Paradise developer enters creditor protection, citing aggressive lenders, the pandemic and mounting costs

The owner of a long-standing Paradise home-building company is turning to the courts to save his business, amid what he calls "aggressive" lenders, rising costs, troubles due to the pandemic and the Newfoundland and Labrador government.

Darren O'Keefe, the lawyer representing developer Greg Hussey's companies —  Karwood Contracting, Karwood Engineering, Karwood Design and Karwood Ontario — says all four of the companies entered creditor protection on Monday.

"Our firm will help guide these companies through the restructuring process, for the benefit of all stakeholders, including their creditors, and those customers and contractors who have been working with Karwood for past number of years to build efficient homes throughout the provinces of Newfoundland and Labrador and Ontario," O'Keefe said in an email to CBC News.

In an affidavit dated Jan. 27, Hussey said there are a litany of reasons behind his companies' financial problems, listing the impact the COVID-19 pandemic had on the price and supply of materials, the actions of other businesses and what he described as "aggressive lender behaviour."

He said after consultations and looking at options, it was decided that filing for creditor protection was the best way to protect the company as well as stakeholders, creditors, employees, suppliers as well as present and future customers.

"The applicants are insolvent. Their liabilities exceed the value of their assets, and they are unable to meet their obligations as they become due without an injection of capital," Hussey said in his affidavit.

Plans derailed

In the affidavit, Hussey said the plan for Karwood Ontario, which he set up to be a home-building company based in Ontario, was to get his experienced N.L. employees to travel to Ontario and bring with them their design and engineering knowledge, But the government-mandated lockdowns and travel restrictions during the COVID-19 pandemic meant it wasn't possible for a period, he said.

Other factors that caused problems for his companies included delays in construction projects that he said were out of his control, adding that projects increased in cost.

"These delays and cost overruns resulted in significant losses for the applicants, which further exacerbated their financial difficulties," he wrote.

Delays in subdivision approval also squeezed his business, he wrote. When private financing wasn't available he said he entered into a loan agreement with Ontario-based A-Team Realty (ATR) for $600,000 with an interest rate of 86 per cent, which he called "exorbitant."

"The applicant had no alternatives, they were driven by a need to fulfil the undertakings made with clients in contracts. The ATR used pressure from the loan it advanced to the company to sell more homes to both third parties and agents in their office beyond Karwood Ontario's capacity," wrote Hussey.

Hussey's companies are also facing litigation in Ontario courts, which he described as "frivolous demands" that have taken up company resources and incurred legal costs.

In his affidavit, Hussey argues he made attempts to financially boost his companies, including hiring a business consultant for his Ontario operations. However, that consultant "offered the companies' inside information to one of the biggest clients which he sat on the board undermining any business strategies." The consultant also hired inexperienced employees, which hurt Hussey's revenue, he alleges.

Hussey also cited delays in getting permits for a project in Kenmount Terrace that he had hoped would help the company's finances. He said the provincial government had offered $91,000 for a parcel of land, but went back on that offer.

"The delay in getting permits coupled with the refusal by Karwood Contracting to settle for an offer from the government that would result in a loss, caused Karwood Contracting to be sued for breach of contract on one hand by a developer and a threat of expropriation by the government on the other," said Hussey.

Finding path forward

In his affidavit, Hussey said he has no "meaningful credit available under their current facilities. The applicants are unsustainably operating, with no ability to satisfy creditors absent a restructuring."

While Hussey said his businesses' current financial situation is not sustainable, he wants to "weather the storm" to save it with a restructuring plan and he's working with insolvency trustee firm BDO and counsel to come up with a plan, which includes selling some properties.

"Following the sale of the current properties, it is expected that a proposal will be made to the creditors (both secured and unsecured) and if the proposal is successful, Karwood Contracting Ltd. would carry on with a pared down and leaner operation focusing on the Newfoundland and Labrador market," wrote Hussey.

The matter is due back in court on Feb. 13.

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