Millions in public money invested in a Dartmouth company is lost after creditors approved a debt restructuring plan.
As part of the plan, approved at a meeting on Friday, a total of $6.8 million in provincial and federal tax dollars owed by Intelivote Systems Inc. won’t be recouped.
Dean Smith founded Intelivote in 2003 to provide electronic and telephone voting services for municipal elections, political party leadership contests, union votes, and more. The company ran a few of HRM’s elections, and currently holds the contract for its next one.
Halifax Examiner publisher Tim Bousquet profiled the company in 2008 in The Coast here, and noted in the Morning File in 2015 that the company “has been the recipient of considerable government largesse, both federal and provincial.”
At the time, Intelivote had caused a scare for HRM, with a by-election just weeks away. The company was up for sale and facing possible receivership from the Atlantic Canada Opportunities Agency (ACOA), which had loaned the company more than $1.8 million since 2012. The company had also borrowed $2.8 million from Nova Scotia Business Inc. (NSBI).
But a sale never happened, and this summer, Intelivote applied in Nova Scotia Supreme Court for relief under the Companies’ Creditors Arrangement Act (CCAA).
In an affidavit filed in court in July, Smith said Intelivote “was an innovative business in the earliest stages of e-voting.
“There were many skeptics and technology had to be developed to address functionality, reliability, scalability, auditability, privacy, and adaptability,” Smith wrote.
“Intelivote has not only developed and adapted electronic voting technology, but has also become the key advisor to municipalities in Nova Scotia and Ontario seeking to adopt bylaws and procedures to empower them to conduct elections through electronic and phone voting, and thereby reduce their election costs.
“As such, Intelivote has developed a loyal following of municipalities who have come to rely on Intelivote’s expertise in setting up and conducting electronic and telephone election voting, particularly smaller municipalities who do not have in-house expertise. For reasons of scale, most e-voting companies charge a higher fee per eligible elector for smaller municipalities than for larger municipalities, whereas Intelivote has offered its services to smaller municipalities for the same fee per eligible elector.”
Despite its reported success in running electronic votes, the company hasn’t been able to settle its debts.
“The original investment in Intelivote, which came from Nova Scotia Business Inc. (“NSBI”), Atlantic Canada Opportunities Agency (“ACOA”), and many others, has been dissipated by the lengthy time it took to get uptake from municipal and other governments, political parties, unions, and non-governmental organizations,” Smith wrote in the affidavit.
“This has resulted in Intelivote carrying for many years a substantial debt level, with no practical prospect of ever being able to retire that debt.”
Smith, the company’s only employee, tried to sell Intelivote to a number of suitors, but none was interested in his e-voting software or hardware, just his expertise and contacts.
“Intelivote is at a crossroads, as the continued operation of the company is unsustainable with the present level of debt,” Smith wrote.
Smith’s lawyer, Tim Hill, proposed a plan of arrangement, where the court bars creditors from suing the company while they divvy up a lesser amount of money than what they’re owed. In this case, it’s $300,000 to all creditors.
“Having found no competitor, acquaintances or supporting industry partners willing to invest in Intelivote, I have arranged for a Creditor Fund in the amount of $300,000. Intelivote will provide $175,000 of that amount from its own resources, and the remaining $125,000 will be provided by way of a loan to Intelivote by myself or my company, Novasoft Associates Incorporated,” Smith wrote.
“Intelivote has been able to meet its operating expenses for 20 years. The proposed Plan of Arrangement will effectively deal with a majority of Intelivote’s debt and restructure the shareholding of the company. Intelivote will continue to provide a valuable service of combining electronic voting, phone voting and voting in person in a seamless manner, rather than the forced versions of competitors such as tabulating machines, only phone voting, or a patchwork of services that do not provide the reliability that municipal and other authorities have relied on over the years in Nova Scotia and Ontario.”
NSBI, which is now being folded into the newly-created Invest Nova Scotia, was the only secured creditor, meaning it received a stake in the company for its investment. The $2.8 million originally invested has become $5.4 million with interest.
In the plan of arrangement, developed by Grant Thornton, the court-appointed monitor for the process, Intelivote proposed to give $60,000 to NSBI in recognition of its secured status, and the remaining $240,000 would be split among other creditors. NSBI would be able to apply for a portion of the remaining $240,000 as well, and all applications were due in August.
At a meeting on Friday, according to the minutes, the creditors agreed to Intelivote’s proposal.
NSBI applied for another $166,952 on top of its $60,000, and will receive that, getting $226,952 in total.
ACOA will get $52,147. It was owed $1,686,910.
Wade MacLauchlan, the former PEI premier and another investor in Intelivote, will get $15,306. He was owed nearly $500,000.
And KTL Computing Inc., one of Intelivote’s vendors, will get $5,596. It was owed $181,024.
The company owed about $4.5 million to Shropshire S.A.R.L., a company that is in liquidation in Luxembourg. That debt was deemed “statute barred” as the company hadn’t pursued it in more than two years. Similarly, Intelivote owed Dartmouth-based CHI Holdings Inc. about $1.3 million, and that claim is statute barred, too.
The court still has to ratify the plan, and that’s expected to happen this week.
The Examiner asked NSBI whether it’s satisfied with the return on investment for Nova Scotians.
“As an economic development organization, we always want to see positive outcomes and business growth, as well as balancing the best possible recoup of the public dollars invested,” spokesperson Jess Hawkes wrote in an email.
“Now that the company has entered into CCAA, a formal legal process is underway.”
I wonder if any ACOA loans have ever been repaid? Put this in the same basket as Muskrat Falls!
Zane, who ended up owning the intellectual property? If if if this business ever succeeds the IP has value in the future.
Intelivote still owns its intellectual property, but that’s precisely what it had a hard time selling.
As to your other question, that’s just clumsy wording on my part. The company only owes $1 to CRA.
Zane, the linked court order does not list any tax payable. Tax has special status, federal authorized can sue the Directors if Directors not exercising due diligence
“provincial and federal TAX dollars” ??