Lest we forget ? Clarification Regarding Loan and Write-Off to Related Party, OntarioCo
TORONTO, ONTARIO--(Marketwire - Dec. 29, 2011) - Valencia Ventures Inc. (TSX VENTURE:VVI) ("Valencia" or the "Company") is issuing this release to clarify the terms and write-off of its loan in the principal amount of $700,000 ("Loan") to a private Ontario company ("OntarioCo") at the request of the TSX Venture Exchange (the "TSXV").
Further to its news releases dated June 23, 2010, March 4, 2011, and June 20, 2011, the Company wishes to clarify that OntarioCo is a related party to the Company given that the spouse of Mr. Stan Bharti, Chairman and Director of the Company, is an Insider given her shareholdings of OntarioCo. Moreover, Mr. Bharti's adult son has a further material interest in OntarioCo as he is OntarioCo's sole director and officer, and a shareholder. The adult son was also the personal guarantor of the Loan.
The Company's press release of June 20, 2011 announced OntarioCo had repaid $127,000 on the principal of the Loan, resulting in an outstanding principal balance of $573,000. To clarify the $127,000 payment was paid to the Company from a third party as a result of the termination of the assumption agreements press released on March 4, 2011. No interest on the loan has been paid to date.
On June 2, 2011 the Company entered into an agreement with OntarioCo to write-off the outstanding balance on the Loan in return for 500,000 common shares of South American Rare Earth Corp. ("SAREC"), a private company. The 500,000 common shares of SAREC were valued at $100,000, based upon the valuation conducted by the third-party agents to the private placement completed by SAREC shortly prior to this agreement. As a result, the Company has recorded the remaining principal balance and interest of $526,890 as an impairment loss.
However, the Company has had discussions with the guarantor regarding payment of the remaining balance of the loan as well as unpaid interest.
The Company failed to ensure the conflict of interest in respect of the Loan was dealt with appropriately according to TSX Venture Exchange Policy. Written notification of the existence and extent of Mr. Bharti's conflict of interest was not provided to disinterested directors at the time of the Loan. Moreover, the Company did not ensure that the documents reviewed and considered for the forgiveness of the Loan by the disinterest directors disclosed the value of the consideration the Company was to receive in return for writing off the loan. Finally the Company did not issue proper public dissemination disclosing the conflict of interest. To address these deficiencies the Company has implemented a Code of Business Conduct and Ethics and a Corporate Disclosure Policy.