Court turns down ABCP appeal!

The Supreme Court of Canada has denied an appeal of the plan to rescue $32-billion of stranded asset-backed commercial paper, clearing the way for thousands of individuals and companies to start reclaiming investments that have been frozen for 13 months.

A group of Canadian companies holding about $600-million of notes had challenged the ABCP bailout on the grounds that it was legally flawed. The businesses, which include Domtar Inc., Ivanhoe Mines Ltd. and Jean Coutu Group (PJC) Inc., opposed the plan because it includes a sweeping legal immunity that shields financial players from potential lawsuits relating to their controversial role in the ABCP meltdown.

By refusing to consider the appeal, the Supreme Court has endorsed a precedent that some legal experts say will allow other troubled entities to seek similar shields that deny investors and other parties the right to seek damages for alleged improprieties.

Holders of the ABCP have been unable to cash in or trade the paper since August, 2007, when a global panic about shaky U.S. mortgages shut down a large segment of Canada’s ABCP market. Canadian notes issued by non-banks proved to be more vulnerable than ABCP issued in other countries because they were backed with unreliable emergency lines of credit.

The ABCP collapse has left scores of individual investors stranded without savings that had been earmarked for home purchases, retirement plans and other expenditures. Under a plan approved by the Ontario Superior Court, most of the estimated 2,000 individual investors saddled with ABCP are entitled to receive cash for their notes.

Those investors each holding more than $1-million of notes will be entitled to receive a new class of long-term notes that can either be sold or held until maturities that extend up to nine years.

According to sources, the committee of financial players overseeing the restructuring hopes to start paying cash or other longer term notes in exchange for ABCP by October.

By denying the appeal, the Supreme Court has effectively eliminated the last major hurdle standing in the way of a massive restructuring that many critics said couldn’t be done.

Ever since veteran Toronto lawyer Purdy Crawford agreed a year ago to chair a committee of pension funds, banks and other players seeking to salvage the notes, critics said the bailout would never work.

The restructuring attempt was the largest in Canadian history and it was brought to the brink many times by market and credit panics in the past year.

Canaccord Capital Inc., a Vancouver brokerage that sold ABCP to many of its clients, said the Supreme Court’s ruling paves the way for it to proceed with its plan to reimburse much of its customers’ losses.

“We commend the Supreme Court’s decision,” said Paul Reynolds, president and chief executive officer. “We are eager to complete our relief program and restore funds to our clients, who have been negatively impacted by this market disruption.”

In conference call, Mr. Crawford said he was pleased by the court’s decision, particularly during such a tumultuous week in global markets.

“We think it is a major, significant step forward to getting this deal done. We think Canada is a land of tranquility in a sea of storm.”

Howard Shapray, a Vancouver lawyer who represented Ivanhoe Mines, said he is disappointed that the Supreme Court allowed “a plan that is so flawed from a legal point of view.” Despite his disappointment, he said he is pleased that investors will soon be able to start recovering their savings.

“I have tremendous respect for Purdy Crawford, for his industry and determination. They pulled a rabbit out of a hat,” he said.

James Woods, a Montreal lawyer who represented a group of Quebec-based companies, said that the Supreme Court has left a “very confusing legal landscape” in the insolvency practice because Ontario court rulings that approved the ABCP plan are in conflict with decisions from Quebec courts. He also said he hopes the federal government and market regulators continue with ongoing investigations into the market collapse that left so many Canadians stranded.

“There has to be a very close look at what took place,” he said.