Merit Functional Foods has entered receivership while owing approximately $95 million to its two main creditors — Export Development Canada (EDC) and Farm Credit Canada (FCC), according to court documents.
A judge on Manitoba’s Court of King’s Bench appointed PwC as the receiver for the Winnipeg-based plant protein processing company on March 1.
According to the plaintiffs’ statement of claim, Merit and a related number company that owns the land where the facility is located have defaulted on the terms of their loans, owing EDC $58,554,182.87 as of February 16, 2023. FCC says it’s owed $36,412,913.55 as of February 14, 2023.
The company was founded in 2019 as a joint venture between Burcon NutraScience Corporation, a publicly-traded company that owns a patented protein extraction technology, and several food industry veterans. A 94-thousand square foot plant for extracting food-grade protein from peas and canola was built in Winnipeg and commissioned in 2021, with a projected price tag of $150 million.
Merit is still licensed as a grain dealer with the Canadian Grain Commission (CGC). The CGC plans to ask Merit to agree to new licensing conditions that prevent it from purchasing grain from or incurring liabilities to producers while in receivership, CGC spokeperson Remi Gosselin, tells RealAgriculture.
“We’re conducting an audit to find out if there are any outstanding liabilities to producers. They have security in place,” he says, noting this audit process may take a couple weeks. “As far as we know, they haven’t been taking on new liabilities to producers for the last little while.”
Merit received at least $100 million in funding and financing from federal government-affiliated sources, which was highlighted in an announcement by Prime Minister Justin Trudeau in June 2020. The majority of this was in the form of loans from EDC and FCC. Provincially, the Manitoba government had provided several million dollars in cost-shared funding to Merit for equipment and training.
Bunge Limited also invested $30 million for a minority stake in Merit in 2020.
Merit had been seeking a new investor or buyer in recent months. Burcon, which owns 31.6 per cent of the company, said in a statement on March 3 that it is planning to make a formal offer to purchase Merit.
“Discussions with all parties continue to be constructive, and we remain confident that Burcon’s proposal is both attractive and competitive,” said Kip Underwood, Burcon’s CEO. “Merit’s facility was designed and built to produce protein ingredients using Burcon’s technologies. Merit’s business is a strong strategic fit for Burcon by providing additional revenue sources, better connection to customers and markets, and direct influence over the manufacture of Burcon’s protein ingredients.”
Meanwhile, Merit co-CEO Ryan Bracken, in a post on LinkedIn on March 1, acknowledged challenges with cash flow.
“Sadly, while our proteins have been formulated into countless products globally, we couldn’t quite get to the level of cashflow needed to operate the business profitably, quick enough. The current external environment is tougher now than ever before on start-ups,” he wrote, citing the doubling in price of raw material inputs, rising interest rates, reduced risk appetite from investors, COVID-related interruptions, and other external factors.
Related: Creditors ask court to appoint receiver for Merit Functional Foods
Editor’s note: This article was updated on March 3 with mention of Burcon’s plan to make an offer to purchase Merit. Details about Merit’s license with the Canadian Grain Commission have also been updated.