no. s197744 vancouver registry in the supreme court of ......sep 27, 2019 · the september 16...
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No. S197744 Vancouver Registry
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
BETWEEN:
MINISO INTERNATIONAL HONG KONG LIMITED, MINISO INTERNATIONAL (GUANGZHOU) CO. LIMITED, MINISO LIFESTYLE CANADA INC., MIHK MANAGEMENT INC., MINISO TRADING CANADA INC., MINISO CORPORATION and GUANGDONG SAIMAN INVESTMENT CO. LIMITED
PETITIONERS
AND:
MIGU INVESTMENTS INC., MINISO CANADA INVESTMENTS INC., MINISO (CANADA) STORE INC., MINISO (CANADA) STORE ONE INC., MINISO (CANADA) STORE TWO INC., MINISO (CANADA) STORE THREE INC., MINISO (CANADA) STORE FOUR INC., MINISO (CANADA) STORE FIVE INC., MINISO (CANADA) STORE SIX INC., MINISO (CANADA) STORE SEVEN INC., MINISO (CANADA) STORE EIGHT INC., MINISO (CANADA) STORE NINE INC., MINISO (CANADA) STORE TEN INC., MINISO (CANADA) STORE ELEVEN INC., MINISO (CANADA) STORE TWELVE INC., MINISO (CANADA) STORE THIRTEEN INC., MINISO (CANADA) STORE FOURTEEN INC., MINISO (CANADA) STORE FIFTEEN INC., MINISO (CANADA) STORE SIXTEEN INC., MINISO (CANADA) STORE SEVENTEEN INC., MINISO (CANADA) STORE EIGHTEEN INC., MINISO (CANADA) STORE NINETEEN INC., MINISO (CANADA) STORE TWENTY INC., MINISO (CANADA) STORE TWENTY-ONE INC., MINISO (CANADA) STORE TWENTY-TWO INC. and 1120701 B.C. LTD.
RESPONDENTS
FOURTH REPORT OF THE MONITOR
ALVAREZ & MARSAL CANADA INC.
SEPTEMBER 27, 2019
27-Sep-19
Vancouver
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TABLE OF CONTENTS
1.0 INTRODUCTION ....................................................................................................................... 3
2.0 PURPOSE OF THE MONITOR’S FOURTH REPORT ............................................................... 4
3.0 TERMS OF REFERENCE ........................................................................................................... 5
4.0 UPDATE ON THE CLAIMS PROCESS – JV INVESTORS ....................................................... 5
5.0 DEVELOPMENT OF THE PLAN OF ARRANGEMENT ........................................................... 7
6.0 THE PROPOSED ADJUDICATION PROCESS ......................................................................... 8
7.0 CLOSING OF THE TRANSACTIONS IN PERU AND ARGENTINA ....................................... 9
8.0 MONITOR’S RECOMMENDATIONS ..................................................................................... 10
APPENDICES
Appendix A – Letter from the Petitioners dated September 24, 2019
Appendix B – Application of the Monitor dated September 26, 2019
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1.0 INTRODUCTION
On July 12, 2019, on the application of Miniso International Hong Kong Limited, Miniso
International (Guangzhou) Co. Limited, Miniso Lifestyle Canada Inc., MIHK Management Inc.,
Miniso Trading Canada Inc., Miniso Corporation and Guangdong Saiman Investment Co.
Limited (collectively, the “Petitioners”), the Supreme Court of British Columbia (the “Court”)
made an Order (the “Initial Order”) granting a stay of proceedings (the “Stay of Proceedings”)
against or in respect of Migu Investments Inc. (“Migu”), Miniso Canada Investments Inc. (“MC
Investments”), Miniso (Canada) Store Inc. (“MC Store”), twenty-two (22) entities named
sequentially from “Miniso (Canada) Store One Inc.” to “Miniso (Canada) Store Twenty-Two
Inc.” (the twenty-two entities collectively, the “MC Store Subsidiaries”, and together with Migu,
MC Investments and MC Store, “Miniso Canada” or the “Companies”), and the JV Affiliates
(as defined in the Initial Order) and their assets until July 22, 2019, pursuant to the provisions of
the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the "CCAA").
The proceedings brought by the Petitioners under the CCAA will be referred to herein as the
“CCAA Proceedings”.
Pursuant to the Initial Order, Alvarez & Marsal Canada Inc. ("A&M" or the "Monitor") was
appointed as Monitor of the Companies in the CCAA Proceedings.
The Petitioners are part of a group of related corporations that, together, manufacture lifestyle
products under the “Miniso” brand name, and operate or licence an international group of retail
outlets selling “Miniso” branded inventory. The Petitioners hold security from the parent
companies within Miniso Canada, specifically Migu, MC Investments and MC Store. The
Petitioners and Miniso Canada are not related parties as defined in the CCAA or through any
common ownership.
