Remnants of an old Atcon factory were left behind in the aftermath of the scandal. 

AtCon : Thee Atlantic Con

Extensive research was conducted on the internet to gather information about the history of the Atcon Group, including searches for "Atcon Construction" and other relevant terms. The primary objective of the research was to identify the company's founders and explore its activities before 2007. Although a few lawsuits related to some of Atcon's construction projects were discovered on CanLII, the most substantial information that emerged was that the company was established in 1978 in New Brunswick. Atcon was headquartered in Miramichi, and its diverse range of industrial-based companies focused on four primary sectors: heavy civil construction, steel fabrication and machining, environmental products and services, and manufactured wood products.

Despite extensive efforts, very little additional information was found about Atcon's early history or the identities of its founders. It is worth noting, however, that there is a scarcity of online information available about Atcon's pre-scandal period in 2009. This lack of information only underscores the importance of keeping the story alive to shed light on the events that led to the company's ultimate downfall. The dates and times were sourced from the auditor's report, although there may be some variation between articles regarding when the government approved the loan and when the money was actually disbursed. Due to the slow nature of government work and contract processing, delays are common. 

The Miramichi Bridge - Miramichi, New Brunswick, served as the headquarters for Atcon. 

It is essential to establish the background and contextual factors that contributed to the Atcon scandal. The primary factor that many have identified as contributing to the company's downfall is the role of government in providing loans and subsidies to private companies. The practice of governments handing out cash to businesses in the name of creating jobs has been widely criticized for its potential to facilitate corruption and cronyism. As a result, many have pointed to this type of government intervention as the root cause of Atcon's troubles. It is crucial to recognize the need for transparency and accountability in the relationship between government and private enterprise to prevent similar scandals from occurring in the future. 

Robbie Tozer - CEO of Atcon

The Company

Established in 1978 in New Brunswick, Atcon was headquartered in Miramichi, with a focus on four primary sectors: heavy civil construction, steel fabrication and machining, environmental products and services, and manufactured wood products. The company's range of industrial-based companies provided a diverse set of offerings, allowing it to operate across various sectors of the economy.

The financial state of a private company is often difficult without access to internal records. In the case of Atcon, a significant amount of information about the company's financial position was not available until the Auditor General's report was released in 2015. Unfortunately, this report came too late to prevent the company's collapse. Instead, it provided a post-mortem of the situation, shedding light on Atcon's financial situation in the years leading up to its downfall. The report covered the period from 2004, providing insight into the company's state during its final years of operation.

Image - From the auditor's report debt-to-equity Ratios

Before 2007, Atcon had borrowed several million dollars from New Brunswick on over a dozen occasions since 1993. This was a common practice for companies in the province to request incentives and loans to invest in assets and generate growth and jobs. However, in 2007, the company asked for a loan of $50 million from the government. The question that arose was why the company suddenly required financial assistance from the government, and the answer to this was a bit tricky. 

Image - A graph taken from the auditors report showing the company's net cash.

The requested $50 million dollars from the government was intended for several purposes. First, $20 million was designated to refinance an existing high-interest loan owed by Atcon to a bank, which was set to be paid by June 2010. The second $20 million loan guarantee was intended to increase the company's operating credit and was set to expire in 2013. In addition, the government agreed to guarantee a loan worth $10 million with an eight-year term to expand Atcon's steel fabrication operations. In 2004, Atcon had a debt of $20 million, with around $1 million paid as interest and bank charges. At that time, the company's earnings were satisfactory, and the debt was under control. However, the situation changed over the next three years, and the company acquired more debt, reaching $75 million with interest payments of $7 million. By 2006, the earnings were only slightly above $5 million, which wasn't sufficient to service the debt. As a result, Atcon asked the government for financial aid. 

Image - A graph taken from the report showing the trend of debt and interest

Atcon had committed to various projects and made several previous commitments that put a strain on their cash flow. Poor management of projects and cost overruns only added to their troubles, leading to a difficult financial position in 2007.

