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PAGE 12 FOCUS march 22, 2010 • Law Times Companies seek alternatives to CCAA BY JULIUS MELNITZER For Law Times S ince the 1990s, fi lings under the Companies' Creditors Arrangement Act have been the preferred legal avenue by which compa- nies large and small, includ- ing household names such as Eaton's, Air Canada, and Stelco Inc., bought the time necessary to continue operations while they restructured. During the recent recession, however, insolvency lawyers have had to broaden their horizons. "What you began to see dur- ing the recession was plans of arrangement under the Canada Business Corporations Act hack- ing away at the CCAA's domi- nance," says Michael MacNaugh- ton of Borden Ladner Gervais LLP. "And although there were no more than half a dozen such arrangements, they got a lot of press." Th e diffi culty is that in- solvent companies can't re- structure under the corporate statute, which means that or- ganizations anticipating cash- fl ow problems must act pro- actively if they wish to resort to it. Ontario Municipal Legislation 2010 Your most complete and comprehensive guide to the latest changes in Ontario municipal law Find all of the Acts and regulations concerning Ontario municipal legislation in one consolidation. This work, updated annually, ensures you are always working with the most current information. This latest edition contains: • • • • Regulations under the Includes 18 regulations S.O. 2001, c. 25 Regulations under the Includes 16 regulations S.O. 2006, c. 11, Sch. A "Th e severity of the eco- nomic problems we were fac- ing forced many businesses to review their fi nancial con- dition to determine wheth- er they could weather the storm," says Tony DeMarinis of Torys LLP. "Th e result was more pre-emptive steps than we saw in the past and less of the unhealthy states of denial that characterized previous recessions and resulted in companies failing to act until their backs were to the wall." According to DeMarinis, the Ainsworth Lumber Co. Ltd. and Tembec Inc. restruc- turings were very successful. "Th ey were very fast, much ORDER your copy today Perfectbound • 862 pp. • April 2010 On subscription $71 • P/C 0809140000 One time purchase $81 • P/C 0809010000 Multiple copy discounts available ISSN 1915-8173 more manageable than CCAA proceedings, and remained in the control of sophisticated parties at the table," he says. Using the corporate statute also has benefi ts for a compa- ny's reputation. "You're not acknowledging LT0322 For a 30-day, no-risk evaluation call: 1.800.565.6967 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. Ont Municipal Legislation (LT 1-4x3).indd 1 3/16/10 3:49:53 PM Subscribe to Law Times Why pay extra for your legal news? Cutting-edge legal affairs, news and commentary for just 37¢ a day! Make the time for Law Times and keep up with all the developments in Ontario's legal scene. Subscribe today and receive: • Unlimited access to the Law Times digital editions and to our digital edition archives...FREE • Canadian Legal Newswire, a weekly e-newsletter from the editors of Law Times and Canadian Lawyer...FREE together we have all the tools. TitlePLUS title insurance and you, TitlePLUS title insurance and you, together we have all the tools www.mckellar.com www.mckellar.com 1-800-265-8381 $3.55 • Vol. 20, No. 13 Covering Ontario's Legal Scene Cosgrove says 'life goes on' after the bench 'Shock and disappointment' BY ROBERT TODD Law Times F ormer Ontario Superior Court justice Paul Cosgrove has spo- ken out on the Canadian Ju- dicial Council's decision to call for his ouster, saying he was compelled to resign due to his pending retire- ment, despite finding aspects of the council's report "troublesome." Cosgrove tells Law Times in an interview that once the CJC issued its recommendation to the justice minister, "My options were pretty narrow." While he believes he could have committee appealed an earlier report at resigned inquiry the Federal Court, he says a decision was un- likely before his mandatory retire- ment took hold in December. Cosgrove earlier this month after the CJC issued a final re- port stating that his actions in a late- 1990s murder trial led to the conclusion that he "failed in the execution of the duties of his judi- cial office and that public confidence in his abil- ity to discharge those duties in future has been irrevocably lost." The decision made him only the second federal judge to meet such a fate. But the former judge says parts of the CJC's final report could have been challenged. The council did not use a set of 32 letters of support written by judges and retired judges, law- yers, and members of the public