Application is an attempt by Uzbekov to extract value from the construction
of a plant which he did not finance.
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PART II: FACTS
The Parties
12. The Respondents are all corporations incorporated under the laws of Ontario. GLB is
99.55% owned by Reneos Ltd. (“Reneos”). Einer is a holding company that owns 100%
of the shares of BTI and .45% of the shares of GLB.1
13. The applicant, Heridge, is a company incorporated under the laws of Luxembourg. 2
14. Contrary to the submissions made in the Applicant’s Factum, there is no evidence of any
relationship between Jaya and Heridge, but for the fact that Uzbekov asserts management
control over both companies.3
The Property
15. The principal asset of GLB is a biodiesel facility located in Welland, Ontario. The facility
cost approximately $50 million to build and is a very substantial industrial property.
There is currently no inventory at the plant nor any other property of GLB which could
be easily removed.4
16. The business of GLB is the production of biodiesel fuel. Although currently inactive, the
property employs 17 full-time employees for upkeep and maintenance purposes who staff
the plant 24 hours a day. The pay for those employees remains current.5
17. The biodiesel plant is expected to reopen for production in the near future, provided that
GLB is able to obtain funding to resume operations. GLB has received two non-binding
term sheets from credible financiers for loans between $8,000,000 and $11,500,000.6
1 First Report to the Court Submitted by KPMG Inc., Interim Receiver (the “IR Report”) at paras 1.1.1-1.1.3.
2 Affidavit of Ildar Uzbekov sworn August 20, 2014 (the “August Uzbekov Affidavit”) at para 6.
3 August Uzbekov Affidavit at para 1., Applicant’s Factum, para 4.
4 Affidavit of Alexander Timofeev sworn August 26, 2014 (“Timofeev Affidavit”) at para 3.
5 Timofeev Affidavit at para 3.
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The Bioversel Group and its connection with Uzbekov7
18. To fully understand why GLB neither received nor owes any of the $20 million that
Heridge claims, the relationships between Uzbekov, and a web of companies which he
controls, and Mazur, and companies with which he has been involved must be
understood.
19. In 2007 four companies were founded by Sergey Akulov, Arie Mazur, Barry Kramble,
and Vadim Fux;
a. Bioversel Inc., an Ontario holding company (now Einer Canada Inc.);
b. BTI, a Canadian company;
c. Bioversel Sarnia Inc. (now GLB); and
d. Bioversel USA Inc., (Now Verdeo, and together, Bioversel Inc., BTI and Verdeo
the “Bioversel Group”).
20. Akulov was an acquaintance of Fuad Uzbekov, an executive at Gazprom in Russia and
the father of Uzbekov, the representative of Heridge in this proceeding. In 2007 when
Mr. Akulov became involved in the biodiesel business BTI and Verdeo were engaged in
low level trading of biodiesel commodities.
21. Through relationships that Fuad Uzbekov had with a number of people and businesses
active in the energy sector in Eastern Europe, an agreement was reached whereby
Uzbekov and Bacaz Resources Ltd. (“Bacaz”), a company which he controlled, were to
be paid commission by BTI for brokering the sale of biodiesel to customers in Eastern
Europe.
6 IR Report at para 3.6.4.
7 Submissions in this section correspond with evidence set out in the Affidavit of Arie Mazur sworn September 9, 2014 (“Mazur Affidavit”) at paragraphs 10-14.
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22. Uzbekov, through Bacaz, received commission payments for biodiesel sales by BTI in
2009 and 2010 in amounts totaling approximately $800,000 as a result of his efforts in
brokering those transactions and he was involved in the biodiesel trading business that
BTI carried on in Europe.
Uzbekov’s Involvement with Einer Energy Europe8
23. In 2009 Uzbekov became the son-in-law of Alexander Shchukin. As a result of his
familial relationship with Mr. Shchukin, Uzbekov gained access to significant sums that
the Shchukin family desired to invest outside of Russia.
24. Beginning in 2010, the principals of the Bioversel Group had begun to explore with
Uzbekov and others the establishment of a European entity to capitalize on opportunities
that were then developing for European biodiesel businesses. As a result, Einer Energy
Europe was incorporated in Luxembourg to supply biodiesel to customers in Eastern
Europe.
25. As part of the plan for the founding of Einer Energy Europe, Uzbekov acquired 5% of the
shares of Einer Energy Europe through Cetafe Enterprises Limited, a Cyprus company
owned or controlled by him (“Cetafe”).
26. In January 2011, Einer Energy Europe purchased all of the shares of Unioil AS, a
company which owned and operated a Norwegian biodiesel plant (the “North Sea
Biodiesel Plant”). In October 2013, Unioil AS changed its name to North Sea Biodiesel
AS.
27. Following the acquisition, the North Sea Biodiesel Plant began to refine biodiesel with
feed stock supplied by BTI and the biodiesel was then sold in Europe. Einer Energy was
accordingly quite active in both the trading and manufacture of biodiesel in Europe and
required working capital financing in early 2011.