  Additionally, the global financial crisis that occurred at the same time made it increasingly difficult for companies to secure investment capital to keep their operations going. As a result, Atcon decided to turn to the government for financial assistance. 

The Government

In 2007, the provincial government of New Brunswick was led by Premier Shawn Graham and his Liberal Party. The government had a majority in the Legislative Assembly with 29 out of 55 seats. The province was facing a number of economic challenges, including an aging population, a declining forestry industry, and high unemployment rates in some regions. The government had made a commitment to creating jobs and boosting economic growth, and had implemented several initiatives to achieve these goals. The province was also dealing with the fallout from the 2006 closure of the Dalhousie paper mill, which resulted in the loss of over 400 jobs. In addition, there were ongoing concerns about the state of the province's healthcare system, particularly in rural areas. 

Atcon's headquarters was located in the small city of Miramichi, situated in northeastern New Brunswick with a population of approximately 18,000 people in 2007. The city's economy was largely based on industries such as forestry, fishing, and manufacturing. To support economic development, it was not uncommon for the government to provide subsidies to these outlying towns. The city was also home to one of New Brunswick's Horizon Health Network headquarters and was the site of the pay center for the Phoenix payroll scandal (an upcoming article on that). In 2007, the city was struggling due to the financial crisis, and the local pulp mill was set to be sold and closed by the end of the year. Atcon was also facing financial difficulties, which added to the city's economic challenges. 

Image - Premier Shawn Graham sporting his liberal colours

The government expressed sympathy towards the people of Miramichi during that time, especially since the northern part of the province had been known to be a stronghold for the Liberal party. Previous election results have shown a clear divide between the north and south, with some exceptions in certain years. The closure of the pulp mill and the potential loss of another major employer in the city could greatly impact the majority of the Liberal party's voting base. Although there was no official admission of political motivation, it is a plausible factor. Ultimately, the province was focused on saving jobs and providing assistance to the struggling company. 

Grant Thornton LLP was a third-party accounting firm that audited Atcon's financial statements. In retrospect, the secondary audit noted irregularities in the statements that were reclassified. While reclassification can be used to adjust assets legitimately, it can also skew ratios used to determine the company's financial health. The auditor's report identified approximately $21.7 million dollars in such irregularities. However, at the time, the government was not aware of the true financial health of the company.  It is unclear whether the firm would have or should have discovered the irregularities. Speculating whether Atcon intentionally or negligently submitted accounting errors or provided false financial statements is also futile. Unfortunately, the true nature of the accounting practices of Grant Thornton will never be known due to a Supreme Court ruling that would change the Canadian business landscape.

Image - Results of the 2006 election, Red shows the liberal ridings and Blue marks the Conservative ones

The government was also at fault as they acted irregularly by releasing their security of first position in favor of the Bank of Nova Scotia while providing the loan guarantee. For those not well-versed in finance, giving up first priority meant that in the event of bankruptcy, the Bank of Nova Scotia would be paid a majority of their loans first while the province would have a lower priority, putting $50 million of taxpayers' dollars at risk. 

According to the auditor, the province's decision to release their priority position in favor of the bank of Nova Scotia was the most critical error in their handling of the Atcon file. This decision cost the province approximately $15 million that could have been recouped from the company. The priority position is a common safeguard to protect public funds and is usually implemented in government deals. However, for unknown reasons, the cabinet of Shawn Graham decided to revoke their priority position, even though the cabinet had rejected this change on two previous occasions before ultimately approving it with caveets.

At the time, $50 million was a substantial sum of money for one company, considering the province had only produced a surplus of around $30 million in 2007. The province imposed certain conditions on Atcon, which included the sale or monetization of assets, the establishment of an advisory board to oversee a review process, and the payment of all outstanding contracts owed to New Brunswick companies, totaling $6.5 million to 314 businesses. 

