By Staff

June 26th, 2018

BURLINGTON, ON

The poultry processing plant on Paletta Court went up in flames on December 6th, 2017.

Most people understood the building to be the home of Paletta International.

Besides having Paletta corporate and administrative offices, the building housed a meat processing operation that was known as Tender Choice, which was the operating name for Blue Goose Pure Foods Ltd.

That company, Blue Goose, a private company is owned by Dundee, a publicly traded company.
The Paletta family is no longer in the meat processing business.

The Paletta brothers for and their Dad Pat.

The building itself has always been owned by Paletta International and Paletta Bros. Four Limited. A portion of the building is leased to the Blue Goose operation with the rest used by the Paletta family for their various business operations.

On December 14th, Blue Goose was subject to an interim receivership proceeding.

HSBC Bank of Canada had loaned Blue Goose $33,961,934.79 which Blue Goose was unable to repay after the December 6th fire.

Meat processing operations had to be discontinued.

Paletta head office before the fire.

Blue Goose operated out of leased premises; the building at Paletta Court is owned by Paletta International through a holding company.

On December 21, a receiver was appointed.

Deloitte Restructuring Inc., was named as the Receiver.

As Receiver Deloitte sold moveable and production equipment for proceeds of $395,000

Blue Goose had inventory that consisted of 685,000 kilograms of unprocessed whole turkeys and 75,000 kilograms of turkey drumsticks that were stored in several refrigerated locations. That inventory was sold to Export Packers Export Ltd

A payment plan was put in place for receivables due Blue Goose from a significant customer.

The Receiver engaged the Debtors former Divisional president Paul Paletta to act as its sales agent. A total of $525,500 worth of inventory was sold

Blue Goose was declared bankrupt on June 05, 2018

A trustee was appointed on the same date.

A meeting of the creditors is to take place in Toronto on June 27, 2018, 11:30

The unsecured creditors are due $ 1,613,516.13

HSBC Bank of Canada, the only secured creditor, is due $33,961,934.79

The property is owned by Paletta International and Paletta Bros. Four Limited.

Much of what follows was picked up from the filings the Receiver is required to make to the Court that is overseeing the bankruptcy proceedings. The language is dense, legal and not that easy to follow. We have inserted short explanations in several sections of what follows.

This news report is one of a least two reports. We want to determine what the report from the Fire Marshal says on the cause of the December 6th, 2017 fire.

And we hope to determine just what is going to happen to the building at aletta Court. Does the whole thing have to come down?

“Prior to its acquisition by Dundee, the business operating out of the Leased Premises was owned and managed by affiliated companies and members of the Paletta family of Burlington, Ontario, whom the Receiver understands have multiple business interests including food processing, real estate and construction and media and entertainment.

Angelo with his father Pat Paletta. Angelo is the voice of the company, outgoing, popular a true bon vivant

“Paletta International Corporation (“PIC”), PIC was founded in 1951 by Pasquale (Pat) Paletta and operated with significant involvement of the other Paletta family members. The Paletta family operated the Tender Choice Foods business at the current site since the 1960s until it was sold to Dundee.

“Pursuant to the Asset Purchase Agreement effective as of September 1, 2016 (the “APA”), the Debtor purchased the business of Tender Choice Foods from the Paletta-controlled entities. After the purchase of the business, the Debtor engaged certain members of the Paletta family to assist senior management with various capacities of the business.

“Blue Goose, in its current form, began operations on October 17, 2016. Blue Goose, as purchaser, financed the purchase price pursuant to the APA with a mixture of debt and equity, with the equity being provided by a related Dundee entity and the senior secured debt financed by the Bank. The current indebtedness to HSBC as of the date of this First Report is approximately $34 million.

Tender Choice Foods is the operating name.

“Pursuant to the APA, Blue Goose acquired all of the assets formerly used in the business of Tender Choice Foods Inc. and Tender Choice Foods (2016) Inc. Although the Debtor acquired all of the personal property of the Vendors, it did not acquire an ownership interest in the Leased Premises. In order to retain use of the Leased Premises, a lease agreement dated October 17, 2016 (the “Lease”) was executed between the 2519459 Ontario Inc. (“251 Ontario”), as lessee, and Paletta Bros. Four Limited as landlord (the “Landlord”). The Receiver has been advised that the Landlord is the agent of Penta Properties Inc. (“Penta”), which is the beneficial owner of the Leased Premises.”

