Ravelston Corp. Ltd. (Re)

In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, and in the Matter of a Plan of Compromise or Arrangement of the Ravelston Corporation Limited and Ravekston Management Inc., and in the Matter of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, and the Courts of Justice Act, R.S.O. 1990, c. C.43 [Indexed as: Ravelston Corp. Ltd. (Re)]

85 O.R. (3d) 175

Court of Appeal for Ontario,

Doherty, Sharpe and Blair JJ.A.

March 1, 2007

Bankruptcy and insolvency -- Receivers -- Motion judge properly affirming reasonableness of receiver's recommendation that company plead guilty to charge of mail fraud in United States -- Receiver and motion judge not erring by basing decision on assessment of risk of conviction -- Receiver and motion judge not erring in their assessment of benefits of plea agreement.

The court-appointed receiver of R Ltd. recommended that the company enter a plea of guilty on a charge of mail fraud in the United States. The motion judge found that the recommendation was well within the bounds of reasonableness and granted the receiver's approval motion. The appellants (who formerly controlled R Ltd.) appealed. The respondents moved to quash the appeal on the grounds that leave to appeal was required.

Held, leave to appeal (if necessary) granted and the appeal should be dismissed. [page176]

The motion judge applied the appropriate standard when considering the receiver's recommendation. Substantial deference is owed to the decision of the motion judge. The receiver and the motion judge did not err by basing their decision on an assessment of the risk of conviction. On the contrary, that factor was central to any reasonable recommendation. The appellants' assertion that acquittal of the individual defendants would make R Ltd.'s acquittal "inevitable" was unsupported. It was clearly open to the receiver and the motion judge to reach the conclusion they did on the benefits of the plea agreement for R Ltd.

APPEAL from the order of Cumming J., 2007 CanLII 2663 (ON SC), [2007] O.J. No. 414, 29 C.B.R. (5th) 1 (S.C.J.), allowing a motion for approval of the receiver's recommendation.

Cases referred to Ravelston Corp. (Re), 2005 CanLII 63802 (ON CA), [2005] O.J. No. 5351, 24 C.B.R. (5th) 256 (C.A.)

Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 193 [as am.] Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, s. 13 [as am.]

Earl A. Cherniak, Q.C., for appellant Conrad Black. Peter Howard and Danielle Royal, for appellant Conrad Black Capital Corporation. Matthew Gottlieb and Elyse Korman, for respondent Hollinger Inc. Alexander MacFarlane, Daniel MacDonald and Max Mendelsohn, for respondent RSM Richter Inc. Robyn M. Ryan Bell, for respondent Sun-Times Media. David R. Wingfield and Paul D. Guy, for respondent Peter G. White Management Limited. David Moore, for respondent Catalyst Fund. No one appearing for respondent Argus Corporation.

[1] BY THE COURT: -- This appeal concerns the recommendation of the respondent, RSM Richter Inc. ("Richter"), the court-appointed receiver of The Ravelston Corporation Limited ("Ravelston"), that, pursuant to a plea agreement it negotiated with the United States Attorney's Office, Ravelston enter a plea of guilty on a charge of mail fraud in a United States District Court. The motion judge gave detailed and well-considered reasons finding, at para. 154, that the receiver's recommendation to enter the plea agreement was "well within the bounds of reasonableness" and granted the receiver's approval motion. The appellants, Conrad Black and his holding company that formerly controlled Ravelston, Conrad Black Capital Corporation, and Peter White, a former director of Ravelston, seek to appeal the order permitting Ravelston to plead guilty. [page177]

Motion to Quash

[2] The respondents move to quash this appeal on the ground that leave is required pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 193(e), or the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, s. 13. The appellants brought a cross motion for leave to appeal if necessary. In the circumstances, without deciding the motion to quash, we heard argument on the question of leave and the merits and these reasons should not be read as deciding the question of whether the appellants are entitled to an appeal as of right.

