The Supreme Court of Canada in Ottawa today denied leave to appeal. It gave no reasons for its decision.
The judges may have been swayed by the upheaval in the financial sector in the U.S., said Allan Sternberg, one of the lawyers objecting to the plan. Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in U.S. history and American International Group Inc. avoided collapse by agreeing on Sept. 16 to turn over 80 percent of the company to the government in exchange for a loan of as much as $85 billion.
``What's gone on this week could very well have impacted their decision,'' Sternberg said in a phone interview. ``There are allegations of a global liquidity crisis'' and the judges probably didn't want to hold up the plan any longer, he said.
Opponents of the plan, including Ivanhoe Inc., which held $70.7 million of the paper as of June 30, Jean Coutu Group Inc. and Jura Energy Corp. appealed an Ontario court ruling approving the proposal because they wanted to keep their right to sue banks and brokerages who sold the short term debt. Under the plan, the financial institutions were given immunity from most lawsuits.
``While the notion of releases in favor of third parties -- including leading Canadian financial institutions -- that extend to claims of fraud is distasteful, there is no legal impediment,'' Justice Robert Blair wrote in the appeal court ruling. ``The releases, in effect, are part of a quid pro quo.''
The opponents, who hold about C$1 billion of commercial short-term debt, had argued the immunity is illegally broad.
Goodmans, the law firm that represented a committee which put the plan together, tested ``the boundaries'' of Canada's bankruptcy protection law, Purdy Crawford, the lawyer who headed the committee, said on a conference call today.
``The alternative would have been incredibly complex,'' he said.
Canadian banks, including the Canadian Imperial Bank of Commerce and Royal Bank of Canada, are providing below-cost financing to the plan, while other institutions will assume increased risks in their credit-default swap contracts in exchange for the immunity, the Court of Appeal for Ontario said Aug. 19, when it unanimously approved the plan.
``It's going to be a tough market to get liquidity in,'' said Colin Kilgour, who runs a Toronto-based firm that advises Canadian companies on their commercial holdings. ``There's no buyers for this stuff out there right now.''
The insolvent asset-backed paper hasn't traded since August 2007, when investors began to shun the debt because of concerns about links to high-risk mortgage loans in the U.S. That month, a group led by Caisse de Depot et Placement du Quebec reached an agreement, called the Montreal Accord, to freeze the notes.
During the freeze, a committee composed of 17 financial and investment institutions, including Deutsche Bank AG and UBS AG, negotiated a plan to convert the insolvent 30- to 90-day debt into new notes maturing within nine years.
``After months of uncertainty, the restructuring can finally proceed as planned,'' Canada's Finance Minister Jim Flaherty said in a statement on the ministry's Web site. He commended Crawford for his ``efforts in supporting Canadian financial markets at this time of ongoing global financial market turbulence.''
Dealers of asset-backed commercial paper, or ABCP, may still be sued for fraud in certain limited cases, with no punitive damages allowed.
More than 1,700 individual investors at Vancouver-based brokerages Canaccord Capital Inc. and Credential Securities Inc., whose holdings are less than C$1 million, will get all their money back under the proposed plan. Noteholders with more than that amount may sell their investment at a discount once the debt begins to trade, or hold the new notes to maturity.
``It's great to get the money back,'' said Garry Webber, a former Calgary pastor who has C$180,000 at stake. ``But then, if this sets a precedent for the way banks might conduct themselves in the future, by getting protection against litigation, then I'm not sure we've won anything.''
Canaccord's Chief Executive Officer Paul Reynolds said the brokerage is ``eager'' to give its clients their money back.
One of those clients, Jill O'Hara, a 53-year-old paralegal in Victoria, British Columbia, faced the prospect of losing her home unless she could tap the C$250,000 that was tied up in the frozen notes.
``It's been the worst year of my life,'' she said. ``We need to make sure that this never happens to anyone else.''
The case is In the Matter of Metcalfe & Mansfield Alternative Investments, C48969, Court of Appeal for Ontario (Toronto).