Canad Inns pays back $4M to Crocus Fund, ending decade-long dispute with receiver

It took years of pleading, negotiating and lengthy court hearings, but the receiver charged with winding down the ill-fated Crocus Investment Fund finally got what it wanted: its money back, or at least part of it, from Canad Inns.

On Nov. 29, 2019, an agreement was reached between Deloitte, the court-appointed receiver for the failed venture capital fund, and local hotel chain owner Leo Ledohowski. This was ultimately resolved privately, outside of the courtroom, through a judge-assisted resolution process.

In 1999, four years before the Crocus Fund began to collapse, the labour-sponsored fund purchased 24.76 common shares of Canad Inns Corporation for $5 million. Up until this past November, those shares,which represented 16 per cent of the company, were held by the fund.

A vesting order signed byCourt of Queen's Bench Justice Chris Martincompelled Canad Inns to buy back theshares from the CrocusFund, after bothparties privately negotiated the share value.

The latest receivership report published on Jan. 30contains only scant references to the deal, but the amount ultimately paid back by Canad Inns Corporation can be deduced through the financial statements, which show an increase in cash held by the fundof about $4 million less than the original $5 million equity cost.

This amount is almost certainly entirely the result of the disposal of Canad Inns common shares held by the fund for the past two decades, since no other activities related to the other outstanding investments were reported by the receiver over the reporting period.

As part of the deal the receiver also agreed to drop its lawsuit against the hotel chain.

At issue was a longstanding disagreement over the hotel chain's payment obligations to investors. Affidavits previously filed in court by Deloitte stated that between January 2000 and February 2003, Canad Inns paid out dividends to the Crocus Fund; however, no cash ever flowed back afterwards.

In 2014, the receivertook Canad Corporation to court, seeking a court order to force theliquidation ofthe company so the proceeds could be distributed back to Manitobans who still held shares in the Crocus Investment Fund.

A request by CBC News for comment from Canad Inns went unanswered. Repeated requests sent to Deloitte for assistance interpreting certain details of the report were rejected or ignored.

WATCH| Canad Inns owners refuse to comment:

Leo Ledohowski on Crocus Investment Fund

5 years ago

Duration 1:23

It took years of pleading, negotiating and lengthy court hearings, but the receiver charged with winding down the ill-fated Crocus Investment Fund finally got what it wanted: its money back from Canad Inns.

During the November hearing where the deal was concluded, the lawyer representing Canad Inns quipped about potentially needing a bodyguard as he handed over payment to the receiver:"It's pretty scary, I have two cheques in there."

Justice Chris Martin remarked that despite the lengthy stalemate, he was satisfied with how both parties conducted themselves during the mediation process.

"Obviously both parties were looking out for their own particular interests as they were obligated to do. In my view the receiver was well advised to have this matter come to an end and did very well in terms of the negotiations given the agreements by which he was bound by Crocus," he said in reference to the lack of an exit clause in the original funding agreement.

"As far I'm concerned the receiver has done the best that could be done with the circumstances for the shareholders of Crocus," said Justice Martin.

About the Crocus Investment Fund

The labour-sponsored Crocus Fund stopped trading in 2004, after nearly 12 years of activity, over serious concerns about share valuation practices. It was intended to raise capital for eligible Manitoba businesses through the sale of shares.

About 34,000 shareholders invested more than $150 million in the fund before Crocus stopped trading. Investigations by the auditor general and RCMP followed, eventually leading to a successful class-action lawsuit against the province.

The collapse of the fund led the courts to appoint Deloitte as the receiver.

The accounting firm was charged with recovering and distributing what was left of the fund back to investors at the time, about $64 million invested across 46 companies, including Canad Corporation.

As it now stands, the majority of Crocus assets have been recovered by the receiver since it began its work in 2005. With the Canada Inns dispute now resolved, less than $831,000 in assets held by four companies remain outstanding. They are:

• Genesys Venture Inc.
• Manitoba Science & Technology Fund.
• Novra Technologies Inc.
• STPartnership.

Deloitte says it is now anticipating that an application to the courts to make a final distribution of the remaining $5.4 million in cash held by the fund could be made to Crocus shareholders this year.