8 Submissions in this section correspond with evidence set out in the Mazur Affidavit at paras 15-17, 21-22.
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The Jaya Loan
28. In October 2010 Uzbekov advised the principals of the Bioversel Group and of Einer
Energy Europe that he had access to approximately US$20 million sourced in monies
provided by the Shchukin family to invest in biodiesel businesses. 9
29. It was initially proposed that those funds be loaned to GLB for the purpose of building a
biodiesel refinery plant in Canada, which was then estimated to cost approximately $17
million.10
30. In contemplation of investment in biodiesel business, a Commitment Letter dated
December 28, 2010 was prepared between Jaya as proposed lender and GLB as proposed
borrower (the “Commitment Letter”). In the Commitment Letter, the lending
transaction described is a proposed transaction under which Jaya would lend $20,000,000
to GLB. As set out in the schedule to the Commitment Letter, this proposed transaction
was to finance the purchase of equipment relating to the construction of a biodiesel
production facility and for general working capital of GLB. The loan was to be a term
loan for which receipt by GLB of an executed and binding subsidy agreement between
GLB and the government was a condition precedent.11
31. After preparation of the Commitment Letter, Uzbekov and Mazur agreed that the monies
were not required in January, 2011 for the construction of the GLB biodiesel plant. As a
separate matter, the parties agreed that Jaya would advance $20,000,000 to Orense
pursuant to the Jaya Loan,12 for the benefit of Einer Energy Europe, BTI and Verdeo.13
9 Mazur Affidavit, para 18.
10 Mazur Affidavit, para 19.
11 August Uzbekov Affidavit, Exhibits N, O, P, and A (the Commitment Letter, Jaya/Orense Loan Agreement, Orense/GLB Loan Agreement and Debenture, respectively)
12 Mazur Affidavit, paras 20-22.
13 Mazur Affidavit, paras 24.
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32. The Jaya Loan to Orense was documented in a Loan Agreement dated January 13, 2011
between Jaya and Orense (the “Jaya/Orense Loan Agreement”).
33. Following the agreement between Jaya and Orense the only agreement relevant to the
loan actually made is the Jaya/Orense Loan Agreement. This and other correspondence
and the course of conduct adopted by the parties governed the only loan transaction ever
acted upon or implemented. No loan transaction was ever implemented for the benefit of
GLB, either by Jaya or by Heridge.
34. Although a loan agreement between Orense and GLB was also signed on January 13,
2011 (the “Orense/GLB Loan Agreement), this document was merely intended at the
time to give Orense the opportunity to lend monies to GLB for construction, if necessary.
The Orense/GLB Loan Agreement, like the Commitment Letter and the Debenture signed
in May, was never acted upon. These three documents relate to a transaction for
financing the construction of the GLB plant which never occurred. They document a
transaction that is separate from the Jaya/Orense Loan. In the result, since GLB neither
required nor received any money sourced in Jaya or Heridge, none of the Commitment
Letter, the Orense/GLB Loan or the Debenture were ever acted upon.
35. Significantly, Orense is not a party to the Commitment Letter or the Debenture. The Jaya
Loan to Orense is therefore clearly a separate transaction and dealings between Jaya and
its affiliates do not make GLB liable for this debt owed by Orense in the absence of a
guarantee or other written agreement. There is absolutely no evidence in the record of
any guarantee given by GLB of the liabilities of Orense to Jaya in relation to the Jaya
Loan.
Jaya Loan Advances to Einer, BTI and Verdeo
36. As indicated above, Uzbekov was a shareholder of Einer Energy Europe at the time that
advances were made to Orense under the Jaya Loan for the benefit of Einer Energy
Europe, BTI and Verdeo. Uzbekov and his authorized agent, Alexis Tsielepis, were
specifically aware of the actions and flows of funds involving Orense, Einer Energy
Europe, BTI and Verdeo, and were frequently included in correspondence concerning
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these subjects. Alexis Tsielepis specifically authorized the draw downs of the Jaya Loan
for the benefit of Orense, Einer Energy Europe, BTI and Verdeo.14
37. The use of the Jaya Loan is fully documented in the bank statements of Orense, which
show that the Jaya advances to Orense were applied as follows:
a. On January 14, 2011, Jaya advanced the sum of $5,680,000 to Orense. That same
day Orense applied the advance as follows:
i. paid $2,525,511.86 to a supplier of Verdeo, Incobrassa Industries Ltd.,
ii. advanced $3,113,000.00 by Orense to Einer Energy Europe as a working
capital loan.
iii. paid bank and other transaction charges applied by the relevant financial
institutions in respect of the payment to Incobrassa and the advance to Einer
Energy Europe, in the amount of $758.00 and $759.25.
The payment to Incobrassa Industries Ltd., the loan to Einer Energy Europe and the
bank charges total $5,640,029.11, which is approximately the full sum advanced on
January 14, 2011, by Jaya to Orense.15
b. On January 21, 2011, Jaya advanced the sum of $1,622,158.00 to Orense. That
same day Orense used that advance as follows:
i. paid $406,158.00 for amounts due to a supplier to Verdeo, Twin Rivers
Technology;
ii. paid $1,214,000.00 for amounts due to JC Chemical Ltd., a supplier to Einer
Energy Europe;
14 Transcript from the Examination of Ildar Uzbekov (“Uzbekov Transcript”), pp. 51-58; pp. 62-64, Mazur Affidavit at para 23.