Blue Goose, a private company controlled by a public company buys the Tender Choice meat processing operations but it does not buy the property.  The property and the buildings are kept by the Paletta family through Paletta International.  They lease a portion of the premises to Blue Goose.  The lease is held by Paletta Bros Four Limited.

“The Lease was subsequently assigned to the Debtor by 251 Ontario on October 17, 2016 by way of a Consent to Assignment of Lease agreed between the Landlord, 251 Ontario·, the Debtor and Blue Goose Capital Corp. Blue Goose Capital Corp. is the parent company of the Debtor. The Lease has an initial term of ten years.

“The Leased Premises contain a number of discrete areas. In addition to the area containing the food processing equipment, there were two separate office areas. One was used by the Debtor for its administrative staff with the other being retained by the Landlord for its own use, which was contemplated by the Lease. Such retained area approximated 10,000 square feet of office space. The Lease contemplated that the Debtor would pay rent to the Landlord and certain entities related to the Landlord, would, in turn, pay for the retained office space, although no rental amount was ever formally agreed by the parties after the one year rent-free period set out in the Lease.”

The Debtor is Blue Goose, the Landlord is Penta.  Rent money is moved from one to the other with a one year no rent period of time.   That one year becomes relevant.

“At the time of closing of the APA, the Debtor took over operations and carried on business in the normal course, subject to regulatory oversight typical for the food processing industry. Given that its food products are processed for human and animal consumption, the Debtor was subject to the supervision of the Canadian Food Inspection Agency (“CFIA”). The CFIA oversees food production in Canada and, according to its website, is “dedicated to safeguarding food, animals and plants, which enhances the health and well­ being of Canada’s people, environment and economy”.

“Pursuant to its mandate, the CFIA has the ability to inspect food processing operations and, if necessary, to issue corrective action requests (“CARs”) which set out certain actions that must be undertaken by licensed facilities. As a result of a number of CARs issued to the Debtor, operations at the Leased Premises were suspended by the CFIA on November 10, 2017 (the “Suspension”), with the effect of such Suspension limiting the Debtor’s ability to process and ship product to customers from the Leased Premises. The CARs required, among other things, that the Debtor undertake a number of improvements to the Leased Premises prior to the operational suspension being lifted.”

Tender Choices is sold by the Paletta family to Blue Goose in September 2017.  Two months later the Canadian Food Inspection Agency shuts down the food processing operation until certain deficiencies are taken care of.  The deficiencies are called CARS Corrective Action Requests.

The east side of the structure was destroyed by the December 2017 fire.

“Immediately following the November 10th, 2017 Suspension, the Debtor commenced significant repair and maintenance activities within the Leased Premises. Such activities included, but were not limited to, the following:

(a) Replacing sprinkler systems in production areas;
(b) Repairing portions of walls and doors;
(c) Fixing cracks in floors and regarding flooding to minimize water collection;
(d) Upgrading employee changing areas; and
(e) Re-tiling certain floors and walls.

“During the period from the date of the Suspension to December 6, 2017, approximately $1.3 million was spent on repairs to the Leased Premises. Such costs represent amounts paid to contractors and employees, which amount includes payroll of approximately $431,000 paid in the normal course as certain employees were assisting with the plant remediation efforts.

“In addition to the plant remediation costs noted above, approximately $1.9 million was paid to settle the outstanding accounts payable to the Debtor’s meat suppliers in anticipation of Blue Goose resuming operations, which was planned for mid-December, 2017. This date was dependent on the CFIA’s approval of the remediation efforts as contemplated in the CARs.

“The plant rehabilitation continued from November 10, 2017 until December 6, 2017, on which date a large fire consumed a portion of the Leased Premises (the “Fire”).

“The Debtor’s- insurance brokers and insurance company, Everest Insurance. (the “Insurer”), were notified and an adjuster, ClaimsPro (the “Adjuster”), was appointed to manage the Debtor’s claims (the “Claim”) arising from the Fire. Management had carriage of the Claim until the Receiver’s appointment. Since December 14, 2017, the Receiver has been in regular contact with the Adjuster in respect of the Claim.
As a result of the Fire, approximately 25% of the “footprint” of the Leased Premises was significantly damaged. Given the extent of this damage, a partial demolition of the Leased Premises has occurred and is currently ongoing.

A portion of the east side that has been torn away.

