After a Receivership Order for Contac Services Inc. was issued earlier this month, the company is now expected to go up for sale, as per the recommendation of its Receiver.
A. Farber & Partners Inc. was appointed Receiver on Dec. 2, 2014, and last week, released its first report outlining the current status of the company, including assets Onewurld Supply Chain Solutions Inc. and Mywurld Solutions Inc. The document sheds some light on business operations as a result of its downturn, and provides recommendations for next steps.
The report suggests that a sales process get underway, subject to approval by the court, saying the Receiver believes this "is the most appropriate strategy to maximize recovery for the benefit of all stakeholders."
Norrep Credit Opportunities Fund, LP (NCOF), which Contac allegedly owes approximately $32.5 million, has expressed its intent to bid on the Onewurld and Mywurld businesses by way of credit bids, according to the document.
Other alleged debts include $3.76 million to Amin Holdings Inc. and approximately $25.5 million in unsecured creditor claims, the largest being to former CEO Riaz Pisani (who resigned his position on Dec. 3), Best Buy Canada, Fedex and landlord claims.
Farber's preliminary assessment has concluded that "any recovery by unsecured creditors or secured creditors of CSI ranking subordinate to NCOF is highly unlikely."
As outlined in other court documents, Contac is not paying liabilities as they become due, as allegedly source deductions for three payroll runs in October and November totaling approximately $230,000 (normal deductions plus some arrears of deductions) were due recently "and the Company does not have the funds to make payments," plus, Contac & Onewurld are in arrears of their obligations to pay HST in the amount of $30,000.
As of Dec. 2, Mywurld has been paid $82,466 from customers for future travel dates - funds which the report states were used to fund ongoing operations. Failure to pay the travel suppliers prior to the intended customer travel date would result in the customer not having the travel booking confirmed, and as such (among other reasons), Farber has recommended that this amount be paid in order "to continue normal operations."
The preliminary review of Contac operations has concluded that the Mywurld operation has been "cash flow negative on a monthly basis for a number of years." Farber's report says that Contac relied on cash flow generated from the Onewurld business to fund the ongoing operating losses of Mywurld.
Contac employs approximately 80 employees in the Onewurld operation and 50 under Mywurld, though the report said that seven employees were terminated at the time of the Receivership Order. The Receiver suggests that another 10 contracts are "required to be terminated in the restructuring," and that these employees would be notified "effective immediately."
All documents currently available from Farber can be found at this link.