Investors Scrutinizing the Regulators

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Corporate investors urge judge to protect their right to sue


April 23, 2008 at 7:44 AM EDT

Lawyers for corporations stuck with frozen asset-backed commercial paper packed a Toronto courtroom to implore a judge overseeing the $32-billion restructuring plan for the seized up market not to take away their right to sue for losses, a last-ditch attempt to change the terms of the deal before it goes to a vote Friday.

Companies ranging from miner Barrick Gold Corp. to drugstore chain Jean Coutu Group Inc. to GPS-tracking company WebTech Wireless Inc. asked Mr. Justice Colin Campbell yesterday to alter the terms of the planned restructuring to give the corporations a better chance at recouping losses.

They argue that the judge should strike down so-called "legal releases" that protect players in the market from lawsuits or give the companies a separate vote on the proposal, to give them more leverage in negotiations.

The investors who created the plan, who will argue their case today as hearings continue, say that the releases are a key part of the plan, and changing it in any way will cause the proposal to fall apart, leading to massive losses for all holders.

It's a very high-stakes game of brinksmanship, with losses of tens of billions of dollars possible if the plan fails, and Judge Campbell returned again and again throughout yesterday's arguments to the spectre of a possible liquidation.

"There is not just a risk for one company," Judge Campbell said. "There is a much broader risk there, of much greater magnitude."

As it stands, the corporate investors say they are being shortchanged. Small retail investors are being bought out by their investment dealers at 100 cents on the dollar should the restructuring succeed, but the corporations have been left out of the buyout plans.

The corporations don't have enough votes to stop the restructuring proposal, which is getting overwhelming support from the smaller investors who have their eyes on the buyouts, leaving the courts as the only option to seek changes.

As a result, the companies want to retain the right to sue for any losses, something that would be waived under the legal releases that are part of the restructuring plan.

The committee of investors that drafted the plan, which was led by lawyer Purdy Crawford, has argued that the deal is a product of the "art of the possible" and the best that was possible when negotiating amid a credit crunch.

That's no reason to let the plan go ahead, said James Woods, a lawyer representing a group of Montreal companies, including Jean Coutu. He countered Judge Campbell's questions about the consequences of failure by arguing that the releases are illegal and the issue should not be what is just possible but "what is legally possible."


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