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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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DECEMBER 23, 1999 (DECEMBER 1, 1999)
Date of Report (Date of earliest event reported)
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PHILIP SERVICES CORP.
(Exact name of Registrant as specified in its charter)
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ONTARIO 0-20854 NOT APPLICABLE
(State or other (Commission File Number) (IRS Employer Identification
jurisdiction) No.)
of incorporation)
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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.)
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EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A amends the Form 8-K of Philip Services
Corp. (the "Company") that was filed on December 8, 1999 (the "Form 8-K"), and
is filed solely to include a letter from Deloitte & Touche LLP ("Deloitte") as
Exhibit 16 to the Form 8-K, as required by the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission").
On December 1, 1999, the Company received a letter from Deloitte advising
the Company of its resignation as the auditor of the Company. In accordance with
the Rules and Regulations, the Company filed the Form 8-K with the Commission
within five business days of Deloitte's resignation. The Company also requested
that Deloitte furnish it with a letter addressed to the Commission stating
whether or not it agrees with the statements made in the Form 8-K. As required
by the Rules and Regulations, a copy of Deloitte's letter is attached hereto as
Exhibit 16. The inclusion of Deloitte's letter as an exhibit to the Form 8-K is
a regulatory requirement and does not mean that the Company agrees with any of
the statements contained therein, and the Company reasserts the statements made
in the Form 8-K.
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
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"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 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.
On December 8, 1999, the Company 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 is filed as
Exhibit 16 to this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
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EXHIBIT NUMBER DESCRIPTION
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16 Letter from Deloitte & Touche to the Securities and Exchange
Commission Regarding Change in Certifying Accountant.
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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:
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Executive Vice President, General
Counsel and Corporate Secretary
Date: December 23, 1999
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EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION
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16 Letter from Deloitte & Touche to the Securities and Exchange
Commission Regarding Change in Certifying Accountant.
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EXHIBIT 16
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DELOITTE & TOUCHE
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DELOITTE & TOUCHE LLP Telephone: (416) 601-6195
Suite 1400, BCE Place Facsimile: (416)
181 Bay Street 601-6381
Toronto, Ontario M5J 2V1
Canada
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December 21, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir or Madam:
Re: PHILIP SERVICES CORP.
COMMISSION FILE NO. 0-3718
We have read Item 4 of the Form 8-K of Philip Services Corp. (the "Company")
dated December 8, 1999, and we disagree with the following statements made
therein insofar as they relate to Deloitte & Touche LLP ("Deloitte"):
1. Deloitte does not agree that the Company may have claims or causes of
action against Deloitte for breach of its duties to the Company. Deloitte
is aware that the Company has asserted that such claims or causes of action
may exist.
2. Deloitte does not agree that its independence was impaired solely because
the various Canadian and U.S. plans failed to provide a release to
Deloitte. Rather, Deloitte's independence was impaired because, on several
occasions, the Company raised the possibility of bringing claims against
Deloitte. Prior to Deloitte signing the audit report on the Company's
financial statements for the year ended December 31, 1998, the Company
cured the impairment by giving Deloitte assurances that it did not intend
to sue Deloitte. However, subsequent to Deloitte signing that audit report,
the Company again threatened to sue Deloitte, thus again impairing
Deloitte's independence. In addition, under the terms of the various
reorganization plans proposed by the Company, releases given by the Company
to certain directors, officers, and employees of the Company were made
conditional on those directors, officers, and employees cooperating with
the Company in connection with any claim brought against Deloitte. One way
for the Company to cure these impairments of Deloitte's independence was to
provide Deloitte with a release.
3. Deloitte does not agree that the initial Canadian Plan failed to comply
with the CCAA's "procedural requirements" only. Mr. Justice Blair of the
Ontario Superior Court of Justice held that the initial Canadian Plan
deprived Deloitte of its substantive, as well as its procedural, rights
under Canadian law.
4. Deloitte does not agree that the Plan Supplement proposed by the Company
was "to creditors only." This appears to be a typographical error, because
the Company purported to propose the Plan Supplement only to secured
creditors.
5. Deloitte does not agree that the Plan Supplement "did not affect [its]
interests." Deloitte believes that the Plan Supplement, like the other
plans proposed by the Company, was unfair and unreasonable to unsecured
creditors, including Deloitte.
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DELOITTE TOUCHE TOMATSU
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6. Deloitte does not agree that the statements in the Form 8-K constitute a
full and complete description of the circumstances under which Deloitte
resigned as the Company's auditor. Among other things, the Form 8-K omits
the fact that, on November 23, 1999, the Company filed a motion in the
Ontario Superior Court of Justice seeking an order declaring Deloitte to be
disqualified as its auditor. Deloitte informed the court that it did not
oppose that motion, but the motion was adjourned because the Company had
failed to designate a replacement auditor. The Form 8-K also omits the fact
that two former officers and directors of the Company commenced an action
in the Ontario Superior Court of Justice against Deloitte by Notice of
Action issued on November 8, 1999. The former officers and directors
allege, among other things, that Deloitte breached duties owed to them in
their capacities as officers and directors of the Company.
Deloitte agrees with the other statements made in Item 4 of the Form 8-K insofar
as they relate to Deloitte. Deloitte has no basis to agree or disagree with
other statements contained in Item 4 of the Form 8-K that do not relate to
Deloitte, including but not limited to statements concerning the Company's
subjective intent (e.g., the Company "used its best efforts").
Yours very truly,
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
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DELOITTE & TOUCHE
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