Third Report of the Receiver dated December 5, 2007

RSM Richter
Third Report of RSM Richter Inc.
Re: EnerNorth Industries Inca, Great Northern
Oil & Gas Inc., EPS Karnataka Power Corp.
and Can Power Development Corp.
RSM Richter Inc.
Toronto, December 5, 2007
RSM Richter is an independent member firm of RSM International,
An affiliation of independent accounting and consulting firms.
Table of Contents
INTRODUCTION .................................................................................................................
1
Purpose of this Report ............................................................................................
Currency ..................................................................................................................
Documents Filed in these Proceedings ...................................................................
2
2
2
2.
BACKGROUND ..................................................................................................................
2
3.
EVENTS SUBSEQUENT TO DATE OF SECOND REPORT ............................................... 4
1.
1.1
1.2
1.3
3.1
3.2
3.3
3.4
Oakwell's September 17, 2007 Application in India ............................................... 4
Receiver's Motion on September 19, 2007 ............................................................. 4
Joint Application of the Receiver and Oakwell ....................................................... 5
Sale of P&NG Assets ............................................................................................... 5
4.
KGPL SALE PROCESS ........................................................................................................ 6
5.
HASSAN ............................................................................................................................... 7
6.
MOTION BY HALL AND CASSINA FOR INDEMNIFICATION ....................................... 8
7.
NEXT STEPS ....................................................................................................................... 9
RSMJ Richter
Index of Appendices
Receivership Order dated June 21, 2007 ..................................................................................... "A"
First Report to Court dated May 22, 2007 .................................................................................. "B"
Second Report to Court dated September 10, 2007 .................................................................... "C"
Application of Oakwell Engineering Limited in India dated September 17, 2007 ......................
Order of the Court dated September 19, 2007 .............................................................................
Order of the Delhi Court dated October 24, 2007 ....................................................................... "F"
Order of the Court dated December 4, 2007 ...............................................................................
Endorsement of Justice Morawetz dated December 4, 2007 ..................................................... "H"
RSM Richter
Court File No. 3 1-454694
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
IN BANKRUPTCY AND INSOLVENCY
IN THE MATTER OF
ENERNORTH INDUSTRIES INC.
THIRD REPORT OF
RSM RICHTER INC.
DECEMBER 5, 2007
1.
INTRODUCTION
This report is filed by RSM Richter Inc. ("Richter"), in its capacity as interim receiver
("Receiver"), pursuant to Section 47.1(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985,
c. B.-3, as amended ("BIA"), and as receiver and manager, pursuant to Section ioi of the
Courts of Justice Act, R.S.O. 1990, C. C.43, as amended, of all of the property, assets and
undertakings of EnerNorth Industries Inc. ("EnerNorth") and its direct or indirect whollyowned subsidiaries, Great Northern Oil & Gas Inc. ("Great Northern"), EPS Karnataka Power
Corp. ("EPS") and CanPower Development Corp. ("CanPower") (collectively the
"Companies").
Richter was appointed as trustee in bankruptcy ("Trustee") of EnerNorth effective
March 21, 2007.
Pursuant to an order of the Ontario Superior Court of Justice (the "Ontario Court") dated
June 21, 2007 ("Receivership Order"), Richter was appointed Receiver. A copy of the
Receivership Order is attached as Appendix "A".
Page 2
1.1
Purpose of this Report
The purpose of this report is to provide an update on the status of the receivership, including:
1.2
a)
Events subsequent to the date of the Receiver's Second Report to Court dated
September io, 2007;
b)
The status of the sale process related to the Companies' minority interest in
Konaseema Gas Power Limited ("KGPL"); and
c)
Recent developments with respect to motions relating to the Companies'
interest in Hassan Thermal Power Private Limited ("Hassan").
Currency
All references to currency are in Canadian dollars unless otherwise noted.
1.3
Documents Filed in these Proceedings
The Monitor has posted all non-sealed documents filed with the Ontario Court in these
proceedings on its website at http://www.rsmrichter.com/restructuring.aspx.
2.
BACKGROUND
The primary business of EnerNorth and Great Northern was the exploration, development
and production of petroleum and natural gas ("P&NG") in Western Canada. EnerNorth also
holds minority interests, directly or through wholly-owned subsidiaries, in KGPL and Hassan,
two power generation companies registered in India.
EnerNorth was listed on the AMEX exchange.
Additional information with respect to the Companies is provided in the First Report to Court
dated May 22, 2007 and the Second Report to Court dated September 10, 2007. Copies of the
First Report and Second Report (without attachments), are provided as Appendices "B" and
"C", respectively.
RSM Richter
Page 3
A brief history of these proceedings to the date of the Second Report, and certain events
leading up to these proceedings, is provided below.
Date
Event
October i6, 2003
EnerNorth's largest unsecured creditor, Oakwell Engineering Limited
("Oakwell"), is awarded US $4.2 million plus interest and costs pursuant to a
judgment of the High Court of the Republic of Singapore ("Judgment").
June 2004
Oakwell commences recognition proceedings in Ontario with respect to the
Judgment.
