TEXT OF RULING The Terrace Standard, Wednesday, February 25,1998 - AS Judge gives SCI only a ‘chance’ of survival Ruling slams gov't conduct, but concludes a slim chance is better than none B.C, Supreme Court Justice Allan Thackray on Jan, 9 gave his ap- Preval to the Skeena Cellulose restructuring plan after a second vote by unsecured creditors. The provincial government and TD Bank agreed to hold that second vote because the first vote had seen them designate enough of their secured debt to unsecured status in order to force a yes vote. In his reasons for judgment, Thackray takes the government to task for that episode, for appointing Ralph Torney to Probe the plight of the northwest, and questions the company’s long- term prospects. But in the end, he approves the plar. Here are excerpis from his decision. HAVE NOT found the process to have been entirely satis- factory. I find it difficult to accept that the Government and ~ the Toronto-Dominion Bank acted appropriately in proceeding to the first vote without first ob- taining a Court ruling as to the legality of the process. While to have done so would not necessarily have settled the ques- tion as to the ‘‘fairness’’ of an owner/secured/misecured creditor voting as an unsecured creditor, it would have settled the legality is- sue, Furthermore, it would have ‘aired’? the issue and given notice to the unsecured creditors of the proposed move. ‘Lam satisfied on the evidence that the Act (CCAA) was nat used merely to defeat creditors. This can be scen through the monitor’s reports, the negotiations, the infu- sion of public money, the agree- ment of the Government and the bank to modify their reliance on the first vote and by the amendment to the Plan which added to the amount payable to unsecured creditors. The unsecured creditors com- plained that they were not treated in the same manner as union employ- ees, The suggestion was that em- ployees, being union people, were given an advantage because of their traditional support of the New Democratic Party. However, as was noted by the Court in Quintette:. It will be the exceptional compromise that does not aller the respective in- terests of various parties.” As to the circumstances surround- ing the first vote, I am sympathetic to the outcry of the unsecured creditors. Mr. Bird, on behalf of the Government, submitted that his client’s position was that what it did was right. When it was sug- gesled to him by the Court that what he meant was that it was legal, he countered with ‘‘legal and right.’ I do not agree that the Govern- ment and the Toronto-Dominion Bank acted appropriately. They must have recognized, and indeed been advised, that voting as they did without first having raised the matter with the Court, would be questioned. If the Government is going to go into business, and especially when it is entering into an enterprise that was formerly private, it must act in a totally open manner. The Government is in a particu- larly vulnerable position in that its business creditors are also its con- stituents. Its acts must therefore reach the level that is prescribed for the courts, ic, they must not only be justifiable but seen to be justifi- able. The fact that the Government and the Toronto-Dominion Bank in- tended to declare part of the com- pany'’s indebtedness to be un- secued and thereby vote it as un- secured was nol only not approved by the Court but was not revealed uniil the last moment. This caused extreme irritation in the unsecured creditor class and adverse public comment. In the face of concern expressed by the Court the Govern- ment ard the Toronto-Dominion Bank reluctantly agreed to a second vote. The agreement was offered only on the condition ihat the first vote be kept ‘‘in reserve’ in the event that the Plan of Arrangement did nol receive a positive vote. There- upon, according to counsel for the company, the issue of the legality of the first vote would be brought before the Court. Furthermore, a second vote was only agreed to on the condition that the Court order provide that no changes could be made to the Plan before the vote. Ji would have been better if they had totally abandoned the first vote, This could have been done without compromise to their position that the first vote was legally, con- ducted. ° What I find to be a most troubling step was taken by the Government on January 2, 1997, in appointing what it described as a ‘‘special commissioner.’? The Vancouver Sun carried the headline on January 3: ‘Premier orders Skeena probe,”’, The Government was reported ta have appointed a Mr. Ralph Tormey ‘‘to review the im- pact that the Skeena Cellulose bailout is having on small and medium-sized businesses in north- western B.C.”’ Concurrent with the announce- ment of the “probe’’, a Govern- ment representative, identified as Mr. Jean Wolff, was reported to have said, with respect to whether or not financial help would be available to creditors, that ‘The government is looking at what is needed and what is necessary.” Not surprisingly one ‘organizer of the unsecured creditors’? saw this as ‘‘a positive sign.’’ This obli- que bint at funding in conjunction with the news release must have left many creditors thinking that they should vote for the Plan be- cause some further compensation was in the offing. It must be kept in mind that the vote was scheduled for January 6. On that day Employment Minister, Mr. D. Miller, is reported to have said as follows: “‘the government will do what it can to help creditors avoid bankruptcy, by providing bridge financing, for example... To those contracting companies we’re saying, we'll work with you like we worked with Skeena.”’ On January 8, 1997, Mr, Miller is quoted as saying that the Govemn- _ ment would’ not abandon con- tractors whose businesses are threatened because of the Plan. I am of the opinion that the Provincial Government in appoint- ing a ‘‘special commissioner’ and in making ihe announcements which it did, when it did, intruded into the court process, The Govem- ment is, of course, entitled to un- dertake any programs which, in its wisdom, it sees fit to undertake. However, when it is the owner of an enterprise involved in a court directed proceeding its acts must be judged using the same criteria as would be applicable to a private owner. On that basis I can see no reason for Jaunching this probe before the conclusion of the court process other than to “‘sweeten”’ the Plan. This step was taken by the Govern- PRES: SO 3 LOGGING CONTRACTORS like Greg Main (abov ee a e) weren't happy with how the government and TD Bank tried to force through the Skeena Cellulose restructuring plan. And neither was B.C. Supreme Court Justice Allan Thackray. In trying to determine whether ihe Plan is fair the Court is left without a clear picture of the Govermment’s intent. That is why, in my opinion, ali offers that were to be made to the creditors should have been included in the Plan which could then have been voted upon without either clubs being held over their heads or carrots being dangled in front of their noses. ] am satisfied that the process that has been followed was seriously flawed. ‘Y lay this primarily at the feet of the Government in its capac- ity as majority owner of Skeena Cellulose Inc. That leaves the fairness of the Plan to be determined, The fizst dif- ficult issue is whether there is evi- dence that the company has a com- mercially viable future, Annexed ta these reasons is a summary of the company’s *‘consolidated historical operating results.”’? Mr. Rudolf Schwartz, vice president finance and business operations for Skeena Cellulose Inc., deposed in an affidavit filed March 3, 1997, that this document “accurately states the operating results of the companies since 1991,” It will be seen from the summary that the companies suffered net in- come losses in all years other than “The process that has been followed was seriously flawed. I lay this primarily at the feet of the Government in its capacity as majority owner of Skeena Cellulose Inc.” ment outside of the Court process and without revealing its intentions in open Court. Rather, it used the media to broadcast its intentions. The Vancouver Sun, in an editorial on January 3, 1998, saw the move in the very manner that I have suggested it would be taken by many creditors: ‘Yesterday, though, the premier offered the un- secured crediiors a sweetener, by asking Ralph Torney, past presi- dent of the Truck Loggers Associa- tion, to find answers for smaller businesses by talking to the com-. panies and communities that may live or die along with Skeena Cel- lulose.” All of this points up the difficulty in analyzing the situation when the Government is involved in several capacities. For instance, what was the mandate of the special com- missioner? Was he to Invesilgate the ‘‘owners’’ role, that being the Government and the Toronto- Dominion Bank? As to the suggestion that the probe might benefit creditors, does that suggest that additional funding is to come from Skeena Cellulose or is it to come from the Govern- ment through other resources? Further, are all creditors to be treated equally. or are there to be selecied creditors eligible for relief? 