On July 19, 2019, the Monitor filed the First Report of the Monitor (the “First Report”) which,
amongst other things, described the Monitor’s activities to date, the ongoing review of store
leases, and potential lease and JV Interest disclaimers, Miniso Canada’s interest in rights to use
the Miniso brand and sell products in Chile, the Companies’ actual cash flow results for the period
ended July 12, 2019, and the proposed claims process (the “Claims Process”).
On July 22, 2019, this Honourable Court granted Orders which, amongst other things, extended
the Stay of Proceedings to September 16, 2019 and approved the commencement of the Claims
Process (the “Claims Process Order”).
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On August 19, 2019, the Monitor filed the Second Report of the Monitor (the “Second Report”)
which, amongst other things, described the Monitor’s activities to date, and provided updates
regarding the ongoing review of store operations and leases, the Claims Process and Miniso
Canada’s interest in rights to use the Miniso brand and sell products in Chile.
On August 22, 2019, this Honourable Court granted an Order to add 1120701 B.C. Ltd. (“1120”)
as a Respondent to the CCAA Proceedings and authorized the Monitor to act as required in
relation to the closing of the Amended and Restated Asset Purchase Agreement for the SA Assets.
On September 12, 2019, the Monitor filed the Third Report of the Monitor (the “Third Report”)
which, amongst other things, provided updates in respect of the JV Investors and the negotiations
underway at that time between the Petitioners and the Continuing JV Investors, the planning that
was underway to potentially disclaim additional store leases if the Definitive Agreements were
not executed by the Continuing JV Investors, the proposed Supplier’s Charge in favour of Miniso
Trading and the extension of the Stay of Proceedings.
On September 16, 2019, this Honourable Court granted an Order (the “September 16 Order”)
which, amongst other things, extended the Stay of Proceedings to November 18, 2019, granted a
Supplier’s Charge of up to $4 million, and authorized the Monitor to execute real property lease
amendments on behalf of the Respondents and to disclaim certain real property leases after 4pm
PST on September 20, 2019. This Honourable Court also granted the 1120 Claims Process Order.
The Initial Order along with select application materials and other documents filed in the CCAA
Proceedings are posted on the Monitor’s website at www.alvarezandmarsal.com/minisocanada.
2.0 PURPOSE OF THE MONITOR’S FOURTH REPORT
This is the fourth report of the Monitor (the “Fourth Report”) and has been prepared to provide
this Honourable Court with information regarding the following:
An update on the Claims Process in respect of the JV Investors;
An update on the proposed plan of compromise and arrangement (the “Proposed Plan”)
being developed and negotiated with the Petitioners;
The proposed claim adjudication process (the “Adjudication Process”) set out in the
Monitor’s application dated September 26, 2019;
An update with respect to the asset sale transactions in Peru and Argentina; and
The recommendations of the Monitor.
The Fourth Report should be read in conjunction with the Monitor’s application materials dated
September 26, 2019, and other materials filed in the CCAA Proceedings (collectively, the “Filed
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Materials”), as background information contained in the Filed Materials has not been included
herein to avoid unnecessary duplication. Capitalized terms which are not defined herein have
meaning given to them in the Filed Materials.
3.0 TERMS OF REFERENCE
In preparing this report, A&M has necessarily relied upon unaudited financial and other
information supplied, and representations made to it, by certain senior management of the
Companies (“Management”) and the Petitioners. Although this information has been subject to
review, A&M has not conducted an audit nor otherwise attempted to verify the accuracy or
completeness of any of the information prepared by Management, the Petitioners or otherwise
provided by the Companies. Accordingly, A&M expresses no opinion and does not provide any
other form of assurance on the accuracy and/or completeness of any information contained in this
report, or otherwise used to prepare this report.
Certain of the information referred to in this report consists of financial forecasts and/or
projections prepared by Management and/or the Petitioners. An examination or review of
financial forecasts and projections and procedures as outlined by the Chartered Professional
Accountants of Canada has not been performed. Readers are cautioned that since financial
forecasts and/or projections are based upon assumptions about future events and conditions that
are not ascertainable, actual results will vary from those forecasts and/or projections and the
variations could be significant.
Unless otherwise stated, all monetary amounts contained in this Fourth Report are expressed in
Canadian dollars.
4.0 UPDATE ON THE CLAIMS PROCESS – JV INVESTORS
Continuing JV Investors
As previously reported, Miniso Canada granted an interest in 51 stores (out of 79 stores) to certain
persons (collectively, the “JV Investors”) in return for various contributions.
