Bondfield Construction Company Ltd. has been granted court protection from its creditors as it faces more than 200 lawsuits and creditor claims, while its surety provider provides funds to keep the business open and allow it to complete current projects.
The claims reported by Zurich Insurance Company Ltd. have reached more than $471 million by the end of 2018 — more than double the level recorded at the end of the third quarter — according to Office of Superintendent of Financial Institutions (OSFI) filings. Earlier this year, broker Petrela Winters & Associates (PWA) said a newsletter that a major Ontario general contractor’s surety default “appears likely to go down as the largest loss in Canadian surety history” — and that is before the claims surge reported in the fourth quarter.
Ontario Superior Court Justice Glenn Hainey on April 3 granted the company’s Companies’ Creditors Arrangement Act (CCAA) application about a month after it had filed, and about three months after two special purpose corporations associated with the company also filed for protection. Ernst & Young has been appointed as monitor.
Bondfield president Steven Aquino said in a court filing that the CCAA application, filed March 5, initially faced opposition from Bridging Finance Inc., the company’s senior secured lender.
Aquino said in a court affidavit that Bridging Finance asked the court in early March to defer granting the bankruptcy protection application while it negotiated several outstanding issues with Bondfield.
Bondfield resolved matters in part by agreeing to arrangements enabling the financier to fund legal work on a $147-million lawsuit Bondfield has brought against the Toronto Transit Commission relating to the company’s construction work on the TTC’s Finch West subway station.
As much as $6-million in litigation financing will carry an interest rate of 14 per cent and will be secured against any lawsuit proceeds, Bondfield said in its filings.
Bondfield has also secured up to $8-million in debtor-in-possession financing from Zurich. OSFI data indicates that the company’ surety claims are likely the largest in Canadian history.
The company says it has more than $1 billion in current outstanding construction projects and employs about 330 employees and independent contractors.
Aquino said in the court filings that Bondfield’s financial problems result in part because it could not raise new financing after its $80 million Bridging Finance credit facility matured last year.
The company also says it has been impacted by negative media coverage, including alleged defamatory stories by the Globe and Mail, who had published stories reporting on project delays and claims by subtrades and suppliers that they were not being paid properly.
The newspaper initially won a court ruling dismissing the lawsuit, but an appeals court overturned that decision – just as the company filed for bankruptcy protection in March.
Bondfield asserted in its libel action against the Globe and Mail last year that negative publicity from a series of articles about the company contributed to its financial woes. The lawsuit was initially dismissed because of the Globe and Mail’s argument that the lawsuit violated provisions designed to stop litigation intended to be vexatious or silence the media.
However, the Court of Appeal overturned that decision. The appeals court ruled unanimously that while both sides have legitimate arguments, the Bondfield libel action cannot be said to amount to an effort to silence public interest reporting — usually referred to as strategic litigation against public participation or a SLAPP suit.
“Unlike SLAPP suits which reek of the plaintiff’s improper motives, claims of phantom harm, and bullying tactics, this litigation smells of a genuine controversy,” the Appeal Court said. “It should be tried on its merits.”
The Globe and Mail published five stories between September 2015 and February 2016 about Bondfield’s successful bid on a $300-million contract to build a new critical care facility at St. Michael’s Hospital in downtown Toronto.
Meanwhile, OSFI reports indicate a dramatic increase in surety claims against Zurich Insurance in the fourth quarter. While the number of contract surety claims only increased by 14 to 458, the total surety claims incurred of $471.147 million, more than doubled from the $204.630 million recorded in the third quarter. The total Zurich surety premiums written in 2018 were $34.905 million, the OSFI report says.