Validus Power, a struggling northeastern Ontario power generator, was placed into interim receivership last week.
Macquarie Equipment Finance, an Australian-based global lender, is making serious allegations of misappropriation of funds by management at Validus, along with making a number of other claims related to defaulting on a loan agreement signed in 2022, according to documents filed in the Ontario Superior Court of Justice last week.
Toronto-based Validus sells power to Ontario’s Independent Energy System Operator during times of peak demand. Its operations comprise power plants in Iroquois Falls, Kingston, Kapuskasing and North Bay, along with a dormant data centre in North Bay. Todd Shortt is the president-CEO of Validus.
Earlier this year, Validus was embroiled in a power purchase agreement dispute with Hut 8 Mining, a cryptocurrency company.
Macquarie claims in its application to the court that it’s owed $55.6 million as a result of a complex sale and leaseback transaction to acquire the Iroquois Falls power plant in April 2022. Under this financing arrangement, Macquarie purchased all of the plant turbines, the plant and equipment at a purchase price of $45 million, plus HST.
The application by Macquarie to place the assets of Validus into interim receivership was heard and granted in an Ontario Superior Court of Justice on Aug. 2.
Macquarie is applying to the court this week to appoint RSV Restructuring as the receiver of all of Validus’ assets, including Iroquois Falls (Iroquois Falls Power Corp.), Kapuskasing (Kap Power Corp) and North Bay (Bay Power Corp).
The Australian lender has made it known that it wants to acquire Validus’ assets through receivership. A CCAA (Companies' Creditors Arrangement Act) application is being considered.
A factum submitted by Macquarie alleges that, besides defaulting on the loan and being behind on its rent at the Iroquois Falls plant, Validus has failed to pay municipal and federal taxes, has allegedly breached a power agreement with a key customer in Hut 8 Mining, failed to maintain proper books and records, and has failed to maintain insurance.
Macquarie also claims Validus has failed to provide benefits and RRSP contributions to its unionized employees.
The Australian company states it has tried to make accommodations, including providing Validus with a four-month rent holiday last February.
An Aug. 2 affidavit from an individual named Joshua Hamilton Stevens — his affiliation with Macquarie not made clear — paints a picture of “disarray” within the senior management ranks at Validus.
“They appear to lack adequate — or any — executive leadership.”
Stevens makes these statements based on information from former Validus executives who recently left the company.
Besides the $55.5 million owed as of July 31, Stevens claims Validus owes more than $6 million to the Canada Revenue Agency (CRA) according to the CRA’s lien registration.
Stevens claims there has been an exodus of employees in recent weeks, including key personnel like Ryan Forget, the company’s general manager of power generation.
The company’s electricians in North Bay and Iroquois Falls have quit, “which has likely left those plants without the direct ability to perform various types of maintenance, if required,” Stevens said.
He further said given given the recent staff turnover rate, Validus “may shortly be forced to shut down some or all of their plant operations due to lack of staff.”
The general counsel for Validus allegedly told Stevens he hadn’t been paid since mid-April and is owed $57,500 in unpaid wages.
Stevens said the power producer has had months to repay them and other secured creditors.
He claims Validus management has been telling Macquarie since January that debt financing was “just around the corner,” but nothing has materialized.
Most troubling in Stevens' statement are allegations of misappropriation of funds in the bank accounts of Validus that will deplete the company to an extent that it can't carry on business.
Stevens claims Shelley Goertz, CFO for Validus, recently requested on behalf of Validus president Todd Shortt that $20,000 be released to pay Shortt’s personal credit card, which include “significant entertainment and dining expenses.”
Stevens further alleges Goertz attempted to withdrawal $85,000 from the company’s bank account "to her personal holding company, without substantiation.”
He contends Validus does not have a plan to move forward and said if a receiver is not appointed immediately, there’s “real risk” that "some or all” of the company’s remaining funds will be removed for “similar inappropriate or improper personal uses over the coming days or weeks.”
Stevens said Validus has not maintained proper books and records for 12 months, and those records would have to be “substantially rectified” before any investor or financier would be willing to buy the business or invest.
This is comes as a complete surprise to Todd Shortt, who said in an Aug. 7 affidavit that he first learned of the receivership application less than a week ago.
He believes this is an attempt by Macquarie to drive Validus into CCAA and acquire all of the plants as part of a stalking horse bid.
Shortt questions how Macquarie arrived at a $56 million figure considering Macquarie advanced them $36 million to acquire the Iroquois Falls and Kingston plants. He said he’s still awaiting a breakdown of that figure from Macquarie’s lawyers.
Shortt said that Validus “has already paid back millions of dollars to Macquarie.”
Both the North Bay and Kapuskasing plants were “selected to go online” in September, he said, but because of Macquarie’s “interference” that won’t happen until next January. After that the revenue will flow, he said.
Shortt responds that Macquarrie’s security position is quite secure as these power plants are “extremely valuable.” Validus was able to buy them at a lower price and since their purchase the value of these plants “has skyrocketed due to significant changes in the energy market.”
The energy outlook, Shortt said, is generally positive since Ontario needs more power generation.
He said the Kingston and North Bay plants have been approved for increased capacity (500 megawatts in Kingston and 30 megawatts in North Bay).
“This is huge, as Ontario is running out of power due to the impending shutdown of the Pickering (nuclear) plant.”
Shortt acknowledges that Validus “has struggled in its operations,” partly due to a dispute with Hut 8 Mining that resulted in Validus “losing an important source of revenue.”
“The dispute with Hut 8 had a snowball effect on the rest of Validus’ operations.”
Shortt said he's been “working full-time to obtain alternative financing to take out in Macquarie’s position.”
“I have successfully arranged this financing, which just needs to be formally documented.”
In petitioning for deferral, Shortt said if a receiver is appointed before he can close this financing deal, it will destroy the business, resulting in “loss of millions of dollars of our own investments in the company.”
