|Canadian Commercial Paper Noteholders
to Appeal Plan Approval
By Joe Schneider
June 6 (Bloomberg) -- A group of Canadian companies holding frozen
commercial paper will appeal a judge's approval of a plan to convert
C$32 billion ($31.4 billion) of the debt, seeking to regain their right
to sue the sellers.
Banks and brokerages were granted immunity from lawsuits under the plan,
except for specific cases involving fraud. Those suits must be filed
within nine months and only against dealers that sold the notes. Some
noteholders say the releases violate Canada's bankruptcy law.
"Everybody in that courtroom knows what they did is illegal,'' Allan
Sternberg, who represents noteholder Hy Bloom of Ace Mortgage Corp.,
said today in a telephone interview. A group that includes Bloom, Jean
Coutu Group Inc., Transat A.T. Inc. and Redcorp Ventures Ltd. will
appeal, Sternberg said.
The appeal, to Ontario's highest court, will delay the issuance of the
replacement notes, Purdy Crawford, the lawyer who led an investment
committee that drafted the plan, said June 3. The committee had expected
to issue the new notes as early as the end of the month if there were no
"The obstacle remains the Ontario Court of Appeal,'' said Colin Kilgour,
who's advising companies on their commercial paper holdings. "There will
be a restructuring, it's just a matter of where these releases end up.''
The insolvent asset-backed paper hasn't traded since August, when
investors began to shun the debt because of concerns about links to
high-risk mortgage loans in the U.S.
Ontario Superior Court Judge Colin Campbell yesterday said his only
options were to accept the plan as proposed, with the immunity
provisions, or to reject it.
"There is a need to restore confidence in the financial system in
Canada,'' Campbell said. "This is indeed hopefully a unique situation in
which it is necessary to look at larger issues than those affecting
those who feel that personal redress should predominate.''
Sternberg said the judge was overly concerned about the negative
consequences of rejecting the proposed plan, at the expense of legal
"In the States, they wouldn't put up with this,'' Sternberg said. "They
find somebody with fraud, look out.''
A group of foreign banks as well as Canadian lenders and pension funds
led by Caisse de Depot et Placement du Quebec negotiated the so-called
Montreal Proposal in August. The plan would convert the insolvent 30- to
90-day debt into new notes maturing within nine years.
"This marks a decisive step in what has been a long and difficult
process,'' Canadian Finance Minister Jim Flaherty said in a statement.
"This process, while challenging, has served as a good example of a
private sector-led effort that did not rely on taxpayer dollars for its
Banks agreed to provide funding to back the new notes on the condition
they be given immunity from any lawsuits stemming from their sale. They
agreed to make an exemption for specific cases of fraud when Campbell
delayed approval May 16, saying he didn't think the blanket immunity
provision was fair or legal.
The case is Between the Investors Represented on the Pan-Canadian
Investors Committee for Third-Party Structured Asset- Backed Commercial
Paper and Metcalfe & Mansfield Alternative Investments II Corp.,
08-CL-7740, Ontario Superior Court of Justice (Toronto).
To contact the reporters on this story: Joe Schneider in Toronto at
Last Updated: June 6, 2008 12:40 EDT
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