Harbour Grace shipyard sales process hits rough water after majority owner submits late bid

Nearly a dozen lawyers assembled in person or by teleconference Thursday morning in a St. John's courtroom for the latest hearing into the insolvency and sales process of the Harbour Grace shipyard. (Terry Roberts/CBC)

An attempt to approve the sale of the insolvent Harbour Grace shipyard to a high profile new owner encountered head winds in a St. John's court room Thursday after a majority owner came forward with a last-minute offer, asked for a delay in the process and sparked a day of debate.

About a dozen lawyers assembled in person and by conference call before Justice Alexander (Sandy) MacDonald at the Supreme Court of Newfoundland and Labrador Thursday morning.

They were there to consider an application from PwC Canada for approval of the sale of Harbour Grace Ocean Enterprises to well-known fishing industry executive Blaine Sullivan, who is president of the international seafood giant Ocean Choice.

Sullivan, through his investment company Green Skiff, was the highest and preferred bidder in an auction process that began in November after the yard — one of the largest in Atlantic Canada — was granted court protection from its many creditors who, according to documents, are owed roughly $16 million.

The deadline for bids was Jan. 29, with four prospective buyers showing an interest.

The Petten's Legacy, constructed over the last two years at the Harbour Grace shipyard, was launched last month. (Submitted by Mark Blundon)

But before MacDonald could consider the asset sale application, lawyer Darren O'Keefe submitted an affidavit on behalf of his client, Kevin English, who owns 51 per cent of the yard's shares through his company, Gray Enterprises Limited. The affidavit included an offer to buy the yard, and a request for the proceedings to be adjourned so the court could consider his late offer.

All bid prices are sealed by the court until any sale is finalized.

So what many thought would be a simple stamp of approval for Sullivan to take ownership of the yard and bring some stability to a major economic generator in Conception Bay North turned into a day of legal wrangling and sometimes testy exchanges.

O'Keefe's request was met with stiff opposition from lawyers representing PwC Canada, the monitor that is overseeing the insolvency and sales process, the current management at the shipyard and major secured creditors such as BMO and BDC.

"This could impact the company's ability to stay in business," said Neil Jacobs, the lawyer for BMO, which is providing the cash the keep the yard operating during the insolvency process.

Jacobs described the actions of Gray Enterprises as "bad behaviour" and that the last-ditch effort by English to retain ownership was "adding costs and delay to the process."

PwC Canada lawyer Chris Armstrong said Gray Enterprises missed the bid deadline, and that the priority was to get the yard into "safe hands" for the benefit of the roughly 40 workers remaining on the payroll, and the larger marine industry.

He said the yard is in "distress" because of a very tight cash flow and any delays would intensify the risks to the yard.

In making his arguments, O'Keefe described relations between Gray Enteprises and PwC as adversarial, and that his client was "excommunicated" from the sales process.

Gray Enterprises is alleging that it is a secured creditor and is owed $2 million, but that position has been challenged because Gray has been unable to provide documentation to support that debt.

When asked why Gray did not submit an offer during the bidding process, O'Keefe blamed tensions between his client and the monitor.

O'Keefe said Gray wanted to submit what's called a "credit bid," which involves a creditor such as Gray offering their outstanding debt as a form of payment, along with some cash.

The management team at Harbour Grace Ocean Enterprises, Paul Lannon,right, and Wayne Reid, centre, were in a St. John's court on Thursday as observers during an insolvency proceeding hearing. (Terry Roberts/CBC)

In response, PwC officials told Gray it could make a cash offer, and that if it wanted to proceed with a credit bid, it would have to get approval from the court.

O'Keefe said his client decided to wait until the bidding process concluded to approach the court because they didn't want to "blow up the bidding process."

Judge MacDonald chastised O'Keefe, saying his client could have made a bid or asked the court earlier to rule on whether Gray could make a credit bid.

Arguments in the case will continue Friday morning, and MacDonald said he plans to make a ruling on whether to consider the late bid from Gray, or accept the preferred bid from Blaine Sullivan, Friday afternoon.

When reached by phone Thursday evening, Sullivan said he was unfazed by the surprise twist, though he admitted that any lengthy delay "could be potentially detrimental to the yard."

Sullivan said he's "anxious to get started and restore some confidence in the yard."

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