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Hecla receivership a tangled affair

Would-be owner claims stonewalling

By: Martin Cash

Thursday, Aug. 30, 2012 at 9:54 AM | Comments: 0

The Hecla Oasis Resort on Hecla Island, seen in 2008.

Usually when a business entity is placed into receivership, the goal of the creditor who initiates the action is to find some way to extract maximum value from the asset.

But in the case of the Hecla Oasis Resort, it's far from a simple process.

This November will mark the second year the resort has been closed after the former owners and operators of the resort, Paletta & Company Hotels Ltd., were forced to shut the doors. They had borrowed $8.5 million from the Business Development of Canada and another $5 million from the province in an effort to make a go of the lovely, though somewhat isolated property.

The fact the receiver, Lazer Grant Inc., has not been able to scare up any offers from the hotel industry after aggressively shaking the bushes for more than a year might suggest to some if there was an offer on the property for some other use, they should take the money and run.

Such an offer has been on the table for months.

Former city council candidate Ian Rabb wants to buy the resort and convert it into a high-end drug and alcohol addictions treatment centre.

Rabb said the receiver would have closed the deal long ago were it not for the fact he cannot get a land-use permit.

Rabb believes the province is stone-walling him. He believes the provincial department of Conservation and Water Stewardship has allowed him to dangle for several months now with no intention of allowing such a facility to operate in a provincial park.

"They refuse to say yes or no," said Rabb, who has a hard time containing his frustration.

But it's a complicated issue for the province.

Some litigation it is in the midst of with the former owners is making it more complicated and potentially expensive for the province. Paletta & Company is suing the province and BDC for damages. After securing loans and spending millions of their own money, they could not make the property work as a four-season resort and wanted to convert it to a health and wellness centre. Rabb was actually consulting with Paletta in their efforts.

In its statement of claim, Paletta & Company argues that in its original lease agreement with the province a health and wellness centre was an agreed-upon use for the property. But when such a plan was to be implemented, the lenders refused to sign off.

Paletta is suing for damages. The province and BDC are seeking to move to arbitration. Paletta is sticking to his guns and is demanding a trial.

If the province were to grant Rabb's group a land-use permit, it might have a hard time defending itself from the Paletta suit.

An industry source said, "Paletta must be rubbing his hands together in anticipation, because if they give Rabb the land use they'll probably have to pay Paletta."

Either way, it could be a multimillion-dollar touch for the province.

The province lost millions on the property before it was sold to Paletta for $1 in 2005. They loaned Paletta another $5 million, which is lost.

It lost close to $200,000 on the operation of the golf course last year and there can only be increasing losses as the property remains closed.

Rabb is offering $3.1 million and if his $10-million business plan can work, the province would likely be able to generate at least some tax revenue if not health-care cost savings if a long-term treatment centre was able to continue operating.

An official from the province said, "As you know, the property is in the hands of a federally appointed receiver. While we cannot disclose the details of any discussions, because we don't want to prejudice the process, it is important to note that financial considerations will be weighed very heavily by the receiver and the province."

Rabb is scheduled to meet with officials from Manitoba Conservation next month, a meeting he has been trying to set up for months. (He believes it was only scheduled because he let it be known there would be media pressure.)

Meanwhile, there is talk about how BDC does not want to be responsible for the property through another winter. (Last year there were burst pipes and thousands of dollars of damages.)

Rabb said he's heard talk of bulldozers.

As challenging as the property is, that seems like the least beneficial option imaginable.

martin.cash@freepress.mb.ca

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