Niigon creditors likely out C$105M in bankruptcy filing

The launch of injection machine builder Niigon Machines Ltd. in Vaughn, Ontario, in 2018 was difficult before it even officially started.

First, a patent dispute hampered Niigon's plan to offer just-in-time assembly of modular customizable presses with a five-year warranty.

Then the company had problems gaining traction because of its limited product line — eight basic models ranging from 30 to 600 metric tons — at the same time competitors offered hard-to-beat prices.

Niigon's lack of global sales and service staff hurt, too, as did warranty issues.

And finally, COVID-19 dealt a fatal blow to the business formed by industrialist Robert Schad, an inductee into the Plastics Hall of Fame who had previously started Husky Injection Molding Systems in 1953 and Athena Automation Ltd. in 2008.

Athena essentially evolved into Niigon, which means "for the future" in the indigenous Ojibwa language, starting around 2013. But the transition was fraught with the patent and other problems.

While an attempt to sell the struggling Niigon to Stans, Switzerland-based Benpac Holding AG looked promising in May, the deal fell apart over the summer.

Crushed by debt totaling C$108 million (US$87.3 million) and no prospect for sale, Niigon officials filed for bankruptcy Sept. 24 and the staff of about 60 employees was terminated.

The circumstances leading to Niigon's insolvency came out Oct. 15 during a virtual meeting for almost 200 unsecured creditors owed about C$105 million (US$84.8 million).

The 45-minute meeting was led by Paul Denton, a managing director of A. Farber & Partners Inc. in Toronto, which was appointed both receiver and trustee in the bankruptcy.

"Niigon sprouted out of research and development, focused enterprise, leading-edge injection molding machines and technology," Denton told unsecured creditors.

However, the business was dogged by setbacks.

"Through a confluence of factors, Niigon was never able to achieve the required sales levels nor the critical mass necessary for a profitable operation and instead incurred substantial losses," Denton said.

He put Niigon's assets at about C$15 million (US$12.12 million), excluding patents, and said that isn't enough to cover the secured credit owed to Schad, 92.

"Both losses and working capital needs were funded by substantial shareholder loans, which through mid-2020 was about $105 million," Denton told unsecured creditors.

The list of companies waiting to be paid following the secured creditor is nine pages long. Some of the larger unsecured claims were made by Mold Precision Components in Ontario, which is owed C$2.2 million; Mold Masters Kunshan Co. Ltd. in Jiangsu, China, C$903,865; Stack Teck Co. Ltd. in South Korea, C$512,250; and Stack Teck Systems Ltd. in Brampton, Ontario, C$467,103.

Schad also is listed as an unsecured creditor for C$160,000 he put into the business and C$1 million owed to an affiliated entity called 1297607 Alberta ULC.

When the pandemic was declared in March 2020, "Niigon didn't have the structure or positioning" to survive, Denton said.

Five months later, in August 2020, company officials retained a Toronto bank to look globally for buyers. An extensive marketing campaign culminated in the May 2021 purchase offer.

Benpac Holding wasn't identified as the prospective buyer during the creditor hearing, but Plastics News learned earlier this month that the Swiss company was in negotiations with Niigon officials just before the bankruptcy filing.

Benpac Holding had purchased W. Amsler Equipment Inc. in Bolton, Ontario, in January 2020 and moved it into a Niigon facility in June 2021.

Then negotiations cooled off between Benpac and Niigon.

"Unfortunately after numerous extensions and accommodations over a four-month period, the prospective purchaser was unable to advance the funding to close the transaction," Denton said. "Without the resources to continue to fund operations, the company was left with no viable alternative but to file for bankruptcy."

While the sale of Niigon's intellectual property could bring in some money, it likely won't be enough for the unsecured creditors to recoup any of their losses.

"For patents, we're getting some interest in that," Denton said. "We have yet to determine the market value."

A legal battle over the patents had posed the first big hurdle for the company, Denton noted.

"While Niigon won on every point and was awarded costs, this litigation caused several years of delays," he said.

There aren't many other assets to go around. Documents related to the bankruptcy filing show C$1.5 million of inventory, C$1.2 million of machinery and equipment, C$490,000 of accounts receivable and C$2 million of "other" assets.

"You have a balance sheet with a $105 [million] to $106 million shareholder loan on it and assets at best in the teens to $20 million range. It may not even be that," Denton told unsecured creditors.

When asked about the Niigon real estate, Denton said two buildings, including a 200,000-square foot production facility, belong to another entity, a Schad family holding, that is not part of the proceedings and would not be sold to pay debts.

The answer frustrated unsecured creditors, including one on the Zoom call with a company that is owed C$48,748.

"I just want to know are we getting our money back or not," he asked, describing himself as a small carrier who did business with Schad going back to his days operating Husky, which he sold in 2007, and Athena.

"Since Robert Schad opened the company, I'm serving them and I'm giving them my best service," he said. "I'm a small guy. I'm not Robert Schad. He had money. My $50,000 will burn me. I paid for the drivers, paid for the fuel. That was my pure profit. It will take two or three years to make up that kind of money."

The creditor was upset that even as Niigon headed to bankruptcy, it racked up bills with his company, which he said still has C$15,000 of invoices to send over.

"They told me, 'Rocky, don't worry about your money. We will pay you, but we're looking for investors and a deal is almost done. And as soon as everything wraps up we are going to send you all the money.'"

Denton told creditors that Niigon officials were looking for as seamless an exit as possible and they ran up significant losses while the deal was pending "in trying to preserve and keep it together."

To the creditor on the call, Denton said: "The grim math at the moment is there's a $100 million loan. First of all, is the receiver going to realize more than $100 million so the unsecureds can be paid back? I'm saying no. It's very unlikely."

Kristofas Girdauskas, general manager of Re-Strike Machine & Tool Inc. in Mississauga, Ontario, which has a $13,064 claim, told Denton it is difficult to look at the Niigon balance sheet and find out about more than $100 million of shareholder loans.

"It seems to me like it was a careless investment and to go out burning people at the end, it's sad to have it happen like that," Girdauskas said.

The Re-Strike general manager also talked about what might happen if the Niigon intellectual property and buildings eventually do sell.

"It's probably reasonable to assume that at some point in the future, there will be an entity that will be utilizing those facilities and potentially that IP and they'll be looking for people to work with on this call," Girdauskas said.

The bankruptcy could haunt anyone picking up Niigon-related assets, he added.

"I understand the legal T's and I's have been crossed and dotted, but if there's any expectation that the people on this call will be willing participants in the future when someone else takes over those buildings and uses that IP — that's a great assumption if it works out — those smaller vendors who are negatively affected by this, I think they will have long memories," he said.