1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------------------------
DECEMBER 8, 1999 (DECEMBER 1, 1999)
Date of Report (Date of earliest event reported)
------------------------------------
PHILIP SERVICES CORP.
(Exact name of Registrant as specified in its charter)
ONTARIO 0-20854 NOT APPLICABLE
(State or other (Commission File Number) (IRS Employer Identification
jurisdiction) No.)
of incorporation)
100 KING STREET WEST,
P.O. BOX 2440, LCD1,
HAMILTON, ONTARIO, CANADA
L8N 4J6
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (905) 521-1600
NOT APPLICABLE
(Former name or former address, if changed since last report.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On December 1, 1999, Philip Services Corp. (the "Company") received a
letter from Deloitte & Touche LLP ("Deloitte") advising the Company of
Deloitte's resignation as the auditors of the Company.
Deloitte had been the Company's auditor since December 1990. On June 25,
1999, the Company and its subsidiaries were insolvent and sought relief in
Canada under the provisions of the Companies' Creditors Arrangement Act (the
"CCAA"). The CCAA proceedings (the "CCAA Proceedings") were initiated in
conjunction with the filing in the United States Bankruptcy Court for the
District of Delaware, pursuant to Chapter 11 of the United States Bankruptcy
Code by the Company and its subsidiaries in the United States, which filing was
made on June 25, 1999 (the "U.S. Bankruptcy Proceedings"). A Disclosure
Statement and Plan of Reorganization was filed in the U.S. Bankruptcy
Proceedings on July 12, 1999 (the "U.S. Plan") and a Plan of Compromise and
Arrangement was filed in the CCAA Proceedings on July 15, 1999 (the "Canadian
Plan", and together with the U.S. Plan, the "Plans").
Claims against Deloitte have been asserted in U.S. and Canadian class
action law suits against the Company and Deloitte, among others, that Deloitte
was negligent in performing its duties as auditors for the Company by failing to
discover and disclose certain information in the Company's financial statements.
The Company may have similar claims or causes of action against Deloitte for
breach of its duties to the Company in connection with the Deloitte audit. The
Company has not finalized an analysis of such claims or causes of action.
On August 3, 1999, the Chairman of the Company's Audit Committee received a
letter from Deloitte, which stated that Deloitte had reviewed the Plans and had
concluded that the Plans contained provisions that put the Company and Deloitte
in adversarial positions and presented a threat to Deloitte's independence. The
letter also stated that it would be inappropriate for Deloitte to conduct any
audit services until the Plans were amended to provide Deloitte with a release.
The letter further stated that if the Plans were not amended to provide Deloitte
with a release in sufficient time for Deloitte to carry out its duties as
auditor, it would be obliged to resign.
On August 20, 1999, the Company replied to Deloitte's letter of August 3,
1999, stating that the Company was not in a position to consider providing
Deloitte with a release and suggested that Deloitte therefore resign as auditor
immediately in accordance with its letter.
On August 5, 1999, Deloitte brought a motion challenging the provisions of
the Canadian Plan. Deloitte sought, among other things, a declaration that the
Canadian Plan was not fair and reasonable. It was held, in respect of Deloitte's
motion, that the Canadian Plan as initially constituted failed to comply with
the procedural requirements of the CCAA.
As a result of the outcome of Deloitte's motion, the Company revised both
the Canadian Plan and the U.S. Plan. The revised Canadian Plan was filed in the
CCAA Proceedings on September 24, 1999 (the "Amended Canadian Plan"). A revised
Disclosure Statement and Plan of Reorganization was filed in the U.S. Bankruptcy
Proceedings on September 21, 1999 (the "Amended U.S. Plan"). The amended Plans
do not provide a release to Deloitte.
On September 20, 1999, counsel for the Company wrote a letter to counsel
for Deloitte reiterating the position taken by the Company in its letter of
August 20, 1999, and stating that since the revised Plans do not provide a
release to Deloitte, it should resign immediately as it indicated it would in
its letter of August 3, 1999.
Section 5.2 of the Amended Canadian Plan provided that in order for the
Company to be able to propose a restructuring plan to its unsecured creditors,
the Company had to by October 27, 1999, either (i) arrive at a settlement with
Deloitte and each of the other contribution and indemnity claimants or (b) agree
with Deloitte and each of the other contribution and indemnity claimants as to
the amount of each of their claims and have the agreement of such claimants that
they would vote in favor of the Amended Canadian Plan. The Company used its best
efforts to resolve the various issues involving Deloitte and other contribution
and
2
3
indemnity claimants through a global settlement. These negotiations culminated
in a two day mediation held on October 25 and 26, 1999. Unfortunately, the
mediation did not result in a settlement.
As the mediation was unsuccessful, the Company brought a motion return able
November 1, 1999 to cancel the meeting of its unsecured creditors scheduled for
November 2, 1999, and filed a supplement plan, dated October 27, 1999 (the "Plan
Supplement"), which amended and restated the Amended Canadian Plan such that
plan was proposed to creditors only. No plan was made to any unsecured
creditors, including Deloitte, and the Plan Supplement did not affect their
interests. Deloitte, among others, brought a motion returnable November 1, 1999
challenging the fairness of the Plan Supplement. The motions brought by the
Company and Deloitte were heard on November 1, 1999, and the court held that it
was not unfair or unreasonable to permit the Plan Supplement to go forward and
dismissed Deloitte's motion.
On October 14, 1999, Deloitte in the Barbados wrote a letter to Philip
International Development Inc. ("PID"), stating that Deloitte was unable to
render an audit opinion on the financial statements of PID because it was their
understanding that certain matters had served to impair the independence of
Deloitte.
On November 11, 1999, Deloitte in the United Kingdom sent a letter to the
Board of Directors of Philip Metals (Europe) Limited, a subsidiary of the
Company, to explain why it was unable to sign the statutory accounts of Philip
Metals (Europe) Limited and its subsidiary companies. The letter states that as
the Company had discussed the possibility of bringing a claim against Deloitte,
Deloitte's independence was impaired and it could not provide audit services for
the Company or any of its subsidiaries until such time as the impairment was
rectified by the Company, for example, by the Company granting a release to
Deloitte.
On November 26, 1999, the Company received approval under the CCAA for the
Plan Supplement. On November 30, 1999, the Amended U.S. Plan was confirmed under
Chapter 11 of the U.S. Bankruptcy Code.
On December 1, 1999, the Company received a letter from Deloitte advising
the Company of its resignation as the auditors of the Company.
The Company has requested that Deloitte furnish it with a letter addressed
to the Securities and Exchange Commission stating whether or not it agrees with
the above statements. A copy of such letter will be filed as Exhibit 16 to this
Form 8-K.
ITEM 4. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
16* Letter from Deloitte & Touche to the Securities and Exchange
Commission Regarding Change in Certifying Accountant.
- ---------------
* To be filed by amendment.
3
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILIP SERVICES CORP.
/s/ COLIN SOULE
By:
--------------------------------------
Executive Vice President, General
Counsel and Corporate Secretary
Date: December 8, 1999
4
5
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
16* Letter from Deloitte & Touche to the Securities and Exchange
Commission Regarding Change in Certifying Accountant.
- ---------------
* To be filed by amendment.
5