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P.E.I. brewery owners reflect on DME with receivership deadline looming

Diversified Metal Engineering, located in the West Royalty Business Park, has gone into receivership, leaving the future of roughly 140 employees up in the air.
Diversified Metal Engineering in Charlottetown is in receivership. - Jim Day

Like many in the business community, Kevin Murphy, president and CEO of the Murphy Hospitality Group, was shocked to hear that Diversified Metal Engineering had gone into receivership.

Murphy, who’s company owns the P.E.I. Brewing Company and Gahan House, has done businesses with DME for 20 years.

“It seems like it’s caught everybody a little flat-footed and unaware of it,” said Murphy.

Copper Bottom co-owner Ashley Condon was also shocked to hear the news about DME. The Montague brewery opened in November 2017 and purchased its brewing equipment from DME.

Condon said the business is also planning to add to its facility and that it would be sad if they had to go to another company for the equipment.

Condon recalled the first time she walked into DME’s Charlottetown facility with her husband and Copper Bottom co-owner Ken Spears.

“You could feel the energy, the pride in the product. And, people were smiling. I thought ‘wow, this is a great company to work for,’” she said. “I hope there is, maybe, some possibility that in the future they will come back or be saved, because we really think it will be a huge loss to the craft industry – all across the world, really.”

Brewing equipment at Diversified Metal Engineering. The company went into receivership late last month.
Brewing equipment at Diversified Metal Engineering. The company went into receivership late last month.

On Nov. 26 in the Supreme Court of P.E.I., Alvarez and Marsal Canada Inc. was appointed receiver of DME Limited Partnership, DME General Partner Inc., Atlantic Systems Manufacturing (2016) Ltd., DME Canada Acquisitions Inc. and DME US Holdco Inc.

The application to appoint a receiver was made by the Royal Bank of Canada. In an affidavit from RBC’s Gary Ivany, senior director of the special loans group, it is revealed that the bank is owed $18 .1 million (as of Nov. 22) and DME defaulted on its loan payments. He adds that a lot of the company’s accounts payable were three months overdue and most of its suppliers were providing equipment on a cost on delivery basis. Ivany also notes that the company has limited supplies to complete purchase orders.

The company’s staffing includes 250 employees at two manufacturing facilities – 100 in Abbotsford, B.C. (formerly Newlands Systems Inc.) and 150 in Charlottetown.

Ivany says a factor in the company’s financial position is the “significant challenges” related to its acquisition of Newlands Systems.

The company is operating on an ongoing basis. The receiver has set Jan. 7, 2019 at 5 p.m. as a deadline for bids from potential buyers.

Murphy agreed that the company’s acquisition of Newlands Systems as well as ownership changes a few years ago were likely factors in its downfall.

“DME was a very professional, good company here over the years,” said Murphy. “It seems like they got caught up in some of the stuff that can happen when you expand and lose sight of the bottom line.”

Murphy added that another related factor may be that growth in the craft beer market has slowed. During the peak years, Murphy suggested it may have been difficult for the manufacturer to keep up with the demand. As well, some breweries have gone out of business, which has made used equipment available for purchase.

Murphy said his company has contracts (and deposits) in place with DME and equipment on order to supply the P.E.I. Brewing Company’s expansion plans.

“If they don’t solve this real quick, we’ll be forced to buy elsewhere,” he said. “From our perspective, the receiver is not concerned about the contracts they have. The receiver is concerned about how much it can get for the assets right now. And, people that have deposits or contracts with this company could be left out in the cold.”

Murphy said he isn’t interested in DME as an investment or acquisition because it isn’t in line with the hospitality businesses.

“They’re a supplier. And, I think that’s the way we’ll keep it.”

But he did note that the timing of the receivership and potential sale of DME and its assets are critical.

“Obviously the longer it goes on, the less it’s worth. And, the clients they’ve built up over the years will leave in short order if they don’t see a solution here very shortly,” he said.

Receivership deadline set for January

With DME in receivership, Alvarez and Marsal Canada Inc. has set Jan. 7 at 5 p.m. EST as the deadline to submit bids to purchase the company’s assets.

Walter MacKinnon, a chartered insolvency restructuring professional and licensed insolvency trustee at MNP Ltd. in Charlottetown, explained that in general, the receiver will eventually sell the assets with the proceeds going to the secured lender to apply to a defaulted loan. In terms of the process of finding potential buyers for the assets, MacKinnon said the receiver may already know of individuals or parties that are interested in acquiring those assets and contact them directly about the prospect of submitting a bid.

The other option is publicly advertising the opportunity to bid on the company’s assets. But it is up to the interested parties to assess for themselves the value of the assets and base a bid on that valuation.

MacKinnon added that the receiver would have also likely had the assets appraised to inform which bid is closest to the appraiser’s valuation. If the bid is greater than the debt owed to the secured lender, the extra amount would go to other creditors and applied to company’s other debts, if any.


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