After being informed by the staff of the Ontario Securities Commission that it would not sign off on the prospectus for a previously announced share offering, Canada-based Azure Dynamics Corporation, a developer and producer of hybrid-electric and electric components and powertrain systems for commercial vehicles, is filing for protection under the Companies’ Creditors Arrangement Act (CCAA). In connection with commencing CCAA proceedings, Azure will abandon its previously announced share offering.
The CCAA is a Canadian Federal Act that—similar to Chapter 11 in the US—allows financially troubled corporations to restructure their financial affairs through a formal Plan of Arrangement. The CCAA presents an opportunity for the company to avoid bankruptcy and allows the creditors to receive some form of payment for amounts owed.
After the company applies to the Court for protection under the CCAA, the Court issues an Order giving the company 30 days of protection (the “Stay”) from its creditors to allow for the preparation of the Plan of Arrangement. The Court can extend the Stay against the creditors upon further application to the Court by the company. There is no time limit on how long the Stay can be extended. During the Stay period, the company will often continue operating, although it may commence restructuring activities at any time.
Azure thus expects that the Initial Order will provide for a stay of proceedings while it and its subsidiaries pursue restructuring alternatives under CCAA protection. The Board of Directors of the Company has also authorized the filing of a voluntary petition under Chapter 15 of title 11 of the United States Bankruptcy Code to seek recognition and enforcement in the United States of the Initial Order requested in the CCAA proceedings.
The decision to abandon the Offering and commence CCAA proceedings comes after several weeks of formal and informal communications with Staff of the Ontario Securities Commission. Despite including detailed risk factor and other disclosure in the preliminary prospectus regarding the Company’s liquidity and financial hardship, and after several weeks of attempting to satisfy the demands of Staff for additional information and disclosure, the Company was informed on March 23, 2012 that Staff’s recommendation, based on the current draft of the prospectus, would be that a receipt not be issued for the prospectus on the basis that it would not be in the public interest to do so.—Scott Harrison, CEO of Azure
Because Azure’s current liquidity position leaves it without sufficient time or cash resources to pursue being heard before the Director of the OSC and, if necessary, to appeal any decision of the Director following such hearing to a panel of commissioners of the OSC, Azure’s Board of Directors determined that the best remaining alternative was to pursue a restructuring under the protection of CCAA.
The Board of Directors strongly disagrees with any suggestion that it would not be in the public interest to issue a receipt for the prospectus for the Offering. In our view, any determination of what is in the public interest should weigh all relevant interests, including the interest of the Company in being able to access the capital markets and the interests of the Company’s existing shareholders, employees, suppliers, customers and other stakeholders.
Potential investors had the benefit of very detailed risk factor and other disclosure regarding the Company’s liquidity and financial hardship, and the Company was prepared to include in the prospectus virtually all additional disclosure demanded by OSC Staff, except where it was not possible for the Company to include the demanded disclosure.
In the circumstances, we are deeply troubled by the notion that investor protection would require allowing such unfortunate consequences to be visited upon a world industry leading company and its existing shareholders, employees, suppliers, customers and other stakeholders, particularly given our understanding that investors themselves, having had the benefit of such detailed disclosure, continued to have significant interest in the Offering. We wish to convey to the Company’s stakeholders both our terrible sadness at this outcome and our commitment to pursuing the best outcome remaining available in the circumstances through CCAA proceedings.—Cam Deacon, Chair of the Board of Directors of Azure
Among its products, Azure developed the Balance Hybrid Electric drive system for Ford’s E450 Cutaway and Strip Chassis trucks and integrates its Force Drive electric powertrain into the Ford Transit Connect.