Rumours are swirling around the East Kootenay that the Sweetwater development under construction at Lake Koocanusa has gone bankrupt.

But that's not exactly true, developer Craig McMorran told The Townsman.

"Where they would get that from is, when you get a judge to clear a title, they call that CCAA or credit restructuring," said McMorran. "It's not receivership, it's not bankruptcy, it's not anything like that."

The CCAA, or Companies' Creditors Arrangement Act "is a federal law allowing insolvent corporations that owe their creditors in excess of $5 million to restructure their business and financial affairs," according to the federal Office of the Superintendent of Bankruptcy (OSB).

"The main purpose of the CCAA is to enable financially distressed companies to avoid bankruptcy or foreclosure or seizure of assets while maximizing returns for their creditors and preserving both jobs and the company's value as a functioning business," the website reads.

McMorran said the trouble arose because he had two mortgages on the property and the lender wouldn't allow him to sell a lot without paying out the entirety of both mortgages.

"I have $7 million between the first and second mortgage owing, so in other words if I wanted to deliver a lot for $300,000, they wouldn't take $300,000 to deliver the lot, they wanted $7 million. They were kind of trying to steal the project from me."

McMorran has applied for protection under the CCAA, which means a judge can grant a "stay", protection from his creditors for 30 days, although the stay can be extended.

"At the time of filing the initial application with the Court, the debtor company is required to provide a projected cash-flow statement. It is also required to provide the Court with copies of all financial statements for the year prior to the application," said the OSB.

That grace period allows the company to come up with a "plan of compromise or arrangement" which explains how the company will be able to pay back its creditors.

The entire procedure is overseen by a third-party "monitor" who acts as a liaison between the company and the court.

"I hire a monitor and the judge talks to the monitor and the monitor keeps him apprised of how many lots are sold and how much money is being paid back," said McMorran.

Once the plan of compromise or arrangement is finalised, the creditors then have the chance to approve or refuse it. If they agree, they will be paid back according to the plan. If they refuse, the stay is lifted.

"The debtor company does not automatically become bankrupt because the creditors have rejected its Plan," said the OSB.

McMorran said his application to enter the CCAA process will be decided by a judge later this month.

"On May 30 the judge will make his decision whether to clear the title or not," he said. "If he doesn't clear the title, I'll just have to do it a different way."

But in the meantime, it's business as usual at Sweetwater, McMorran said.

"There is work going on every day and all the approvals are coming through and everything is good."

The Sweetwater development is a 300-acre development at the junction of the Elk River and Koocanusa reservoir.

Once complete, it could include up to 890 building sites and 150 RV sites, a 700-slip marina, a community centre, swimming pools and a village square with restaurants, shopping and a health spa.

The RDEK has approved re-zoning of the land, formerly known as the Marcer Ranch, but subdivision and building permits haven't yet been granted.