The federal agency tasked with boosting 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 nearly half-billion-dollar portfolio.
The federal government’s Atlantic Canada Opportunities Agency (ACOA) is a major East Coast funding agency, doling out an average of $323 million annually, including no-interest loans.
As of September 30, ACOA managed an active loan portfolio totalling $422.9 million. Of that total, $43.2-million worth of loans are currently in “recovery,” meaning just over 10 per cent 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 per cent of the Crown Corporation’s total portfolio (comprised mainly of loans) as of March 31.
Losses by Canadian banks are even lower. Over the past 20 years, Canada’s big banks have averaged a one-per cent default rate among their business loans, notes Laurence Booth, a capital markets professor at the University of Toronto’s Rotman School of Management.
ACOA has pursued dozens of companies for outstanding loans in recent years. According to figures obtained through an Access to Information request, ACOA is owed more than $65 million from loans it sent to recovery in just the four years between January 1, 2015 and January 2019.
The recovery process is triggered when a company defaults on its ACOA debt. The process can involve the agency suing and seeking a legal judgement against the debtor company, and requesting a set off from the Canada Revenue Agency — basically laying claim to any tax refunds owed by CRA to the debtor.
The loans ACOA sent to recovery between 2015 and early 2019 are connected to a variety of businesses, from tech startups to ventures focused on cranberries, fish farms, caviar, goat cheese, cedar homes, potatoes, furs, oilfield drilling services, berries, soap, and juice, to name a few.
In an email, the agency said it is “not unusual” to have $65-million in loans sent to recovery in four years. Additionally, only six per cent of its funding agreements have been sent to recovery or written off since its creation in 1987. “The vast majority of recipients of ACOA funding meet their contracting obligations,” the agency noted.
Donald Savoie, a professor at the Université de Moncton, who has been described as the father of ACOA, says the agency is an “easy target” for criticism and, historically, some of it was justified. Questionable spending during its early “fat” years generated bad press that hurt the agency’s reputation.
The agency was created by the government of Brian Mulroney, based on the blueprint Savoie outlined in a report commissioned by the prime minister.
“It might not have been unfair 30 years ago to say Atlantic Canada was getting into some boondoggles,” he said. “I can tell you it’s unfair to lay that label now at ACOA because its budget is modest compared to what it was 20 years ago, and compared to the other regions it’s very well run.”
Savoie does have one concern, though. The current minister responsible for ACOA, Navdeep Bains, is an MP for Mississauga, Ont., making him the first federal politician from outside Atlantic Canada to oversee ACOA. “Which I find a bit much to take,” Savoie said. “I think it’s an awful idea… Wake me up when you see the minister responsible for economic development in Ontario is from Yarmouth, Nova Scotia.”
In defence of its record, ACOA also pointed to successful 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. ACOA says it invested $6 million in Ocean Nutrition.
Many other ACOA investments have tanked, however.
Tech Link International Entertainment Limited, a Nova Scotia company focused on responsible gaming technology, went bankrupt and ceased operations in 2015, leaving ACOA to chase nearly $3.2 million. In 2016-17, Nova Scotia Business Inc., the province’s business development agency, wrote-off more than $10-million worth of equity, loans and interest associated with Tech Link.
Two levels of government were left chasing debts, but John Xidos, Tech Link’s former chief executive and founder, argues there was a solid return on their investments: Tech Link existed for 20 years and employed up to 100 people.
“It wasn’t that they gave us some money one year and we were out of business the next,” he said in an interview.
Dean Smith’s Halifax-based electronic voting company, Intelivote Systems Inc., is another ACOA debtor. Smith says Intelivote is still in business, but he’s seeking an exit strategy — either a new partner or even a new owner.
That process has been on and off 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’s not feasible to fully repay those debts.
“I think they would prefer to get some of their money rather than none,” he said, “so that’s kind of where it’s heading now.”
Financial Post
Copyright Postmedia Network Inc., 2019
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