So much to do, so little time. While LCC’s provided a fair amount of “grist for the mill” as it were, other duties have taken most of my time – so apologies for the long absence.
But! Nearly 18 months after they were appointed liquidator KPMG has finally published their second report on Shepherd’s Village Ministries(1). After reading it, it was such a mess I had to take an evening off to write about it.
To keep things simple I’ve used bullet points to detail the “interesting bits” and add some discussion where appropriate.
I’d also note that portions of the report discuss possible options for moving forward. KPMG will not implement any of this until they have been given permission has been given by the courts – which they’ve asked for in their court application here.
- SVM was organized in June 1999
- It’s purpose was to build housing accommodations for mature adults and senior citizens in Valleyview, Alberta consistent with that objective and the concept conceived by the local Lutheran church in Valleyview, Alberta. (That would be Good Shepherd Lutheran, Valleyview. See my earlier article for a discussion of GSLV’s connection to SVM.)
- SVM is named in a number of lawsuits such that even determining the identity, nature and extent of all of its stakeholders is problematic.
- In addition to the litigation question is the legally complex life-lease structures which will be hard to sort out.
- The SVM BOD voted to wind up SVM in March, 2017 after which the courts appointed KPMG as liquidator.
- Since taking over operation of SVM, KPMG has accepted residence payments, used the proceeds to pay the operating costs, and left the remainder of the funds in a trust account.
- When KPMG took over operation of SVM, SVM’s books’ listed ~$99K in oustanding dues and fees that were over 90 days. After review and analysis KPMG determined that the accounts-receivable records were out of date, all the accounts were current, and that nobody’s fees were past-due.
- KPMG’s review of the accounting records deemed SVM’s records to be so incomplete such that determining what was owed to unsecured and secured creditors could only be determined via a court-approved claims process.
Consider that SVM had ~$17M worth of funding at one point – how could they not afford a decent book-keeper to keep its records straight?
- KPMG has also endeavored to undertake various repairs and maintenance to the properties.
- A review of the 36 life-leases showed that 10 of the life-lease units were being sub-let w/out prior permission from SVM.
- KPMG has also discussed a proposed resolution to the 36 life-lease residents which would see their leases converted to straight ownership.
Some of the SVM lots were supposed to be part of a condominium structure – here’s KPMG’s comments about what they found:
49. The Liquidator is of the view that SVM and the Condo Corp. are not in compliance with various sections of the CPA, for the following reasons:
a) The lands which form Shepherd’s Village have not been conveyed to the Condo Corp.;
b) The Liquidator has been unable to confirm when the last annual general meeting of the Condo Corp. was held, if at all, and who the current slate of directors are, if any (as required by sec. 28 and sec. 30 of CPA);
I’d interject that the presence of a BOD is a legal requirement for incorporated companies. No BOD, no company. The need for a continuation of it’s BOD was a major reason behind LCC’s restructuring.
c) The Condo Corp. has been receiving funds on an annual basis from SVM for the purpose of establishing and maintaining a reserve fund (discussed further below), but it is unclear if the requirements of s.38 of CPA and the associated regulations are being met;
d) The Condo Corp. does not appear to have any employees or any service agreements in place for the purposes of managing day to day business;
e) Historically insurance coverage has been placed naming Condo Corp. as the insured entity even though Condo Corp. does not own Shepherd’s Village, SVM does (possible noncompliance with s. 47 of CPA);
Imagine if something happened to the physical condominiums….like a fire. “Ooops – the corp was insured…but since they don’t own the buildings you’re in, they’re not covered and we won’t pay.” (2)
f) The Condo Corp. does not appear to be in compliance with its bylaws; and
g) The current operational status of Condo Corp. is unknown
What makes this a serious concern is that the Condo Corp was receiving payments to support a reserve fund. A reserve fund is money set aside for big-ticket expenses you know are coming – such as replacing the roof, worn-out door locks, paving and sidewalk work, new furnaces and/or water heaters, and the like. If this money “went missing” along with the $12M CEF “forgave”, when the time comes to do the mandatory big-ticket project (like putting on a new roof) – the funds would have to be found somewhere, and that “somewhere” would probably be in the form of a hefty assessment of the condo owners.
- Since the Condo Corp’s status was unknown, KPMG deposited the ~$35K that would’ve gone to the Condo Corp in a trust fund.
- Investigation is ongoing on the status of past reserve fund payments, and KPMG is suggesting the court should appoint them to investigate the Condo Corp.
- At this time no professional fees have been levied, and a $17K fee to appoint a Liquidator is still outstanding.
KMPG is also exploring ways to realize value from the assets.
a) Sale to known third party – a not-for-profit 3rd party expressed interest in 2015 and 2017.
b) Sale to the Town of Valleyview – The town of Valleyview once expressed interest in one lot, but has since declined to make any formal offers.
c) En bloc Sale of the Lands. This option would see all of the Lands exposed to the market and offered for sale on an en bloc basis. This option has a number of problems, particularly for assets encumbered by the life leases.
d) Maintain status quo – KPMG would continue to operate SVM until the life leases expire, potentially adding 36 properties to the portfolio of saleable assets. This course of action comes with a number of problems not the least of which is that the last life lease unit may not become available for over 20 years.
Since none of these options appear feasible and just, KPMG is recommending:
- Investigating and normalizing the Condo Corp
- Subdivide one parcel of land into one common property and one saleable lot
- Convert the life leases into a fee-simple ownership for each residence
- Sell the rest of the assets as a single block.
Investigating and normalizing the Condo Corp would entail (paragraph 69):
a) Take possession of Condo Corp.’s bank accounts;
b) Take control of Condo Corp.’s operations;
c) To the extent practicable, have financial statements prepared;
d) Determine the current status of the property in terms of compliance with the reserve fund requirements;
e) Undertake the subdivision of Unit 52, as described above;
f) Hold an annual general meeting and constitute a functioning board of directors; and
g) Modify the existing by-laws of the Condo Corp., as required
In short, figure out the Condo Corp’s current state and what will be needed to bring it up to date.
- A review of the life leases compared to the market value of the respective units shows that the “entrance fee” paid by the residents is very close to the current market value of the units
- All told, the best way to monetize the life leases is to convert them to fee-simple ownership for a flat fee of $5k – $10K plus other legal fees and disbursements as required.
- Any fees collected under this arrangement would then be held in trust until further order of the Court.
Any remaining property including undeveloped land and rental units would be sold in due course.
85. The Liquidator is of the view that the above process, in the order contemplated, is fair and reasonable and a just and convenient method of concluding this matter and resolving the various issues in respect of SVM.
86. Specifically, the above process will bring certainty to the current and future residents of Shepherd’s Village, including those with Life Leases, while also enabling the Liquidator to realize value for the stakeholders of SVM. Additionally, the normalization of the Condo Corp. will ensure it is compliant and able to support the residents on the site.
A number of appendixes follow with specific details on topics discussed in the report. Appendix E is the development agreement between Good Shepherd Lutheran and the town of Valleyview dated Sept 1998.
To reiterate – this is just a report and further action has not been approved by the courts. You can read KPMG’s application for approval of this report and appointment as the condo corp investigator here.