D’Addario’s The envision Group files for receivership

By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
Feb. 7, 2011

Click here to view this article on OBJ.ca.

More than $35 million in total claims against green construction group, court documents show

Frank D\'Addario.
Frank D’Addario.
Ottawa Business Journal file photo.

The envision Group – one of the newest ventures of local businessman Frank D’Addario – has filed for creditors’ protection, with court documents showing claims against the group of environmental construction companies total more than $35 million.

A document released by court-appointed monitor RSM Richter Inc. indicated The envision Group went into bankruptcy protection in mid-December “with a view to developing a strategy to preserve and maximize value under a court-supervised process.”

Six of the group’s eight subsidiaries – including Ottawa-based firm LandEx Construction Inc., headed by Mr. D’Addario’s wife Ferne – are included in the Companies’ Creditors Arrangement Act proceedings, the report showed. Avid Enterprises Inc. and Calgary-based electrical contracting company RBT Electric Inc. are not part of the filing.

The report showed management had estimated a positive net cash flow of approximately $3.4 million for the six-week period that ended Jan. 14, 2011, but that actual cash flow had been significantly lower as most of its customers suspended payments after learning of the CCAA filing.

“Management was overly optimistic in its ability to collect accounts receivable … (and) did not fully comprehend the impact the CCAA proceedings would have on its operations.

“Previous business practices employed by The envision Group could no longer be used to resolve numerous issues with its customers and suppliers,” the monitor’s report stated.

The document also showed that the proceedings were followed by a series of complications, including several employee resignations, abandoned construction sites “because of an inability to complete the work,” the filing of liens, bonding company claims and litigation on some of the projects, with some customers unwilling to make progress payments.

D’ADDARIO, TAKE TWO?The insolvency proceedings of The envision Group isn’t the first time one of Frank D’Addario’s companies has grown and then failed in a high-profile fashion. Previously he founded Environmental Management Solutions Inc., taking it public and bringing it to more than $100 million in revenues.

With the help of former Newfoundland premier Brian Tobin, he assembled a star-filled board of directors that included former Ontario premier Mike Harris and acerbic venture capitalist and television personality Kevin O’Leary.

However, that same board later ousted Mr. D’Addario amid accusations he had misappropriated company funds. The following year, in 2005, the disgraced chief executive led a group of dissident shareholders in an attempt to regain control of his former company, narrowing losing his bid.

The ongoing saga also included an episode in which he accused former ally Roberto Sansone of forcing him to sign an agreement pledging all of Mr. D’Addario’s shares to the latter, in exchange for help in getting EMS stakeholders to vote with the dissident group. Mr. D’Addario said an associate of Mr. Sansone pulled a handgun and threatened Mr. D’Addario and his family to get him to sign.

Today, Mr. D’Addario is still fighting hard in the EMS case, with the trial for his $20-million lawsuit against the company’s management starting Feb. 28.

“I’m going to prove to the world, to the public that we will win this trial,” he said to OBJ. “This EMS scenario is not over … You’ll see, I’ll be exonerated.”

He added his wife is working on a book to tell the story of the troubles at EMS.
— With files from Jeff Esau

In an interview, Mr. D’Addario alleged difficulties arising out of the supply of defective pipe for one of its major jobs – the City of Saskatoon’s ring road project – forced the insolvency filing.

The project’s general contractor, Graham-Flatiron, tasked group subsidiary IONA Contractors Ltd. with the laying of 1.2 kilometres of concrete pipe at 25 metres below grade, with Expocrete Concrete Products Ltd. supplying the pipe. But after doing a sixth of the installation, IONA discovered that the pipe didn’t meet requirements and could not even be installed by other companies, leading Mr. D’Addario to start litigation against Expocrete. (The allegations have not yet been tested in court.)

Liens were then placed on the project site, preventing IONA from getting paid, Mr. D’Addario said.

