Months of simmering tensions over a nearly $170-million debt owed by Peguis First Nation to failed lender Bridging Finance Inc. have boiled over, with critics in the community accusing the band council of arbitrarily writing down the debt to just $25-million ahead of an April band council election.
The writedown was revealed in financial statements posted last week on the website of Peguis First Nation, raising concerns from its members and accounting experts about whether the writedown disguises the size of the debt facing the community.
Peguis, a First Nation that has a registered population of 11,000 and whose main reserve is located about 190 kilometres north of Winnipeg, has borrowed millions from Bridging.
A Toronto-based lender, Bridging was placed into court-ordered receivership in April, 2021, at the request of the Ontario Securities Commission over allegations that Bridging managers funnelled millions to themselves at investors’ expense.
Receiver PricewaterhouseCoopers Inc. is now working to wind down Bridging operations and recover funds for Bridging investors through negotiations or through legal action, including lawsuits against Peguis.
In December, PwC filed claims in Ontario and Manitoba courts, seeking to recover nearly $170-million in principal and interest owed by Peguis First Nation and related entities.
According to a statement of claim filed Dec. 30, 2022, in the Court of King’s Bench in Manitoba, Peguis in 2017 arranged three separate credit facilities through Bridging: $19-million to build new homes and $3-million to renovate existing ones; $6-million to build two new gas bars in Winnipeg and Selkirk; and $30.6-million to replace credit facilities Peguis previously had with Bank of Montreal.
The amount available through those credit facilities was increased on several occasions at Peguis’s request, according to the statement of claim. As of Dec. 29, 2022, the housing facility was sitting at $58.4-million (including a $40-million mortgage initially issued by BMO); the gas-bar loan was at $6.9-million; and the new credit facility was at $48-million, for a principal balance of $113.4-million. Fees and interest of $56.4-million pushed that total to $169.8-million.
A court action in the Ontario Superior Court of Justice, filed Dec. 30, 2022, claims the same amounts: $113.4-million in principal plus $56.4-million in interest.
In January, news of the Ontario court action began spreading among Peguis members. A dissident group, 269 Silent No More, held a rally and meeting that month in the community of Peguis to highlight the Ontario court action – handing out copies to band members – and to call for more transparency from the chief and council. (269 is Peguis’s band number under the federal Indian Act.)
Then, last week, updated financial statements for the band were posted on the Peguis website.
According to those financial statements, the chief and council sought legal advice in the wake of the receiver’s Manitoba lawsuit to review the documentation and terms of the Bridging loans, including whether the loans complied with provisions of the Indian Act.
Under the Indian Act, on-reserve property and assets are in general protected from seizure by creditors, but those provisions can be waived. Peguis says its legal counsel believes that some of the Bridging loans required Bridging to obtain fresh waivers under the act, as opposed to relying on those previously obtained by BMO for its loans, and Peguis claims Bridging did not take that step.
The chief and council therefore passed a band council resolution to write down the loan to $25-million, the financial statements say.
Chief and council planned to discuss the new financial statements at a community meeting in Peguis on March 20, but that discussion was put off after protesters disrupted the gathering, calling on council to delay the discussion until after the band council election.
In a statement released later that day, Chief Glenn Hudson, who is running for re-election, said the protesters’ actions “were a total breach of the democratic rights of all Peguis members” to have access to factual, transparent and accountable information on the First Nation’s finances.
Mr. Hudson has not responded to requests for comment from The Globe and Mail. But he has publicly stated that the PwC legal actions were only made for procedural reasons and that he and council are working with PwC on a negotiated settlement.
Members of 269 Silent No More allege Mr. Hudson is using the financial statements to play down Peguis’s debt to improve his chances of re-election.
“It’s a complete and utter joke for the current chief and council to think that a band-council resolution, like a magic wand, will somehow make the debt magically disappear,” said Stan Bird, a member of 269 Silent No More who is running for chief against Mr. Hudson.
“It is yet another attempt to mislead the people.”
In an e-mail, PwC spokeswoman Chiara Battaglia said Bridging receivership proceedings are still under way and that PwC does not publicly comment on active proceedings.
The financial statements come with a “qualified” opinion from the Winnipeg office of Baker Tilly Canada, an accounting firm, that cites several issues, including uncertainty related to the Bridging debt.
When an auditor has an “unqualified” opinion, it believes the financial statements fairly present the financial condition of the company or entity that put them out. An auditor “qualifies” its opinion when it finds issues that prevent it from saying that.
The financial statements also include a “going concern” note. Companies or other entities prepare financial statements under the assumption that they will continue to operate and be a “going concern.” If there is meaningful doubt about that, they or their auditors must insert a warning to the people reading the financial statements.
Baker Tilly said it was unable to comment on the Peguis statements.
Shanker Trivedi, an associate professor of accounting at Schulich School of Business, said he was struck by the large amount of money that falls under the umbrella of the qualified audit opinion, including more than $100-million in relation to the Bridging debt and $22-million related to what is identified as a “bad debt” in connection to loans to a company affiliated with Peguis.
Prof. Trivedi, who said he reviews many such statements for universities and other groups, also questioned how Peguis handled the Bridging debt. He noted that how the debt is presented in financial statements has a significant impact on the overall financial picture for the band.
“I mean, usually people write off what people owe them. … Nobody writes off loans that you owe to others, especially when nobody has told you that we are going to forgive the loan that you owe us,” Prof. Trivedi said.
With a report from David Milstead