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An Alberta judge has denied a request from several businesses operating under the Sunterra banner to appeal a January civil court ruling that found the company engaged in “cheque kiting” and is liable to a U.S. lender for $35 million.
In an April 21 decision at the Court of Appeal of Alberta, Justice Michelle Crighton also denied American lender Compeer Financial its leave to appeal specific parts of the January ruling.
It means the original lower court decision remains in place. That decision also found Sunterra’s president, Ray Price, personally responsible, along with the Sunterra entities, for the losses.
Sunterra runs farm operations and a chain of popular grocery stores, with retail locations in Calgary, Edmonton and Red Deer.
Sunterra was aiming to appeal a January decision made by Justice Michael Lema.
In that decision, Lema wrote that Sunterra’s Canadian and U.S. companies sent cheques back and forth across the border “at high volumes, in large amounts, for reasons unrelated to actual business activity, with the express aim of ‘covering’ account shortfalls by the ‘deposit’ of incoming cheques themselves not anchored on actual cash balances.”
He wrote that “the irresistible conclusion is that Sunterra engaged in cheque kiting, on an astonishing scale.”
He likened the situation to the game of musical chairs, where there aren’t enough seats for the players when the music stops.
Sunterra had argued that both lenders understood and accepted the cheque-based system, which “aimed at ensuring, on an ongoing basis, that no overdrafts were experienced on either side of the border.”
In seeking an appeal, Sunterra argued that Lema “made errors of law, fact and mixed fact and law” in his ruling, and that Lema shifted the burden of proof unfairly onto them, and ruled that cheque kiting occurred “without expert opinion evidence.”
Crighton said although she acknowledged “the potential significance of the action to the parties,” she reviewed their proposed arguments and found them too weak to move forward, noting they lacked “prima facie merit,” meaning they did not look legally valid.
Compeer had also appealed specific parts of Lema’s ruling. In the ruling, Price was found personally liable for the debt, but Lema didn’t hold two other Sunterra employees personally responsible. Crighton declined Compeer’s request to appeal that part of the ruling.
Since last year, Sunterra has been operating under the Companies’ Creditors Arrangement Act, an insolvency process designed to give companies time to restructure while temporarily shielding them from creditors.
Art Price, the company’s chairman, said the Court of Appeal decided Sunterra did not meet the threshold that applies to CCAA rulings, and therefore the leave to appeal was denied.
“The normal CCAA process continues and we expect to have the amount of the damages awarded to Compeer finalized in the next few weeks,” he wrote in a text message.
“Once that determination is made, we expect to develop a restructuring plan or other strategic transactions that, subject to court approval, would allow Sunterra to deal with its creditors and emerge from CCAA as a going concern.”