A requirement that would
extinguish the right of noteholders to bring legal action
against the sponsors of asset-backed commercial paper (ABCP) —
even in the event of perceived fraud — does not sit well with
the judge tasked with giving final approval to a restructuring
deal on $32 billion of the frozen investments.
The restructuring plan, which was
overwhelmingly approved by noteholders back in April, would prevent
legal action against ABCP providers and their sponsor banks. There is no
mention, however, of cases of fraud. On Friday, Ontario Superior Court
Justice Colin Campbell adjourned the approval of the ABCP, citing an
insufficient recourse for legitimate claims of fraud.
"Those who believe they have claims in
fraud were not consulted before the plan was developed. Their voices may
well be of a different kind and quality from the votes of other
noteholders, who by their votes were willing to compromise claims of
negligence in all its forms," Justice Campbell wrote. "In my view there
must be a mechanism for the court to determine in an expeditious fashion
whether or not the plan can be approved with a way to take into account
legitimate, specific and particularized claims of fraud if there are
Campbell is urging the Pan-Canadian
Investors Committee, which crafted the restructuring plan, to go back to
stakeholders and find a way to deal with fraud claims that work within
the Companies' Creditors Arrangement Act (CCAA) currently protecting the
frozen ABCP notes. He has given a May 30 deadline for submissions.
"The plan as formulated for the most
part represents a laudable business solution. If the parties can agree
on a dispute resolution process within the ambit of the CCAA to deal
with the serious claims of fraud, the plan can go forward immediately,"
Justice Campbell wrote. "If the parties cannot agree on a claims dispute
process, or one side or the other refuses to participate in a process
within the CCAA, it may be that the plan is not approved and fails."
If the plan fails, then more than 1,400
retail investors who have their savings frozen in ABCP will not have any
guarantees that they will see their principal investment returned to
them. These investors have been conditionally offered ABCP buyback deals
from Canaccord Capital and Credential Securities, under the precondition
that the restructuring deal is approved.
Brian Hunter, a Calgary-based retail
investor with more than $650,000 of his retirement savings tied up in
frozen ABCP, is nevertheless supportive of Campbell's decision to
postpone approval. He doesn't want other investors short-changed.
"We've had to sort of hold our nose the
whole way through this process. Even though it is our own money on the
line, you would hate to see stuff happen in the future that is not
reasonable. There are some out there, be they corporations or individual
investors, that are still potentially going to be injured by [the ABCP
liquidity crisis] and most likely unfairly so," he says. "I was prepared
to sue before they came up with the CCAA protection. I would still be
prepared to do that. It wouldn't be as happy an outcome, but I think I
could live with it."
Hunter says that's the choice before
many of the banks currently supporting the ABCP deal — whether to allow
for dispute resolution to deal with fraud claims or whether to face a
flood of lawsuits if it fails.
"Nobody has been able to show any real
cause for fraud at this point, but who knows what's out there," Hunter
says. "Justice Campbell has put it back to the banks and said either
figure this out if you can work with [fraud claims] within the CCAA or
you can go and deal with a whole bunch of lawsuits."
Justice Campbell has also asked that
banks and ABCP sponsors consider creating a hardship consideration
process, presumably to set up some type of relief for investors in
special circumstances, including "some elderly individuals and families
holding through corporations their entire family savings."
Purdy Crawford, chair of the investors
committee, says it will work to meet Campbell's conditions.
"We look forward to working with the
monitor and other stakeholders to see if a process can be developed that
meets the concerns raised by the court so that the plan may be
sanctioned and implemented as soon as possible for the benefit of all
noteholders," Crawford said in a release responding to the adjournment
Filed by Mark Noble, Advisor.ca,