15 Mazur Affidavit, paras 25-27 and Exhibits G, H, I and J.
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iii. paid bank and other transaction charges were charged by the relevant financial
institutions in respect of the payments to Twin Rivers Technology and JC
Chemical in the amount of $459.25 for each transaction and in the further
amount of $4.69.16
The payments to Twin Rivers Technology and JC Chemical and the bank charges
total $1,621,381.19, approximately the full sum advanced on January 21, 2011 by
Jaya to Orense.
c. On January 25, 2011, Jaya advanced the sum of $801,000.00 to Orense. That
same day Orense applied the advance as follows:
i. Paid $800,000.00 to BTI to be deposited as collateral for a commodity hedge
held by BTI in support of its trading activities;
ii. Bank and other transaction charges were applied by the relevant financial
institutions in respect of the $800,000.00 advance to BTI, in the amount of
$459.25.
The advance to BTI and the bank charges total $800,459.25, approximately the full
sum advanced on January 25, 2011 by Jaya to Orense.17
d. On January 26, 2011, Jaya advanced the sum of $1,200,000.00 to Orense. That
same day Orense advanced $1,200,000.00 to Einer Energy Europe as a loan for
working capital purposes.18
e. On February 3, 2011, Jaya advanced the sum of $3,100,800.00 to Orense. That
same day Orense advanced $3,100,800.00 to Einer Energy Europe as a loan for
working capital purposes.19
16 Mazur Affidavit, paras 28-30 and Exhibits G, H and K.
17 Mazur Affidavit, paras 31-32 and Exhibits G and H.
18 Mazur Affidavit, para 33 and Exhibits G, H and L.
19 Mazur Affidavit, para 34 and Exhibits G, H and M.
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f. On February 8, 2011, Jaya advanced the sum of $2,499,300.00 to Orense. That
same day Orense advanced $2,499,300.00 to Einer Energy Europe as a loan for
working capital purposes.20
g. On February 10, 2011, Jaya advanced the sum of $2,691,669.00 to Orense. On
the same day Orense, applied the advance as follows:
i. paid $411,550.00 to Bunge Canada, a supplier of biodiesel raw material to
BTI for BTI’s trading business, in payment of outstanding invoices.
ii. paid $200,000.00 to IPMC Ltd., an engineering firm hired for preliminary
work for the development of biodiesel facilities.
iii. advanced $2,080,119.00 to Einer Energy Europe as a loan for working capital
purposes.
iv. paid bank and other transaction charges applied by the relevant financial
institutions in respect of the payments to Bunge Canada and IPMC Ltd. and
the shareholder loan to Einer Energy Europe.
The payments to Bunge Canada and IPMC Ltd., the working capital loan to Einer
Energy Europe and the bank charges total $2,691,669.00, the full sum advanced on
February 10, by Jaya to Orense.21
h. On February 11, 2011, Jaya advanced the sum of $574,628.00 to Orense. On the
same day, Orense applied the advance as follows:
i. advanced the sum of $320,000.00 to BTI;
ii. advanced $254,628.00 to Einer Energy Europe as a loan for working capital
purposes.
20 Mazur Affidavit, para 35 and Exhibits G, H and N.
21 Mazur Affidavit, paras 36-39 and Exhibits G, H and O.
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The advances of $320,000.00 to BTI and $254,628.00 to Einer Energy Europe total
$574,628.00, the full sum advanced on February 11, 2011 by Jaya to Orense.22
i. On February 23, 2011 Jaya advanced the sum of $105,195.00 to Orense. On the
same day Orense paid the sum of $105,195.00 to Nidera Energy Canada in
respect of goods supplied to BTI, in payment of outstanding invoices.23
j. On February 25, 2011, Jaya advanced the sum of $1,700,000.00 to Orense. On
the same day Orense advanced $1,700,000.00 to Einer Energy Europe as a loan
for working capital purposes.24
k. On June 1, 2011, Jaya advanced the final amount of its loan to Orense for the
benefit of Einer Energy Europe, BTI and Verdeo, being the sum of $25,000.00.
This amount was used by Orense for miscellaneous expenses.25
38. Overall, as described in detail above, the Jaya Loan was used in its entirety by June 2011
as follows:
$15,061,847.00 Shareholder Loans from Orense to Einer Energy
Europe, documented by promissory notes and used
for working capital in its European business
$1,636,745.00 To or for the benefit of BTI
$2,931,669.86 To or for the benefit of Verdeo
$9,611.54 Bank charges and fees
$54,013.20 Orense expenses26
22 Mazur Affidavit, paras 40-42 and Exhibits G, H and O.
23 Mazur Affidavit, para 43 and Exhibit G.
24 Mazur Affidavit, para 44 and Exhibits G, H and P.
25Mazur Affidavit, para 45 and Exhibit G.
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39. In the case of each working capital loan made by Orense to Einer Energy Europe, the
monies were used by Einer Energy Europe in its European biodiesel trading business and
in its biodiesel production business carried on through the North Sea Biodiesel Plant.
