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Process for ABCP fraud claims unclear

Justice Campbell wants Hardship Committee

Jim Middlemiss

Wednesday, May 21, 2008

There are two things you never do: Kick a sleeping dog, or lean on a judge for a quick decision in a complex matter of fairness.

Lawyers in the non-bank asset-backed commercial paper restructuring were reminded of the latter on Friday. As everyone was gearing up for the Victoria Day long weekend, Justice Colin Campbell put a kibosh to a lot of holiday plans by accommodating the request for a quick decision and issuing an endorsement early in the afternoon, freeing himself to enjoy the long weekend.

No doubt that wasn't the case for lawyers at Goodmans, particularly Steve Halperin and Jim Riley, who represent the Pan-Canadian Investors' Committee trying to wrestle a deal with the financial players involved in the third-party ABCP market. Same for lawyers at Stikeman Elliott, where Peter Howard and Samaneh Hosseini steadfastly argued on behalf of asset providers that legal releases were permissible contracts and integral to the deal and should extend to cover fraud.

Justice Campbell doesn't necessarily see it that way, at least for now, calling for more argument and suggesting he could back the plan if it didn't include fraud releases and the parties created a process for dealing with any fraud claims that might emerge. He also suggested the formation of a "Hardship Committee" to deal with elderly investors who won't survive to see their nine-year notes pay out and family holding companies that fall outside the $1-million cutoff ceiling that was established for paying out clients that hold existing notes.

No doubt these words had the midnight oil burning at Toronto law firms this past weekend. Good thing the weather was crappy.

One of the challenges to creating a claims process, however, is the transparency issue. Many of the parties do not have access to the information needed to determine if they have a fraud claim, so it's not it's not clear yet if or how a claims process could take that into account.

A claims process could also last months. However, it doesn't have hold up the process. The restructuring could continue while those claims get sorted out as do the hardship cases. That's because there is cash available to allow for early payouts. Most of the notes are still productive in some capacity and hundreds of millions of dollars have been building up since last August, when the market froze.

What the judge has not said anything about, however, are the arguments lawyers raised about whether the investors were properly classified. So that remains a live issue.

It was obviously a hard-fought motion. Justice Campbell noted that while 96% of noteholders approved the restructuring, there were still more than 20 parties at the hearing contesting the fairness of the plan of arrangement and more than 160 cases were cited.

It will be interesting to see how costs on this motion end up going once the dust settles. While Behind the Bar has noted that the CCAA order extends costs to a number of law firms close to the workout, a whole bunch of people showed up with lawyers who aren't on the ABCP meter. Given the endorsement, the judge seems to buy in to some of the arguments against the fairness of the plan, so it remains to be seen whose legal fees will be paid out of ABCP funds.

Recent motion records show a growing cadre of lawyers representing the various parties. For the latest list, go to the Legal Post blog at financialpost.com/legalpost or better yet, simply sign on for an RSS feed that will deliver breaking legal news directly to your desktop.

BONDHOLDERS BRACE FOR COURT OF APPEAL RULING

Speaking of break-the-bank litigation, BCE Inc. bondholders will learn today whether or not the Quebec Court of Appeal buys into their arguments that the BCE privatization amounts to a reorganization under the trust indentures.

If it does, bondholders, who claim they have lost millions, will be sitting pretty in the restructuring seat and could have a greater say in whether they should be reimbursed for any losses they suffer.

The decision comes at a time when bankers are duking it out over financing the deal in the first place. The ruling could be a moot decision, as they say in the legal world, and the real litigation could be the case that hits the courts if the banks balk at financing the deal.

Interestingly, the bondholder litigation pits two Canadian General Counsel Award nominees against each other. Michel Lalande, senior vice-president and general counsel at BCE and Bell Canada, is nominated for the litigation management award, while Neil Blue, associate general counsel and assistant corporate secretary at AEGON Canada Inc., who rallied bondholders to sue, is a candidate in the Tomorrow's Leader category. Unfortunately, in this litigation, there's likely only going to be one winner and if the lower court decision holds, it won't be the bondholders, who were skunked at the court of first instance. As to who wins a CGCA, that will be announced on June 2, at a gala event at the Four Seasons.

The appeal court will brief lawyers on the ruling at 5 p. m., well after the markets close, and the decision or comment on it is embargoed until it is officially released to the public at 7 p. m.

Apparently the court doesn't care about newspaper deadlines -- that's late for many papers -- and one of the most important commercial law cases will end up getting short shrift in most daily newspapers. That's a shame. Next time, the court should include reporters in its embargo so the public can be better informed than by the self-servicing press releases the litigants in this case will likely issue. Lockups work well for provincial and federal budgets. Courts in this country should take note.

jmiddlemiss@nationalpost.com

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