BionX Canada Inc.
History and Overview
On February 27, 2018, Grant Thornton (the “Receiver”) was appointed as receiver over BionX Canada Inc. and its subsidiaries (“BionX” or “the Company”), an Aurora, Ontario-based electric bicycle propulsion system company which had two primary products:
- BionX System: Lithium-ion powered electric motor attaching to a bicycle’s back wheel hub, sold under the BionX brand
- General Motors (“GM”) System: Custom-built electric propulsion systems, which were to be designed, developed and manufactured by BionX, and fitted on GM-supplier bicycles
BionX’s main operations were in Aurora, where the bike propulsion systems were manufactured. The Company also had international sales operations, and a research and development arm in Sherbrooke, Quebec.
BionX was founded by Manfred Gingl, a former Magna International (auto part manufacturer) executive. BionX was funded largely by (i) secured loans from Frank Stronach, the founder of Magna, through his Stronach Consulting Corp (“SCC”) entity, and (ii) unsecured intercompany loans from its parent BionX International Corporation.
Receiver Certificate Financing
SCC is providing a Receiver Certificate for up to $1.25MM, which accrues interest at a 5.0% annual rate and secured by a court-ordered first ranking charge over BionX’s assets.
The Receiver Certificate will be used to pay for the Receiver and its counsel’s costs, as well as to fund the Proposed Sales Process.
Capital Structure at Receivership
The SCC Loan is secured by way of a GSA and registered under the PPSA (both effected in January 2018) and it does not appear any charges have been fixed other than over a leased Ford vehicle. In February 2018, BionX confirmed to SCC that its intellectual property, which includes its patents and designs, forms part of the security granted to SCC.
The Parent company, BionX International Corporation, had funded BionX through intercompany loans, which were funded by SCC. The SCC loans to the Parent were forgiven in 2014, though the intercompany loan to BionX still remains.
The most recent of BionX’s 12 patents were filed in 2014 (the GM contract was awarded in February 2016 – see below for additional information).
GM Contract History
In February 2016, GM awarded BionX a contract to develop a new electronic powertrain system (“Drive Unit”). This program had 3 phases:
- Beta Program PO: February 2016 – GM issued a $11,816,054 purchase order to BionX, which would develop a working prototype that would ultimately be used in GM-supplied bicycle frames
- 23 invoices were issued, based on a progress-to-completion basis; GM paid 18 of these invoices, and BionX was preparing but had not yet sent 1 additional invoice (24 invoices in total) prior to the Receivership Date
- A key milestone was to develop a computer-aided engineering analysis model (“CAEA Model”) to analyze the Drive Unit. GM needed to approve the CAEA Model before BionX developed the working prototype
- In January 2017, 4 months behind schedule (BionX claims this was due to additional analysis requested by GM), GM approved spending for the Drive Unit prototype in January 2017; the prototype was delivered in March 2017
- Gamma Program PO: September 2017 – GM issued a purchase order for 110 Drive Units, for US$756,500
- Drive Units in the Gamma Program must have essentially been in final-version form, or “production intent” units
- BionX was required to develop production intent tooling to test these Drive Units on GM-supplied third-party bicycle frames
- From October 2017 – January 2018, BionX produced 104 Drive Units, of which 69 were delivered to GM
- Production Phase PO: September 2017 – GM issued a purchase order for 8,000 Drive Units, for US$7,856,000
- To fulfil this purchase order’s scale, BionX required new production tooling
- October 2017 – GM issued a PO for US$702,200 for certain of these required new production tooling (“Production Tooling PO”)
GM Disputed Assets
The POs terms state that GM is the sole owner of the assets related to the POs, and is entitled to remove these equipment upon request. Specifically, s.19 of the Beta Program PO General Terms and Conditions states, “All supplies, materials, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items … for which Seller [BionX] has been reimbursed by Buyer [GM], shall be and remain the property of Buyer and held by Seller on a bailment basis.”
BionX initially sourced the Disputed Assets as part of the Beta Program PO.