40. Each working capital loan advance made by Orense to Einer Energy Europe was
documented by a promissory note issued contemporaneously with the advance. The
majority of these promissory notes bore interest at 15% per annum.
41. Orense made payments to Jaya in relation to the Jaya Loan to Einer Energy Europe, BTI,
and Verdeo, as Einer Energy Europe repaid certain of the amounts due under the notes.
The last such payment was made on June 2013, as by this time it had been agreed that the
loan would be converted into an equity interest in Reneos, as is set out in greater detail
below.27
42. Heridge concedes that all loan monies were advanced by Jaya, not Heridge, to Orense,
not GLB,28 and were then transferred to companies other than GLB.29
GLB Plant financed by shareholders
43. Contrary to the allegations contained in the Affidavit of Ildar Uzbekov sworn August 20,
2014 (the “August Uzbekov Affidavit”), the construction costs of the GLB plant were
not financed by the $20,000,000.00 loan provided by Jaya to Orense, Einer Energy
Europe, BTI, and Verdeo. The uncontested evidence is that the construction of the plant
was funded by shareholder investments with money arising from other sources.30
26 Mazur Affidavit, para 46.
27 August Uzbekov Affidavit at para 26, 28, 35. Mazur Affidavit, para 47.
28 Factum of the Applicant, para 4.
29 Uzbekov Transcript, pages 3-8
30 Mazur affidavit, paras. 48-57.
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44. The shareholder funding of the construction of the GLB plant occurred in 2012, long
after the Jaya Loan had been consumed by Einer Energy Europe for its working capital
purposes or applied for the benefit of BTI and Verdeo.31
45. In accordance with the Share Purchase Agreement dated April 19, 2012, GLB issued
9,495,000 common shares to Orense (“Orense Tranche 1 Shares”) in return for monies
advanced to GLB by Orense between January 1, 2012 and April 19, 2012 in the amount
of approximately $13,690,262.86, and on the basis that the final amount of the purchase
price for the Orense Tranche 1 Shares would be determined by no later than July 15,
2013.32
46. The money invested by Orense in return for the Orense Tranche 1 Shares arose from
amounts received by Orense as a shareholder of Einer Energy Europe and no part of these
moneys arose from the Jaya Loan.
47. In accordance with a Debt to Equity Conversion Agreement effective December 31,
2012, GLB issued an additional 13,818,620 shares (“Orense Tranche 2 Shares”) to
Orense in return for the conversion of loans made to GLB by Orense for the construction
of the plant between April 19, 2012 and December 31, 2012 in the amount of 13,818,620
(“Orense Shareholder Construction Loan”). The Debt to Equity Conversion
Agreement expressly provides that the Orense Shareholder Construction Loan was
separate from the purchase price for the Orense Tranche 1 Shares and that the Orense
Tranche 2 Shares were in addition to and separate from the Orense Tranche 1 Shares.33
48. The money invested by Orense as the Orense Shareholder Construction Loan arose from
amounts received by it as a shareholder or Einer Energy Europe. None of those moneys
arose from the Jaya Loan.
31 Mazur Affidavit, para 49.
32 Mazur Affidavit, para 51, Exhibit Q.
33 Mazur Affidavit, para 53-54 and Exhibit “R”.
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49. Between April 19, 2012 and July 15, 2013, Orense invested the further amount of
$13,211,483.89 in GLB and on July 15, 2013 Orense and GLB set the final price for the
Orense Tranche 1 Shares at the total amount of $27,000,000.00.34
50. As a result of the equity investments made by Orense from January 1, 2012 to April 19,
2012 in the total amount of 26,901,746.00, Orense was the owner of 9,495,000 fully paid
up common shares of GLB constituting the Orense Tranche I Shares. As a result of the
debt to equity conversion described above Orense was the owner of 13,818,620 further
fully paid up common shares of GLB constituting the Orense Tranche II Shares. A total
of approximately $40,000,000 was therefore invested by Orense, in the aggregate, which
funds were used to finance the construction of the GLB plant (together with certain other
money invested by other shareholders), whose overall construction costs totaled
approximately $50,000,000.00. 35
51. To reiterate, none of the Orense funds used to finance the construction of the GLB plant
were sourced in or related to the Jaya Loan.
Reneos Restructuring36
52. Although Uzbekov was a 5% shareholder of Einer Energy Europe, he paid only the
nominal subscription value and not the full value of that equity interest nor did he provide
funding to Einer Energy Europe commensurate with that equity interest. This remained
an outstanding issue. To resolve this issue in July 2013 it was agreed in principle that
Uzbekov would receive a 10% equity interest in Reneos Limited (“Reneos”), the
proposed UK parent company of both North Sea Biodiesel Inc. and GLB, in exchange for
the forgiveness of the loan extended by Jaya to Orense, Einer Energy Europe, BTI and
Verdeo.37
34 Mazur Affidavit, para 56.
35 Mazur Affidavit, para 57.
36 Submissions in this section correspond with evidence set out in the Mazur Affidavit at paras 58-62.
37 Uzbekov Transcript pp. 94-97.
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53. At this time Reneos was contemplated to be the 100% owner of North Sea Biodiesel and
100% owner of GLB. Together these businesses were valued at approximately $120
million.
