The Saint-Georges, Quebec, company filed for Chapter 15 protection in the U.S. Bankruptcy Court for the District of Massachusetts in Worcester on Wednesday, Jan. 4. Norgate seeks to protect its U.S. assets as it reorganizes its debts in Canada.
Norgate is set to seek recognition of its proceeding under the Companies' Creditors Arrangement Act from Judge Melvin S. Hoffman on Feb. 2. Recognition of the CCAA case as a foreign main proceeding under Chapter 15 would prevent creditors from moving on Norgate's U.S. assets while it's in bankruptcy protection in Canada. The assets consist of contracts to make and install steel structures at New England construction sites.
The debtor sought CCAA protection in the Quebec Superior Court on Nov. 15 and was initially granted an automatic stay on Nov. 23. Judge Jean-François Emond of the Quebec court extended the stay to Feb. 9 in a Dec. 21 order.
Founded in 2004, Norgate engineers, manufactures and installs steel-based metal structures. The company, however, closed its manufacturing plant on Aug. 1.
According to a statement by Luc Poulin of Ernst & Young Inc., the court-appointed monitor in the Canadian proceeding, all of the debtor's operations and about 20% of its sales are performed in Canada. The rest of its revenue comes from the U.S.
Norgate's financial troubles began in November 2010, when it entered a contractor agreement with Aurora Contractors Inc. to enter the steel market in New York. Norgate had expected the contract with Aurora to yield a gross and net profit of about $510,000 and $270,000, respectively, according to Poulin. Norgate then retained Northstar Erectors Inc. as the subcontractor to install steel structures in New York.
Days before Norgate was to start operations in New York, though, Northstar backed out of its obligations due to financial difficulties. Norgate rapidly tried to replace Northstar and found Structures Derek International Inc. to perform the subcontractor duties.
Aurora, however, increased the amount due when Norgate switched subcontractors from $1.4 million to $3.25 million, resulting in a $1.85 million loss for Norgate. Furthermore, Norgate underestimated the amount of steel needed to complete a metal structure, resulting in another $600,000 loss.
Meanwhile, the price of steel jumped from $120 per metric ton to $135 per metric ton between January 2010 and April 2011, while the exchange rate of a Canadian dollar to U.S. dollars increased from 95 cents to $1.05.
The increase in steel costs and the appreciation of Canadian currency hurt Norgate's ability to generate a profit in the U.S., Poulin said.
Moreover, Poulin said Norgate's financial troubles have caused its bonding insurer, La Garantie, to stop providing coverage. La Garantie has covered Norgate's operations since 2004, but it informed Norgate on June 22 that it would not cover any new projects.
According to Norgate's unaudited records as of Sept. 30, less than a quarter of its total creditors are located in the U.S., Poulin said. Norgate has five secured and 168 unsecured Canadian creditors and only 41 U.S. creditors, thus Poulin requested that the U.S. creditors be stayed from interfering with Norgate's U.S. assets. Any U.S. litigation or other actions could hurt the company's CCAA proceedings.
In the CCAA proceeding, Norgate obtained a roughly C$1.28 million ($1.26 million) debtor-in-possession loan from Quebec- and Montreal-based lender Distnet Inc. Distnet originally agreed to offer C$675,000 on Nov. 15 but boosted the DIP to about C$1.28 million, according to a Dec. 21 order approving the financing.
Poulin estimated Norgate's assets at C$4.2 million in documents. The Chapter 15 petition pegs the assets and liabilities between $10 million and $50 million.
Stacey Metro of Deily, Mooney & Glastetter LLP is counsel to Norgate in the Chapter 15 case.
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