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Investors challenge ABCP plan
'Bought vote' contrary to public policy, it says

Jim Middlemiss

Wednesday, September 03, 2008

National Post file

Purdy Crawford's committee has until Friday to file a legal response

  The Supreme Court of Canada needs to step in and overturn the $32-billion asset backed commercial paper restructuring plan because it was premised on a "bought vote" that is contrary to public policy, argue lawyers for Ivan-hoe Mines Ltd. of Vancouver.

Ivanhoe, which holds $70-million of the frozen ABCP, is one of more than a dozen companies yesterday that want to appeal last month's Ontario Court of Appeal decision, which found that the plan to restructure the third-party ABCP market was "fair and reasonable," even though it was "distasteful."

The appeal court approved a lower-court ruling by Justice Colin Campbell that sanctioned the plan on the fear that it would otherwise lead to widespread investor losses.

The ABCP restructuring plan, negotiated by the Pan-Canadian Investors Committee headed by lawyer Purdy Crawford, would see current paper turned into long-term notes. In exchange, all parties involved in the ABCP market, must agree to sign releases preventing third-party lawsuits.

That would deny investors the right to sue the banks and brokers that sold them the paper, even though those financial institutions are solvent and are not part of the companies being restructured under the Companies Creditors Arrangement Act, insolvency legislation that is used in restructurings.

If the plan goes through, then a side deal would see about 1,800 retail investors holding ABCP paid out 100% of the funds they are owed. The money would come from Cannacord and Credential Securities, the firms that sold retail investors the paper.

Investors holding more than $1-million in paper, mostly corporate investors, will be stuck stuck with any loses if they are forced to sell them early in the open market.

Ivanhoe lawyer Howard Shapray, took issue with the restructuring plan, saying it confiscated his clients right to property, in this case a possible lawsuit against Bank of Montreal and HSBC Bank of Canada, which sold Ivanhoe the paper.

The releases also impinge on his client's ability to arrive at a commercially viable settlement because there's no incentive for them to negotiate.

He said here is "no legal rule that authorizes a court to decide that Party A cannot sue Party B for a meritorious claim because Party B and or others would prefer that the court prevent Party A from doing so."

Calling such a legal principle "unthinkable," Mr. Shapray also attacked the deal to buy the vote of retail investors, arguing that "the buying of votes in an insolvency proceeding in which the minority's rights are being confiscated is contrary to public policy."

Other lawyers have also weighed in on the appeal. James Woods, acting for a group of companies holding more than $600-million of the paper, says if the Ontario Court of Appeal ruling is allowed to stand it will create a "dichotomy in bankruptcy and insolvency law...that could lead to acute uncertainty on a national scale as to the security of commercial transaction and relationships and open the door to abuse of the CCAA mechanism designed solely for insolvent companies."

The Supreme Court must still decide if it will grant leave to hear appeal, and the respondents, basically the firms that created the ABCP market and Mr. Crawford's committee, have until Friday to file their legal responses.

Mr. Crawford's committee maintains that the restructuring won't fly without the legal releases and the opponents of the plan represent less than 1% of the ABCP market.