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.

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