when coming to its decision, saying they were irrelevant, he notes. "Personally, I found that difficult because, for example, there were my supervising judges, Former Superior Court justice Paul Cosgrove tells Law Times that his pending mandatory retirement compelled him to resign from the bench rather than battle a call for his ouster. the senior regional judges in Ottawa since I've been here for the last 24 years, all wrote very positive recommendations, and they also were aware of the trial," says Cosgrove. "So to say that these letters, the people had no knowledge of what was going on was not accurate." Cosgrove also suggests the council should have used the letters from community mem- bers when considering whether he had lost the public's confidence. "It would seem to me that it's logical to test what the public's demeanour is; you ask people who are knowledgeable in the public," he says. "And there were a number of letters from people in public office, and they were given little weight, according to the decision." Cosgrove's final criticism is the CJC's determination that the issue of public confidence was central to its decision. He suggests that it remains unclear what evidence is required to make such a determination. "So, all of those issues may have given rise for us to challenge," he says. "The problem with that is, of course I'm retired — manda- tory retirement in December of this year. And the process, for ex- ample, dealing with the constitu- tional issue, took three years." He says he did not want to gamble and let the matter play out before Parliament, where an un- precedented joint resolution would have been required to finalize his ouster. Doing so may have proved cumbersome, suggests Cosgrove, with 20,000 pages of evidence likely put forth. The 74-year-old former judge, who will collect an annual pension of about $170,000, says that before the decision he was reason- ably confident that the council would not call for his dismissal. Independent counsel Earl Cherniak, a partner at Lerners LLP, had previ- ously told the council such a stern punishment was not necessary. "It was shock and disappointment," Cos- grove says of his reaction to the final decision. He says he has been dealing with the fall- out by responding to media inquiries, and See Cosgrove, page 4 Future uncertain for McCarthys' Ottawa office BY TIM NAUMETZ For Law Times OTTAWA — The possible closure of McCarthy Tétrault LLP's high- profile office in the nation's capital is unrelated to dire economic cir- cumstances that have hit home for some Canadian law firms, a senior McCarthys partner says. "Yeah, I guess, like any organi- zation we review our business plans on an ongoing basis," Boake tells Law Times when asked of the Ot- tawa office closure possibility. She adds the firm wants to meet the needs of its clients, and that each of its offices have a practice and focus which aligns with McCarthys' over- all strategy. "So it's in that context staff, remains undecided. "It's really just a question of the fact that we are in discussion with lawyers there as part of an overall strategic review," she tells Law Times. "These discussions have been going on for a while and are not related to the economy," she says. "I would call it a strategic review. Our firm really focuses on integrat- The financial crisis that has hit directly New York and London, being financial centres of the world, and the financial institutions based there, has not hit to the same degree in Canada, primarily because of the strength of the financial institutions in Canada. Consideration of the future of McCarthys' Ottawa contingent is a "strategic review" based on the firm's national business plan, and the role played by all of its six loca- tions across Canada, says Barbara Boake, national leader, profession- als, at McCarthy Tétrault. that we're currently reviewing the Ottawa office, but no decision has been made to close it," she says. Boake would not divulge fur- ther details and said the fate of the office, along with the employ- ment of its seven partners, two associates, and 11 administrative ed practices; we have offices right across the country. We have a very diversified practice geographically and our overall strategy is to inte- grate those practices and develop client teams on a firm-wide basis." Boake, however, confirmed Mc- Carthys has taken "difficult staffing decisions" because of a drop in busi- ness due to the economy, letting go less than 20 of its 650 lawyers across the country. She would not give the specific number or other details. Gowling Lafleur Henderson LLP also confirmed to Law Times the firm released staff last week. But Gowlings chairman and CEO Scott Jolliffe said