The smell of fish inside the processing plant was so strong, Albert Testa thought he might vomit as he and his partner tried to fix the problem that was about to cost them a small fortune, including $165,000 in legal fees.
It was June, 16, 2011, 15 days after their fish processing plant in Leamington had been seized by receiver BDO Canada Ltd., acting on behalf of TD Bank. A freezer had malfunctioned, putting 93,000 pounds of frozen smelt in peril, and Testa and his partner had been called in to troubleshoot.
Testa admits he and his partner had fallen behind on their payments on loans taken out to finance the purchase and operation of the fish plant, which is why the bank hired BDO.
What happened next is the subject of a $750,000 lawsuit.
Testa’s statement of claim states the BDO Canada Ltd. representatives who took over the plant did not know how to manage it and allowed fresh fish in the building to go bad. Then, to compound the problem, cases of spoiled, mushy fish were shoved into a freezer with previously frozen fish, ruining the entire fresh and frozen inventory and contaminating the entire building with such a terrible, indelible smell the building had to be sold at a loss when it could have been sold at a profit large enough to satisfy the outstanding loan.
Testa is suing TD and BDO for destroying the inventory, for the devaluation of the property and the loss of the business as a going concern.
Testa said in an interview that when he arrived at the facility on June 16, condensation in the freezer had created icy stalactites containing fish mush, hanging from light fixtures and stalagmites sprouting from the floor around the containers holding the spoiled fish. Testa maintains the odour was so foul it penetrated the walls, ceiling, equipment, furniture and other areas of the property.
“Anything that’s porous, the smell gets into it,” Testa said in an interview.
The case is scheduled for pretrial in September and trial in January.
The lawyer representing TD and BDO declined to comment when reached by phone and email. In a statement of defence filed in court, which denies the allegations, BDO and TD deny the inventory had any monetary value or that the value of the building was affected by any actions taken or not taken by the BDO agents.
A spokesperson for TD said no comment will be provided as the matter is before the courts.
After spending $165,000 on legal fees with his business partner, Testa has been representing himself for three months and plans to represent himself in upcoming court hearings. His partner, Michael Hillhouse, did not return a call for comment.
Testa says TD has put a lien on his family home in Windsor because the TD loan had been personally guaranteed by him and his wife, Brenda Testa, who died in June.
The fish inventory, which could have been sold for just under $200,000, had to be discarded, which Testa said in an interview he estimates would have cost $50,000. The building was sold for $290,000 when it had previously been professionally valued at $620,000, and later at $750,000. The bank’s position is that the building was first evaluated before the financial crisis of 2008 and the later evaluation was based on an addition that was never completed.
In October 2014, Andrea Orr, a partner at BDO Canada Ltd., testitifed at an examination for discovery that neither BDO nor the bank had any intention of selling the inventory because they would be liable for any problems, for example health issues, arising as a result. Orr also testified the company had not been “a vital going concern” when it was taken over, that the fish plant always smelled and even after the incident with the spoiled fish, it would have been possible to disperse the smell by opening the windows.
In fact, from the very beginning, staff at BDO jokingly called it “the stinky fish file,” according to Orr.
Testa purchased the plant for $600,000, part of a deal in 2007 merging the biggest Great Lakes fish producers to establish a dominant industry player, Great Lakes Fish Corporation. When plans to resell the plant fell through, Testa and his partner began renting the facility to Great Lakes Fish Corporation.
In May 2010, Great Lakes Fish Corporation ran into financial problems and stopped paying rent on the plant. It became insolvent a few months later. In July, Testa and his partner began missing payments on the $570,000 in loans they had obtained from TD to finance and operate the fish plant.
According to the statement of claim, Testa and his partner were successful in getting the Business Development Bank of Canada to agree to loan them money, but the agreement was conditional on TD continuing to delay foreclosure, and TD would not provide that assurance.
TD tried to work with Testa and his partner, establishing a new interim payment schedule, but Testa and his partner missed payments in March, April and May of 2011.
On June 1, 2011, more than a year after Testa and his partner first began defaulting, TD sent BDO in to take possession of the plant.
“By early June, 2011, it became clear to TD Bank that the Borrowers no matter how much additional time was given were simply unable to obtain alternate financing and make satisfactory arrangements for the payment of the loan,” according to the bank’s statement of defence.
In his statement of claim, filed in Ontario Superior Court, Testa says he met with the BDO agent the day the receiver took possession of the property. He offered to explain how to operate some of the equipment and machinery and to move the fresh fish that was in coolers into the freezer units. Testa said he warned that the fresh fish inventory in the coolers would spoil unless it was moved.
He said in an interview that it seemed to him the agent just wanted him and Hillhouse out of the building as quickly as possible — Testa believes the BDO agent didn’t trust them.
It seemed, to Testa, that the agent kept a close eye on them. They couldn’t even go to the washroom, he said, without an agent standing at the door.
“It would have made all the difference in the world if they had allowed us to assist them,” Testa said.
According to Testa’s statement of claim, which has not been proven in court, the BDO agent called him June 13 to say the freezer alarms had gone off the day before.
The alarms are triggered by a sudden rise in temperature in the freezer units, allowing repair work to be completed before the inventory is damaged. Testa said in an interview he offered to pay for the repairs but was told neither he nor any repair person he hired would be permitted access to the property.
It wasn’t until June 16 that Testa and his partner were finally permitted onto the property with an electrician to fix the freezer units, where the temperature had risen to +13 degrees Fahrenheit (-10.5 C). While still below the freezing point of + 32 Fahrenheit (0 C), it was higher than the company standard of -7 Fahrenheit (-21C).
But the real damage had been caused by moving the spoiled fish in with the frozen fish, which contaminated the lot.
As soon as he opened the door, Testa said, he could smell the rancid fish. In his statement of claim, he said the BDO agent told him she had not moved the fresh fish from the coolers to the freezer units soon enough and it had spoiled. Spoiled fish was then moved into the freezer unit with saleable inventory, according to Testa’s claim. It was then that the frozen fish became contaminated.
In its statement of defence the bank points to numerous problems, beginning in the spring of 2010: Among other things, the property fell into tax arrears and cheques provided by Testa bounced. That summer, Testa and his partner defaulted on their loan payments.
The bank and BDO also claim the frozen inventory was “unfit for human consumption” and had no economic value.
Testa admits defaulting on the payments and falling into tax arrears — which he says was the result of a property tax reclassification effort the bank was aware of. In court documents he said two cheques were cancelled by agreement with the bank.
Testa said the defence is trying to portray them as “deadbeats,” but that doesn’t change the fact the bank and BDO caused the inventory to be ruined and the building devalued.
In a case such as this one, a receiver’s primary responsibility is to the person or company that hired them, according to Ira Smith, an insolvency and restructuring expert and founder of Ira Smith Trustee & Receiver Inc., who declined to comment on this specific case.
“However, after saying that, it’s well-established in law that the receiver has to deal with property in a commercially reasonable manner. If the receiver fails to provide a basic standard of care, they can be held for negligence,” said Smith.
However, even if negligence can be proven, the value of the loss also has to be established, Smith said.
Smith added it is sometimes agreed at the outset that perishable goods will not be dealt with by the creditor or receiver. But in such cases, it is standard practice at his firm, to advise the owners of that from the beginning.
“We would have done it in writing and from the beginning. That is our practice. We would have secondly, looked at what needs to be repaired, if anything, and act reasonably in preserving the value of the assets.”