Further to the update provided in the Monitor’s Third Report and subsequent to the granting of
the September 16 Order, negotiations between Miniso Lifestyle and Brauti Thorning LLP,
representing 13 Continuing JV Investor stores, continued and ultimately led to the execution of
the Definitive Agreements (with select revisions) by a total of 14 Continuing JV Investor stores
(including one independent party) on September 23, 2019. Accordingly, the Monitor did not
disclaim any store leases or JV Investor agreements in respect of this set of Continuing JV
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Investors. Additionally, the Monitor does not anticipate that any Closing Store Assets will be
sold to Miniso Lifestyle as no further store leases are anticipated to be disclaimed.
Out of the 24 Continuing JV Investor stores a total of 19 sets of Definitive Agreements were
received by Miniso Lifestyle, summarized as follows:
As noted in the Third Report, the other five Continuing JV Investors had neither signed any
agreements nor made any investment contributions to the Companies, or their equity interests
appeared to have been converted to debt in 2018. None of the five parties submitted any
additional information to demonstrate an ongoing equity interest in their respective Continuing
JV Locations, and, accordingly, Definitive Agreements were not provided to this subset of
Continuing JV Investors. All of these five locations will be treated as corporate stores.
JV Investor Claims
The Monitor received a total of 80 claims from the JV Investors and has issued 66 Notices of
Revision or Disallowance (“NORDs”) up to September 26, 2019, all summarized as follows:
Subject to the ultimate implementation of the Transactions under any future plan of arrangement,
all claims of Continuing JV Investors against the Companies will be released. Accordingly, 26
NORDs were issued by the Monitor to all Continuing JV Investors in respect of their claims
against the Companies.
Miniso Canada - Continuing JV Investors
Investor Groups # Investors Sign-back DateAlberta-based Group of JV Investors 5 September 13Brauti Represented JV Investors 13 September 23Independent JV Investor 1 September 23Total Continuing JV Investors 19
Miniso Canada - JV Investor NORD Summary
JV Status # ClaimsClaim Amount
($'000) # NORDsNORD ($'000)
Allowed Claim ($'000)
Continuing JV Investors 26 6,569 26 6,569 - Remaining JV Investors 37 6,015 37 6,015 - Promissory Note/Debt JV Investors 17 3,552 3 1,364 2,188 Total 80 16,136 66 13,948 2,188
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JV Investors with interests in closed store locations (the “Remaining JV Investors”) filed claims
in debt against the particular MC Store Subsidiary to which the store related (the “JV Investor
Debt Claims”), and in equity, fraud and other bases against MCI.
The Monitor, together with its counsel, reviewed the Remaining JV Investors’ claims and the
agreements that gave rise to such claims, and determined that the claims appear to be equity
claims, and not debt claims, on the basis that the JV Investors were provided with an interest in
the profits of a particular store or location.
On September 26, 2019, the Monitor issued 37 NORDs in respect of the Remaining JV Investors’
claims.
The Monitor anticipates that the Remaining JV Investors will dispute the NORDs, the quantum
of the Petitioner’s secured claims totaling $38.5 million, and the validity of the security held by
the Petitioners.
5.0 DEVELOPMENT OF THE PLAN OF ARRANGEMENT
As noted in the Third Report, discussions have been ongoing between the Monitor and its counsel,
the Petitioners and their counsel, and Miniso Canada’s counsel, all towards developing a plan that
can be presented in the near term. In this regard, on September 24, 2019, the Petitioners sent a
letter (the “Petitioners’ Letter”) to the Monitor setting out certain terms that would form the
basis of the Proposed Plan and related transactions. A copy of the Petitioners’ Letter is attached
as Appendix A, and is summarized as follows:
The Petitioners and/or their affiliates will acquire substantially all of the assets of the
Companies (the “Restructuring Transaction”) except certain assets owned by particular
MC Store Subsidiaries and 1120;
Assets to be acquired would include inventory and leases of active stores, and other
agreements required to continue the Companies’ business;
The Restructuring Transaction would be completed pursuant to an acquisition agreement
(the “Acquisition Agreement”) in respect of assets owned by Migu, MC Store and MC
Investments, and the Proposed Plan in respect of certain MC Store Subsidiaries and their
creditors;
The Acquisition Agreement will require approval from this Honourable Court;
The Proposed Plan will require approval from the creditors and this Honourable Court;
The Restructuring Transaction requires that both the Acquisition Agreement and the
Proposed Plan be implemented;
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The purchase price continues to be negotiated but would include funding of any
distributions under the Proposed Plan by the Petitioners, and a credit bid from the
Petitioners by way of offset of a portion of their secured claim in respect of the Acquisition
Agreement;
The Petitioners do not intend to treat Remaining JV Investors as creditors under the
Proposed Plan and view their claims as equity claims; and
The Petitioners highlighted the urgency to complete the Restructuring Transaction as soon
as possible, and by no later than early November 2019, due to the costs of the CCAA
Proceedings and the need for the business to normalize outside of the CCAA Proceedings
particularly in advance of the holiday season due in part to a significant amount of
inventory being delivered in Canada that needs to be placed into the stores.
