Cause Number: MIef-/2012 IN THE COURT OF QUEEN'S BENCH OF NEW BRUNSWICK IN BANKRUPTCY AND INSOLVENCY
No. du dossier: COUR DU BANG DE LA REINE DU NOUVEAU-BRUNSWICK DIVISON DE PREMIERE INSTANCE CIRCONSCRIPTIONJUDICIAIRE DE
JUDICIAL DISTRICT OF MONCTON
IN THE MATTER OF THE RECEIVERSHIP
Industrial Rail Services Inc., -andPURSUANT TO Section 33 of The Judicature Act, R.S.N.B. 1973, Ch. J-2, Rule 41, Rules of Court, New Brunswick
and Section243 of the Bankruptcy and Inso/vencyAct, R.S.C.1985.c. B-3
BETWEEN: Th P
e rovlnce 0
Represented by the Minister of Economic
U'E '$ BENCH
APR 1 6 2012
corji-, '. ,'.EIMS
DIV. Oi" F'R"i.,~iLE iNSTANSS MaN TON,N.-B.
-andIndustrial Rail Services Inc.,
AFFIDAVIT I, Jean-Bernard Guignardof Hanwell,New Brunswick, MAKEOATHAND SAY
.I have personal knowledge of the facts and matters sworn to herein except where
I am employed as a Project Executive, Financial Programs, Department of Economic Development, Province of New Brunswick (hereinafter "PNB").
I am authorized to swear this affidavit. On April 2, 2008, Industrial Rail Service Inc., (hereinafter "IRSI") requested a Loan Guarantee from PNB in the amount of $12,500,000. The purpose of the Loan Guarantee was to enable IRSI to meet the Letter of Credit requirements for an IRSI bid on Via Rail Tender 200801001.The Tender was in relation to the major overhaul of in excess of 98 Via Rail LRC passenger cars which is referred
to as the "LRC Contract".A copy of the request by IRSI is attached as Exhibit
"A". 5. On June 3,2008, PNB offered IRSI the requested $12,500,000 Loan Guarantee. A copy of the PNB offer letter is attached as Exhibit "B".
On June 11, 2008, IRSI provided the following security to PNB in support of the Loan Guarantee, copies of which are attached collectively as Exhibit "C": .
(a) Debenture in the amount of $12,500,000; (b) General Security Agreement; (c) Release and Indemnity; (d) Subordination Agreement of sharehoJder; (e) Personal Guarantee from Richard S. Carpenter in the amount of $3,000,000; and,
(f) other ancillarydocuments. 7. On June 25, 2008, the Loan Guarantee was put in place by way of a Guarantee
Agreement between IRSI, Toronto Dominion Bank and PNB. Copies of the
Guarantee Agreement and other ancillary documents are attached as Exhibit "0".
On May 7, 2009, the Loan Guarantee was amended from $12.500.000.to $8,000,000 for the LRC Contract and $2,500,000 for what is referred to as the "Renaissance Contract". A copy of the Guarantee Amending Agreement is attached as Exhibit "E".
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On July 30, 2009, PNB offered IRSI a Term Loan in the amount of $7,500,000
and a $2,500,000 Forgivable Loan, the aggregate of which was to be used to fund $12,300,000 in capital expenditures and to create 250 full time positions in
additionto the already existing 33 positions.Copies of the two offer letters are
attached as Exhibit "F".
9, 2009, the Loan Guarantee was amended to include a contract
referred to as the "ROC Repair and Modernization Contract" for an amount of
$2,000,000 (hereafter "ROC Contract"). A copy of an amending letter is attached
as Exhibit "G".
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11. On December 9, 2009, IRSI provided the following security to PNB in support of the Term Loan and the For~ivable Loan, copies of which are attached collectively as Exhibit "H": (a) Debenture in the amount of $10,000,000; (b) General Security Agreement; (c) Subordination Agreement of shareholder; (d) Loan Agreement in relation to the $7,500,000Term Loan; (e) Loan Agreement in relation to the $2,500,000 Forgivable Loan; and (f) other ancillary documents.
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Between December 22, 2009 and July 16, 2010, PNB advanced $7,500,000 to
IRSI in relation to the Term Loan.
Between July 16, 2010 and January 9, 2011. PNB advanced $2,500,000 to
IRS! in relation to the Forgivable Loan.
On December 13, 2010, IRSI requested that PNB allow postponement of a March 2011 balloon principal Term Loan payment of $591,667. A copy of the IRSI request is attached as Exhibit "I".
