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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 appeals.

"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.

`Restore Confidence'

"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 principles.

"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.

`Decisive Step'

"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 success.''

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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