BOYD ERMAN AND TARA PERKINS
August 18, 2008 at 5:42 PM EDT
TORONTO — Investors whose funds have been locked up for more than a year
in frozen asset-backed commercial paper may get their money back within
as little as two months after an appeal court ruled a $32-billion
restructuring plan is fair and legal.
A three-judge panel of the Ontario Court of Appeal unanimously rejected
an appeal by a small group of ABCP holders and said the plan to swap
seized-up paper for new bonds that should trade freely can go ahead.
Toronto lawyer Purdy Crawford, who heads the committee to restructure
the ABCP market
“Absent any further appeals, we expect the restructuring to close by
Sept. 30, 2008,” said Purdy Crawford, head of the committee that crafted
the restructuring plan.
The majority of individual ABCP investors will recoup their money under
the plan because the brokerages and financial institutions that sold it
to them have agreed to make them whole, and so they were pleased by
“I was extremely relieved to hear that the Ontario Court of Appeal not
only dismissed the appeal but did so in a unanimous way,” Murray
Candlish, an investor in Daysland, Alta., who has more than $300,000
tied up in the market, said in an e-mail.
“Today is a good day.”
Similarly, Brian Hunter, a Calgary oil and gas engineer who has become
an informal leader of the small investors, said, “I think we're done
here, and should be moving forward.”
“Let's just drive on and don't hold us hostage any more,” he said,
acknowledging that some corporate investors may appeal to the Supreme
Court of Canada.
While “I don't hear of anybody eating cat food, certainly there's still
stress” among the individual investors who have been without their funds
since last August, he said.
“Some folks may have had to get jobs, and may not be living the
lifestyle they would have if they had access to their full resources.”
It's the second straight legal loss for the opponents, who hold only
about 3 per cent of the affected paper but have fought hard.
The decision means that the angry investors, which include companies
such as Jean Coutu Group (PJC) Inc., will lose the right to sue except
in narrowly defined cases of potential fraud. The opponents said that
was not allowed under bankruptcy law but the judges disagreed, saying
the rules allow such a compromise.
“In insolvency restructuring proceedings almost everyone loses
something,” the appeal court said in a 55-page opinion that upheld a
June decision by a lower court that the plan was fair and legal.
The legal battle may now shift to the Supreme Court of Canada, as some
opponents of the plan have signalled they may seek leave to appeal the
decision to the highest court in the country.
The investor committee, however, is unlikely to wait for that to play
out before moving to start the restructuring transaction. Given a
strongly worded unanimous victory, the plan will now be to move quickly
to get investors the new bonds that will replace the frozen paper,
sources said before the ruling.
“It is a fair expectation that somebody is going to apply for leave to
appeal,” said Howard Shapray, a lawyer who represented Ivanhoe Mines
Ltd., one of the corporate challengers. “It's an issue of national
importance, which is the primary ground the Supreme Court of Canada
There is also a conflict between the Quebec Court of Appeal, which has
in past ruled that such releases are out of bounds, and the Ontario
Court of Appeal, he said. That may also be reason enough for the Supreme
Court to hear an appeal.
On Monday, the appeal court ruled that because the restructuring is so
large and affects “financial markets as a whole,” it was necessary to
consider the “importance of the restructuring to the resolution of the
ABCP liquidity crisis and to the need to restore confidence in the
financial system in Canada.”
The ABCP market has been frozen, leaving investors no access to their
money since last summer when the market for the supposedly short-term
securities seized up in one of the first big spasms of the credit
crunch. Buyers for the paper disappeared amid concern about links to the
U.S. subprime mortgage market, and without new purchasers those holding
the paper had no way to get their money back.
A group of big holders led by Mr. Crawford and including National Bank
of Canada and Caisse de dépôt et placement du Québec has been working
since to craft a plan that would thaw the market.
A lower court approved the plan to swap seized paper for new notes in
Soon after, however, the challengers renewed their attack. They argued
that the so-called releases were illegal and unfair.
The investor committee that crafted the plan again argued that without
the releases some players such as banks would not participate and the
restructuring would fall apart with massive losses for all investors.
The appeal court ruled that though approving such legal releases wasn't
easy, it was permitted.
“While the notion of releases in favour of third parties – including
leading Canadian financial institutions – that extend to claims of fraud
is distasteful, there is no legal impediment,” the court ruled.