Ontario university $91M bankrupt, creditors vote Sept. 14th

Original Published on Sep 06, 2022 at 01:10

By Mia Jensen, Local Journalism Initiative Reporter

For most post-secondary institutions, September marks the start of a new school year, the return of students to campus, the arrival of a new cohort eager to begin their academic pursuits.

But for Laurentian University, this September will mean far more than that.

One and a half years after first declaring insolvency, the university is now at a crossroads. On Sept. 14, Laurentian’s creditors will vote on whether to approve the proposed plan of arrangement, which could be the key that allows the university to emerge from beneath its mountains of debt.

But what is even in the plan? And what will happen to Laurentian if it doesn’t pass? Here’s a breakdown of Laurentian’s current predicament, and how the vote might play out for both the university and its creditors.  

What’s going on with Laurentian?

On Feb. 1, 2021, Laurentian University announced that it was insolvent and filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA).

It was the first time a public university had sought protection under the act, which provides a legal process designed for private sector bodies. In its original statement, Laurentian said that the decision was made to “allow for the opportunity to financially and operationally restructure.”

President and vice-chancellor Robert Hache said the financial difficulties were due to “recurring deficits, the demographic decline we’re seeing in Northern Ontario, the closing of the Barrie campus in 2019, the reduction and freezing of tuition fees for Canadian students that was imposed in 2019, and more recently, increasing costs and declining revenue due to the pandemic.”

According to court filings, Laurentian owes over $91 million in loans to three Canadian banks, and had liabilities amounting to $321 million.

Since then, the situation university has made drastic decisions. On April 12, 2021, a day now dubbed “Black Monday,” 58 undergraduate and 11 graduate programs were cut, and 116 full-time faculty, 41 union staff, and 37 non-union staff were terminated without warning.

Earlier this spring, Ontario Auditor General Bonnie Lysyk released a preliminary report on Laurentian’s financial operations, attributing the situation to poorly considered capital investments, including new buildings, rising senior administration costs, and overall poor management.

The report was also sharply critical of the university’s lack of transparency throughout the auditing process, and found that as of March 2022, $24 million in legal and financial consulting fees had been incurred throughout the insolvency process.

In July, Hache and Provost Marie-Josee Berger, two of the university’s most senior officials, announced that they would be stepping down from their positions when the university emerges from the CCAA process. The announcement followed months of criticism over their handling of finances throughout their years, and what many view as the unnecessary decision to file for creditor protection.

How can Laurentian emerge from insolvency?

A year and a half after initially declaring insolvency, the question remains: will Laurentian emerge from its insolvency?

Last month, Laurentian announced that it had “reached a significant milestone in its restructuring,” potentially putting the end of the process in sight.

On July 21, the university filed its “Plan of Arrangement” to the Ontario Superior Court, and on July 28, obtained a court order authorizing it to call a meeting of creditors to vote on the plan.

So what is a “plan of arrangement?” And what does it mean for Laurentian?

Typically, when an insolvent company is granted creditor protection by the court under the CCAA, they then are given time to prepare a plan of arrangement. This is a proposal, presented to the company’s creditors, that outlines how the company will pay back the debts they owe.

Creditors can include suppliers, financial institutions, bondholders, and even current and former staff owed wages, severance pay, and other compensation.

Anything goes in a plan of arrangement. Most plans, however, include offers to pay back a percentage on the dollar of the amount owed, exchange company shares for debt forgiveness, or some combination of the two.

Each class of creditor then votes on the plan. If a majority of creditors within a class approve the plan, it becomes binding for that class, and if all classes get majority approval, the plan goes to court for final approval.

If the court approves, the company moves forward as outlined in the plan and emerges from insolvency. If at any point the plan fails to gain approval, the creditor protector is lifted, putting the company back in hot water. 

What is Laurentian’s plan?

Laurentian’s creditors will vote on their plan on Sept. 14.

In a statement last month, the university said the plan “represents the culmination of more than 18 months of collaboration in the CCAA proceeding by Laurentian and its creditors, union leaders and key stakeholders, and brings the university much closer to emergence from CCAA protection.”

The purpose of Laurentian’s plan is to set out a roadmap for the university to follow going forward to ultimately deal with its debts, emerge from the insolvency process, and restructure in a way that would allow it to continue operating.

Here are the key features of the plan:

– To generate the money necessary to repay creditors, the Province of Ontario will purchase $45.5 million to $53.5 million worth of real estate currently owned by Laurentian.

– The money accrued from the sale of real estate will go into a distribution pool, which will be used to distribute payments to creditors with proven claims.

– Creditors with a CCAA Priority Claim, a Secured Claim, or a Vacation Pay Compensation Claim, will receive their payments first, and will be repaid the amount they’re owed in full.

– Once priority payments are made, the amount remaining in the distribution pool will be divvied up on a pro rata basis, to determine how much money will be repaid to creditors with affected claims. Affected creditors are expected to be repaid only 14.1 to 24.2 per cent of the money they are owed.

– The payment distribution process is expected to take up to four years.

Will it be approved?

Until the vote is cast, it can’t be said for sure whether the plan will be approved, but so far, many key parties are recommending a vote in favour.

On Aug. 16, the Laurentian University Faculty Association, Laurentian University Staff Union and Laurentian University Board of Governors sent out a joint press release supporting the plan, and recommending creditors vote in its favour to conclude the CCAA process.

“This Plan represents the best path forward for our members,” said faculty association vice-president Louis Durand. “It provides additional faculty input in governance, protects our members’ hard-earned pension plans, and secures the future of Laurentian University in Sudbury.”

Staff union president Tom Fenske added, “We believe that a vote in favour of the plan is in the best interest of our members. The plan represents a viable path forward for Laurentian university and all its stakeholders.”

