Judge rejects late bid, approves sale of Harbour Grace shipyard to Blaine Sullivan

An acrimonious legal battle over the fate of the insolvent Harbour Grace shipyard ended in a St. John's courtroom Monday morning after a judge approved the sale of the yard to fishing industry executive Blaine Sullivan.

The deal is expected to close later this month. Sullivan has committed to making investments into the yard and protecting the workforce as he tries to return the business to profitability.

In accepting the offer from Sullivan, Justice Alexander (Sandy) MacDonald also rejected a late bid from the yard's majority owner, Kevin English, whose legal representative argued unsuccessfully that English was not treated fairly during the sales process.

The court did not become aware of an offer from English until Thursday, more than a week after the Jan. 29 bid deadline.

In handing down his ruling, MacDonald said the sales process was fair and reasonable, English had plenty of time to make an offer on the business, and Sullivan's acquisition of Harbour Grace Ocean Enterprises represents the best option for the yard, the workers and the secured creditors, who are owed millions of dollars.

Sale a 'major step' for shipyard

MacDonald described the sale to Sullivan as a "major step" in the restructuring of the business, which he described as one of the largest vessel refit and repair facilities in eastern Canada.

Outside the courtroom, yard manager and shareholder Paul Lannon said, "The court has ruled and now everybody has to move forward in the best interest of the yard and the employees and all other stakeholders."

A judge has approved the sale of the shipyard in Harbour Grace to fishing industry executive Blaine Sullivan. (Adam Walsh/CBC)

Lannon said he believes the yard is now in "good hands" with Sullivan, who is president of seafood giant Ocean Choice International.

"There's lots of opportunity on horizon," said Lannon, who praised Sullivan as a leader in the marine industry who brings "a lot of strengths" to the business. Lannon would not comment on his future at the yard.

As for the workforce, which has numbered up to 80 people in recent years but has now sunk to just over 40, Lannon said discussions will take place immediately with what he described as "an excellent group of workers."

Creditors hit hard

The purchase price for the yard is sealed by the court until the deal is formalized, but it became clear during the proceedings that creditors are being hit hard by the insolvency.

It's unknown how much the two senior secured creditors, the Bank of Montreal and the Business Development Bank of Canada, who are owed a combined $5.2 million, will receive from the sale, but they will not recover their full debt, said MacDonald.

English's company, Gray Enterprises, is a 51 per cent shareholder in Harbour Grace Ocean Enterprises, and court documents reveal it's owed roughly $1.56 million. But MacDonald said Gray "will receive nothing" from the proceeds of sale.

English had attempted to be recognized as a secured creditor, but the matter was never resolved because English was unable to provide documentation that proved the yard owed him money. English also attempted to qualify as a "credit bidder" during the sales process, which involves a creditor such as Gray offering their outstanding debt as a form of payment, along with some cash, but that was rejected by PricewaterhouseCoopers Canada, the court-appointed insolvency monitor.

The cost of the insolvency and sales process is nearly $1.5 million, which will be paid in full, said MacDonald.

The shipyard was granted court protection from its creditors in November after it ran out of cash. The yard has been struggling for a few years because of a slowdown in business, shrinking profit margins due to inflation, and difficulties collecting payment from a large barge contract.

Four prospective buyers

When creditors started demanding payment, the court stepped in and appointed PwC Canada to oversee the company, and to market the yard.

Sullivan's investment company, Green Skiff, was one of four prospective buyers who took part in a court-supervised sales process, and PwC came to court on Thursday with an application to have Justice MacDonald approve the sale.

Harbour Grace Ocean Enterprises' management team, Paul Lannon, right, and Wayne Reid, centre, were present in the courtoom last week as observers during an insolvency proceeding hearing. (Terry Roberts/CBC)

But what was supposed to be a half-day hearing became chaotic at times after English's lawyer, Darren O'Keefe, appeared with an affidavit from his client. The affidavit criticized PwC's handling of the sale process and included a late bid from English to buy the shipyard that O'Keefe said was 20 per cent higher than Sullivan's offer.

O'Keefe asked that the court proceedings be postponed so he could have more time to prepare and that MacDonald reopen the sales process so English's bid could be considered.

The last-minute intervention by English, who wasn't present at court, ignited two full days of sometimes testy debate that revealed a tense relationship between English, the current yard management, and the monitor. At one point, a BDC lawyer described English's last-ditch attempt to retain ownership as "bad behaviour."

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

O'Keefe provided a complex list of reasons why English did not submit a bid during the allotted time frame but he failed to sway lawyers for any of the creditors, the monitor, or the yard management, who opposed the late bid.

When he delivered his decision Monday morning, MacDonald said he was unwilling to reopen the sale process, saying English should have operated within the rules of the sales process or approached the court for direction earlier.

"I will not order the monitor to accept the Gray bid," said MacDonald, adding that he would intervene in the sales process only if he felt the monitor didn't conduct a good sales process, which he said was not the case.

MacDonald also issued an order that English, through his company Gray Enterprises, pay a portion of the hearing costs for Harbour Grace Ocean Enterprises. The amount will be determined during a followup hearing scheduled for Feb. 28.

O'Keefe declined comment as he left the courtroom.

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