54. Despite the agreement described above for the issuance to Uzbekov of a 10% interest in
Reneos Limited in return for his 5% stake in Einer Energy Europe and conversion of the
balance of the Jaya Loan advanced to Orense, Einer Energy Europe, BTI and Verdeo,
Uzbekov failed to follow through on his commitment. Although multiple document
drafts were exchanged with him and many e-mails sent to him to finalize the
documentation, he failed to conclude the transaction.
False/contradictory statements in the Uzbekov Affidavits
55. Numerous facts alleged in the August Uzbekov Affidavit are either false or contradicted
by statements made in subsequent affidavits. In particular the Respondents disagree with
the following:
a. at paragraph 14 and elsewhere in the August Uzbekov Affidavit it is alleged that
Mazur has been criminally charged in relation to allegations of impropriety
regarding exports of biodiesel fuel. This is false. The documents adduced as
Exhibit “QQ” to the Uzbekov Affidavit in support of this allegation do not
disclose any charges at all against Mr. Mazur;38
b. At paragraph 50 the August Uzbekov Affidavit alleges that “Great Lakes and
Orense” made repayments on the Jaya Loan and summarizes a series of
repayment installments made on various dates from July 26, 2011 to June 18,
2013 totalling $10,018,286. In fact, the payments summarized in this paragraph
were made by Orense, not GLB;39
c. at paragraph 51 of the August Uzbekov Affidavit, regarding the passage of a
purported resolution of the Board of Directors of Orense (the “Resolution”), the
38 Timofeev affidavit at para 8.
39 Mazur Affidavit at para 64(a) and Exhibit V.
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Respondents take the position that the Resolution is a fabrication or was created
without the knowledge of the shareholders of Orense, contrary to the applicable
agreements governing the administration and management of Orense;40
d. with respect to the allegation at paragraph 52 of the Uzbekov Affidavit which
states that “in July 2011 in accordance with its obligation under the Rights Letter,
Einer Canada appointed a nominee of the Natech Group to the Einer Canada
Board of Directors,” the existence of this appointment was in fact denied by the
alleged nominee of the Natech Group, Alexis Tsielepis. In correspondence from
June 12, 2014, he stated:
It has recently been brought to my attention, through a search of the public corporate registry maintained by the Ministry of Government Services (Ontario), that I am listed as director of Einer Canada Inc. This must be an error, as I am not and have never acted as a director of Einer Canada Inc.
Any appointment of me to such a position is invalid. Furthermore, I have never consented to acting in such capacity as a director of Einer Canada Inc. and I have never taken any steps in such capacity. As you know, I have never attended any board meeting (either by teleconference or otherwise), been asked to sign any resolutions of the directors of Einer Canada Inc., or been consulted in such capacity.41
e. With respect to the allegation at paragraph 57 that GLB confirmed in writing that
it owed over $18 million to Heridge, this confirmation was given in error and did
not reflect the true state of affairs as described herein.42
f. With respect to the allegations at paragraphs 61 through 68, to the effect that the
executed Priorities Agreement is in fact a forgery intended to jeopardize the
security interests of Heridge, during February and March 2013 there was
correspondence with Uzbekov regarding the Priorities Agreement, and the
40 Mazur Affidavit at para 64(b).
41 Mazur Affidavit at para 64(c) and Exhibit W.
42 Mazur affidavit para. 64(d).
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Respondents understood that they were dealing with the appropriate persons at
Heridge to ensure its execution. The executed Priorities Agreement Uzbekov
claims is a forgery was in fact received in hard copy by regular mail by GLB.43
g. Contrary to the apparent position advanced in the August Uzbekov Affidavit that
GLB borrowed monies advanced by Heridge under the Debenture, it is clear from
the September Uzbekov Affidavit that this position has been abandoned. Instead,
Heridge now appears to be taking the position that monies advanced to Orense
somehow satisfied requirements of the Canadian government connected with the
subsidy agreement dated December 6, 2011.44 This significant change of position
calls into question the very basis upon which Heridge commenced this application
and obtained interim relief.
PART III – ISSUES, LAW & ARGUMENT
Issues:
56. This application raises the following issues:
a. Does Heridge have standing to seek the appointment of a receiver under s. 243 of
the BIA?
b. Is GLB indebted to Jaya for the Jaya Loan?
c. Is the appointment of a receiver just or convenient?