“Although the Receiver has been granted very limited, supervised access to the Leased Premises, safety issues arising from the extent of the demolition has prevented the Receiver from having access to many areas of the facility. In addition, the Leased Premises have been without heat, light, power and other utilities since the date of the Fire (i.e. December 6, 2017), rendering the Leased Premises unusable.

“The Receiver has not been provided a firm date by which time power and utilities will be restored to the Leased Premises and when safe access will be permitted by the supervising engineer in charge of the site. However, the Receiver has been advised that access may be available this month should certain demolition and stabilization efforts be completed by that time.

The smoke was so severe that it hampered rush hour traffic on the QEW.

“As a result of the Fire and the resulting loss of power over this extended period of time, the frozen inventories of the Debtor situate in the freezers and certain trailers at the Leased Premises were deemed to be a total loss. While much of the inventory is still frozen, there is a noticeable odour of ammonia within the large storage freezers due to damage to the refrigeration systems caused by the Fire, rendering the inventory unfit for sale or consumption. The Adjuster is currently assessing the most cost-effective manner to dispose of the” spoiled inventory given relevant timelines by which such work must be completed,

“Given that only limited access to the Leased Premises has been permitted to date, the Receiver has not been able to inspect and catalog the Debtor’s processing equipment to Ascertain damage from the Fire. The Receiver is hopeful that it will be able to undertake such inspection in the near future.

“Following this inspection, the Receiver will determine an appropriate realization plan for the processing equipment, office furniture and other assets within the Leased Premises.”

Matters related to the Lease

“Pursuant to the Appointment Order, the Receiver is not required to pay occupation rent on the Leased Premises without further Order of the Court. However, the Receiver is permitted to have un-restricted access to any prope1ty of the Debtor contained within the Leased Premises

The fire was massive; required support from several fire departments.

“As set out above, the Landlord subleases certain office space from the Debtor within the Leased Premises. As part of the Lease, the Landlord has the ability to disclaim the lease if the building becomes uninhabitable or otherwise unusable for a period in excess of six months.”

The Landlord, the Paletta corporation and the four Paletta brothers have the right to get out of the lease if the building become inhabitable.

“On January 16, 2018, Angelo Paletta, a principal of Penta, emailed the Receiver and enclosed a copy of a letter from Lanhack Consultants Inc. (“Lanhack”) addressed to Penta (the “Lanhack Letter”). The Lanhack Letter was dated January 5, 2018 and sets out Lanhack’s opinion with respect to the extent of remediation that would need to be done to the Leased Premises in order to repair it to its original state and make the Leased Premises suitable for its intended purpose .

“Lanhack is of the view that such remediation work would take in excess of 180 days. There is language in the Lease, which provides that: “If, in the opinion of the Architect, such opinion to be given to the Landlord within thirty (30) days of the date of such damage, the Demised Premises cannot be repaired or made fit for occupancy … within one hundred and eighty days (180 days) from the date of such damage.. ., then either the Landlord or Tenant may, by written notice of the other party given within thirty (30) days of receipt of such opinion of the Architect, elect to terminate this Lease, in which case Rent shall cease and be adjusted as of the date of such damage and the Tenant shall forthwith vacate the Demised Premises and surrender same to the Landlord”.

The Landlord gets an opinion from an architect saying that the building probably cannot be brought back to fit for occupancy condition within the 180 days set out in the lease agreement.

“Legal counsel to the Paletta family has advised the Receiver that the effect of the Lanhack Letter is that rent payments that would otherwise be owed by the Debtor are now abated .”

RECEIVER’S ACTIONS TO SAFEGUARD ASSETS AND STATUTORY DUTIES

Is the building going to be declared uninhabitable and be torn down?

“Before the demolition work commenced at the Leased Premises, the Receiver attended at the Debtor’s office to secure records and to move them to an off-site location. The Receiver also retrieved four servers from Dundee’s premises, which were being stored there temporarily after the Fire.

“Records retained by the Receiver include physical accounting records, various tax returns, computers and servers, and other information relevant to the business. The Receiver also arranged for the secure back-up of the Debtor’s computer records for record retention purposes.

“At the Receiver’s request, and given that there had been few receipts available to the Receiver owing to the Fire and the consequences thereof, the Bank advanced funds to the Receiver on January 4, 2018 to pay the outstanding insurance premium for the balance of the premium year, which term ends September 30, 2018.”

There is more to this story.

Can you see where this is going?

List of secured and unsecured creditors.