Validus Power, an insolvent energy company with three plants in northeastern Ontario, has entered creditor protection.
This week, an Ontario Superior Court judge approved an application from Macquarie Equipment Finance to move the proceedings from receivership to the CCAA (Companies’ Creditors Arrangement Act) process in order to initiate a sale of the power company’s assets.
Validus is a Toronto-based holding company with four power plants in Iroquois Falls, Kapuskasing, North Bay and Kingston. These plants supply power to the Ontario grid, through the Independent Electricity System Operator, on an as-needed basis.
Iroquois Falls and Kingston are operational; Kapuskasing and North Bay are not operational, but are being maintained by a court-appointed monitor.
Macquarie is a secured creditor of Validus and accuses the management of the former power company of defaulting on a complicated $55.6-million loan arrangement signed in 2022 to buy the Iroquois Falls plant and also of misappropriating of funds.
Macquarrie has now emerged as a stalking horse bidder to acquire all of Validus’ properties.
A stalking horse bid is a binding offer to purchase the assets of an insolvent company, conditional on the company not receiving a better offer in a sales and investment solicitation process during CCAA.
In August, the court initially placed the Validus properties in receivership. Entering the CCAA now jumpstarts the sales process.
KSV Advisory, previously the court-appointed receiver, is now the monitor during CCAA.
In court documents, KSV supported entering into CCAA as it might spur interest in the plant assets from other potential bidders.
“Timing is important,” said KSV, adding that the sales process “should commence as quickly as possible” for a number of reasons.
Among them is the risk of a “mass resignation” by the Validus workforce, who appear to have no confidence in the management, and that would put operations in jeopardy.
“A stalking horse bid provides employees with certainty that there is a going-concern solution for the business,” said KSV.
Joining Macquarie in the bid process is a cryptocurrency company, Hut 8 Mining, a Toronto bitcoin producer, which has a legal bone to pick with Validus over an alleged breach of a power supply agreement.
That dispute, the subject of an ongoing lawsuit between the two companies, resulted in Hut 8 shutting down its data centre in North Bay.
Presumably, Hut 8 has eyes on acquiring the North Bay plant. A company spokesperson did not respond to questions from Northern Ontario Business this week, but in court documents, a new designated entity identified as Hut 8 Power has emerged
In court filings, Macquarie further alleges that Validus failed to pay municipal and federal taxes, failed to maintain proper books and records, failed to maintain insurance, and failed to provide employee benefits and RRSP contributions to its unionized workforce. Taxes are owed to Canada Revenue Agency and money is owed to other creditors, including Toronto-Dominion Bank and Mercedes-Benz Canada.
Last month, Validus CEO Todd Shortt said in an affidavit he was attempting a refinancing through Dominion Lending.
But in court filings, KSV said that it has not received any response from Validus management on the status of its refinancing plans since the Aug. 10 receivership decision, indicating to KSV “that such financing is not forthcoming.”