Agencies spend more than a quarter of a million to collect $90,000 in loans

To preseve what's left of their privacy, let's call them Mr. and Mrs. X.

More than 10 years ago, Mr. and Mrs. X, who now live in Iqaluit, dreamed that opening a modest little convenience store, located in a tiny Nunavut community with a population of about 300 people, would make a small profit and make life a little more pleasant for their fellow residents.

That dream is now a made-in-Nunavut nightmare, a humiliating descent into insolvency.

And their experience raises numerous questions about the conduct of the territory's dysfunctional business loan organizations, especially the Nunavut Business Credit Corp. and the Keewatin Business Development Centre and the performance of Nunavut's Department of Economic Development and Transportation, along with another obscure body, owned by the Sakku Corp., called "Kivalliq Partners in Development."

Mr. and Mrs. X likely knew much less about starting and running a business than they should have. After a troubled start-up in 1995, they were making only $3,000 a year in profit in 1998.

In 1999, Mr. X got a job with the new Government of Nunavut, and they left for Iqaluit.

But they couldn't find a buyer for the business or the $110,000 building that housed it.

In a counter-claim filed against an alphabet soup of acronyms – the NBCC, the KPID, the KBDC and the GN – they alleged that officials with these agencies prevented them from selling the business to produce cash that could have helped pay the $90,000 they borrowed to finance their store.

Unfortunately for Mr. and Mrs. X, who have rarely been represented by a lawyer, they could not prove those allegations in court.

And the NBCC and KDBC likely spent up to a quarter of a million dollars on legal fees to deal with the couple's allegations and collect the unpaid loans. An Oct, 26, 2006 email obtained by Nunatsiaq News reveals that to recover the unpaid portion of its $15,000 loan, the NBCC spent $120,000 on lawyers, even though the unpaid portion of that loan is now down to about $4,000. The email suggests the KDBC spent a similar amount.

So until last fall, the NBCC and the KDBC wanted the couple to pay those legal fees on top of the $100,000 in unpaid loans and interest.

That's how the system works. If you defend yourself in court against a civil claim and lose, you must usually pay the other's side's legal fees.

So after years of lawsuits, counter-suits, questions in the legislative assembly, and the production of a small mountain of paper by a platoon of nervous bureaucrats in response to access-to-information requests, Mr. and Mrs. X ended up applying for bankruptcy last fall.

That bankruptcy application now sits in the Nunavut Court of Justice. A hearing to deal with it is to resume in mid-September.

But insolvency isn't the worst thing that's happened to them. Over the years, as revealed by documents obtained by Nunatsiaq News, they've coped with the following:

• demands that they pay legal bills of up to $250,000, more than double the amount of their original debt;
• accusations of "defamation" after they went to MLAs to get help – this suggestion is contained in a note attached to their bankruptcy application;
• their discovery of an email in which they allege a public official threatened Mr. X's GN job as punishment for going to MLAs – this suggestion is contained in an email from the CEO of the NBCC to a GN official and part of it says: "I would be further tempted to question the employment of the litigant with the Governmenent [sic] of Nunavut as Mr. [X] holds a senior position … if [Mr. and Mrs. X] making use of MLAs to further their objectives, then the fact may become relevant;"
• suggestions that they are being made an example of because of Mr. X's non-Inuit ancestry – this led to a row in the legislative assembly last fall when Iqaluit Centre MLA Hunter Tootoo asked questions about it;
• confusion over who actually ran the KDBC and NBCC over the years that they dealt with them – that's because the NBCC took over the KDBC for two to three years;
• suggestions that they have been singled out for special punishment to distract attention from years of mismanagement at the KDBC and other agencies;
• the galling knowledge that loan and grant agencies such as the KDBC and NBCC manage their financial affairs almost as badly as their non-paying clients. (See next week's paper.)

To get to that point, they likely made numerous mistakes. And they could rarely afford to hire a lawyer to challenge the high-priced legal help that the other side could turn on and off like a tap.

It also appears as if various government and quasi-government agencies who brag about their dedication to economic development gave them little or no counselling on how to make their business work.

In a court document dated January 19, 2005, the KDBC says their "business plan was faulty from the beginning" – but does not explain why they loaned public money to a business with a faulty plan.

There is no evidence that their original plan was ever properly evaluated to see if their retail store was viable.

But in 1997, the KDBC still loaned the couple $75,000 at 6.5 per cent interest. The NBCC loaned them $15,000.

The purpose of the new loan was to restructure an older loan of about $45,000 the couple took on in 1995 to start the business, plus extra working capital to help the business survive a series of start-up problems.

Those problems included a missed sealift deadline in 1995, which forced to them fly in building supplies, causing them to overspend their start-up budget.

And because their convenience store was structured as a "partnership," the couple became personally responsible for the debts of the business. Had they hired a lawyer to help them structure their business as a limited company, or corporation, they could have better protected themselves.

They still continue to defend themselves, without a lawyer.

(See next week's paper for a look at some of Nunavut's troubled business loan and grant organizations.)