The Supreme Court of Canada’s decision last week to deny a rogue group of investors leave to appeal in the Sino-Forest class action settlement provides a good example of the power of the Companies’ Creditors Arrangement Act when up against class proceedings legislation.
“Sino-Forest is the most prominent, but not the first CCAA filing to address the relationship between class actions and CCAA proceedings. The tortuous narrative contains important lessons for class action and insolvency practitioners,” wrote Bennett Jones LLP lawyers and Sino-Forest counsel Robert W. Staley, Derek J. Bell, and Jonathan G. Bell in a update on the firm’s web site.
On March 13, the SCC denied Invesco Canada Ltd. and a group of other investors leave to appeal of a settlement that released Ernst & Young LLP from any claims arising from its auditing of Sino-Forest Corp.
The settlement is part of Sino-Forest’s plan of compromise and reorganization following a bankruptcy triggered by allegations of fraud. Plaintiffs had alleged the company misrepresented its finances.
In March of last year, Ontario Superior Court Justice Geoffrey Morawetz approved the EY settlement, which was was supported by all parties to the CCCA proceedings including the monitor, Sino-Forest’s major creditor, and a group of plaintiffs looking to gain back lost investments in a proposed class action. Investors were prohibited from opting out of the settlement.
However, Invesco Canada Ltd., represented by Kim Orr Barristers PC, objected because it wanted the right to opt out and pursue its own claims. Invesco held about 1.6 per cent of Sino-Forest’s outstanding shares at the time of its collapse.
“There were other much larger shareholders who supported the settlement and that was one of the things Justice Morawetz noted when he approved the settlement. What he was saying was that you can't opt out of the CCAA proceeding — you have to be participating throughout and you can't sit in the weeds and come out at the last minute to try and blow up the deal,” Derek Bell tells Legal Feeds. “From that vantage point it's not a terribly surprising outcome.”
This decision settles the EY case but there is still ongoing class actions going on against other parties, says Staley. “We're not fully done but the CCAA plan is now fully implemented and all appeals dismissed and this settlement is fully approved so we're getting closer to the end but it's not all done.”
In its analysis, Osler Hoskin and Harcourt LLP lawyers Laura Fric and Karin Sachar wrote that Morawetz “recognized that a class settlement must ordinarily include an opt out provision. However, he held that the CCAA allowed the court to impose a compromise of the class action claims on Invesco since the settlement:
1. Was approved by the requisite majority of creditors;
2. Was fair and reasonable.”
Critics say the request for leave to appeal needlessly delayed the payout of the settlement, while others representing the plaintiffs argue opt-out rights were not adequately protected.
Update 2:37 pm: added comments from Bennett Jones counsel.