Section 144 -- application for revocation of cease trade order -- issuer subject to cease trade order as a result of its failure to file with the Commission and send to its shareholders annual and interim financial statements -- issuer and former executive officers subject to enforcement proceedings in Alberta -- former auditor withdrawing -- issuer has brought filings up to date to the best of its ability filing full audited financial statements for the year ended September 30, 2003- full revocation granted.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O., c. S.5, as am., ss. 127 and 144.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")
IN THE MATTER OF
PROPRIETARY INDUSTRIES INC. ("PPI")
WHEREAS the securities of PPI are subject to an order of the Director of the Ontario Securities Commission (the "Director") dated September 18, 2002 and extended by an order dated September 30, 2002 under section 127(1) of the Act (collectively, the "Order") directing that trading in the securities of PPI cease until the Order is revoked by a further order of revocation.
AND WHEREAS PPI has applied to the Director for an order under section 144 of the Act to revoke the Order.
AND UPON PPI having represented to the Director that:
1. PPI is a corporation existing under the Canada Business Corporations Act with its head office and registered office in the Province of Alberta.
2. PPI is a reporting issuer in each province in Canada.
3. PPI is a principal merchant bank that owns, manages and deals in a portfolio of financial, natural resource and real estate interests.
4. The common shares of PPI are listed on the Toronto Stock Exchange and the Swiss Stock Exchange but are suspended from trading on both.
5. PPI is also subject to cease trade orders issued by British Columbia, Alberta, Manitoba and Quebec. PPI has concurrently applied for revocation of these cease trade orders.
6. PPI was the subject of an Alberta Securities Commission ("ASC") investigation commenced in June of 2001 relating to accounting improprieties of certain transactions during the 1998, 1999, 2000 and 2001 financial years.
7. In January 2002 the ASC issued a Notice of Hearing (the "Notice of Hearing") directed at PPI and Peter J. Workum ("Workum") and Theodor Hennig ("Hennig"), PPI's former Chief Executive Officer and Chief Financial Officer respectively.
8. The ASC issued a second Notice of Hearing against Workum, Hennig and four other entities on August 21, 2002 (the "Second Notice"). PPI was not named in the Second Notice. The hearing pursuant to the Second Notice is continuing.
9. In August 2002, the interim management of PPI and ASC Staff came to the common conclusion that significant revisions would be required to be made to the historical financial statements of PPI. With PPI's consent, the ASC issued a cease trade order against PPI.
10. In October of 2002, the former auditors of PPI, Hudson & Company ("Hudson"), withdrew their previous audit opinions for the years ended September 31, 1998, 1999, 2000 and 2001. Current management had attempted to cooperate with Hudson in order to facilitate the provision of a new opinion on the financial statements for the year ended September 30, 2001. It was determined, however, that the impact of the restatements was of such significance that this would be impractical from a cost and timing viewpoint.
11. Late in 2002 and early 2003, through discussions with representatives of PPI's major shareholders, principally Swiss pension plans, and in order to restore investor confidence in PPI, new individuals were presented to the then current board of PPI as potential candidates for PPI's board of directors.
12. On January 20, 2003, PPI announced the appointment of Patrick J. Lavelle, Stephen C. Akerfeldt and Robert L. Julien, as its directors. These directors were subsequently elected by PPI's shareholders at its June 18, 2003 annual and special general meeting.
13. PPI appointed new management through late 2002 and early 2003.
14. On May 23, 2003, PPI filed its financial statements for the year ended September 30, 2002 and restated its balance sheet as at September 30, 2001 (the "Restated Financial Statements").
15. As a result of the withdrawal by Hudson of its audit opinion for PPI's balance sheet for September 30, 2001 and there being no practical way for the new auditors of PPI, Mintz & Partners LLP ("Mintz") to obtain appropriate audit evidence for such statements, Mintz could not provide an audit opinion on operations and cash flow statements for the year ended September 30, 2002 in the Restated Financial Statements, or any of the operating amounts in the notes to the financial statements. Management prepared these amounts by utilizing the best information available to it. Mintz did render an opinion in respect of the balance sheet of PPI dated September 30, 2002. These matters and the difficulties experienced by the management of PPI and Mintz were discussed in great detail with ASC Staff.
16. On August 6, 2003, PPI filed its unaudited financial statements for the three months ended December 31, 2002 and for the six months ended March 31, 2003. On September 3, 2003 PPI filed its unaudited financial statements for the nine months ended June 30, 2003.
17. ASC Staff and PPI agreed, subject to ASC approval, to a settlement agreement dated August 26, 2003 (the "Settlement Agreement"), such Settlement Agreement being approved by the ASC in a decision dated September 10, 2003. Pursuant to the Settlement Agreement ASC Staff will take no further steps against PPI arising out of the facts set out in the Notice of Hearing.
18. On January 9, 2004, PPI filed annual financial statements for the year ended September 30, 2003 containing a full audit report, balance sheet and income statement.
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 144 of the Act that the Order is revoked.
May 5, 2004.