Nygard companies won't be put into receivership for now, Manitoba judge decides

It will be business as usual for at least another week for a number of companies owned by fashion tycoon Peter Nygard, after a Manitoba judge decided not to force companies into receivership.

Manitoba Court of Queen's Bench Justice James Edmond said Friday he is instead giving them a week to repay their American lenders.

On Tuesday, White Oak Commercial Finance LLC and Second Avenue Capital Partners asked the court to place nine Nygard companies into receivership, in order to recoup a loan worth more than $25 million US.

The Nygard group promised to repay the money by March 20, and the judge said Friday he would give the companies a chance to do that.

"I'm satisfied that it is in the best interests of all the creditors to permit the respondents to restructure and make a viable proposal to the creditors pursuant to the proposal process," Justice Edmond said.

"That said, I'm not satisfied the Nygard group has been dealing with its lenders in good faith, and the appropriate action to take is to impose deadlines on the Nygard group."

He also said his decision could change "if reasonable steps are not taken by the Nygard group to pay the outstanding indebtedness to the applicant by [March 20], and/or if there is further evidence that the Nygard group fails to comply with the credit agreement."

I expect to pay very close attention to where this is going to go in the next week and make a further determination on whether the receiver should be appointed next Friday.- Justice James Edmond

Edmond also noted that while Nygard's court filings stated Peter Nygard had resigned as director and officer of the companies, he found no proof of that.

"There is no evidence that Mr. Nygard has indeed resigned and 100 per cent of the shares of the Nygard group are currently held by him."

He instructed the Nygard group not to dispose of any assets, or transfer shares or funds from its corporate bank accounts to other accounts without the consent of the proposal trustee and its lenders — unless it's part of the normal course of business.

Lawyers for the lenders flew from Toronto to Winnipeg this week to urge the court to take control of Nygard companies.

"Every single thing this company says they're going to do, they don't," White Oak lawyer Marc Wasserman said in court on Thursday.

All parties are expected to file further submissions next week and will meet in front of Justice Edmond next week.

"I expect to pay very close attention to where this is going to go in the next week and make a further determination on whether the receiver should be appointed next Friday," said Edmond.

'We were rebuffed each time': White Oak lawyer

White Oak says in December the lenders entered into a credit agreement with the Nygard group of companies to provide financing. It went into effect in January, but by the end of February they terminated the agreement and demanded Nygard pay back more than $25 million USD.

"The loan was called. The loan was accelerated. The agreement's been terminated," Wasserman said in court. 

"There is no more funding permitted unless we decide to fund. We told them that. We gave them ample opportunity to fix this. We asked for a meeting after meeting after meeting. We were rebuffed each time."

He said the lenders advanced the Nygard companies about $27.8 million under the credit agreement. Part of the deal was that Nygard would engage a financial advisor.  

"White Oak has attempted to work with the Nygard group to seek solutions to its financial and liquidity issues, but it has lost all trust and confidence in the Nygard group and its management and is no longer prepared to fund the Nygard group outside of a court-supervised process," White Oak said in its written application to the court.

"You can not leave this company in control. You cannot. You should not," said Wasserman.

Nygard employs 1,450 people worldwide, operates 169 retail stores in North America, and supplies products to wholesale retailers Costco Wholesale Canada Ltd. and Walmart Canada.  

Up until Feb. 25, American retailer Dillard's was Nygard's biggest customer, and had represented 67 per cent of its wholesale business. Dillard's publicly dumped the company the same day the FBI and NYPD raided Nygard's New York and California offices in connection with an investigation into sex trafficking.

"If there's ever a case a court could find a company isn't acting in good faith, this is that case," White Oak lawyer Jeremy Dacks told the court.

Nygard wants to remain in control of companies

The Nygard group says it has $100 million in assets, including four properties in Winnipeg and Toronto that were used in a debenture to secure the White Oak loan. In court filings Nygard says they are assessed at more than $27 million. The company also says it has $67 million in inventory.

Earlier this week, the Nygard group filed a notice of intention to file a proposal under the Canadian Bankruptcy and Insolvency Act. It's asking an Ontario court to allow the company to remain in control of its assets, and instead use the help of a trustee to restructure finances to avoid bankruptcy.

In court filings, Nygard says it's in negotiations with Great American Capital "to complete financing by March 20, 2020, to pay the loan owing to White Oak." 

It also says White Oak is "over secured" on Nygard properties and that it recently got a $24-million offer for purchase on its Toronto headquarters.

"Nygard is in current negotiations with Perry Ellis in a sale of inventory and services that would ensure Dillard's could continue to serve its existing Nygard customers through a new product label," the company says in its court filings.

White Oak is painting a less rosy picture.

"The Nygard Group's wholesale business continues to be in freefall and the lenders' collateral continues to erode," said White Oak in court documents.

"Collections on outstanding accounts receivable have significantly slowed (including the $9.3 million accounts receivable attributable to Dillard's, representing approximately 49 per cent of third-party accounts receivable)."

White Oak says there is about $11 million of inventory in transit that has not been paid for, and shipments to Dillard's have essentially been frozen for two weeks. 

Nygard faces a class-action lawsuit in New York filed by 10 women accusing him of raping them and running what they called a "sex trafficking ring."

Nygard denies the allegations, which have not been proven in court. There are no criminal charges associated with any of the claims.

Concerns about money to pay employees

White Oak says it's been providing funding for the last four payrolls and was concerned Nygard wouldn't have money in place in time to pay employees this week.

"As we stand here right now payroll has not been funded. Payroll has not been made," said White Oak lawyer Jeremy Dacks. "If the receivership was ordered on Tuesday, this chaos would not have happened. And payroll would have been funded."

Nygard's lawyer said his client had sent a wire transfer and that it would make it in time.

Dacks said the money did in fact arrive, but the Nygard company had it redirected into another one of its bank accounts.

On Friday, Justice Edmond had some strong words for Nygard about that.

"[If] funds that were deposited for the purpose of paying payroll [are] moved to other accounts that aren't the business accounts of Nygard, that's a serious concern of the court, I can tell you that," he said. "That money should be back in there immediately."

Late Thursday, court heard Nygard would close its offices and distribution centres in Toronto and Winnipeg for two weeks because of the coronavirus.