JACQUIE MCNISH , TARA PERKINS and BOYD ERMAN
April 15, 2008
A group of major Montreal companies stranded with troubled asset-backed
commercial paper (ABCP) plans to challenge a blanket immunity proposal
that would release bankers and other parties from any potential legal
claims related to the investment crisis.
Lawyers representing half-a-dozen Montreal companies, including Jean
Coutu Group (PJC) Inc., Transat A.T. Inc. and Aéroports de Montréal,
filed a motion in Superior Court of Ontario seeking to amend a court
proposal to restructure $32-billion of ABCP frozen by last summer's
credit market meltdown. The restructuring is under bankruptcy court
Lawyers and spokesmen for the Montreal companies declined to comment.
But people familiar with the motion said the group intends to challenge
a proposed legal release that would make it impossible to sue any person
or company involved in the creation, sale or financing of ABCP. The
release was demanded by Canadian and foreign banks in exchange for their
commitment to lend billions of dollars to support a workout plan that
calls for investors to wait up to nine years for the troubled notes to
It is understood that the Montreal companies are in discussions with
other corporations to form a coalition to increase their leverage in
court. One Montreal businessman, Hy Bloom of Ace Mortgage Corp.,
separately filed an affidavit in court stating it is "wrong and unfair"
for him to be blocked from suing National Bank of Canada which he
alleged improperly sold his companies the notes as a safe savings
alternative. The bank "will be permitted to walk away unscathed" if
lawsuits are denied, he said.
The corporate investors' strategy follows a successful campaign by an
estimated 2,000 individual investors to demand repayment from the
brokers and other financial institutions who sold them the flawed notes.
Vancouver brokerage Canaccord Capital Inc. agreed last week buy back
$138-million of ABCP held by 1,430 of its clients. Credential
Securities, an investment dealer associated with credit unions, is also
expected to unveil a plan to buy the notes back from about 300 clients
Although the ABCP holdings of individual investors are only a fraction
of the estimated $4- to $6-billion of ABCP owned by companies, the
smaller investors as a group have more clout because collectively they
account for the vast majority of votes required to win majority support
for the restructuring proposal.
To overcome their limited voting power, sources said, some corporations
intend to ask the court to separate them into a separate class of
investors. Such a move would mean that the restructuring could not
succeed without the support of majority of corporate investors.
Allan Sternberg, the lawyer representing Mr. Bloom and his companies,
said his client should not be in the same class as retail investors who
are being bought out. "They don't have the same interests."
Mr. Justice Colin Campbell is set to hold a hearing today and it is
expected that the Montreal group will ask for a hearing at a later date
for their motion. Mr. Sternberg said he intends to ask Judge Campbell
for permission to examine Ricardo Pascoe, the co-head of National Bank's
investment banking division, and an official from credit rating agency
Toronto lawyer Purdy Crawford, who is leading the restructuring, told
reporters during a conference call yesterday he did not think corporate
investors would be able to derail the workout. "Every step of the way
there's been two steps forward and one step back, but I'm pretty
confident that this restructuring will succeed," he said. When a
corporate holder challenged Mr. Crawford during an investor conference
call yesterday he urged investors to seek redress from the banks that
sold their paper, not from the committee seeking to fix the problem.