Before this joint statement, the faculty association asked its members to withhold their votes while they continued negotiating, but said they ultimately wanted the plan to go ahead.

“We are working to get to a place where we can recommend that our members vote yes,” association president Fabrice Colin said in early August. “We hope that the university will not only survive, but thrive again. Faculty members have made enormous sacrifices through the mediation. We have been working to ensure that these sacrifices were enough to allow Laurentian to survive.”

The association ultimately signed onto the joint statement after successfully negotiating for changes they wanted, including prioritizing vacation pay compensation claims and ensuring the appointment of three new faculty positions.

But not everyone approves of the terms set out in the plan.

The Terminated Faculty Committee and the Tricultural Committee for University Education at Sudbury have become key voices recommending a vote against the plan.

The 14 to 24 per cent repayment rate has been a major point of contention, according to former Laurentian department chair Eduardo Galiano-Riveros, who represents the group. He said the low rate was a slap in the face to former faculty terminated without severance. 

“Our position is that the present plan of arrangement that Laurentian University administration and the province have put on the table is neither fair nor equitable to us,” he said. “They’re asking us to leave the remaining 80 per cent of the money owed to us.”

He added the low rates would affect not just the terminated faculty, but the hundreds of are small- and medium-sized local businesses who’d also be losing out on millions of dollars owed to them. 

“Many of them are based in Sudbury, mom-and-pop operations,” he said. “They’re out a lot of money. They’ve been hit by the pandemic and now this. It’s not just about the 111 faculty members; it’s a lot greater than us. We’re basically saying this is unacceptable. (Laurentian) needs to go back to the drawing board and come up with a more equitable, fairer plan.”

The Tricultural Committee for University Education at Sudbury echoed many of these concerns in a statement released on Aug. 22, outlining its opposition to the plan.

The organization said it “opposes Laurentian’s proposed Plan of Compromise and Arrangement because of its disregard for community losses and concerns, its divisive approach to Indigenous, Franco Ontarian, Anglophone educational needs, and its injustice to many community creditors.”

They also accused the university of fear-mongering as a tactic to encourage creditors to support the plan. 

“Taking advantage of the pandemic, they have practiced a ‘shock doctrine’ strategy, and peddled half-truths and deceit, such as that there was ‘no alternative to claiming insolvency,’ a claim that Ontario’s Auditor-General debunked,” they wrote. “They are simply not credible.”

What happens if it isn’t approved?

If creditors approve the plan, the next steps are simple. Laurentian will seek final approval from the court on Oct. 5, and if all conditions are fulfilled, the plan will be set in motion.

But if the plan isn’t approved, the path forward is less clear.

While Ernst and Young Inc.— Laurentian’s court-appointed monitor—declined to answer further questions about how a vote against would play out, they did offer some possible outcomes in a “Frequently Asked Questions” document circulated to creditors.

According to the document, the current plan is essentially Laurentian’s last line of defence. If the plan fails to gain approval, the monitor said Laurentian has no additional capacity to offer anything more to creditors.

“If Laurentian cannot obtain the necessary support of its Affected Creditors to the Plan, it will be unable to resolve and settle its substantial debts,” the document said. “As a result, it is expected that the university will cease operating and will commence a liquidation process which would include a sale of all assets including all buildings and real estate.”

If Laurentian does liquidate its assets, a small group of staff would be retained for a period to transfer students to other universities, and manage assets. All staff and faculty would be terminated, without termination or severance pay, due to “inadequate funds available.”

The monitor states in its document there would be no requirement or expectation for Laurentian to come back to the table with a better offer if creditors vote against the plan.

“The recovery offered to creditors under the Plan is only possible due to the financial assistance offered by the Province,” the document said. “That support is conditional upon a successful vote on the Plan. Laurentian does not have the resources to offer more to Affected Creditors than the Plan provides.”

It was this doomsday language that board of directors chair Jeff Bangs used in an opinion piece for published on Laurentian’s website last month.

“The ‘Vote no to get better deal’ message provides a false sense of hope that voting against the Plan of Arrangement is a risk-free bet,” he wrote. “It is not. If the vote is not successful, the most likely outcome will be a shift from a considerable amount of effort to save Laurentian, to a liquidation of the institution.”

But the Terminated Faculty Committee takes issue with this framing.

“The most likely outcome is that Laurentian administration and the province will simply be instructed by the courts to come up with a better plan,” said Galiano-Riveros. “We don’t think for a moment that the province will allow the university to go under.”

When reached for comment, the Ontario Ministry of Colleges and Universities did not answer questions about what the province would do if the plan wasn’t approved.

“The government will always ensure strong and sustainable postsecondary education in Northern Ontario,” spokesperson Tanya Blazina said in an emailed response. “The CCAA process is ongoing, and the ministry will continue to work with the institution to monitor the process as the university prepares its plan for sustainable operations.”

While there is no precedent for a university utilizing the CCAA process, there have been cases where insolvent companies have gone through multiple versions of a plan before it gained approval.

In 2021, Ontario cannabis company CannTrust amended its plan four times before receiving approval.

There is also precedent for the province bailing companies out. In their statement, the Tricultural Committee notes that the Ontario government given the university two bailouts to sustain itself during its financial crisis.  

While it’s unclear exactly how a vote against the plan would play out, it is possible that even if Laurentian ceases operation, a university would continue to operate in Sudbury.

“It is clear that the administration can no longer be trusted to handle its affairs,” said Galiano-Riveros. “I think it would be a breath of fresh air to bring in a new university to take over Laurentian and rebrand it.”

He added, “All trust has been lost. We have ended up with a broken shell of a university. It may be just what the doctor ordered for a different university to take over. Certainly, I would be in favour of that.”