In February 2018, GM advised BionX that the latter was in breach of its purchase orders, due to its insolvency which would prevent it from ultimately producing all of the required Drive Units. Because of this breach, GM requested access to BionX’s main facility in Aurora to remove the Disputed Assets – BionX denied GM access to remove these assets.
Under Rule 44.01 of the Rules of Civil Procedure, the Court can rule that assets may be recovered if GM (i) proves it is the owner of these assets, and (ii) the assets were either unlawfully taken or are being unlawfully detained.
However, the Receiver noted that very few of the Disputed Assets have serial or model numbers, complicating asset identification. Additionally, only 18 of the 23 issued Beta Program PO invoices have been paid by GM, and the invoices were billed on a progress to completion basis – not for specific pieces of equipment.
The Receiver believed GM could not demonstrate both criteria required by Rule 44.01.
Below is a summary of BionX’s claims, the Receiver’s adjustments to these claims, and GM’s proposed payments for these claims. Because GM believed it was the rightful owner to the Disputed Assets, it believed it had a right to set off the amounts owing to it from the unpaid invoice amounts.
GM had not paid numerous Beta Program and Gamma Program invoices, and some of this equipment was also used to (partially) fulfil the Gamma Program PO. Although the Disputed Assets relate to the Beta Program PO, SCC/BionX argued that GM could not claim the R&D benefits of the Beta Program without also paying for the Gamma Program invoices (in addition to the unpaid Beta Program invoices), which required the Disputed Assets to fulfil.
Essentially, SCC argued that all the POs (and not just specific invoices) form reimbursement for the Disputed Assets, while GM argued that the paid Beta Program Invoices 1-18 were the only invoices relating to the Disputed Assets.
The Receiver sought direction from the Court, but recommended that GM be required to at least pay the unpaid Beta Program invoices (totaling ~$1.6MM).
GM Disputed Assets – Interim Court Ruling
On March 15, 2018, Justice Pattillo ruled that:
- Both parties needed to “present better evidence concerning whether GM’s payments in respect of Invoices 1 to 18 related in part to reimbursement for the Disputed Assets” (if this was the case, GM would be the rightful owner);
- The Court would then need to determine “whether GM is required to reimburse BionX: (i) for each Purchase Order governing such assets (which includes the costs of developing and Disputed Assets under the applicable Purchase Order); or (ii) whether GM is only required to reimburse BionX for the Disputed Assets listed on a particular invoice without taking into account the costs of developing, engineering and testing those assets.”
- Despite leaving the Disputed Assets ownership issue unsettled, the Court allowed GM to take possession of the Disputed Assets, since GM has time-sensitive agreements with other suppliers that require the Drive Units to be produced; however, GM agrees it cannot use these Disputed Assets (now allowed to be in GM’s possession) to set off any additional monies that GM may be found to owe BionX:
- Justice Pattillo was “satisfied that the undertaking to the Court from GM for payment of any amount found to be owing by it in respect of the Disputed Assets over and above what it has already paid to BionX together with an acknowledgement that the undertaking is not affected by any claim it has or may have against BionX, either by way of set off or otherwise, is satisfactory and sufficient in the circumstances.”
Next hearing for both parties to present evidence of ownership is scheduled for April 3, 2018.
BionX does not own its Aurora building or land.
Proposed Sales Process
Grant Thornton was engaged as a financial advisor in December 2017 to explore strategic options. Although a partial or full sale of the business was informally explored, no transactions materialized.
The Receivership Proposed Sales Process has 3 phases:
- Phase 1: 10 days
- Receiver to prepare a data room, draft an asset purchase agreement, and identify a list of potential acquirers for the assets of BionX Canada
- Phase 2: 60 days
- Execute letters of interests and non-disclosure agreements with potential acquirers
- Conduct site visits with potential acquirers
- Collect offer letters from potential acquirers
- Phase 3: 20 days
- Review offer letters, and discuss the same with SCC
- Negotiate and execute an asset purchase agreement
A relatively short time to sale completion is targeted, as the Receiver will not be operating BionX as a going concern.