Law:
57. Section 243(1) of the Bankruptcy and Insolvency Act provides:
Court may appoint receiver -
43 Mazur affidavit para. 68(e) and Answers to Undertakings given at the cross-examination of Mazur..
44 August Uzbekov Affidavit at paras 3, 9 and September Uzbekov Affidavit at para 12.
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243. (1) Subject to subsection (1.1), on application by a
secured creditor, a court may appoint a receiver to do any or
all of the following if it considers it to be just or convenient to
do so:
(a) take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt;
(b) exercise any control that the court considers advisable over that property and over the insolvent person's or bankrupt's business; or
(c) take any other action that the court considers advisable.45
58. Section 101(1) of the Court of Justice Act provides for the appointment of a receiver on a
interlocutory order under a similar "just or convenient" standard.46
59. In determining whether it is “just or convenient” to appoint a receiver the court must have
regard to all of the circumstances of the case particularly the nature of the property and
the rights and interests of all parties in relation to the property.47
60. Unless an enforceable security document permits the appointment of a receiver the
appointment of a receiver is considered an extraordinary equitable remedy.48
Argument
61. The Respondents take the position that:
45Bankruptcy and Insolvency Act, RSC 1985, c. B-3, s. 243(1).
46 Courts of Justice Act, R.S.0.1990, c. C.43, s. 101(1)
47 Bank of Nova Scotia v. Freure Village on Clair Creek O.J. No. 5088, 40 C.B.R. (3d) 274 para 11; Elleway Acquisitions Ltd. v. Cruise Professionals Ltd. 2013 ONSC 6866, 235 A.C.W.S. (3d) 683 para 26.
48Elleway Acquisitions Ltd. v. Cruise Professionals Ltd. 2013 ONSC 6866, 235 A.C.W.S. (3d) 683 para 27.
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a. Heridge has no standing to bring this application as there is no evidence that any
debt is owed to it by GLB, and the Debenture is unenforceable against GLB and
its property;
b. GLB is not indebted to either Heridge or Jaya; and,
c. it is not just or convenient to appoint a receiver over the Respondents in these
circumstances;
Heridge lacks standing
62. Heridge has no standing to appoint a receiver under s. 243(1) of the BIA because the
Debenture is not a valid and enforceable contract.
63. Heridge’s standing is premised on the Debenture, which provides for the contractual right
to appoint a receiver. However the Debenture fails as a valid contract for want of
consideration. Valid consideration for a lending agreement generally exists in the form of
a debt or a future obligation to advance money. Neither exist in this case.
No assignment of Jaya Debt to Heridge
64. There is no evidence connecting any debt owing to Jaya under the Jaya Loan to Heridge.
Heridge produced no assignment of debt, or any other valid legal mechanism that entitles
it to collect on the Jaya Loan from GLB.
65. Heridge claims that the money advanced by Jaya under the Jaya Loan constitutes a debt
that it is owed. This ignores the effect of separate legal personality (a recurring theme in
Heridge’s submissions). Heridge can have no right to enforce a debt in respect of which
it has not advanced any money or taken an assignment.
No obligation to advance money in the future
66. Heridge has produced no evidence that it bore any future obligation to advance money to
GLB, such as a revolving loan. The Commitment Letter and Debenture on which Heridge
bases its claim provide for no such obligation.
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67. Heridge has not proposed any alternative form of consideration for the rights it claims
under the Debenture. Absent any consideration the Debenture is void ab initio, and
Heridge has no standing to seek the appointment of a receiver.
No Consideration for the Debenture
68. Contracts of debt do not exist at large. There must be debtor and a creditor. In this case
there are neither in relation to the Debenture.
69. The Commitment Letter, the Orense/GLB Loan Agreement and the Debenture were
intended to document a transaction which never occurred because it was never needed.
These documents were to implement a transaction to provide financing for the
construction of a biodiesel plant, had the financing been needed.
70. Significantly, the Commitment Letter provides for a condition precedent requiring the
execution of a binding contribution agreement by the government in relation to the
biodiesel subsidy. When the Debenture was signed in May, 2011, and when the Jaya
Loans were made to Orense for the benefit of other parties, there was no binding subsidy
agreement. To the contrary, negotiations were still ongoing with the Canadian
government throughout 2011.
71. When the subsidy agreement was finally concluded with the Canadian government on or
about December 6, 2011, the purpose for which the Debenture was signed was no longer
relevant. By December of 2011, the shareholders of GLB had more than sufficient
financial capability to provide the assurances the government needed that the plant would
be constructed and would manufacture biodiesel. Accordingly, and as is evidenced by
the fact that shareholders financed the full $50,000,000 construction costs of the GLB
biodiesel plant over the course of 2012 and early 2013, the Debenture transaction was
never implemented.
72. In essence, neither the Commitment Letter nor the Debenture are truly relevant to this
matter. The relevant document and the relevant transaction is the Jaya/Orense Loan
Agreement and the Jaya Loan. Further facts relevant to the actual contract of debt that
exists in this case include that Jaya specifically agreed to the application of the Jaya Loan
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for the benefit of Orense, Einer Energy Europe, BTI and Verdeo, and that Orense repaid
Jaya.
73. The only enforceable contract of debt between the parties was between Jaya and Orense.
The repayment of that debt was by Orense out of moneys it received primarily from Einer
Energy Europe. The parties abandoned their original intention that amounts would be
made available by Jaya to assist with plant construction. They entered into a different
and separate transaction under which $20,000,000 would be used in the European trading
and biodiesel production operations of Orense, Einer Energy Europe and the trading
operations of BTI and Verdeo.
74. In the circumstances, Heridge and Uzbekov are attempting an ex post facto use of the
Debenture to secure a wholly different loan than the one it contemplates. This cannot be
countenanced.
