An independent researcher alleged in court that Quest University was unjustly denied donations as a result of questionable transactions involving charities linked to the school.
On Dec. 17, Vivian Krause asked Justice Shelly Fitzpatrick in the BC Supreme Court to defer Vanchorverve Foundation's $26-million claim until the Canada Revenue Agency can examine the Quest case.
Vanchorverve, which is managed by Blake Bromley, a founding member of Quest, is the school's biggest lender. When it called in its debt last year, the school sought protection under the Companies' Creditors Arrangement Act, or CCAA, which was granted this past January.
Over the course of the year, Quest restructured to find a way to pay its debts. It recently closed a deal with Primacorp Ventures that will have the university sell its lands and campus to the company and lease it back.
The court-appointed monitor, PricewaterhouseCoopers (PwC), issued a report to the court summarizing some of Krause's arguments.
"Quest owes its existence in part to Mr. Bromley, but Ms. Krause believes that the Bromley charities have engaged in a massive tax fraud scheme at Quest's expense," reads the monitor's summary.
"The Bromley charities appear to have received considerable economic benefits from the sale of various parcels of land...and therefore Ms. Krause believes that the Bromley Charities owe Quest money. The charities were obligated to make charitable gifts, not loans to Quest."
Krause made her arguments in court via video conference.
"One charity: $123 million. Another charity: $89 million. Sea to Sky Foundation 鈥� which had no purpose other than to build Quest 鈥� it tax receipted $89 million. The construction costs of the university were only $32 [million]. If those donations had been real, Quest would've had 鈥� just from that one charity 鈥� it should've had $60 million. None of this whole entire proceeding would have been necessary," Krause told the court.
The monitor noted that a forensic accounting firm, CJW Forensics Inc., had reviewed Krause's findings and attached a copy of the accounting report to its submission.
In the attached forensic report, the author, Brian Gardiner, wrote that there were questions of transparency in the case of a large transaction involving the Sea to Sky Foundation.
He also noted, among other things, that most of the smaller, less active Bromley group entities have financial statements that have minimal disclosure.
"The lack of full transparent financial disclosure associated with the reporting of such substantial transactions leaves the reader with no comfort that the values ascribed to the donation in the financial statements and the related income tax receipt are worthy of belief," Gardiner wrote.
He also said some transactions identified by Krause leave something for the CRA to follow up on.
The monitor's report said, based on its review, that there was nothing in Krause's affidavit or in the forensic report to suggest the indebtedness to the Vanchorvere Foundation and the associated security are not valid.
Fitzpatrick said that she would not grant Krause's request to defer payment to Vanchorverve due to how late in the process this information has come before her.
She noted, among other things, that Quest and Primacorp have already closed a deal.
"To attempt to deal with the foundation's claim at this stage in the substantive manner that Ms. Krause suggests would be, in my view, attempting to unring a bell. That is not a feasible proposition," said Fitzpatrick.
"With respect to the pot of money, it may be attractive to suggest that the money be parked until these matters are resolved, however, there's no clear path apparent to me as to if or when those matters will be resolved. Because nothing is apparently even underway at this time, as far as I'm aware."
Krause said the delay was not from a lack of trying. She said she had been approaching Quest and the monitor earlier this year, but after what she characterized as a repeated lack of action, Krause took it upon herself to file an affidavit.
Quest's legal counsel cited a lack of resources that kept it from pursuing Krause's findings further.
Vanchorverve's legal counsel was not present at the hearing.
The hearing was convened in the first place because a Quest-related company was asking the courts to make adjustments to how it would be managed.
At least some of Quest University's liabilities have been vested into Quest Guardian Properties Ltd.
Guardian was seeking permission for the court to grant the monitor expanded powers.
Under these powers, PwC could put Guardian into bankruptcy.
The court granted this request.
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