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Eron Mortgage Corporation's ("EMC") Distribution Issues - January 14, 1999
Dear Lenders:
As you are aware, numerous distribution issues exist which affect how a specific Lender's interest in an EMC mortgage or project will rank relative to other Lenders. These issues have to be addressed and answered prior to the Judicial Trustee distributing any funds to the Lenders.
To address these distribution issues, on September 11, 1998 the Court directed the Judicial Trustee to prepare a report detailing the following information:
* the factual background of amounts invested with EMC;
* the nature of the documentation provided to the Lenders;
* a description of how these transactions were recorded by EMC; and
* the various interpretations of the legal and equitable status of the Lenders to claim a beneficial interest in the projects.
The Judicial Trustee completed the above report in December 1998. To argue the distribution issues addressed in the report, the Court appointed David Fredricksen counsel for certain Lenders opposed to pooling and David Hobbs counsel for certain Lenders in favour of pooling.
We appeared before the Honourable Mr. Justice Tysoe on December 18, 1998 to seek further directions from the Court. The Court ordered that there be an application before Mr. Justice Tysoe to be heard on February 4 and 5 1999, commencing at 10:00 am, at the Court House located at 800 Smithe Street, Vancouver, BC. Mr. Justice Tysoe will hear submissions on the following six questions as set out in the Judicial Trustee's report of December 1999.
1. Are Lenders whose funds were deposited into the 290 Account entitled to a return on their advance based on the recovery on the specific mortgage to which their advance was credited in the project ledger, or are all proceeds from projects that received funds from the 290 Account to be pooled and paid pro rata to all Lenders regardless of the term sheet they received or the accounting in the general ledgers? For your information the 290 Account was Eron Mortgage Corporation's general account and most of the funds advanced by Lenders were deposited to this account.
2. Are the Lenders whose funds were deposited directly to a Bare Trustee's account entitled to a return on their advance based on the recovery on the specific mortgages? Do these Lenders rank in priority to Lenders who advanced their funds to the 290 Account?
3. Are the RRSP Lenders whose funds were forwarded to Laurentian Bank entitled to a return on their advance based on the recovery on the specific project?
4. Are the RRSP Lenders whose funds were initially deposited into the 290 Account or Bare Trustee's account entitled to a return on their advance based on the recovery of the specific mortgage?
5. Are the Lenders whose funds were advanced by their own legal counsel directly to the project with their advances being recorded in the project ledger entitled to a return on their advance based on the recovery of the specific project?
6. Are Lenders who by a direct payment to another Lender in substitution for their own advance to a project entitled to a return on their advance based on the recovery on the specific project? Do the new Lenders assume the priority of the Lender they replace?
These questions set out above, while considered the more significant distribution issues, are by no means all the issues addressed in the Judicial Trustee's report. Once the above six questions have been answered, another Court date will need to be set to resolve the remaining distribution issues.
The Court will hear from court appointed counsel, the Judicial Trustee's counsel (if necessary) and counsel for any Lender or project which has retained counsel. Individual Lenders will also have leave, subject to the Court's discretion, to make submissions to the Judge regarding the above questions provided that any factual matters must be supported by sworn affidavit evidence. No communication should be sent directly to Mr. Justice Tysoe.
We will keep you informed as further information is available. If you have any questions, please either mail or fax your query to the attention of Mr. Deryck Helkaa.
Yours very truly
PricewaterhouseCoopers Inc.
Judicial Trustee
Craig Bushell
cc. David Hobbs, Hobbs & Leigh
David Frederickson, Frederickson Law Corp.
Peter Lee, Davis & Company
Rose-Mary Basham, Basham & Company
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