1995, The loss in 1994 was $23.5 million, the profit in 1995 was $5.3 million and the loss in 1996 was $128.4 million. Yet Mr, Schwartz is reported in the Varicouver Sun of January 6, 1997, to have stated that analysts who say that the company has not been profitable and that the company cannet make a profit are wrong, In an affidavit filed November 26, 1997, Mr. Schwartz deposed that notwithstanding the proposed agreement for infusion of funds,’ ‘the current low world price for pulp renders the Petitioners eco- nomically fragile.’’ In the same af- fidavit he said (hat determining the, value of the forest licence ‘‘is made difficult because of present eco- nomic circumstances, particularly because one cannot predict whether Skeena remains 2 viable customer for the wood products produced from the Buffalo Head forest licence." The monitor reported on Novem- ber 4, 1997 that the companies’ business plan for the years 1998 to 2004 inclusive anticipates ‘‘cash of $603 million after debt servicing, but before any capital expenditures or debt repayment, Total capital ex- penditures in this period are estimated at approximately $420 million. Term loans of up to $170 million for capital expenditures have been arranged...” - Mr. David Bown, the person who carried out the monitor’s role, deposed in an affidavit sworn Jant- ary 8, 1998, as follows: ‘“The Reorganization Plan now approved by the creditors of the Skeena Companies is based upon the Busi- ness Plan and Economic Plan which both SCI and the TD Bank have agreed to finance in respect to operating and capilal expense re- quirements, On that basis, the Plan offers the Skeena Companies their best chance for a retum to ‘profitability: 6-5 eee ‘(Counsel for Skeena Cellulose) Mr. Kaplan, in his written submis- sion, submitted that ‘‘there is no re- quizement placed upon them [the companies] ... to establish thal upon reorganization the applicant com- pany will be profitable or neces- sarily viable in the long run.’’ I think he is correct. However, the infusion of capital is so massive that it can only be concluded that for some future period the company will survive. It will almost certainly survive the present crisis. A prog- nosis as to the length of that sur- vival is not to be found in the evi- dence. The evidence that Skeena Cel- lulose can survive is far short of overwhelming. It comes only to a level of ‘‘chance.”’ That is the very word used by Mr. Bowra in his recent affidavit. In the case at bar J accept that there is a chance for survivai. This chance can only be exercised by a Court sanction of the Plan. Another compelling reason for sanctioning the Plan is that bankruptcy, the only other apparent alternative, would result in no retum for the unsecured creditors, Mr. Bowra deposed in his recent affidavit that this is the case. As to whether or not the Plan is fair and reasonable, I cannot say. Having come to the decision that 1 cannot decide that issue, 1 am faced with the question as to whether or not a court should over- ride the expressed wishes of the company, the secured creditors and the majority of the unsecured creditors. In this case the unsecured creditors voted 85.3 per cent in number and 87.7 per cent in value in favour of the Plan. Earlier in these reasons | set out the various cases reflecting upon this issue. My summary of these cases is as follows: 1. The Court will “be strongly in- fluenced by a big majority vote.” 2. The Court ‘‘may be in a better- position to judge’’ than the inter- ested partles, but that “is a matter lo be decided on the evidence.’* 3. ‘'The concepts of fairness and reasonableness ... do not suggest the scheme must attain perfectlon.”’ 4. The Court will not without substantial cause substitute its judg- ment for that of the immediately in- valved parties. On the basis of the chance of viability of the company for al least the short term, the lack of a better alternative, and in that there is a “big majority vote”. in favour of the Plan, the Plan is sanctioned. CORRESPONDENCE FOR THE TERRACE STANDARD The Mail Bag A blurred vision Dear Sir: This is a response to Claudette Sandecki’s ‘‘Through Bifocals’’ of Jan. 21, 1998, A young First Nations friend who has aspirations of beginning a career in the Royal Canadian Mounted Po- lice came to my office with this column. She was most concerned because she though that Claudette Sandecki’s pen was going to be powerful enough to smear her and all those who choose to par- ticipate in the more culturally relevant officer training programs. offered by the RCMP, programs which Sandecki chooses to describe as being for ‘‘visible minorities’’ with ‘intellectual deficiency.’’ This is what ] told her and it is what people who dif- fuse information to the general public should know if they wish to be recognized as credible, responsible, ethical, professional and respected journalists. Twenty-five per cent of the population in the Skeena region are of First Nations descent. Other visible minorities living in this region have their roots in China, Vieinam, Japan, India, Pakistan, Africa, Jamaica, the Phillipines and Latin America, etc, All the people who live in the Skeena region come from different cultures, All of these people coutribute to the regional community. They pay taxes, includ- ing the taxes which are then redistributed from general revenues, federal and provincially, and ‘‘Different’’ does not mean “deficit” as it once did back in the days of the which likely help to pay dinosaurs. for the corporate welfare fund from which businesses, including some media, seek financial sup- port. ‘Different’? does not mean ‘“‘deficit’’ as it once did back in the days of the dinosaurs. Research has shown that superior intelligence.is no race or gender specific, , The wearing of bifocals, while they may assist the wearer, has a handicapping consequence — the wearer can never see things as they really are. | know from ex- perience. Niitkw’ ililtkw, (Shirley Morven), New Aiyansh, B.C. Clark’s disaster dinner Dear Sir: Guess who wasn’t coming to dinner? No, I’m not referring to the classic Sidney Portier movie, but to the elder states-people of our resident aboriginals who were tersely forgotten at Premier Clark’s recent Van- couver supper with economic luminaries. The Supreme Court of Canada ruling on Del- gamuukw highlighted First Nations entiiements under the ‘‘sui generis’ interpretation way back in Decem- ber. With so few treaties enacted in B.C. and with the, comprehensive nature of land claims, the NDP should*ve convened emergency sittings of cabinet ‘and the legislature to clarify the government's ‘stance! this all important ruling. You'd have thought they would be working around the clock into the New Year to develop a ‘position policy on this very lands and resource paradigm that carries such significance to B.C. It puts the current con- text of treaty negotiations into such a quandary, Instead, with intransigence and without direction, the NDP just slept on it, preferring to hold a patch-up B.C. economy cozy get together with sclect corporate busi- ness and big labour over a dinner. Yet another Glen Clark famous media infomercial. Simultancously, right across the harbour on the north shore, B.C. Indian chiefs met to spell out their reading ‘on Delgamuukw, placing a strong ultimatum into the laps of Clark and his chosen inner circle, It conld have been an excellent chance for Clark to demonstrate genuine concern for our province by invit- ing native leaders to join the rest of the ‘power diners’. Alas, no such foresight or leadership, now we have 60 days more uncertainty to review the post Del- gamuukw decision era during the coutiaving B.C.investment exodus and resource sector meltdown. Not gastronomically palatable to anyone. Premier Clark better review his dinner invitations ‘more carefully next time to be more inclusive and rep- resentative of our contributing citizens he tends to - marginalize and overlook in his rush to get in front of the spotlight camcras to bolster his image. Gerry Bloomer, Lakelse Lake, B.C. (received via e-mail) i - Government spies on us Dear Sir: Your story of Feb. 18 on the tightening of the new welfare regulations is bogus. The great offense, which your story did not cover, is that the new form gives the goverment permission to even investigate family members. I’m not alone when I say that I believe Victoria is being sneaky in doing an end-rum around the privacy laws of this province. Is this a revision of the Spanish Inquisition that the Neolithic Dictator’s Party (NDP) thinks it has the right to investigate family members of people on welfare? I was recently told by someone on GAIN down south that this new fonn is primarily for single mothers who might be related to deadbeat dads. Well, God bless .single mothers on welfare because apparently no one “else will. It is this fact, not the stuff in your article, that bas people ticked off about it - Big Brother is watching! Brian Gregg, Terrace B.C. The Terrace Standard welcomes let- ters to the editor. Our deadline Is noon Friday for the following Wednesday's issue. Our mailing address Is 3210 Clinton St., Terrace, B.C. V8G 5R2. Our fax number is 250-638-8432. We partic- ularly welcome letters via e-mail. Our e-mail address Is standard@kermode.net