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Court turns down ABCP appeal

September 19, 2008 at 4:42 PM EDT

The Supreme Court of Canada has denied an appeal of the plan to rescue $32-billion of stranded asset-backed commercial paper, clearing the way for thousands of individuals and companies to start reclaiming investments that have been frozen for 13 months.

A group of Canadian companies holding about $600-million of notes had challenged the ABCP bailout on the grounds that it was legally flawed. The businesses, which include Domtar Inc., Ivanhoe Mines Ltd. and Jean Coutu Group (PJC) Inc., opposed the plan because it includes a sweeping legal immunity that shields financial players from potential lawsuits relating to their controversial role in the ABCP meltdown.

In a statement released by the panel of judges who dismissed the appeal, the court said the unusually large legal release was fair and reasonable in all the circumstances.

By refusing to consider the appeal, the Supreme Court has endorsed a precedent that some legal experts say will allow other troubled entities to seek similar shields that deny investors and other parties the right to seek damages for alleged improprieties or fraud.

Holders of the ABCP have been unable to cash in or trade the paper since August, 2007, when a global panic about shaky U.S. mortgages shut down a large segment of Canada's ABCP market. Canadian notes issued by non-banks proved to be more vulnerable than ABCP issued in other countries because they were backed with unreliable emergency lines of credit.

The ABCP collapse has left scores of individual investors stranded without savings that had been earmarked for home purchases, retirement plans and other expenditures. Under a plan approved by the Ontario Superior Court, most of the estimated 2,000 individual investors saddled with ABCP are entitled to receive cash for their notes.

Those investors each holding more than $1-million of notes will be entitled to receive a new class of long-term notes that can either be sold or held until maturities that extend up to nine years.

According to sources, the committee of financial players overseeing the restructuring hopes to start paying cash or other longer term notes in exchange for ABCP by October.