Just days after announcing they were seeking bankruptcy protection, the Nygard Group of companies has staved off being placed into receivership… for now.
In a decision Friday, a judge suspended the move by U.S. lenders White Oak Commercial Finance LLC and Second Avenue Capital Partners, pending the outcome of negotiations between Nygard and finance company Great American Capital.
"I am not satisfied there is no viable proposal to be made by (Nygard Group)," said Justice James Edmond. "The evidence filed by (Nygard) suggests a viable proposal may be made to creditors and (White Oak).
Edmond adjourned the matter to March 20 – the date Nygard Group expected to conclude negotiations with Great American Capital – warning Nygard lawyers his view on receivership "may change," if there is no real movement by the companies to resolve their financing woes.
"I was very close to granting receivership today," Edmond said. "The matter is still before me and I expect to pay very close attention to where this is going to go in the next week."
White Oak and Second Avenue entered into a credit agreement with the Nygard Group in late December but are now seeking an order that Nygard be put in receivership and that it repay a loan of over US$25 million.
According to a White Oak motion brief, since entering the agreement, Nygard "committed multiple acts of default," including denying the validity of the agreement.
"Nygard Group also presented the lenders with cash flow forecasts and funding requests that contemplated a cash need that was several million dollars in excess of the amount available," the motion brief alleged.
At the same time White Oak was grappling with Nygard Group’s "radically increased funding needs," founder and director Peter Nygard was hit with a class action suit alleging he had engineered a sex trafficking ring and was dropped by his company’s largest wholesaler, Dillard’s. Those developments "significantly erod(ed) the value of the lender’s collateral," four properties in Winnipeg and Toronto.
Court heard this week White Oak has also supplied additional cash on four occasions so Nygard Group could meet its payroll.
"White Oak has attempted to work with the Nygard Group to seek solutions to its financial and liquidity issues, but it has lost all trust and confidence in the Nygard Group and its management and is no longer prepared to fund the Nygard Group outside of a court supervised process that allows the receiver to urgently assess available alternatives and develop an immediate liquidation strategy," said the White Oak motion brief.
Nygard Group is fighting the move, and in an affidavit by director of systems Greg Fenske argues the appointment of a receiver would only erode the value of its assets, which includes US$47 million in warehouse inventory and another US$20 million in retail stores.
"It is the position of Nygard that a receiver would be value-destructive to these assets as they would be sold in the ordinary course of a receiver, as opposed to an orderly sale by Nygard, who understands the business and the most logical purchasers," Fenske said. "Nygard best knows its own business and to whom to sell its products and how to restructure its business."
Peter Nygard announced his intention to divest ownership from his companies last month.
Edmond said Friday he has been provided no evidence that has occurred.
Someone once said a journalist is just a reporter in a good suit. Dean Pritchard doesn’t own a good suit. But he knows a good lawsuit.