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TORONTO (Reuters) - The parties involved in a lengthy attempt to fix Canada's C$32 billion ($32.3 billion) non-bank asset-backed commercial paper market have proposed allowing certain claims of fraud to proceed.
That in turn could pave the way for the necessary court approval of the market restructuring plan, and an Ontario court judge is expected to hear the matter on Friday.
The proposed change, outlined in a report on Wednesday by the court-appointed monitor, specifies who could pursue lawsuits for fraud, and who could be sued. Until now, banks involved in the workout had insisted they should be shielded from all possible litigation in exchange for agreeing to various aspects of the restructuring plan.
"The applicants propose that a process to address claims based in fraud be effected by an amendment to the plan," the court-appointed monitor, Ernst & Young Inc, says in its latest report.
Broad legal releases in the original ABCP restructuring plan had been a sticking point for some corporate investors, who wanted to preserve the right to sue their banks or investment dealers for selling the short-term investments, which have been in limbo since last August.
But the proposal to allow fraud lawsuits in limited circumstances will probably not satisfy corporate investors who have complained about misconduct and misrepresentation, not just fraud, said Colin Kilgour, an independent adviser on ABCP issues.
"The reality is people won't be happy," Kilgour said. If the plan gets court approval, "we're still going to see appeals," Kilgour predicted.
On May 16, an Ontario Superior Court judge delayed a decision on whether or not to approve the ABCP restructuring plan, saying he could not determine whether such broad legal releases were fair and reasonable.
"The plan as formulated for the most part represents a laudable business solution," Justice Colin Campbell wrote in his ruling. "If the parties can agree on a dispute resolution process ... to deal with serious claims of fraud, the plan can go forward immediately."
In late April, more than 96 percent of ABCP noteholders approved the restructuring plan. It would see them receive new, longer-dated securities in exchange for the short-term notes that were issued by small financial players -- not by the country's big banks.
The complex restructuring plan affects literally thousands of parties, from international and domestic banks that played various roles, to investment dealers that sold the paper, to institutional investors and about 2,000 retail investors.
Judge Campbell also said in mid-May that he wanted the parties to consider the cases of some elderly individuals and families that hold their entire family savings through corporations, and are not eligible for various ABCP buy-back programs designed for smaller investors.
Canaccord Capital, the firm with the biggest number of retail clients holding frozen ABCP paper, told the court-appointed monitor that it has considered about 20 "hardship" cases, and approved special arrangements for clients in about 15.
Canaccord says on a website that its program to repurchase ABCP from retail clients who have less than C$1 million tied up could be completed in mid-July.
Reporting by Lynne Olver; editing by Rob Wilson