TORONTO (Reuters) - Canadian corporate investors owning more than C$600 million ($562 million) of asset-backed commercial paper have asked the Supreme Court of Canada to hear their objections to a plan that would restructure the market, which was worth C$32 billion before it seized up last summer.
According to the application, filed on Tuesday, “this case raises fundamental issues relating to the proper interpretation and application of insolvency legislation,” and the outcome will affect ABCP investors throughout the country, as well as future Canadian restructurings.
An investor committee that spent months drafting the intricate market-restructuring plan asked the top court to expedite any appeal process. It suggested that responses to the request for an appeal should be made by Friday, and any hearing by the top court, if it occurs, was proposed for the week of September 22.
The investor committee said the parties seeking the appeal had consented to the timetable.
Many companies, including Jean Coutu Group (PJCa.TO), Domtar Inc, Jazz Air LP, Ivanhoe Mines (IVN.TO), Webtech Wireless WEW.TO, Sabre Energy Ltd and Vaquero Resources Ltd, object to an Ontario Court of Appeal ruling last month that allowed the commercial paper restructuring plan to proceed.
The plan is considered the largest and most complex restructuring effort attempted in Canada, as it covers 20 different trusts that issued the short-term paper.
The investor committee said that any court delay beyond September 30 would bring critical risks.
The longer the delay, the greater the risk that certain banks crucial to the plan’s implementation will withdraw, spelling its end and leading to liquidation of the asset-backed notes at depressed prices, Purdy Crawford, the lawyer who led the investor committee, said in an August 26 affidavit.
But the corporate ABCP investors have argued for months that the proposed restructuring, to be done under the Companies’ Creditors Arrangement Act, should not include a clause that shields the brokerages that sold the commercial paper from lawsuits.
If left to stand, the Ontario Court of Appeal’s decision “will create a dichotomy in bankruptcy and insolvency law and practice between, at a minimum, the provinces of Quebec and Ontario,” and will lead to “acute uncertainty on a national scale as to the security of commercial transaction and relationships,” the companies state in their request to the Supreme Court.
Although the restructuring plan was amended so that dealers could be sued for certain fraud allegations, the companies spearheading the appeal describe this fraud amendment or “carve-out” as “totally cosmetic” and say that none of their claims would fit into its strictures.
The arguments single out National Bank of Canada (NA.TO) in particular for allegedly concealing relevant information about the non-bank-sponsored asset-backed commercial paper it sold in the weeks leading up to August 13, 2007, when this part of the debt market was disrupted.
The market seized up as concerns mounted about U.S. subprime mortgages, and in the ensuing weeks and months the committee of large Canadian commercial paper investors and foreign banks agreed to a “standstill” arrangement while they worked to fix the market.
The restructuring plan calls for investors to get new floating-rate notes that will mature in up to nine years. But the market value of the notes is uncertain, so many corporate investors want to preserve their rights to sue.
In its August 18 decision, the Ontario Court of Appeal noted that third-party “releases” that extinguish legal claims against various parties have become a frequent feature in Canadian restructurings.
Reporting by Lynne Olver; editing by Rob Wilson