Remains of PACE to face liquidation

Troubled credit union PACE Savings & Credit Union Ltd. is no longer under regulatory administration, as the remnants of the firm are now undergoing a court-supervised liquidation process.

The Ontario Superior Court of Justice appointed KPMG Inc. as liquidator of PACE, removing it from administration by the Financial Services Regulatory Authority of Ontario (FSRA), which had been overseeing the firm.

In 2018, PACE was placed under administration by a FSRA predecessor (the Deposit Insurance Corporation of Ontario) amid concerns about alleged misconduct and regulatory breaches by the credit union’s former president and former CEO.

The regulator’s efforts to stabilize the firm and return it to member control failed.

“Ultimately, the consequences of the misconduct and regulatory breaches committed by the credit union’s former president and former CEO, combined with those of the Covid-19 pandemic on the credit union, and certain other factors, compromised the credit union’s financial position to such an extent that the administrator was forced to explore additional options for the credit union rather than just the ‘recovery option,’ which had been the primary goal up until that point,” the credit union said in a court filing.

This resulted in a transaction, which closed last month, that saw the bulk of PACE’s operations and assets sold to Alterna Savings & Credit Union Ltd., leaving KPMG to undertake the winding up of the legal entity.

In granting the order appointing KPMG as liquidator, Justice Conway noted that PACE “no longer has member deposits, employees or branches. Substantially all of its assets have been sold to Alterna.”

“The remaining assets and liabilities consist of complex litigation and claims that cannot comprise the business of carrying on a credit union and are best overseen by a liquidator,” the order said. “There are no employees left to deal with those remaining assets and liabilities.”

In a letter to former members of the credit union, KPMG said that it will “pursue recoveries of the assets, including potential recoveries in respect of the ongoing recovery litigation, and address the liabilities that remain in the PACE legal entity.”

According to court filings, the credit union is embroiled in ongoing litigation with its former president and former CEO, alleging breach of trust and breach of fiduciary duty, along with other claims.

The defendants both deny those allegations and have made counterclaims against the credit union, claims against other former directors, and a claim for wrongful dismissal.

None of the allegations have been proven, and those cases remain before the courts in Ontario.

The credit union is also still seeking millions from its insurers stemming from claims for losses it suffered due to alleged employee misconduct.

Separately, there’s an ongoing class action in British Columbia against the credit union alleging breaches in connection with its sale of prepaid debit cards.

After the legal machinations are wrapped up, KPMG will determine whether there is money, and how much, that can be returned to creditors and shareholders of the failed firm.

In a statement, FSRA said it will support KPMG “in its efforts, including in the vigorous pursuit of the claims to recover damages and losses caused by the former management and board members of PACE related to the matters which resulted in PACE initially being placed under administration.”