As widely reported, on February 1, 2021 Laurentian University obtained creditor protection under the Companies' Creditors Arrangement Act (CCAA). This is an unprecedented occurrence amongst publicly funded Canadian universities and colleges, though in B.C., we have had recent experience with the insolvency of Quest University, a privately funded non-profit university.
The materials related to Laurentian's CCAA filing, including the Court's orders, can be found here: Restructuring Document Centre 2.0 (ey.com). The document entitled Endorsement makes particularly interesting reading, as it discusses Laurentian's structure and its "Liquidity Crisis and Insolvency" in plain terms.
Restructuring under the CCAA gives financially troubled companies (including incorporated, publically funded universities and colleges) the opportunity to avoid bankruptcy and restructure their affairs for the benefit of stakeholders. A great deal of work and hard decisions will be required for Laurentian to emerge from this process a financially and operationally sustainable university, including negotiations with its lenders and the faculty association, restructuring its academic programming, finding revenue generation opportunities, and even a re-evaluation of its federated universities model (Laurentian is one of four universities that make the Laurentian Federation; the other are: the University of Sudbury, the University of Thorneloe, and Huntington University).
Other institutions are looking on with sympathy, interest and not a little trepidation, given the financial impacts of the COVID-19 pandemic on their own institutions. Certainly, the initial response from the Ontario government is enough to cause concern inside and outside of Ontario.
More immediately, there may be questions and concerns that readers, in particular other institutions, may have surrounding the CCAA process and the impact it may have on any relationship between your institution and Laurentian.
What follows is a discussion of several important questions that you or your team may be facing. If you have a question that is not answered below, please contact the authors and we'll be happy to discuss your questions and update this document accordingly.
What does filing for creditor protection under the CCAA mean?
It means that Laurentian has concluded that it cannot meet its financial obligations as they become due, and is using the protection offered by the CCAA to ensure that it does not fall further behind on various payments and cause its lenders and other creditors to seek more drastic creditor remedies (e.g. enforcing on security, suing for breach, or forcing it into a bankruptcy proceeding). The stay of proceedings order granted by the court prevents creditors from taking steps against Laurentian.
Unlike a bankruptcy or receivership (discussed below), the purpose of the CCAA process is to allow Laurentian to continue to operate, restructure itself and create a plan for a long-term and sustainable financial and operational model. To emerge from the CCAA process, Laurentian may present a plan of compromise and arrangement to its stakeholders, which must be approved by a majority in number and over 2/3rds in dollar value of its creditors and by the Court.
Importantly, for Laurentian and its faculty, staff, students, and stakeholders, it means that Laurentian's administration and Board of Governors stay in place, to guide the University through the restructuring process.
CCAA is not bankruptcy or receivership.
A bankruptcy involves the transfer of all of an entity's assets and obligations to a trustee. The trustee, in effect, becomes the owner and operator of the business. The trustee's job is to find a buyer or buyers for the bankrupt's assets, with the aim being to repay as much of the bankrupt's debts as possible. Most often, the trustee will wind the business down and sell off the component parts.
A receivership involves secured creditors bringing an application to put the company into receivership in order to recover amounts outstanding under a secured loan. A receivership involves the receiver taking possession of and selling the assets secured by the security agreement in order to repay the outstanding debt. A receivership may also involve the appointment of a receiver-manager to operate and manage the business until it is sold as a going concern.
The CCAA proceeding that Laurentian University has commenced is neither of these things.
Who is the Monitor?
A Monitor is an independent third party (usually an independent firm of accountants who are licensed insolvency specialists) appointed by the Court to monitor the company's ongoing operations and assist with the restructuring. The Monitor in Laurentian's CCAA proceedings is Ernst & Young Inc.
The Monitor's role is set out in Court Order and may be modified throughout the process. Generally speaking, the Monitor's is there to assist the company with its restructuring, ensure that the company is operating in compliance with the Court Orders and to report to the Court and to stakeholders as and when needed.
I have agreements with Laurentian. What does their CCAA filing mean for my institution?
The CCAA process is premised on the insolvent entity continuing to operate its business, so the day to day operations of your agreements with Laurentian may be no different today as they were the day before they filed for CCAA protection.