Despite senior government officials advising against loan guarantees, Atcon received aid that allowed it to continue its operations for a few more years. Only 20% of the $50 million was allocated for ongoing operations, extending its lifespan. While the loan helped keep factories and construction projects running, which had a positive impact on other businesses, this would be the silver lining in a difficult economic situation. . However, the situation changed when the company was given money, and they decided to lease a jet. 

Image - Taken from the power point of the Auditors report, don't know the classification or if this is the jet they leased. It's a Jet!.

The cost of leasing the jet was estimated at $124,000 per month, resulting in a total operating cost of approximately $8.2 million for Atcon between 2008 and 2010. Some key management staff received six-figure payouts, while family members received salaries with little evidence of any work done for Atcon. Additionally, under a million dollars of personal expenses were charged to the company's accounts, and it was also found that Atcon was spending money on luxury items including a vacation property in Aruba and luxury car rentals  

Atcon approached the government again for additional funds just a few months later, this time requesting $13.4 million to secure a loan for the Deh Cho Bridge project in the Northwest Territories. 

In October 2009, Atcon ran out of working capital and the Bank of Nova Scotia applied for a receivership order. The Bank of Nova Scotia was able to recover approximately 80% of their losses, while the province was only able to recover 4.5%. The Province paid out the loan guarantees and hired an accounting firm to conduct an audit. The auditor's report, issued in February 2011 and finalized in November 2012, differed from the Unqualified Auditors' Report by Grant Thornton. It found that Atcon's financial statements did not comply with Generally Accepted Accounting Principles, identified significant errors, and estimated that assets and net earnings were overstated by $28.3 million to $35.4 million.

The Plot Thickens

When the company was collapsing and many people lost their jobs, the government commissioned a secondary audit to investigate the situation. Fortunately, there was a change of government, as is typical in Canadian elections, where voters tend to switch between parties. This indicates dissatisfaction with the current party's performance and results in flipping from red to blue or vice versa. Occasionally, the NDP is voted in, but this can have negative consequences, as seen in Alberta. 

Image - Results of the 2010 New Brunswick Provincal election

On April 7, 2010, an opposition member of the legislative assembly filed an affidavit with the conflict of interest commissioner to investigate Shawn Graham for potentially furthering the interests of his father, Alan Graham. Alan was the director of Vannerply, a Swedish subsidiary of Atcon, and a paid consultant for both Atcon and Vannerply. Notably, Alan had deep roots within the government of New Brunswick, serving as the longest consecutive term of any MLA in New Brunswick and as minister of multiple sectors in the province. Additionally, he was the honorary president of the Atlantic Woodworking Center of Excellence. The optics of the situation were not good, particularly given the vital roles played by both the premier and his father in the companies and political parties involved in the loans. The commissioner found that Shawn had violated conflict of interest rules and imposed a hefty fine of $3,500, a significant amount for political heavyweights.

What was the outcome for Grant Thorton LLP? The government of New Brunswick filed charges against the accounting firm for their practices after a secondary audit revealed inaccuracies in Atcon's finances that the firm should have known and informed the province of the risks. The trials went to various courts, including the Supreme Court of Canada, which set a precedent across the country. Ultimately, New Brunswick lost the petition to the court because they waited too long to file charges and recover damages, which will have a significant impact on future decisions throughout the country.

The Auditor General's report found several mishandlings in the Atcon file, including the government overriding safeguards to the security position of the loans in favor of the bank. The full report is available online for those who want more information, along with recommendations to reduce risk in future deals. However, as of February 2022, only 64% of the recommendations have been implemented, and the case has been closed without any repercussions for the cabinet members of Shawn Graham. The people of New Brunswick voted out the Conservatives and elected Brian Gallant's Liberals, who considered the investigation a waste of time and taxpayer dollars, and deemed the matter closed and more millions lost.

Sources