Andrew A. Duffy
Wednesday, August 24, 2005
Proposal provides 38 cents return on the dollar and a key meeting on
whether or not to accept is slated for Sept. 12.
Former Berkshire Investment adviser Ian Thow is proposing to pay off
creditors to the tune of 38 cents on the dollar with the proceeds from the
sale of his $7-million home, $500,000 worth of vehicles and personal
effects, and the use of a $5-million fund from a third party.
Thow's legal counsel, David Gagnon, said the proposal is an attempt at
resolution he hopes will be worthy of creditor consideration.
The proposal, filed with the Office of the Superintendent of Bankruptcy in
Vancouver Monday afternoon, offers the $12.5 million to a list of 102
unsecured creditors and nine secured creditors claiming in excess of $42.9
The claims against Thow come from former clients, companies and banks.
Thow and Berkshire are also facing four lawsuits from investors in a
scheme involving the National Commercial Bank of Jamaica.
Thow is being investigated by the B.C. Securities Commission and the
RCMP's Integrated Market Enforcement Team in light of those lawsuits.
Berkshire has repeatedly said it was neither involved in nor aware of the
alleged transactions attributed to Thow, who left the company May 31.
The proposal Thow filed hinges on the $5-million fund he claims will be
provided by a third party.
"It's everything you would get in a bankruptcy, plus $5 million," said
Gagnon. The liabilities listed in the proposal are exaggerated, he said.
"The situation is ugly enough in terms of numbers, but the situation looks
markedly uglier because many of the creditors with claims ... have
security that they are realizing may completely satisfy their claims," he
That includes $18 million being claimed by GE Canada Equipment Financing,
which has seized airplanes owned by Thow. Gagnon said they have to list
all creditors, even those secured by assets owned by Thow's business
"I think it's safe to say that the final deficiency is likely to be
markedly less than what the statement of affairs would suggest," Gagnon
But even by removing GE Canada and other secured creditors from the list
-- like the nine creditors claiming $3.9 million who are secured by Thow's
$7-million Saanich home -- Thow would still owe in the neighbourhood of
$21 million. He would have only about $8 million to pay off the debt.
The result would be creditors getting about 38 cents on the dollar.
Katherine Ducey, counsel for a number of creditors including the Goodwin
family of Richmond which is claiming $1.4 million, says on first blush the
proposal leaves a lot of questions.
"It still sounds like more vague promises," she said. "The real question
is, is the $5 million real and is it really coming from a third party, and
until we know that answer I don't think we can even trust the proposal."
She said it is too early to say how she will counsel her clients to vote
on the proposal. She said if they can determine the money exists, is held
in trust, and is coming from an independent party, then they have
something to think about.
"Some clients can afford the loss more than others and so for some of them
this may be all the money they can hope to recover," she said. "From an
objective perspective you have to say it's the best hope of recovering
your best dollar -- but are you prepared to let him walk away?"
Gagnon could not say when the $5 million would materialize, but he hopes
to be able to satisfy the wishes of the trustee, Michael Cheevers, to have
it sitting in trust by this Friday.
As for disclosing the identification of the third party to ensure the
money is not coming from Thow himself, Gagnon said that will likely be
kept between the trustee and its counsel.
"They will have a process of due diligence to go through to satisfy
themselves the third party money is new money and not available to
creditors except by saying yes to the proposal," he said, warning there
could ramifications should the third party be forced to reveal itself. "We
could have a situation where the court says the third party must come
completely into the sunshine and be revealed, and the third party may
Cheevers intends to send creditors a notice of Thow's proposal but hopes
to have confirmation the $5- million exists before doing so.
He is also delaying sending out a report on the proposal -- as he would
normally do when one is filed -- because he does not have enough
information to provide a comprehensive statement. That report typically
would tell creditors whether or not the proposal is a better option than a
Cheevers is bound to hold a meeting of the creditors Sept. 12 in Victoria,
at which Thow and his counsel expect to be present. At that time the
creditors can vote on the proposal or agree to adjourn while the trustee
continues the investigation.
If creditors vote and approve the proposal, it goes to court for
ratification and to allow those who opposed it to plead their case. If the
proposal is rejected Sept. 12, or if the court does not ratify the
proposal, that puts Thow straight into bankruptcy.