GLB owes no debt under the Jaya Loan
75. If the court accepts that Heridge has standing to bring a claim based on the Jaya Loan, the
Debenture is unenforceable as against GLB as there was no consideration given to GLB
in relation to the Debenture.
76. The evidence is clear, and Heridge has conceded, that the advances by Jaya (not Heridge)
were all made to Orense (not GLB) and used in the operation of Einer Energy Europe,
BTI and Verdeo.
77. Since GLB received no consideration in relation to the Debenture, the Debenture is
unenforceable. Contrary to the submissions in the Heridge Factum to the effect that the
Jaya Loan to Orense was a benefit to a third party which supplied consideration sufficient
to support the Debenture as against GLB, this was not the common intention of GLB and
Heridge. It is an ex post facto invention by Uzbekov. The common intention of GLB
and Heridge, as expressed in the Commitment Letter and Debenture, was to prepare a
lending facility whose implementation was conditional upon the execution and delivery
of a subsidy agreement to the extent that such a facility was actually required. Neither
that condition precedent nor the requirement for such a facility ever arose. Since there
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were in effect two loans, the Jaya Loan which was advanced to Orense and the
Heridge/GLB loan which was never advanced, the consideration intended in relation to
the Debenture never arose.
78. At paragraph 83 of their factum Heridge cities Mora v. Mora for the proposition that
there is a presumption that a party that executed a promissory note received consideration
in exchange for that note, and that this presumption may be "displaced by sufficient and
reliable evidence to rebut it." Heridge asserts that "no such evidence exists in this case."
As set out above, this is incorrect, as GLB received no advances from Heridge, and the
construction of the GLB plant was financed entirely by the GLB shareholders.
79. In support of their contention that GLB was given consideration, Heridge also relies on
the recitation in the Debenture stating "for value received." However, the fact that GLB
did not in fact receive any payments under the Debenture is conceded by Heridge.
80. Heridge also argues that GLB received consideration in the form of benefits resulting
from the advances being received and used by legal entities distinct from GLB. This
submission ignores the fundamental principle of contract law that consideration must
flow from the parties to the contract. 49
The Alleged Acknowledgments
81. It is conceded by Heridge that the Jaya Loan was advanced by Jaya, not Heridge, to
Orense, not GLB. The lack of consideration from Heridge to GLB is a full answer to the
claims of Heridge against GLB.
82. Heridge also asserts that GLB should nonetheless be held liable based on the Orense
Directors Resolution and correspondence from Prakash Patel allegedly acknowledging
the debt. Neither constitutes sufficient legal reason for GLB to be liable to Heridge for
money neither advanced to it nor for its benefit.
49 Governors of Dalhousie College at Halifax and Estate of Arthur Boutilier, [1934] S.C.R. 642.
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The Resolution
83. The Resolution violates article 3.2.8 of the Chelco Management Agreement,50 which
provides:
The Directors appointed to represent the Client/s shall act on the
instructions of the Client or of person/s named by the Client or by the
Administrator...
84. Lampidona Fesa, the signator of the Director’s Resolution, was not authorized by the
shareholders of Orense to make the Resolution.51 As such it is ineffective and cannot
bind Orense.
85. Even if the Resolution was effective, that is not sufficient to establish that GLB owes any
debt. The resolution was purportedly executed by Orense, not GLB. It cannot constitute
an acknowledgement of the debt by GLB, and, as noted above, it is uncontested that
Orense did not advance funds to GLB.
The Prakash Patel letter
86. Heridge claims that the Jaya Loan debt was acknowledged by GLB in an undated
acknowledgement signed by Prakash Patel.
87. Prakash Patel was never the CFO or otherwise an officer of GLB, and he had no authority
to acknowledge any debt on its behalf. Furthermore, and as set out above, Patel was
simply mistaken in his belief that GLB owed anything under the Jaya Loan.
50 Answers to Undertakings.
51 Examination of Arie Mazur pp. 84-6.
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88. The evidence put forward by Heridge does not establish any debt owing by GLB, and
there is no legal reason why GLB should be held liable to repay money advanced to
Orense and transferred to other, unrelated entities.
Not Just or Convenient to appoint a receiver in the circumstances
89. This court should not appoint a receiver because there is a real and present prospect that
GLB can refinance and avoid the costs and reputational damage associated with an
insolvency. This is particularly true in light of the absence of any evidence of dissipation
to the underlying asset and the relative value of the biodiesel plant compared to the
purported debt.
