Life in the Atlantic Bubble – Insolvency Practice and Realization on Assets

Originally published in the Spring 2021 edition of CAIRP's Rebuilding Success

Creation of the Atlantic Bubble

With the threat and rise in cases from the COVID 19 pandemic, Newfoundland and Labrador, like the rest of Canada, entered a lockdown in the middle of March 2020.  Early on the Province experienced several super-spreader events.  One such event was traced to an individual who returned from mainland Canada to pay their respects.  The final count of the number positive cases contact-traced to this event exceeded 100 individuals. 

A few months later, when the initial lockdown was easing, provincial authorities of Newfoundland and Labrador, Prince Edward Island, New Brunswick and Nova Scotia, with increased knowledge of the virus and confidence that the residents would follow some basic prevention measures, created the Atlantic Bubble. 

The Bubble is an unrestricted travel zone for residents of the four provinces.  Individuals from any of the Bubble provinces can move freely within the four provinces and conduct activity with the same requirements as the locals in that area.  Anybody travelling into the region from outside the Bubble provinces would be subject to quarantine requirements, with some exceptions. 

Impact on Insolvency Files:

Managing insolvency engagements within the new reality of the Bubble impacted engagements when travel was required from individuals outside the Bubble.  The creation of the Bubble affected interaction with other professionals – such as lawyers, courts, appraisers, auctioneers and most importantly, buyers of assets.

Travel for local professionals, such as lawyers, LIT’s and staff within the Bubble, was challenging due to significantly reduced flight offerings by the airlines serving the region.  The geographic hurdles of provinces connected but far apart required the use of air travel or hours spent in vehicles or ferry services to move about.  Air Canada and Westjet, the two largest air carriers, drastically reduced the number of flights and airports they serviced in the Atlantic region. 

The reduction of air service affected how Atlantic professionals planned for court appearances, taking possession of a property and conducting meetings with stakeholders.  Professionals were faced with the challenge of managing the economics of using a higher priced local resource versus flying in other resources which may be cheaper, but they now must recover their costs of additional time to travel. In some cases, where there was no local support to assist the LIT, additional costs were incurred to have resources attend.

LIT’s were faced with the decision to try to train local resources, assessing the functionality of video-based meetings and other measures where getting professionals to site was not economically viable.  For the Atlantic provinces, access to reliable internet also limited the options available to a LIT managing engagements in remote locations.

LIT’s have adapted to manage their practices and ensuring the quality of the engagement is maintained.  The additional costs of time and use of other professionals has impacted the overall cost of the engagement.  LIT’s face a challenge of recovering these additional costs from the engagement or accepting a lower recovery on the engagement.

During the sales process for assets in possession, LITs rely on the use of appraisers.  The location of an engagement may not be readily accessible to appraisers.  In some cases, depending on the nature of the engagement, appraisers or other professionals used to determine asset values, would be located outside the Bubble. A successful LIT with a deep network of professional connections could locate resources to assist in the determination of asset values, however this is not a given and restricted travel limitations would have a significant impact.

In one case, a LIT obtained an appointment where there was specialized metal fabrication equipment. The appraisal service normally would have flown into the site, completed their inspections, inventory of assets and provided the LIT with a certified appraisal.  With the requirement to quarantine for two weeks, this option was no longer viable.  The LIT and the appraiser had to adapt to the current situation. The LIT team walked though the facility with a cellphone to video the equipment, with the appraiser online, to obtain the information required and provided the appraiser with video evidence of all items.  In addition, the LIT team member had to measure the dimensions of certain items and assisted the appraiser with reading of serial numbers, determination of make, model and brand of equipment.

Once the appraisal was in hand, the LIT commenced a tender sales process.  The impact of both the Bubble and travel within the Bubble impacted how interested parties could complete on-site inspections.  Remote prospective bidders sometimes had a local contact do the site visit on their behalf, while several more requested video calls to walk through the facility.  Two liquidators from Ontario and Quebec relied on the video walk-though in making their submission.

Auctioneers have been promoting their online auctions during this Atlantic Bubble. 

Fitzpatrick Auctioneers in St. John’s acts for LIT’s for the sale of smaller items such as pick-up trucks to “boxes of miscellaneous”.  Mr. Blair Loveless, owner of Fitzpatrick Auctioneers, advised that for the past number of years his firm has been obtaining good prices for industrial item  such as pipe, cable inventory, industrial tools and supplies, household estate contents through online auctions and in particular he believes the market of bidders may be wider than was attained with just in-person bidding.  Mr. Loveless states that with the Covid restrictions he can certainly expose auction items to more people through online than in person.  There are some unique features to online auctions that he believes work very well – such as a “soft close”, wherein the closing time for a particular item will be extended if there is a bid within the last five minutes prior to closing.  The auctioneer has control to set the option of soft close, the time period for triggering a soft close and the ultimate closing time.

The auction online site also informs viewers that they may attend at the auction warehouse to view any or all items.  There are specified times available.  There is a limit as to the number of people that can be in the warehouse at any time, so interested prospective bidders may have to wait for access.  Those who do not to attend the site of an in-person inspection are relying on the information of the website. 

Mr. Loveless advised that regardless of the warnings of buyer beware, there are occasions when a high bidder feels an item was not properly described and wants to cancel the purchase.  Generally however Mr. Loveless has been very satisfied with the results achieved through an online sales process. 

When it comes to higher value vehicles, Mr. Loveless takes a slightly different approach.  In addition to commenting on whether a vehicle is in working order, they will sometimes post videos of the asset in operation.  Social distancing has meant reorganizing the order for displaying items to be auctioned to limit crowding and moving of equipment, while at the same time accommodating the online bidders.

Mr. Loveless concludes that there are workarounds in the COVID world such as the use of technology, live auctions and determining which method best supports the nature of the assets being sold.  There are sufficient bargain hunters and second-hand buyers to bid on items to be sold.

Life in the Atlantic Bubble has required adaptation by LITs and the professionals that work in the insolvency and restructuring field. The same creativity that is often evident at the conclusion of a successful file is now being called on just to operate in the Bubble.