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Victoria's troubled Hydroxyl Systems under protection but still operating

Wastewater company has been hurt by the economic crisis

Victoria's Hydroxyl Systems Inc. is once again in troubled financial waters and is working to develop a survival plan by early in the new year.

"We are going through a formal restructuring but we are continuing to operate," said Thomas Major, who was appointed acting chief executive officer on Monday. He has served as the firm's chief operating officer since April 2007.

The 15-year-old company specializing in wastewater treatment technology went through nearly two years of downsizing and restructuring ending in 2006.

Based in Bastion Square, Hydroxyl is primarily owned by one individual but close to 400 people have shares in the company, Major said yesterday.

Hydroxyl is under court protection, he said. "At this time, the company needed protection from its creditors in order to go forward."

The company's board of directors made the application under the Companies' Creditors Arrangement Act and the matter was heard in B.C. Supreme Court in New Westminster. Hydroxyl is working with financial advisers and expects to have a plan in place by the next hearing date on Jan. 5, 2009, Major said.

"The plan primarily addresses unsecured creditors," he said. "It is very regrettable." Secured creditors will also be addressed in the plan. Major did not provide details.

Steve Lum, of Campbell Saunders Ltd. of Vancouver, was appointed by the court as monitor over the company. Lum referred questions to Major.

In late November, about 10 employees were laid off, leaving 20 remaining, Major said.

Last week, the Victoria Advanced Technology Council named Hydroxyl among the top 25 local technology companies in terms of revenue.

Major is doing the job earlier held by Carolyn Rogers, former president and CEO of Hydroxyl, who in January was named to the 2007 Top 40 Under 40 list by Business in Vancouver magazine. Rogers joined the company in 2005 as chief financial officer and helped steer it out of creditor protection and into the black for the first time since it was founded. The company had revenues of $13 million in 2007.

The worldwide economic slowdown is affecting Hydroxyl because systems it had planned to install have been delayed, Major said. The company's customer focus is in industrial and marine uses.

Industrial projects that were slated to close in the third and fourth quarters of this year have been moved back to the first quarter of 2009, he said. Many customers are in the U.S.

Hydroxyl was awarded a key contract last year of $6.6 million to supply wastewater treatment plans for some of the world's largest cruise ships owned by the Royal Caribbean Cruise Lines. That contract followed a $9.2 million worth of agreements with Royal Caribbean, announced in 2006. Earlier Hydroxyl had installed $6 million worth of systems to treat grey and black water on two of the line's ships.

Installing, testing and commissioning these systems "has been more challenging than anybody anticipated on both sides," Major said. If a problem occurs while working on a ship or aligning water treatment systems with a ship's existing systems, Hydroxyl must follow it from port to port, leading to additional expense and adding more time to the project.

Major remains optimistic about the company's future, saying there is not enough fresh water to supply demand. As environment requirements become more stringent and more expensive, it makes sense for companies to install treatment systems, he said.

The company continues to work with B.C. Ferries, which is not a creditor, he said. A wastewater treatment system has been installed in the Spirit of British Columbia ferry and two more are scheduled to be delivered.

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