Laurentian Federation Archives - Ira SmithTrustee & Receiver Inc.

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***Laurentian University of Sudbury:* *This will forever be a stain on Laurentian University***

The Laurentian University of Sudbury is a public-funded, northern Ontario multilingual and tricultural independent university, serving both Canadian and global students for both undergraduate programs & graduate programs.

However, Laurentian University of Sudbury has its financial problems. It was in need of a restructuring plan. On February 1, 2021, it applied to the Court and obtained protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (” CCAA”), to permit it to restructure, financially as well as operationally, in order to emerge as a sustainable university for the advantage of all stakeholders.

When it sought CCAA protection, Laurentian University of Sudbury, with the assistance of the Monitor, identified a number of issues in which an economic restructuring was required. These consisted of a downsizing of the variety of programs being taught, as well as new, sustainable collective bargaining agreements with the labour unions representing Laurentian professors and other staff.

To date I have written 4 blogs on the Laurentian University of Sudbury CCAA proceedings:

LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION – February 8, 2021
LAURENTIAN UNIVERSITY INSOLVENCY RESTRUCTURING – OUR UPDATED GUIDE ON ITS MASSIVE CUTS TO GAIN FINANCIAL HEALTH – May 5, 2021
LAURENTIAN UNIVERSITY IN SUDBURY: THE LAURENTIAN FEDERATED UNIVERSITIES SUFFERED A CRUSHING DEFEAT – My 17, 2021
COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN – June 14, 2021

In this Brandon Blog, I discuss the recent decision of the Court of Appeal for Ontario released on June 23, 2021, concerning the request of Thorneloe University to appeal a decision of the CCAA judge.

***Laurentian University of Sudbury* and the *Federated Universities***

The Laurentian University of Sudbury additionally recognized, at the beginning of its CCAA proceeding, that it would be essential in dealing with its financial insolvency, to have a fundamental readjustment or realignment of its setups with the 3 Federated Schools: Thorneloe University (sometimes referred to as “Thorneloe“), Huntington University (“Huntington”) and also University of Sudbury (“USudbury”) (collectively referred to as the “Laurentian Federation”).

A court-ordered mediation facilitated the Laurentian University of Sudbury reaching agreements with the unions on the collective bargaining agreements. Nevertheless, the Laurentian University of Sudbury was not successful in reaching what is considered to be the needed readjustments with the Federated Universities on the 60-year-old federation agreement.

On April 1, 2021, Laurentian sent out notices of disclaimer to the Federated Universities. The Monitor concurred with the notifications under the CCAA insolvency process. Thorneloe University College brought an action opposing Laurentian University’s disclaimer notification. (USudbury brought a comparable motion, which was heard by a different judge). Huntington University did not bring such action as they reached an accommodation with the Laurentian University of Sudbury.

The CCAA judge dismissed Thorneloe’s action. Thorneloe University College sought leave of the Court of Appeal for Ontario to appeal the Judge’s decision. At the heart of its opposition is its opinion that permitting the disclaimer will certainly result in Thorneloe’s insolvency and also yet supply only de minimis monetary benefit to Laurentian. Thorneloe further submitted that the real intention for the disclaimer is the elimination of competitors, which is inconsistent with the responsibility to act in good faith.

Thorneloe likewise looked to present new evidence in connection with the Laurentian Federation, consisting of testimony from Thorneloe’s President. There was no resistance from the parties to the introduction of new evidence. The Court of Appeal for Ontario allowed the new evidence.

The Thorneloe appeal

Thorneloe applied for an order that the Laurentian Federation Arrangement, and also the Financial Distribution Notice between Laurentian and Thorneloe, not be disclaimed. The Court of Appeal noted that the CCAA judge noted that the provision of the CCAA under which the Laurentian University of Sudbury issued its disclaimer notices calls for a harmonizing of interests.

The CCAA judge said there are competing interests that must be balanced in determining if the disclaimers should be allowed. After taking part in that analysis, he concluded that the much better choice, or, to say it another way, the least unfavourable selection, was to uphold the notices of disclaimer.

In addressing whether leave should be provided, the Court of Appeal for Ontario will think about 4 aspects, specifically whether:

the requested appeal is prima facie meritorious or not;
the factors on the suggested appeal are of significance to the insolvency community;
the factors on the proposed appeal are important to the action, being the CCAA restructuring; and also
whether the appeal will unduly impede the progression of the restructuring.
laurentian university of sudbury

Laurentian University of Sudbury: The prima facie test

Thorneloe puts five questions to the court for answers in their submission that leave ought to be given:

Can the CCAA, a law whose objective is to stop bankruptcies, be made use of by a debtor to remove competitors as well as create the bankruptcy of a currently solvent entity (in this case, one more university)?
Must s.32 of the CCAA be interpreted so generally that it enables the disclaimer of an arrangement that will certainly lead to the bankruptcy of the counter-party, for removing competition, and where the potential financial gain to the debtor is both unsure and also of no consequence?
What inferences need to be made by the CCAA Court where a DIP loan lender demands the disclaimer of a contract that will certainly cause the bankruptcy of the counter-party or else it will refuse to advance further funds, yet the DIP lending institution refuses to explain why it demands the disclaimer?
What is the duty of the CCAA Court when faced with a requirement for the disclaimer of a contract which the debtor admits is motivated to eliminate competitors, and after that threatens that if the CCAA Court does not support the disclaimer, the debtor may not be able to restructure?
What are the aspects appropriate for persons to act in good faith under s.18.6 of the CCAA, and also specifically where the Laurentian University of Sudbury and/or the DIP lender looks to close down Thorneloe for the confessed objective of eliminating Thorneloe as a competitor?

The Court of Appeal for Ontario was not satisfied that the suggested appeal, challenging the CCAA judge’s discretionary decision to accept the disclaimer and to decline to erase the related term in the DIP Amendment Agreement, is prima facie meritorious. Within that verdict, the appellate court was cognizant that valid findings of fact are owed considerable deference as are discretionary decisions, as long as there is not an extricable error in interpreting the law. So the Court of Appeal of Ontario stated that Thorneloe did not meet the leave test.

Laurentian University of Sudbury: Significance to the practice

In a very tersely worded statement, the Court of Appeal for Ontario said that they do not feel that the proposed appeal is significant to the insolvency community as the concerns raised turn on the application of the legislation to this particular case only.

Laurentian University of Sudbury: Significance to the action

The Court of Appeal for Ontario stated the suggested appeal does have significance. However, the court said that the significance still does not justify leave be provided.

***Laurentian University of Sudbury: Appeal would hinder progress of the action***

The appeal court said there is a danger that an appeal would be a distraction from the
real-time restructuring initiatives and also would unduly hinder the progress of the CCAA case.

So the Court of Appeal for Ontario has decided that Thorneloe should not be given the right to appeal the notice of disclaimer as decided by the CCAA judge. This seems to end this part of the CCAA restructuring. If Thorneloe’s submissions to the courts about its own solvency are correct, we should soon see the bankruptcy of Thorneloe University.

Laurentian University of Sudbury summary

I hope that you found this Laurentian University of Sudbury Brandon Blog interesting. Among the countless problems that can arise when a significant customer stops doing business with you, your business cash flow takes a massive hit.

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