Portus put into bankruptcy

An Ontario court has rubber-stamped KPMG’s request to place Portus Alternative Asset Management into bankruptcy, bringing investors a step closer to retrieving at least some of their money. Still, those investors will have to wait until June 21 for their first meeting.

There were no Portus representatives in attendance to oppose the motion when Justice C. Campbell of the Ontario Supreme Court made his ruling in Toronto Friday morning. Several other parties were present including legal counsel for Berkshire, Manulife, RBC along with several other interested parties, filling the public viewing area beyond capacity.

By placing Portus into bankruptcy KPMG, which has been acting as the receiver since March 4, 2005, can now determine what outstanding liabilities there are against the defunct hedge fund and begin the slow process of distributing assets back to investors. Up until now, Bob Rusko, senior vice-president at KPMG said in a conference call, KPMG has only been acting in a “care and control” role, searching for assets and recreating destroyed records.

The bankruptcy will also allow KPMG to recover more assets and examine other transactions that are not at fair market value that have been beyond their reach, such as the directors and officer’s trust and fees that have been paid to certain parties. “It is getting us one stage closer to try to determine what the claims are and to start working on a method of getting value back to the investors,” he says.

As it stands right now, some 25,000 investors are looking to get their share of the $691 million to $772 million that KPMG has found so far. However Rusko cautions putting too much focus on those numbers because there are still many variables.

“That picture can change depending on what comes out of the claims process,” Rusko says. The investigation alone has already eaten up about $8 million, and that figure is still expected to climb. The assets available for distribution is also based on the value of the Société Genérale notes at maturity, some of which won’t come due until 2011. Forcing an early redemption of those principal-protected notes would lower that figure. “Until these notes are restructured then there is not enough cash to return to investors,” explains Rusko.

KMPG has until April 23 to provide a proof of claim and statements to investors. That is no easy task. While KPMG is confident is has a fairly complete list of investors, they are still finding discrepancies on that list. All of the records were removed from Portus computers by the time KPMG took over as receiver. Rusko says their investor list is sufficient to print out records for investors, but he’s advising investors to contact KPMG if they find any discrepancies.

The next stage will be the first meeting of creditors, which is scheduled to take place in Toronto on June 21. Due to the large number of creditors anticipated in this case the court granted KPMG’s request to a 90-day extension, instead of the normal 21 day period to hold a meeting following the appointment of a trustee. KPMG is also considering videoconferencing the meeting to other sites across Canada.

At the meeting, investors will elect inspectors who will guide how the bankruptcy proceeds. KPMG was also granted the right to act as a proxy for investors who cannot attend the meeting.

Notices will be sent out and will appear in newspapers as far away as the South China Morning Post and The Commercial Times in Taiwan. Notices will run in 17 papers, including 13 in Canada and four internationally.

In another hearing involving Portus earlier this week, Justice Campbell ruled that the investors in Portus’ Market Neutral Preservation Fund won’t have to file bankruptcy claims to recover their money. The judge made this rare move because the $19.2-million in assets in the fund were separate from the rest of the Portus assets.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(03/24/06)