However, there are a few important details that you should consider:
- You may not discontinue, terminate or stop performing any agreements with Laurentian or interfere with the operation of the business or continued use of Laurentian's property. If your agreement with Laurentian contains a clause that allows you to terminate the agreement if Laurentian seeks creditor protection or is insolvent, that clause cannot be enforced as all steps are stayed.
- Any amounts Laurentian owes your institution under a contract for periods prior to February 1, 2021 (the date they obtained CCAA protection), will be dealt with under the CCAA process. However, any amounts that are owing by Laurentian for goods delivered and services performed after the filing date and in the normal course, must be honoured by Laurentian. This means, if Laurentian orders goods or requests the supply of services from you after February 1, you can require payment of those amounts and they will not be compromised with all other amounts owing prior to February 1.
- If you believe that you may have grounds to terminate a contract for actions that take place after the commencement of the CCAA proceedings, we counsel caution before taking any steps - speak to your legal counsel regarding the circumstances to ensure you are acting in compliance with the law. You may require the consent of Laurentian or the court-appointed Monitor in order to do so.
- In the CCAA process, Laurentian has the ability to disclaim (terminate) an agreement that it has with your institution. It's important to connect with your counterpart at Laurentian to discuss any current agreements you have and what their plans are. If your agreement is disclaimed, there is an ability to appeal the disclaimer in Court. You will have a claim that you can file as part of the claims process in the CCAA proceeding if your contract is terminated and you have damages arising from the termination.
I am a creditor of Laurentian. How/when will I receive notice on what I need to do during the CCAA process to protect my interests?
Typically, no procedures are put in place with respect to claims or amounts that may be owing to creditors for at least the first 30 days after a CCAA proceeding is commenced. That is to give the parties an opportunity to deal with some of the urgent aspects of the filing. When it is time for claims to be filed, a "Claims Order" will be issued by the Court which requires everyone who has a claim against Laurentian to complete a document and submit it as part of the CCAA process. The Monitor is also responsible for calling for and reviewing creditor claims. If you think you have a claim but you have not heard from the Monitor by late March, you may wish to contact Ernst & Young Inc. to confirm that you are on the list of creditors and to confirm your contact information to receive notices with respect to the claims process.
The Monitor's hotline for the Laurentian CCAA is as follows:
I am currently negotiating a new agreement with Laurentian. What does their CCAA filing mean for these negotiations?
If you are currently in negotiations with Laurentian to enter into an agreement, those negotiations need not be halted if the agreement is otherwise mutually beneficial. Laurentian remains in control of its business and affairs, and may enter into new, enforceable, agreements. However, of course, additional consideration should be given to any payment and security obligations, at least until such time as they emerge from the CCAA process.
Does this affect Laurentian's Federated Universities (the University of Sudbury, the University of Thorneloe, and Huntington University)?
At paragraph 11 of the Endorsement, the Court notes that:
The Federated Universities are integrated into LU, however, each of the Federated Universities are separate legal entities and are governed by Boards that are independent of LU.
The CCAA filing is only in respect of Laurentian University, and not any of these Federated Universities. However, the Court also notes that Laurentian's strategy to achieve long-term financial stability includes a "re-evaluation of the Federated Universities model". So, if you are working with any of these other Federated Universities, keep in mind the possibility of changes to their business model.
How long until Laurentian completes the CCAA process?
That will depend on many factors that are not yet known, including how much work Laurentian has done in anticipation of the CCAA filing, how quickly it can devise a viable restructuring plan and build consensus with key stakeholders, including the faculty association, and then have it presented to all creditors for approval. Given the timing issues identified by Laurentian in its CCAA filing materials, including the academic calendar, the milestones requiring support of key stakeholders must be completed by April 30.
These are merely a sample of the numerous questions that you or your colleagues may have regarding Laurentian's status and the CCAA process.
While the CCAA process is a common tool used in the private sector (all the more during the COVID-19 pandemic), Laurentian's filing is a first for a Canadian publically funded University, and so, many more questions and issues will likely emerge.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.