Cellfor, a privately held company that bills itself as the world's first and largest commercial supplier of conifer varietal seedlings to the forest industry, has obtained a court order granting it protection under the Companies' Creditors Arrangement Act.
The initial order of Mr. Justice Harris of the Supreme Court of British Columbia grants a stay of proceedings against all actions and creditors until January 16, 2012, when a further hearing is scheduled to consider a possible extension of the stay period.
The company has also been granted a temporary restraining order under Chapter 15 of the US Federal Bankruptcy Laws by the United States Bankruptcy Court for the Northern District of Georgia. That court has scheduled a hearing on January 20 to determine the issue of recognition of the Canadian CCAA proceedings and to consider Cellfor's request for a permanent injunction.
Cellfor Inc. is headquartered in Vancouver, with its principal operations located in British Columbia. It is the sole owner and shareholder of Cellfor Corp., a US company registered in Delaware with headquarters in Georgia. The two companies do business collectively under the name Cellfor and share the same CEO and CFO.
Cellfor's business is the research, development and commercial sale of advanced technologies relating to cloning of superior conifer seedlings for the forest industry. The company’s objective is to select, produce and market seedlings that provide better growth rates, disease resistance and wood quality.
Research and development work, as well as administration of the tissue culture phase of production, are carried out at the company's laboratory and storage facilities near Victoria, BC. The production process is completed through subcontracts with industry partners in Canada and the United States.
In its filing to the BC Supreme Court, Cellfor said that it is currently experiencing negative cash flow and that existing investors are unable to provide further funding. The company stated that it is currently insolvent because it cannot meet its obligations when they are due and that cash reserves are not sufficient to operate the business without court protection.
Cellfor says that its current financial difficulties are due to a number of factors, including the continuing cost of research and development activities, slower-than-anticipated reduction in production costs, sluggish growth in sales volume, and a highly challenging economic climate.
Current assets are valued at approximately $12 million; Cellfor’s primary assets are its intellectual property and a portfolio of seedling products that is currently being preserved as tissue in cryopreservation facilities.
Current liabilities are about $5.8 million, with an additional $5.9 million owed to secured convertible note and debt holders. The company’s major unsecured creditors are production nursery subcontractors that are holding and growing interim seedlings and finished seedling inventories.
Since its founding in 1999, the company has been financed through five rounds of convertible debt totalling more than US$ 130 million. Management projects that Cellfor will need an additional $20 million in capital to achieve profitability.
In its court filing, Cellfor cited a number of difficulties that it faces in attempting to raise additional capital. Its core technology--somatic embryogenesis—is not well known and sometimes difficult for investors to understand. Cellfor describes itself as a "unique company" that doesn't fit the investment mandates of most funds.
In addition, Cellfor says that current markets "are the worst in a generation for financing any deal and potential investors are focusing on their existing portfolios rather than making new investments." It also noted that new investors have little interest in companies with negative cash flows.
Despite these challenges, the company said it intends to seek further investment as the preferred course of action. If new investors are found, Cellfor believes that it will have sold or be in the process of developing sufficient seedling stock to be operating at near break-even basis within 24 months and profitably within 36 months.
If further investment is not obtained, the company intends to present a plan of arrangement that will call for packaged sale of the corporate shell, which carries a significant tax loss, and Cellfor’s intellectual property portfolio.
The company said that restructuring will yield the best recovery for stakeholders and creditors. It intends to file a plan of arrangement by January 31, 2012.
The Bowra Group of Vancouver has been appointed by the Court as monitor of the CCAA proceedings.