ABC District CCAA Proceedings Update 2020-08-18

For anyone that had money in the ABC District CEF and DIL funds on Jan 15, 2015, that day will forever be burned in their memory. That’s the day that then-DP Schiemann announced a “perfect storm” had resulted in “sufficient cash flow shortage” which rendered CEF unable to repay its depositors.

Eight days later the courts appointed Deloitte Restructuring to be the CCAA Monitor for the courts.

Aug, 18 2020 is ~5.5 years later, and in that time the Lutheran church depositors learned that the ABC District had taken their trust, abused it like a junk car, and completely broken faith with them. Instead of safely using their savings to extend loans to churches and schools, District had “invested” in highly speculative business development and real-estate ventures, broken many conflict of interest rules, treated CEF funds like a personal slush fund, and told the Lutheran church community their investments were safe while at the same time discussing voluntary bankruptcy behind closed doors. (You can read some of the sordid details in the ABC District Task Force First Report.)

Today I am pleased to report that the CCAA process is nearly complete and it looks like we’ll have this part of the mess behind us by the end of 2020.

Deloitte Restructuring has issued a court application and their “Thirty-Ninth Report” which details how they intend to work with District to wrap up this whole mess.

In summary, the Monitor and District plan to:

• Add unclaimed distributions to the pool of funds that go into the final distribution,
• Issue the final distribution in accordance with the District Plan. This distribution includes funds from the sale of the Tuscany lands, the ASC Settlement Funds, cash deposits from Lakeview Bonds, and any other applicable funds,
• 90 days after the distribution is made, transfer any still-unclaimed funds to Sage Properties,
• Transfer a proportionate distribution of funds from the sale of Foothills Lutheran Church property to Foothills Lutheran Church and Sage Properties,
• Transfer the District’s Lakeview Bonds to Sage.

In addition the Monitor will ask for approval to pay all remaining professional services fees and disbursements.

Once all the distributions and other related actions are complete, the Monitor can close the business accounts and issue certificates for District, DIL, ECHS, and EMSS.

There’s some wrinkles to be aware of –

First – funds from the ASC settlement will only be given to the CEF depositors and not the DIL depositors. The reason for this is that DIL depositor accounts are all tax-advantaged while CEF depositor accounts are not. Getting money to the DIL depositors in a way that did not compromise their tax advantages would incur a substantial investment in professional services that would consume a substantial percent of the final distribution. Since many of the DIL depositors are also CEF depositors, it was felt that this was the best way to get the most value back to the original depositors.

Second, approximately 123 depositors have not claimed their distributions leaving ~$26K in funds still unclaimed. The Monitor went through significant effort to contact the depositors, to no avail. Since the funds need to be disbursed one way or another, the decision was been made to add this money to the final distribution.

Third, given that some funds have not been distributed to date, the Monitor anticipates that the final distribution will also have unclaimed money. Since the CCAA needs to be concluded any funds not claimed 90 days after the anticipated distribution date of Sept 15, 2020 will be transferred to Sage properties. Once this has happened, all outstanding depositor claims will be considered discharged.

Fourth, District held ~250K fixed income bonds in the Lakeview Hotel Investment group. Attempts to sell these bonds attracted little interest since District holds a large position in Lakeview Corp, making these bonds essentially illiquid. Rather than selling these bonds at fire-sale prices, the decision was made to transfer them to Sage for further handling.

The rationale for transferring certain assets to Sage is that many of the CEF and DIL depositors are also Sage shareholders, and it was felt that this was the best way to get the most value back to the depositors without incurring extraneous professional services fees. (At an average of $338 / hr, the Monitor’s professional services fees add up pretty quick.)

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Upcoming dates to keep in mind:

• Aug 24, 2020 – District and Monitor appear in court to make their application
• Sep 15, 2020 – If the application is approved, the final distribution will be issued
• Dec 14, 2020 – Deadline for depositors to claim their distribution
• Dec 15, 2020 – Remaining assets eligible to be transferred to Sage Properties,
• Jan 15, 2021 – Sixth anniversary of District’s “sufficent funds shortage” announcement.

Keep in mind these are my dates based on my best information – the Monitor’s dates are the official ones to use.

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Once all this done, the Monitor can issue certificates that the CCAA process is complete.

After the certificates are issued and the court lifts any remaining stays, the curtain on this act of the ABC District debacle will be closed.

Act II of this debacle will start when the CEF and DIL representative actions begin in earnest.

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Update 2020-08-18: Turns out Aug 2020 – Jan 2015 is 5.5 years, not 4.5 years. Thanks for the reader that caught that!