The Petitioners have reserved their rights to update the terms of the Restructuring Transaction,
and, as such, some of the details provided above could change upon the finalization of a definitive
plan of arrangement.
In the event of a significant delay to implement a plan of arrangement, the Monitor expects that
the Petitioners will request an increase to the Supplier’s Charge above the current limit of $4
million to secure additional post-filing inventory purchases for the period leading up to the
holiday season.
The Monitor will provide further commentary on the Proposed Plan once it is filed with this
Honourable Court.
6.0 THE PROPOSED ADJUDICATION PROCESS
Pursuant to the Claims Process Order, the timeline to deal with disputed NORDs and related
applications to this Honourable Court to resolve or value the Remaining JV Investor claims, and
resolve any questions raised in respect of the Petitioners’ secured claims and their ability to credit
bid for certain assets, may take several weeks or, potentially, months.
The Petitioners have indicated that their ongoing support of the Companies is dependent on the
emergence of Miniso Canada’s business from the CCAA Proceedings in the near term. Without
a defined timeline the process to litigate the above noted issues would likely prohibit a plan from
being filed and/or if presented and approved by creditors with valid claims, ultimately from being
implemented in the near term. Such delay could jeopardize the ability of Miniso Canada’s
business to emerge from the CCAA Proceedings due to the potential loss of support from the
Petitioners.
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Accordingly, pursuant to the Claims Process Order the Monitor is seeking approval of the
Adjudication Process to enable the Proposed Plan to be sanctioned by this Honourable Court
within the timeline required by the Petitioners. A copy of the Monitor’s application materials is
attached as Appendix B.
The Adjudication Process schedule is contemplated to be as follows:
Timeline of the Adjudication Process
Activity Deadline
Applications and supporting materials to be filed by JV Investors in respect of the NORDs issued in respect of the JV Investor Debt Claims
October 11, 2019 Application and supporting materials to be filed by the Petitioners seeking a declaration as to their claims and the validity, enforceability and priority of their security
Application Responses and supporting materials to be filed (the “Responses”) October 18, 2019
Reply affidavits to the Responses to be filed October 22, 2019
Applications will be scheduled to be heard by this Honourable Court over two days Week of October 28 or November 4, 2019
7.0 CLOSING OF THE TRANSACTIONS IN PERU AND ARGENTINA
The transaction related to the sale of the Peruvian Miniso assets has closed and the SA Purchaser
has confirmed that US$2.7 million has been sent to the Escrow Agent (Heritage Trust Company
Inc.). As at the date of this report, the Escrow Agent has not confirmed the receipt of the funds.
Upon receipt of confirmation that the funds have been received by the Escrow Agent and in
accordance with the terms of the Escrow Agreement, the Monitor will have 20 days to advance
any claims on behalf of Miniso Canada, 1120 and/or Bright Migu International Ltd. against the
Miniso Peruvian entities.
The transaction related to the sale of the Argentinian assets has not closed and the parties appear
to be working towards finalizing the sale in the near term.
The Monitor will provide updates in respect of any claims advanced against the Escrow Agent in
respect of Peru and the closing of the asset sale in Argentina in its subsequent reports.
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8.0 MONITOR’S RECOMMENDATIONS
The Monitor respectfully recommends that this Honourable Court grant an order approving the
Adjudication Process.
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All of which is respectfully submitted to this Honourable Court this 27th day of September, 2019.
Alvarez & Marsal Canada Inc., in its capacity as Monitor of Migu Investments Inc., Miniso (Canada) Store Inc., 1120701 B.C. Ltd, Miniso Canada Investments Inc. and its subsidiaries
Per: Anthony Tillman Per: Pinky Law
Senior Vice President Vice President
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APPENDIX A – LETTER FROM THE PETITIONERS DATED SEPTEMBER 24, 2019
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APPENDIX B - APPLICATION OF THE MONITOR DATED SEPTEMBER 26, 2019
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1.0 INTRODUCTION2.0 PURPOSE OF THE MONITOR’S FOURTH REPORT3.0 TERMS OF REFERENCE4.0 UPDATE ON THE CLAIMS PROCESS – JV INVESTORS5.0 DEVELOPMENT OF THE PLAN OF ARRANGEMENT6.0 THE PROPOSED ADJUDICATION PROCESS7.0 CLOSING OF THE TRANSACTIONS IN PERU AND ARGENTINA8.0 MONITOR’S RECOMMENDATIONS