Judge approves deal, satisfied with fraud amendment

After nearly ten months, it appears the fate of $32 billion of frozen asset-backed commercial paper may soon be settled, now that Ontario Superior Court Justice Colin Campbell has approved the restructuring deal.

Justice Campbell had been reluctant to approve the deal until third-party ABCP sponsors and other dealers subject to the deal were willing to relinquish some of the protections that would have made them not only immune to legal action but cases of fraud as well.

Justice Campbell believed the fraud protection was too all-encompassing and he would likely not be able to approve the deal until stakeholders agreed to change the nature of legal protection.

The Pan-Canadian Investors Committee, which is responsible for creating the restructuring deal, has apparently been able to get these concessions from stakeholders.

Justice Campbell has accepted a proposed amendment to the plan that would allow certain noteholders, under specified conditions, to pursue claims of fraud against ABCP dealers. He was satisfied with the efforts of the committee and other participants in the plan including certain dealers of ABCP to deal with individual cases of hardship.

In his 40-page decision to approve the plan, Campbell noted the plan does permit all possible fraud claims, but none of the plan opponents have brought forward claims that “would fall outside those envisaged by the carve-out.”

In fact, Justice Campbell goes on to write that if the fraud claims were open-ended, there is a possibility the restructuring could be mired in continuous litigation.

“I understand and accept the position of plan supporters that to broaden fraud claim relief does risk extensive complex litigation, the prevention of which is at the heart of the plan. The likelihood of expanded claims against many parties is most likely if the fraud issues were open-ended,” he wrote.

“We are gratified that the court has approved the restructuring plan and determined that it was fair,” said Purdy Crawford, chairman of the investors committee, in a press statement. “After nine months of arduous negotiations with, and compromise among all stakeholders, we are poised to bring this process to a successful conclusion for the benefit of noteholders.”

If the plan fails, the more than 1,500 affected retail investors would not have any guarantees that they will see their principal investment returned to them. These investors have been conditionally offered ABCP buyback deals from Canaccord Capital and Credential Securities, under the precondition that the restructuring deal is approved.

Opponents of the plan may appeal the decision, so there is no firm timeline for when retail investors can expect to see their money returned.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(06/06/08)

Mark Noble