Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House

Ruling on ABCP restructuring plan likely won't mark and end to courtroom battle

August 18, 2008 - 15:07


TORONTO - Canadian investors find out Monday afternoon whether they can hope to see the money they have tied up in $32 billion of frozen asset-backed commercial paper any time soon.


But the crucial announcement doesn't mean that the legal fight is over, since the case could yet end up in Canada's highest court.

The Ontario Court of Appeal will release its decision on the restructuring plan on Monday at p.m. ET, but investors who are dissatisfied with the ruling could take their case to the Supreme Court of Canada, which could further delay the process.


"I can't imagine that the decision is going to allow people to get their money back quickly," said Larry Elford, an investor advocate and retired retail stock broker.


"If it did, that would be great...(but) there are a number of people who won't be getting money back."


Elford suggested that the fight will likely go on, businesses or or people who have more than $1 million in ABCP, who aren't included in side deals meant to sweeten some of the bitter aspects of the overall restructuring plan.


One of the conditions of the plan is that investors agree to give up their right to sue the firms that sold or recommended the ABCP.


Elford said some of the investors who didn't qualify for one of the side deals will "try to throw a wrench into things" if the Ontario appellate court approves the deal.


At least two firms say they will buffer the impact for individual clients who invested less than $1 million in the now-frozen commercial paper. In return, the individual clients have voted in favor of the overall restructuring plan - although many had expressed unhappiness of the requirement that they give up the right to sue.


Canadian ABCP was a victim of last summer's crisis in U.S. subprime mortgages, amid worries that some of the paper was tied to dodgy American home loans, in addition to bundles of higher-quality mortgages, car loans, credit card receivables and other assets.


A rescue plan was hatched by the Pan-Canadian investors committee - representing very large investment groups, including pension plans - late last summer to clean up the problems, and was headed by Bay Street lawyer Purdy Crawford.


Individual investors who had chunks of their life savings in ABCP have seen that investment teeter on the brink of either being tied up for several years or wiped out if the rescue plan failed and the notes were dumped at a discount by the major players.


Two other groups of investors have more money invested in the commercial paper.


Stuck in the middle are the mid-sized investors, a number of corporations and large individual investors with ABCP holdings of more than $1 million but less than hundreds of millions. Many regard themselves as disadvantaged by the plan.


Holders of massive amounts of ABCP, such as the Caisse de depot et placement du Quebec with $13 billion worth, are onside for the deal because they have investments that would become significantly undervalued if the restructuring plan crumbled.


If the appeal isn't accepted, then the restructuring plan is essentially tossed out the window.

Click for more on ABCP