Insolvent Springer Aerospace struggles to restructure as key employees leave
Springer Aerospace managed to avoid disaster in a recent court ruling that allowed the insolvent company to continue with proceedings under the Companies Creditors Arrangement Act.
The ruling also allowed the company to offer bonuses to key employees to stem the tide of workers who are leaving for opportunities elsewhere.
Based in Echo Bay, near Sault Ste. Marie, Springer is an aircraft maintenance company that has operated since 1972 and employed 100 people when it filed for CCAA protection last December.
Its main creditor, Desjardins Ontario Credit Union, is owed more than $5.7 million. Desjardins supported plans for the company to be put up for sale under the CCAA, known as a ‘sale and investment solicitation process’ (SISP).
Under a court order, Phase 2 of the SISP was to be completed by March 7, but delays led the company to seek an extension to March 31.
Desjardins was opposed and argued that Springer had “one shot” at the SISP and failed. At this point, Desjardins said the company should be forced into receivership.
“Because Springer has essentially conceded it is unable to come back to court with a successful bid by the original deadline, Desjardins says the CCAA proceedings should be terminated and its application for the appointment of a receiver granted,” the court transcript of the proceedings said.
“Desjardins has lost faith in management’s ability to conduct a successful restructuring.”
The court record showed that the problem was “shortcomings” bidders found in Springer’s financial records.
“Bidders expressed difficulty in analyzing the company’s projected financial performance, given certain shortcomings in its historical financial data,” the transcript said.
“Given the lack of reliable financial data as well as the relatively short time frame of Phase I, potential bidders found it challenging to project the company’s performance and determine a suitable purchase price.”
Springer sought an extension with the new deadline to complete Phase 3 of the SISP process extended to April 14.
The company also sought funding for what’s known as a ‘KERP’ – a ‘key employee retention plan’ – in order to stem the flow of workers leaving for job opportunities elsewhere.
“Since the company filed for protection under the CCAA, it has lost numerous key employees to employment opportunities that employees view as less uncertain,” the transcript said.
“The loss of these employees has affected the company’s operations at a time when its stability is paramount.”
BONUSES TO KEEP EMPLOYEES
The KERP would provide certain key employees a bonus – 10 per cent of their annual salary -- if they stay with the company until the SISP is completed.
“The KERP will provide a level of employee continuity and stability that would otherwise be placed at risk by key employee departures,” the transcript said.
In a written ruling dated Feb. 27, the Ontario Superior Court of Justice granted Springer an extension to complete Phase 2 of the SISP, but only to March 21.
The court said the extension, and a small increase in the operating (DIP) loans Springer can access during the process, is a better option than receivership.
“Given the strong public interest in preserving these well-paid jobs in a small community and the debtor’s important role in serving outlying, remote communities, including First Nation communities, a modest extension of time, and an equally modest increase in the DIP loan is warranted,” the court ruled.
Read the full transcript here.
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