January 12, 2005
Oakwell commences execution proceedings in India seeking attachment of
EnerNorth's assets in India, essentially shares in KGPL and Hassan
("Execution Proceedings").
August 2, 2005
Oakwell obtains an order recognizing and enforcing the Judgment in Ontario
("Recognition Order").
June 9,
The Court of Appeal for Ontario dismisses EnerNorth's appeal of the
Recognition Order.
2006
December i8, 2006
The High Court of Delhi in New Delhi ("Delhi Court") issues an order
restraining EnerNorth's ability to sell or otherwise deal with the Companies'
assets in India.
January i8, 2007
The Supreme Court of Canada denies leave to appeal the Recognition Order.
February 9, 2007
EnerNorth files a Notice of Intention to Make a Proposal under the BIA. Zwaig
Associates Inc. ("Zwaig") is named as Proposal Trustee. By Order of the same
date made pursuant to an exparte application brought by EnerNorth
("February 9th Order"), Zwaig is appointed by the Ontario Court as Receiver.
February 14, 2007
A hearing is held before the Delhi Court to determine Oakwell's ability to
execute on the Companies' assets in India. The hearing is adjourned to
July 9, 2007.
March 21, 2007
EnerNorth makes an assignment in bankruptcy. Pursuant to an Order of the
Ontario Court, Richter is appointed Trustee.
May 28,
The Trustee files material with the Delhi Court seeking seeking an order, inter
alia, recognizing the Trustee's authority with respect to EnerNorth and
adjourning the Execution Proceedings sine die.
Zwaig is discharged as Receiver under the February 9th Order. The Ontario
Court issues the Receivership Order appointing Richter as Receiver.
2007
June 21, 2007
July 9,
2007
The Trustee's application in the Execution Proceedings is adjourned by the
Delhi Court to August 2, 2007.
August 2, 2007
Following submissions from the Receiver and Oakwell, the Delhi Court
adjourns the Execution Proceedings to October 29, 2007.
September 10, 2007
The Receiver files the Second Report seeking, inter alia, approval of a sale of
the Companies' P&NG assets, and approval of sale processes in respect of the
Indian assets.
RSM Richter
Page 4
3.
EVENTS SUBSEQUENT TO DATE OF SECOND REPORT
Subsequent to the date of the Second Report, the following events have taken place.
3.1
Oakwell's September 17, 2007 Application in India
Oakwell brought an application dated September 17, 2007 ("September 17th Application")
within the Execution Proceedings.
Pursuant to the September 17th Application, Oakwell named as respondents Sandra Hall
("Hall"), the former President, Secretary and director of EnerNorth, James Cassina
("Cassina"), the former Chairman of EnerNorth and certain Bahamian companies. Oakwell
sought, among other things, an order summoning Hall and Cassina to appear before the Delhi
Court to provide evidence of their involvement with certain pre-bankruptcy transactions by
the Companies involving the assets in India, and requiring Hall and Cassina to "hand over"
these assets to the Trustee. Oakwell also sought declaratory relief setting aside certain prebankruptcy transactions involving Hassan.
The Receiver's Indian counsel received notice of the application on September 17, 2007. The
Receiver was only provided with Oakwell's court material on September i8, 2007. A copy of
the September 17tl Application is attached as Appendix "D".
3.2
Receiver's Motion on September 19, 2007
In accordance with the Receiver's recommendations in the Second Report, the Ontario Court
approved a transaction with Deep Creek Oil & Gas Inc. ("Deep Creek") for the sale of the
majority of the Companies' P&NG assets. The Court also approved a sale process in respect of
the Companies' interest in KGPL. Attached as Appendix "E" is a copy of the Order dated
September 19, 2007 approving the KGPL sale process.
The pre-bankruptcy transactions which appear to form the subject matter of the September 17th Application were
described by the Receiver in its Second Report at pages 14 and 15 under the heading "I-L4SSAN (formerly known
as Euro India Power Canara Private Limited)".
RSM Richter
Page 5
For the reasons outlined in the Second Report, the Receiver was also seeking approval as part
of the same motion of a process to offer for sale the Companies' shares in Hassan and an
assignment of certain causes of action related to Hassan.
At the hearing of September 19, 2007, the Receiver agreed to an adjournment of the request
for approval of the Hassan sale process due to the differing positions taken by Oakwell, Hall,
Cassina and Fieldston Traders Limited ("Fieldston"), another unsecured creditor of
EnerNorth. The Receiver agreed with these parties on a schedule for the return of the
Receiver's motion with respect to Hassan. This would also allow parties to bring their own
motions regarding Hassan and Oakwell's actions in India. The status of these motions is
discussed under Section below.
3.3
Joint Application of the Receiver and Oakwell
The Receiver and Oakwell filed a joint application dated October 20, 2007 before the Delhi
Court ("Joint Application"). The purpose of the Joint Application was to ensure that the
KGPL shares were released from the Execution Proceedings and to remove any uncertainty
with the Receiver's authority to effect a sale to a prospective purchaser.