90. In determining what is just or convenient this court should consider, among other things:
(a) whether irreparable harm might be caused if no order were made, although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed;
(b) the risk to the security holder taking into consideration the size of the debtor's equity in the assets and the need for protection or safeguarding of the assets while litigation takes place;
(c) the nature of the property;
(d) the apprehended or actual waste of the debtor's assets;
(e) the preservation and protection of the property pending judicial resolution;
(f) the balance of convenience to the parties;
(g) the fact that the creditor has the right to appoint a receiver under the documentation provided for in the loan;
(h) the enforcement of rights under a security instrument where the security holder encounters or expects to encounter difficulty with the debtor and others;
(i) the principle that the appointment of a receiver is extraordinary relief that should be granted cautiously and sparingly;
(j) the consideration of whether a court appointment is necessary to enable the receiver to carry out its duties more efficiently;
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(k) the effect of the order on the parties;
(l) the conduct of the parties;
(m) the length of time that a receiver may be in place;
(n) the cost to the parties;
(o) the likelihood of maximizing return to the parties; and
(p) the goal of facilitating the duties of the receiver.52
91. The relevant facts in this case militate against the appointment of a Receiver:
a. The imposition of a receivership would cause irreparable harm to the prospect of
GLB operating as a going concern.
b. GLB has received two term sheets that represent potential transactions that would
provide sufficient funding to substantially ameliorate its short term cash flow
problems.
c. A successful refinancing of GLB would allow GLB to recommence operations
and maximize its value as a going concern.
d. There is no evidence of dissipation of assets. Any claims to the contrary by the
Applicants were addressed comprehensively in the Factum of the Respondents
dated August 26, 2014.
e. The biodiesel plant is a $50,000,000 asset.
f. The receiver’s report provides no evidence that the facility is not properly run and
maintained.
52 Lloyd W. Houlden, Geoffrey B. Morawetz & Janis P. Sarra, The 2014 Annotated Bankruptcy and Insolvency Act(Toronto: Carswell, 2014) at 1021-1022.
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Heridge’s Reliance upon Columbia Drilling is misplaced
92. Heridge argues in paras. 90 – 95 of its factum that the decision of the British Columbia
Superior Court in Columbia Drilling is a near-complete answer to the Respondents’
contention that the Debenture was intended to secure a loan that was in fact never made.
The Columbia Drilling case is completely distinguishable from the facts of this case:
a. the promissory note at issue in Columbia Drilling was between the same parties
that were lender and borrower in respect of the debt sought to be enforced, and
consideration flowed between them. In our case, the entity seeking to enforce the
Debenture – Heridge – is not the same as the entity that advanced funds – Jaya.
The entity which received the funds in our case – Orense – is not the same as the
party to the debenture – GLB.
b. Unlike in Columbia Drilling, the payments made to Jaya do not comport with the
terms of the Debenture. The payments made to Jaya by Orense were not made for
the purpose of the loan that the Debenture purports to document, but rather as
working capital to a different business; and
c. Unlike in Columbia Drilling, the applicant in this case waited 11 months
following default to assert its purported rights under the Debenture against GLB.
PART IV: ORDER REQUESTED
93. For the reasons set about above the Respondents submit that this court should deny the
appointment of a receiver sought by Heridge and terminate the interim receivership of the
Respondents, with costs and consequential damages payable to the Respondents.
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All of which is respectfully submitted this 23rd day of September, 2014
Clifton P. Prophet
Nicholas Kluge
GOWLING LAFLEUR HENDERSON LLPBarristers & Solicitors1 First Canadian Place,
100 King Street West, Suite 1600Toronto ON M5X 1G5
Tel: 416-862-7525Fax: 416-862-7661
Clifton P. Prophet/Nicholas Kluge
Lawyers for the Respondents
SCHEDULE “A”
Cases Cited
1. Bank of Nova Scotia v. Freure Village on Clair Creek O.J. No. 5088, 40 C.B.R. (3d) 274.
2. Elleway Acquisitions Ltd. v. Cruise Professionals Ltd. 2013 ONSC 6866, 235 A.C.W.S. (3d) 683.
3. Governors of Dalhousie College at Halifax and Estate of Arthur Boutilier, [1934] S.C.R. 642.
SCHEDULE “B”
Statutes Cited
Bankruptcy and Insolvency Act., RSC 1985, c. B-3
243.(1) - Court may appoint receiver
Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver
to do any or all of the following if it considers it to be just or convenient to do so:
(a) take possession of all or substantially all of the inventory, accounts receivable or other
property of an insolvent person or bankrupt that was acquired for or used in relation to a business
carried on by the insolvent person or bankrupt;
(b) exercise any control that the court considers advisable over that property and over the
insolvent person’s or bankrupt’s business; or
(c) take any other action that the court considers advisable.
Courts of Justice Act., RSO 1990, c. C-43
101.(1) - Injunctions and receivers
In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.
Court File No.: CV-14-10672-00CL
HERIDGE S.A.R.L. v. GREAT LAKES BIODIESEL INC. et al– Applicant Respondents
ONTARIOSUPERIOR COURT OF JUSTICE
COMMERCIAL LIST(PROCEEDING COMMENCED AT TORONTO)
FACTUM OF THE RESPONDENTS
GOWLING LAFLEUR HENDERSON LLP
Barristers and Solicitors1 First Canadian Place
100 King Street West, Suite 1600TORONTO, Ontario
M5X 1G5
Clifton P. Prophet (LSUC #34845K)[email protected]
Nicholas Kluge (LSUC #44159T)[email protected]
Telephone: (416) 862-3509Facsimile: (416) 862-7661
SOLICITORS FOR THE RESPONDENTS
TOR_LAW\ 8519267\13
