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Payments to Crocus shareholders rejected

Will have to wait in line with creditors of stalled venture capital fund, judge rules

Canadian Press

WINNIPEG -- A Manitoba judge has refused to allow shareholders of Crocus Investment Fund to receive interim payments, saying that investors will have to wait in line with creditors for proceeds.

The fund's receiver-manager, Russ Holmes, had been seeking the court's permission to distribute a dollar a share as part of an interim $14.2-million payment.

But Court of Queen's Bench Justice Deborah McCawley labelled the move "premature," explaining shareholders could not trump creditors when it came to earning proceeds from the venture capital fund, which stopped trading in December, 2004. She also said the threat of a $200-million, class-action lawsuit by investors muddied the financial waters.

"As has been observed by many, this is not a typical receivership and the issues are varied and complex," Judge McCawley said. "Although Crocus is not currently insolvent, the known contingent liabilities far exceed the assets."

She didn't rule out an interim distribution to shareholders in the future.

Shareholder Grant Rodgers, who was in court Friday to hear the decision, said he wished the judge would order all parties into a room to settle the Crocus problem for good. "It seems to me a deal is staring everyone in the face and we can't get to it," he said.

GrowthWorks Canada Fund, part of a Vancouver-based venture capital corporation, has made an offer to purchase Crocus.

Bernie Bellan, secretary of the Crocus Investors Association, which is launching the class-action suit, said the receiver is researching the GrowthWorks proposal.

More than 3,000 forms signed by nearly 34,000 eligible shareholders "requisitioning" a public meeting on the GrowthWorks offer are to be handed to the receiver next week, said investor association lawyer Jack McJannet.

The Crocus fund was set up by the Manitoba government in the early 1990s. Last May, Manitoba Auditor General Jon Singleton issued a report saying the fund's operators misled the shareholders by overstating the fund's value.

The class-action suit will try to prove directors and officers misled shareholders about the fund's performance and the value of their shares. It also alleges the underwriters, provincial securities commission and the province failed to properly monitor the company.

© 2007 The Globe and Mail. All rights reserved.

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