the shakeup did not involve partners or associ- ates. Jolliffe says the firm is shifting toward a "pod" model where law- yers and associates share a smaller number of secretaries, but he would not say how many were affected. The move not only economizes, but also creates a team atmosphere among secretaries that is useful for mentoring and sharing workloads. Sources in the legal community say McCarthy Tétrault's Ottawa re- view may be related to a management See Ottawa, page 4 WHICH DIRECTION IS BEST FOR YOU? RainMaker Group 110 Yonge Street, Suite 1101 Toronto, Ontario M5C 1T4 Tel: 416-863-9543 Fax: 416-863-9757 www.rainmakergroup.ca www.lawtimesnews.com Financial Matters 9 Focus On ADR/ Mediation Quote of the week "It is now incumbent on sports federations in selection disputes to show they had the proper criteria set up and that it was properly applied . . . The onus is now on the organiza- tion not the athlete. It wasn't quite as clear a few years ago." 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L4G 3S9 Tel: (905) 727-0077 Fax: (905) 841-4357 Mail or fax this form to Law Times www.lawtimesnews.com LT_1-4sub.indd 1 12/16/09 11:04:45 AM insolvency, so there isn't any of the stigma or real damage, like contractual default, that's asso- ciated with it," DeMarinis says. "Th ere are no court-ordered re- strictions on operations, you don't have creditors and moni- tors watching every move, and the company remains in much greater control than it would under the CCAA." As well, if the process fails, the company hasn't taken any backward steps other than in- curring relatively small costs. "By contrast, if you don't come up with a plan under the CCAA, it's game over," De- Marinis says. Basically, the business cor- porations act allows issuers to exchange securities. Th at works well when a company's main or only problem is public or bank debt. Whether the diffi culty is maturing debt that can't be refi nanced or overly restrictive covenants, debtors can make an exchange off er to note hold- ers or bondholders. Th e legisla- tion allows debtors to drag dis- senters along, forcing the deal on them if necessary. But the corporate statute doesn't work when the prob- lem is private non-bank debt or trade creditors. "If the problem goes beyond having too much public debt or bank debt, a simple CBCA re- structuring or an informal work- out may not be practical," says Susan Grundy of Blake Cassels & Graydon LLP. Still, companies aren't au- tomatically fi ling under the CCAA as often as they might have in the past. "People are thinking hard Parties showed flexibility during the downturn particularly since, under the CCAA, it's 'going to cost a minimum of six figures even for the most straightforward case,' says Kenneth Kraft. about diff erent ways to fi nd solutions without resorting to formal legal processes," MacNaughton says. Th e result, then, is informal workouts. "What motivates workouts is an absence of other options, and that's what we were seeing at the height of the recession," Grundy says. During that period of time when debtor-in-possession fi - nancing was hard to come by, no one, as it turned out, was more motivated than debtors' banks. Many of them came to realize that, in the event of a fi ling, their clients could only continue to operate if the banks themselves stepped up as the lender. In many cases, they real- ized it was to their advantage to work out an informal solution to what was most frequently a cash-fl ow problem in a business that was fundamentally sound. "Th at left it to the parties to fi gure out a way to turn a non- performing loan into a perform- ing loan," says Kenneth Kraft of Heenan Blaikie LLP. "And they did, even if it meant fees com- ing down and lenders' forbear- ance of various rights. For one thing, workouts are a lot less expensive than a CCAA fi ling that's going to cost a minimum of six fi gures even for the most straightforward case." Still, one way to keep a handle on CCAA costs was to resort to a prepackaged pro- ceeding. "Generally speaking, that refers to a situation where the debtor has lined up all of the ducks and has a deal in place before initiating insolvency pro- ceedings," DeMarinis explains. "Th ey're used in the U.S. much more frequently than they've been used in Canada, where they're talked about far more often than they're achieved. But now everyone wants to man- age the proceedings closely and keep them short, and the pre- packaged approach is a good way to do it, so I think we'll see more of these." LT Consulting Editor: Quinto M. Annibale City o f Toronto Act, 2006, City o f Municipal Act, 2001, Toronto Act, 2006 Municipal Act, 2001 www .lawtimesnews.com Includes a FREE digital edition!