“It was negative cash flow for me after I had spent all this money, and it was a domino effect. We were in litigation with Expocrete, our client did not pay us because of the liens, and we had a $5- to $7-million deficit in that project, so we had no choice but to go into CCAA (proceedings),” he explained.

One casualty of The envision Group’s insolvency was the Fort Vermillion School Division; The Alberta school division was informed on or about Dec. 20 – six days after the courts had granted The envision Group credit protection and nearly two weeks after the group initiated the proceedings – that group subsidiary Western Construction and Combustion Services Inc. had laid off its project manager and site superintendent with construction work only about half done, according to the testimony of school division superintendent Roger Clarke.

“No arrangements for site security were made nor were arrangement for heating and hoarding of the project undertaken,” a court document cited Mr. Clarke as saying. He added the school division and Alberta Education are suffering added financial obligations as a result of the problems.

Western won the $4-million Fort Vermillion contract – which called for exterior work on a new addition to house an existing school’s new gymnasium – in March 2010.

Mr. Clarke told OBJ the division first heard rumblings that subcontractors of the project weren’t being paid in November, although there was still communication with Western at the time through meetings with the project manager and site superintendent.

However, around the Christmas holidays, official communications stopped, leaving the
division unclear about whether the job would continue or not.

“We really weren’t informed by anyone – Western just walked off, closed up and that was it … Getting in touch with anybody to say the job was over was very difficult,” Mr. Clark said. “We couldn’t terminate the job or get another contractor … There was nothing to formally tell us they were defaulting until we got the CCAA order.”

The monitor’s filings also indicated that another Alberta subsidiary, Bow Valley Electrical Services Ltd., had abandoned or been removed from all seven of its projects by the site owners or general contractors, while its Vancouver-based sister company Interproject Systems Inc. was forced to terminate operations and vacate its premises.

Mr. D’Addario said he was “handcuffed” by the CCAA process and unable to pay suppliers, which meant he could not complete his group’s jobs.

It’s a dramatic turn of events for The envision Group, which once appeared to be a rapidly rising star; it was named one of OBJ’s Fastest Growing Companies in 2010 with revenue growth of 525 per cent and 350 employees, and placed in PROFIT Magazine’s Hot 50 list in the same year.

CEO Frank D’Addario boasted at the time that the four-year-old group – which fuelled its phenomenal growth with a steady diet of small companies located largely in Western Canada – would hit $1 billion in revenues by 2013 and go public as early by as the third quarter of 2011.

“(Going public) could happen now if we wanted to, but we wanted to get more mass, more size, more people involved in the business,” Mr. D’Addario had said.

However, the insolvency doesn’t appeared to have slowed him down; he’s making arrangements to buy back the group’s assets, and in the past few weeks he has started a brand-new company with a similar focus called Greenbank International.

He added he’s talked to many of his past clients and picked up four contracts for Greenbank already in the past two weeks.

“All the clients we worked for, the airports, the cities of Saskatoon and Calgary, they all like what we do and they can’t even believe this happened … At the end of the day, if the clients still like the service you provide and what you do, what you represent, it’s easy to start over again. They understand that one single issue impacted the whole company,” Mr. D’Addario said.

“So my philosophy is to move on and create more value for myself and my employees and that’s what we’re doing.”


LARGEST KNOWN EXTERNAL CREDITORS

Creditor name Amount owed (C$) Owed by Secured/Unsecured
Alberta Treasury Branches $11,200,000 The envision Group Secured
Caterpillar Financial Services Ltd. $4,842,883 IONA Contractors Ltd. Secured
Expocrete Concrete Products Ltd. $1,523,893.52 IONA Contractors Ltd. Unsecured
Lafarge Canada Ltd. $1,113,209.86 IONA Contractors Ltd. Unsecured
Dufferin Construction Co. $930,692.74 IONA Contractors Ltd. Unsecured
Tollestrup Construction Inc. $732,596.62 Western Construction & Combustion Services Inc Unsecured
Inland Pipe – T6045 $416,461.22 IONA Contractors Ltd. Unsecured

Source: RSM Richter report

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