An empty bank account could finally spell the end of the Crocus Investment Fund wind-down
More than $2 million belonging to 4,000 Manitobans remains unclaimed
The ghost of the Crocus Investment Fund lingers on after its tumultuous collapse nearly 15 years ago.
But that may soon end, as the court-appointed receiver for the fund appears to be running out of money to cover its management fees.
The labour-sponsored venture capital fund stopped trading in 2004. It was intended to raise capital for eligible Manitoba businesses through the sale of shares, which began in 1992 but was heavily promoted by the former NDP government that came to power in 1999.
About 34,000 shareholders invested more than $150 million in the fund before Crocus stopped trading in December 2004 over concerns about the true value of its shares.
In April 2005, the fund dropped the value of its shares to just below $7 — almost one-third less than their value when trading was halted.
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.
In its latest public filing, released on April 15, 2019, Deloitte notes it now has less than $1.3 million in cash to fund "shareholder services operations" and continue to pursue the last $5 million in Crocus investments that are still locked up in five local companies — the majority of which appears to be held by local hotel chain Canad Inns.
After nearly a decade of unsuccessful negotiations with Canad Inns owner Leo Ledohowski, the receiver took the company to court in 2014 seeking a court order that Canad Inns be liquidated so the proceeds could flow back to Crocus investors.
The parties met again in 2016, but were unsuccessful in coming to an exit strategy.
In January, the receiver asked Court of Queen's Bench Chief Justice Glenn Joyal to order Canad Inns to attend mandatory mediation hearings.
In March, the courts gave the go-ahead to case management, with the first hearing set for May 29, 2019.
Receiver expenses eroding what's left
According to Deloitte's latest quarterly report, total assets remaining in the Crocus Fund portfolio were at $8.3 million as of March 31.
However, $5 million of that is locked up in companies and $2 million in unclaimed amounts is held in trust, leaving Deloitte with slightly more than $1 million to work with.
The catch, however, is expenses and management fees charged by the receiver to fulfil its mandate have ranged from $300,000 to $1.2 million annually over the past five years — meaning the pot of money for the receiver to dip into will soon run out.
In doing its work to recover money for shareholders, the receiver incurs a multitude of legal, accounting, administrative and overhead costs. It also pays itself a professional or management fee, all of which comes out of the Crocus portfolio.
In Deloitte's first year-end report in 2005, the portfolio had a carrying value of $60.1 million, with total net assets of $84.7 million.
Fast-forward to the present day, and the carrying value for what remains in investments is $5 million with total net assets sitting at $6.3 million.
Over the past 14 years, Deloitte has spent nearly $27 million chasing down investments and returning them to investors.
Some of these costs include (2005 to present):
- $9.2 million in professional fees for Deloitte.
- $4.3 million in office rental costs.
- $3.5 million in legal fees.
- $2.8 million in shareholder services and communications.
- $1.7 million in payroll and benefits for office employees.
Bernie Bellan, one of the investors who spearheaded a class-action lawsuit against Crocus, says this was a predictable outcome.
"I was told early on that the receiver will be going through something called 'the burn rate,' which is the amount that he'll be collecting as opposed to how much might be left for the shareholders," he said.
"And I guess we've reached the edge of the abyss now where there will be nothing left for the shareholders, and what will the receiver be able to draw upon for his needs?"
Bellan says over the last few years, he's wondered whether anyone has questioned the efficacy of the receiver's wind-down strategy.
"I looked at the reports from time to time and I see no fundamental change in the status of Crocus," he said. "It's the same four, five companies that remain part of the portfolio.
"My other question is, has the judge that's been overseeing this receivership been asking any questions of the receiver when he issues his annual reports?"
CBC News reached out to the Manitoba Securities Commission, Deloitte Canada, Justice Deborah McCawley (who oversees the Crocus portfolio) and lawyers for Canad Inns for clarification or comment about the current status of the receivership. All parties declined to comment.
Several legal experts and insolvency professionals have told CBC News it is difficult to anticipate what would happen should the receiver run out of funds before the remaining investments are liquidated and returned to investors.
Some believe the courts could simply decide to discharge the receiver from its court-ordered duties. Others speculate that should money run out, the onus would fall on the shareholders to take collective action and decide whether to pursue the remaining assets, despite the diminishing returns.
Province to get unclaimed dollars
Since the collapse of the Crocus Fund, the receiver has distributed retrieved funds and class-action lawsuit awards back to shareholders on three occasions, for a court-approved total of $80 million.
The receiver's report indicates that currently 4,056 shareholders have unclaimed amounts, valued at just over $2 million. Deloitte is in the process of planning a final mail-out to these shareholders, after which any unclaimed amounts will be paid out to the minister of finance.
"An individual who claims entitlement to funds that have been forfeited to the Crown can make a claim," a spokesperson for Manitoba Finance told CBC News.
"If an individual can prove their entitlement to the satisfaction of the Crown, the Crown can pay from the consolidated fund the amount the individual was entitled to."
The remaining Crocus shares have a current book value of $0.44 each.
Bellan says while it would be ideal to put the final nail in the coffin, for many investors that moment came in 2017, when local ad firm McKim Communications Group purchased what was then called the Crocus Building and took down its sign, replacing it with its own.
"Once they took the Crocus Fund sign down that was the symbol that, I think, still remained for most Manitobans," Bellan said.
"It was kind of a reminder of some very dark period in our past that once the sign was gone. How many people even think of Crocus anymore?"