An Ontario judge has approved a deal that will see the remaining assets of scandal-plagued Sino-Forest Corp. transfered to its debt-holders, while dismissing objections from a group of investment funds.
Mr. Justice Geoffrey Morawetz of the Ontario Superior Court ruled on Monday that the deal, approved in a vote by Sino-Forest's noteholders last week, could go ahead. The company, crippled by fraud allegations, sought court protection from its creditors earlier this year, and is also facing a potential $9.18-billion class action lawsuit filed on behalf of burned investors.
Included in the restructuring deal was a massive $117-million proposed settlement between Sino-Forest's former auditors, Ernst & Young LLP, and the investors suing as part of the class action. E & Y, which also faces allegations from the Ontario Securities Commission that it failed to properly scrutinize Sino-Forest's books, did not admit liability in the settlement.
In court on Friday, lawyers for Invesco Canada Ltd., Northwest & Ethical Investments LP and Comité Syndical National de Retraite Bâtirente Inc., all investment firms with shares in Sino-Forest, objected to the terms of the settlement, arguing that allowing the court to approve it now would preclude their clients from opting out of the class action and suing Ernst & Young on their own.
Judge Morawetz disagreed, siding with arguments made by lawyers for Sino-Forest, E & Y and the class-action plaintiffs, who said the settlement would not be final until it was approved by the judge in the separate class-action case.
Lawyers for parties favouring the deal also said in court Friday that the dissenting investment funds represented only 1.5 per cent of Sino-Forest shares, and had until last week remained silent throughout Sino-Forest's restructuring process.
Despite the fact that Judge Morawetz dismissed the bid to put off approving the restructuring deal, a spokesman for NEI praised the ruling for clarifying that the E & Y settlement is not final.
"We are very pleased with this decision that at this point there is no limitation on the potential liability of any of the third party defendants," John Mountain, senior vice-president of NEI, said in an e-mail Monday. "This is a great decision for investors."
NEI and the other funds were represented by Kim Orr Barristers P.C., which had originally filed a class action against Sino-Forest, but lost control of the case when a judge awarded "carriage" of the class action to rival class action firms Siskinds LLP and Koskie Minsky LLP.
Siskinds and Koskie Minsky issued a statement Monday announcing the ruling and praising their proposed settlement with E & Y as "the largest auditor settlement in Canadian history" and one of largest in the world.
"On any reasonable basis, the agreement with Ernst & Young is a strong result for class members," the statement reads, adding that it must still be approved by another court.
The law firms say they have spent more than $1.2-million on experts and other costs to investigate the Sino-Forest allegations, and say they represent 10 per cent of the company's shareholders.