Home North Pole Economy ACOA’s East Coast finance agency grapples with high bad debt rate worth tens of millions

ACOA’s East Coast finance agency grapples with high bad debt rate worth tens of millions

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The federal agency tasked with stimulating economic development and innovation in Atlantic Canada is chasing bad loans worth tens of millions of dollars, loans that make up a significant portion of its portfolio of nearly a half. billion dollars.

The federal government’s Atlantic Canada Opportunities Agency (ACOA) is a major East Coast funding agency, distributing an average of $ 323 million per year, including interest-free loans.

As of September 30, ACOA managed an active loan portfolio totaling $ 422.9 million. Of that total, $ 43.2 million in loans are currently in “collection”, meaning that just over 10% of ACOA’s portfolio is in default.

By comparison, the Business Development Bank of Canada manages $ 882.8 million in impaired loans, which represented 3.3% of the Crown corporation’s total portfolio (made up primarily of loans) as of March 31.

Canadian bank losses are even lower. Over the past 20 years, major Canadian banks have averaged a 1% default rate on their business loans, notes Laurence Booth, professor of capital markets at the Rotman School of Management at the University of Toronto.

ACOA has sued dozens of companies for outstanding loans over the past few years. According to figures obtained as part of an access to information request, ACOA owes more than $ 65 million in loans it sent for collection in just four years between 1 January 2015 and January 2019.

The collection process is triggered when a company defaults on its ACOA debt. The process may involve the agency suing and seeking judgment against the debtor business, and seeking compensation from the Canada Revenue Agency – essentially claiming any tax refund owed by the CRA to the debtor.

The loans ACOA sent to the takeover between 2015 and early 2019 are tied to a variety of businesses, from tech startups to businesses focused on cranberries, fish farms, caviar, goat cheese, homes. cedar, potatoes, furs, oilfield drilling services, berries, soap, and juice, to name a few.

In an email, the agency said it was “not unusual” to have $ 65 million in loans sent for collection in four years. In addition, only six percent of its funding agreements have been returned for collection or written off since its inception in 1987. “The vast majority of ACOA funding recipients are fulfilling their contractual obligations,” noted the agency.

Donald Savoie, a professor at the University of Moncton, who has been described as the father of ACOA, says the agency is an “easy target” for critics and, historically, some of them were justified. Questionable spending during its first “fat” years generated bad press that damaged the agency’s reputation.

The agency was created by the government of Brian Mulroney, on the basis of the Savoie plan described in a report commissioned by the Prime Minister.

“Maybe it wasn’t unfair 30 years ago to say that Atlantic Canada was getting into a mess,” he said. “I can tell you that it is unfair to give this label now to ACOA because its budget is small compared to what it was 20 years ago, and compared to other regions it is very good. managed.

Savoie has a concern, however. The current Minister responsible for ACOA, Navdeep Bains, is a Member of Parliament for Mississauga, Ontario, making him the first federal politician outside of Atlantic Canada to oversee ACOA. “Which I find a bit heavy to take,” said Savoie. “I think that’s a horrible idea… Wake me up when you see the minister responsible for economic development for Ontario is from Yarmouth, Nova Scotia.

To defend its record, ACOA also highlighted the success of startups it has funded, such as Ocean Nutrition Canada, which focused on products derived from fish oil and was sold to Royal DSM, a Dutch company, in 2012 for 540 million dollars. ACOA says it has invested $ 6 million in Ocean Nutrition.

However, many other ACOA investments collapsed.

John Xidos

Tech Link International Entertainment Limited, a Nova Scotia company focused on responsible gaming technology, went bankrupt and ceased operations in 2015, leaving ACOA in pursuit of nearly $ 3.2 million. In 2016-2017, Nova Scotia Business Inc., the province’s business development agency, wrote off more than $ 10 million in equity, loans and interest associated with Tech Link.

Two levels of government found themselves chasing debt, but John Xidos, the former CEO and founder of Tech Link, says there was a solid return on their investments: Tech Link has been around for 20 years and employed up to 100 people.

“It’s not that they gave us money one year and that we ceased operations the following year,” he said in an interview.

Another ACOA debtor is Dean Smith’s Halifax-based electronic voting company, Intelivote Systems Inc.. Smith says Intelivote is still in business, but is looking for an exit strategy – either a new partner or even a new owner.

This process has been going on for five years, in part because it’s a tough sell: Intelivote owes a lot of money, including nearly $ 1.4 million to ACOA and $ 2.8 million to NSBI. Without a new approach, Dean says, it is not possible to pay off these debts in full.

“I think they would rather get some of their money than nothing,” he said, “so that’s kind of where this is heading now.”

Financial post

Copyright Postmedia Network Inc., 2019

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