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ABCP may land in top court


August 19, 2008 at 7:27 PM EDT

For the second time this summer, the Supreme Court of Canada may decide the fate of investors with billions of dollars at stake, after an opponent of the $32-billion asset-backed commercial paper restructuring announced plans to pursue the challenge to the highest court in the land.

Ivanhoe Mines Ltd., which is stuck with $70.7-million (U.S.) of ABCP because of last summer's freeze-up in the market for the short-term investments, is asking the court to stop the planned restructuring.

Ivanhoe is arguing that the restructuring is unfair because it gives all participants in the ABCP market broad immunity from lawsuits, and that the Ontario Court of Appeal ruling on Monday allowing the proposal to go ahead is flawed, said Howard Shapray, Ivanhoe's lawyer.

Purdy Crawford, head of the investor committee that created the proposal, said yesterday that the aim is still to try to complete the restructuring by Sept. 30. The plan calls for swapping the frozen notes for new bonds that trade freely.

"Ivanhoe's announced intention to seek leave to appeal does not affect our determination to complete the restructuring on our announced proposed timetable," Mr. Crawford said in an online chat on, adding that "if Ivanhoe (or any other party) takes any steps to delay the completion of the restructuring pending the Supreme Court's determination, we will resist those attempts."

The Supreme Court is fresh off a momentous decision in the BCE Inc. takeover, ruling in June that the $35-billion transaction could go ahead. In the ABCP affair, billions of dollars of value would again hinge on the court's decision should it agree to hear the case.

The proponents of the restructuring say that without the legal immunity that challengers such as Ivanhoe dislike, the plan would fall apart and all investors would suffer huge losses.

The timing of any appeal process is unclear. Other potential challengers still have eight weeks to file appeal requests, and the court is on summer recess. Both the investor committee and Ivanhoe plan to ask for an expedited decision, which the court provided in the BCE case by going from appeal request to final ruling in only about a month.

For Ivanhoe and any other companies that join the fight on the ABCP matter, the key to getting a hearing will be convincing the Supreme Court that the ABCP restructuring is a matter of national importance and that there is a legal issue that requires clarification.

In this case, the focus will be on a perceived conflict between Ontario and Quebec courts on whether it's legal to give immunity from lawsuits to so many players in a restructuring.

"When they have a conflict like that it increases the likelihood that they will be able to convince them [the Supreme Court] to hear it," said Rick Powers, a lawyer and assistant dean of the Rotman School of Management at the University of Toronto.

The Quebec Court of Appeal, in a 1993 ruling involving the Steinberg grocery store chain, held that legal immunity for peripheral participants in a restructuring is not permitted. Madam Justice Marie Deschamps, who has since joined the Supreme Court of Canada, wrote in that decision that the insolvency laws of Canada do not "offer an umbrella to all the persons within its orbit by permitting them to shelter themselves from any recourse."

The lead judge who wrote Monday's unanimous decision for the Ontario Court of Appeal, Mr. Justice Robert Blair, said the Quebec ruling was not a correct interpretation of the law.

The ruling said that while such legal releases may be "distasteful," they can be used legally when it is necessary for the greater good to have a restructuring proceed.

In this case, the creators of the restructuring proposal argued that without the immunity, banks that had been part of the market would not have agreed to crucial compromises to reach a settlement.

"The basis for our leave to appeal is that the case is of national importance, that there are some significant flaws in Mr. Justice Blair's logic, with the greatest of respect, and that there is a senior appellate court that takes a different view of the matter than the Ontario Court of Appeal," Mr. Shapray said.

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