The Delhi Court's Order dated October 24, 2007, which approves the relief requested in the
Joint Application, is attached as Appendix "F". As can be seen from that Order, the Delhi
Court adjourned the Execution Proceedings, dealing essentially with the Hassan interests at
that point, to January 29, 2008.
3.4
Sale of P&NG Assets
The Receiver completed the transaction with Deep Creek on October io, 2007 and received
the purchase price in the amount of $2,577,000.
RSM Richter
Page 6
The Company's remaining P&NG asset was sold to Silverwing Energy Inc. ("Silverwing") for
$1,000 and a release of Silverwing's claims against EnerNorth, including a release of its proof
of claim in the amount of $433,000, which had been filed on a secured basis. The transaction
with Silverwing was completed on September 27, 2007.
4.
KGPL SALE PROCESS
In accordance with the sale process approved by the Ontario Court on September 19, 2007,
the Receiver has taken the following steps in connection with the KGPL shares:
•
The Receiver retained Qj Capital India (Pvt.) Ltd. ("Q"), a boutique Indian
investment banking firm, to assist with the marketing and sale of the KGPL
shares;
•
Q5 contacted over sixty prospective purchasers, including existing
shareholders of KGPL, strategic parties and private equity firms;
•
Q5 distributed a comprehensive information memorandum ("TM") to parties
that expressed an interest in the opportunity, included a draft form of
agreement of purchase and sale;
•
Q5 made available other information requested by prospective purchasers; and
•
The prospective purchasers who received the TM were advised that offers were
to be submitted to the Receiver by November 29, 2007.
The Receiver intends to file a separate report dealing with the results of the KGPL sale
process in the near future.
RSM Richter
Page 7
5.
HASSAN
Hall and Cassina brought a motion returnable on December 11, 2007 seeking, inter alia, an
order restraining Oakwell from continuing with the Execution Proceedings, including the
September 17th Application. Pursuant to an Order of the Ontario Court dated December 4,
2007 ("Consent Order"), Hall, Cassina, Oakwell and the Receiver agreed to terms for the
resolution of this motion, on terms including:
a withdrawal or discontinuance by Oakwell of the Execution Proceedings; and
Examinations to be conducted of Hall and Cassina as officers of Enernorth
pursuant to s.163(2) of the BIA by counsel for Oakwell.
An unissued copy of the Consent Order is attached as Appendix "G".
Fieldston also brought a motion returnable December 11, 2007. On its motion, Fieldston is
seeking, inter cilia, an order:
Requiring the Receiver to value the Companies' interests in Hassan;
Restraining any sale of the Hassan interests to Oakwell; or alternatively
That any sale of any of the Hassan interests to Oakwell shall require as a term
of closing that Oakwell shall have terminated all proceedings against
EnerNorth.
Given the agreement of Oakwell to the discontinuance of the Execution Proceedings, it would
appear to the Receiver that most, if not all, of the issues raised by Fieldston on its motion
have been resolved. Fieldston and the Receiver have agreed to an adjournment of Fieldston's
motion until after the examinations of Hall and Cassina have been conducted. At that time
the Receiver's motion with respect to the sale of the Hassan interest and the Fieldston motion
RSM Richter
Page 8
are expected to be heard together. If the motions have not been scheduled by January 15,
2008, then counsel for the Receiver and Fieldston will attend in the Ontario Court during the
week of January 21, 2008 to establish a schedule for the motions.
Attached as Appendix "H" is the Endorsement of Justice Morawetz dated December 4, 2007
dealing with these motions.
6.
MOTION BY HALL AND CASSINA FOR INDEMNIFICATION
Hall and Cassina have brought a motion, returnable December 11, 2007, seeking an order
directing Richter, in its capacity as Trustee and Receiver, to pay all reasonable legal expenses
incurred by Hall and Cassina for claims made against them after February 7, 2007 on an
ongoing monthly basis from the estate's assets in priority to any unsecured claims, including
all expenses incurred by them in relation to the Execution Proceedings. Hall and Cassina's
claims for indemnification are based, inter alia, on the following:
The indemnity given by EnerNorth in its corporate by-laws in favour of its
directors and officers pursuant to Section 136 of the Business Corporations Act
(Ontario); and
The provisions of the February 9th Order.
Richter intends to oppose the motion by Hall and Cassina on several grounds, including the
basis that at best the indemnification claims by Hall and Cassina are unsecured obligations of
EnerNorth and therefore rank parri passu with the claims of other unsecured creditors.
RSM Richter
Page 9
NEXT STEPS
7.
The Receiver will be filing a report with respect to, inter cilia:
The results of the KGPL share sale process;
Distribution of funds on hand to certain secured creditors of the Companies;
and
A claims process in respect of Great Northern (which is not a bankrupt).
All of which is respectfully submitted,
/
J2/
:
f
RSM RICHTER INC.
IN ITS CAPACITY AS INTERIM RECEIVER AND RECEIVER AND MANAGER
OF ENERNORTH INDUSTRIES INC., GREAT NORTHERN OIL & GAS INC.,
EPS KARNATAKA POWER CORP. AND CANPOWER DEVELOPMENT CORP.
AND NOT IN ITS PERSONAL CAPACITY
RSM Richter