The company, formerly known as Loyalist Group and owner and operator of a group of ESL schools and career colleges in Canada, has until February 7 to deliver payment in full for its outstanding indebtedness to CIBT, after which it will be put up for sale.
In the meantime, KGIC has been placed into receivership and Sprott Shaw Degree College Corp, another subsidiary of CIBT Education Group, has been placed in charge of its day-to-day operations.
“The Receiver has undertaken to ensure that employees are paid for any work during the receivership period”
CIBT Finance, established at the beginning of this year to handle this transaction, announced it had paid $3.1m to buy $12.3m of KGIC’s total $42m debt on January 25.
However, according to CIBT’s CEO and chairman, Toby Chu, it was apparent from the current state of KGIC’s finances that it is “far from viable to pay any unsecured creditors”.
KGIC’s most recent financial results revealed the company has continued to struggle financially after a down to the wire investment injection and new senior management appointments at the beginning of last year.
It recorded a net loss of $1.7m for Q3 of FY2016, along with adjusted negative EBITDA of $1.35m. A proposed debt restructuring plan was rejected in October 2016, which its then president and CEO Alex MacGregor said “cast significant doubt on the company’s ability to operate as a going concern”.
MacGregor’s resignation along with two other directors, Martin Bernholtz and Ako Ufodike, was announced in a release on January 26.
After KGIC confirmed it would be unable to repay its debts, the Supreme Court of British Columbia in Bankruptcy and Insolvency appointed BDO Canada Limited, an accounting, tax and advisory firm, as an Interim Receiver to take over custodial responsibilities for the company – meaning that it is now in charge of keeping operations afloat.
The order authorises BDO to manage operations, enter into agreements, purchase supplies and sign documents on behalf of the company. It has engaged Sprott Shaw Degree College Corp, which operates career colleges and language schools in Canada, to act as Interim Manager to manage day-to-day operations at KGIC.
Sprott Shaw was chosen “to monitor and assist the school operations as BDO is not familiar in running schools”, Chu told The PIE News.
In a letter to KGIC’s business partners and agents from Chu seen by The PIE News, he said: “As Interim Manager, Sprott Shaw will work with KGIC schools’ on-site management to continue the day-to-day operations of all 18 subsidiary schools in British Columbia and Ontario, to comply with education regulations, to ensure the welfare of the approximately 2,000 students, and to stabilise operations.”
A separate letter from BDO to KGIC’s employees and management confirmed that all enrolled students – around 2,000 in total – will continue their studies across KGIC’s 18 schools, and all employees will remain on the payroll.
“The Receiver has undertaken to ensure that employees are paid for any work during the receivership period,” the letter states, adding that it has not yet determined whether there are outstanding wages owed.
All enrolled students will continue their studies and all employees will remain on the payroll
Working together, BDO and Sprott Shaw will analyse KGIC’s financial position and cash flow and develop an action plan “to put KGIC Inc. on a firm footing for long-term success”, it says.
Between now and the end of the receivership period on February 7, BDO will work to determine whether KGIC’s assets are sufficient to pay creditors, before submitting its restructuring plan to court.
A spokesperson for BDO said it is “still assessing the situation” and declined to comment further.
Once the receivership period is over, BDO will put all of KGIC’s assets up for sale through a bidding process.
Speaking to The PIE News, Shahzad Rashid, VP finance and internal controls at KGIC, said there is “very little information available” on what will happen next.
“There can be many options how this process may finally end, and the final outcome will depend on what the prospective buyer chooses to do with the company or its assets,” he said.
The proceeds of the sale will be used to pay KGIC’s creditors, after which the buyer will be able to choose how it wants to restructure the company free of debt.
Chu confirmed that Sprott Shaw will be one of the bidders, and if successful, it would own all of the KGIC schools.
Ahead of its KGIC takeover bid, CIBT announced a strategic rearrangement of Sprott Shaw Degree College Corp‘s executive team earlier this month, hiring new leadership for the subsidiary’s divisions.
These include two new divisions: SSC International, which will oversee expansion of international programmes; and Sprott Shaw Language College, a rebranding of Vancouver International College, which CIBT bought last year. These will run alongside SSC’s Domestic Division.