On March 31, 2011, having repaid $139,423 of the Term Loan principal, and with an outstanding Term Loan principal balance of $7,360,576, IRSI requested and was granted a deferral period, with blended payments of principal and
interest to recommence on April 1, 2012. PNB approval was conditional upon
IRSI maintaining intercompany loans from associated companies at a level of not
less than $7,000,000 and keeping monthly interest repaymentscurrent. Despite this accommodation,IRS~has not paid PNB the April 1, 2012 principal payment and two monthly interest payments, all of which total $144,611. A copy of the
letter of amendmentis attachedas Exhibit"J", . Pursuant to a term of the contract between IRSI and VIA, the Letters of Credit provided by Toronto Dominion Bank were reduced on December29, 2011 and on April 18, 2011 (for a total reduction of $2,000,000), leaving a total of
$10,500,000provided by the Bank for the LRC Contract, Renaiss1nceContract and the RDC Contract.
17, As a result of conversationswith each of Via and IRSI over the past several months, it became apparent to me that the relationshipbetween the parties was deteriorating. In early March 2012, the
contractual relationship between Via and
IRSI broke down to the extent that IRSIIaid off substantiallyall of its employees.
On March 16, 2012, Via Rail called the Letter of Credit in the amount of
$2,500,000 in relation to the Renaissance Contract. On the same day, VIA
terminated the uncompleted portion of the Renaissance Contract with IRSI, A
copy of the VIA termination letter is attached. ~s Exhibit "K" and a copy of a. ~o~:c~
letter to PNB on behalf of the Toronto DominionBank IS attached as Exhibit L,
A copy of the demand made on PNB by Toronto Dominion Bank is attached as Exhibit "M".
On March 23.2012,
PNB sent IRSI a notice of its intention to enforce security, in
accordance with section 244 of the Bankruptcy and .Insolvency Act (hereafter "BIA"). A copy of the Notice'of Intention to Enforce Security is attached as Exhibit "N".
On March 26, 2012, Toronto Dominion Bank paid Via Rail the $2.500,000 and then demanded repayment of same from PNB.
On April 3, 2012, PNB sent a cheque in the amount of $2,506,000 to Toronto Dominion Bank and on April 3, 2012, PNB demanded repayment of the $2.500,000 from IRSI. IRSI has not repaid PNB. A copy of the PNB letter of transmission and the $2,500,000 cheque are attached as Exhibit "0". A copy of the PNB demand letter to IRSI is attached as Exhibit lOP".
Through conversations with the management of IRSI, a site visit of April 5, 2012 and through the exchange of correspondence, it appears that IRSI may have effected transfers of title to assets which were pledged by IRSI to PNB as
security for the $7,500,000 Term Loan and the $2,500,000 Forgivable Loan. The
transfers were to an associated company of IRSI, as Landlord.
On April 11, 2012, PNB wrote to IRS! and requested that IRSI provide
clarification in relation to the transferred assets IRSI was also advised that the PNB has not consented to such transfers to either related entities or third parties
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and will seek to set aside and/or commence
involved in such transfers. A .copy of this letter is attached as Exhibit "Q".
On April 11, 2012, Via Rail informed IRS! of its intention to call the Letter of Credit in the amount of $7,000,000 in relation to the LRC Contract. On the same day, V1A also terminated in full the uncompleted portion of the LRC Contract with
IRSI. A copy of this terminationletter is attachedas Exhibit"R".
With the termination of the Renaissance Contract and the LRC Contract, IRSI cannot continue operating and does not have cash flow to retire its c~rrent debt
burdento PNB and other creditors.
The right to seek a Court appointedReceiverfor IRSI is providedfor in PNB's
IRS! has failed to meet its financial obligations as they have become due"
The appointment of a Receiver is for the benefit of all interested parties and the Receiver should be granted a charge against all of the property subject to the receivership.
Attached hereto is Exhibit"S", is a copy of a letter dated April 13, 2012, received
from W. Ross Bingham, a.c.. appointment of a Receiver. indicating IRSI's position with respect to the
PNB relies on the Rules of Court, including Rules 1, 2, 3, 38. 39.41 and 41.06, the Judicature Act including section 33 and the BIA including sections 243, 244, 247 and 248.
SWORN TO before me at the City of Fredericton. in the County of York and Province of New Brunswick, this 13thday of April 2012.
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Richard A. Williams A Commissioner of Oaths Being a Solicitor