Standard of Review

[3] The motion judge applied the appropriate standard when considering Richter's recommendation: see Re Ravelston Corp., 2005 CanLII 63802 (ON CA), [2005] O.J. No. 5351, 24 C.B.R. (5th) 256 (C.A.), at para. 40: "If the receiver's decision is within the broad bounds of reasonableness, and if it proceeds fairly, having considered the interests of all stakeholders, the court will support the receiver's decision." It is well established that an appellate court owes substantial deference to the discretion of a commercial court judge charged with the responsibility of supervising insolvency and restructuring proceedings and that absent demonstrable error, it will not interfere.

Merits

[4] The appellants submit that the motion judge clearly erred by considering the risk of conviction and by failing to consider the possibility of the "acquittal contingency" in which all individual defendants are exonerated. The appellants further submit that the terms of the plea agreement fail to provide Ravelston with sufficient benefit to justify surrendering the possibility of an acquittal on all counts. For the following reasons we reject these submissions.

(a) Risk of conviction and possibility of acquittal

[5] The submission that the receiver and the motion judge erred by basing their decision on an assessment of the risk of conviction is entirely without merit. As a matter of logic, professional responsibility and judgment, the risk of conviction was the first factor to consider. Nor do we agree with the suggestion that the receiver failed to take adequate steps to obtain the necessary information to assess the risk of conviction. The receiver was entitled to enter plea negotiations with the prosecutor and this almost inevitably interfered with the commonality of interest Ravelston had shared with the other defendants. As for the [page178] "acquittal contingency", the appellants put forth nothing but conjecture and their faith in their ability to destroy Radler's credibility on cross-examination to challenge the receiver's assessment that Ravelston faces a substantial risk of conviction. Without knowing the theory of the defence of the individual defendants, we cannot accept the submission that acquittal of the individual defendants would make Ravelston's acquittal "inevitable" in the face of the guilty plea and the evidence of Radler, its President and Chief Operating Officer.

(b) Benefit of the plea agreement

(i) Cost of defence

[6] One of the principal benefits of the plea agreement is that Ravelston would avoid the costs of a defence in the criminal proceedings. We see no merit in the submission that the motion judge erred by rejecting the appellants' submission that the cost of a defence in the criminal proceedings could have been avoided without pleading guilty by adopting a "coat-tail" defence with the other defendants. This suggestion essentially ignores the separate identity and interests of Ravelston that both the receiver and the motion judge were required to consider.

(ii) Fine and restitution order

[7] It was clearly open to the motion judge to conclude that the plea agreement benefited Ravelston by essentially capping the fine and reducing its risk of exposure to a large restitution order, particularly in relation to the $26 million in potential liability arising out of the Can-West transaction. By pleading guilty to one count only and agreeing to the fine to be imposed, Ravelston substantially reduced its monetary exposure. With respect to the restitution order, while Ravelston remains legally exposed to a significant order, a guilty plea would potentially assist Ravelston when the sentencing judge exercises his or her discretion in fixing the quantum of the restitution order. The terms of the plea agreement explicitly preserve Ravelston's rights to argue that any fine and restitution order are not enforceable in Ontario.

(iii) Impact on civil proceedings

[8] While there may be some ambiguity in the terms of the plea agreement as to what facts Ravelston admits, we cannot say that the receiver's assessment that it significantly reduced Ravelston's risk of exposure to civil liability exceeded the bounds of reasonableness. This argument must be considered in the light of the [page179] receiver's assessment that Ravelston faced a substantial risk of conviction on all counts. In that scenario, Ravelston's position in the outstanding civil proceedings would be severely prejudiced. Even on the least favourable interpretation of the plea agreement, the guilty plea could not provide the basis for issue estoppel with respect to the Can-West transaction. Moreover, the appellants provided no evidence as to foreign law to support their contention that, for the purposes of issue estoppel, the plea agreement would be read more broadly than suggested by the receiver. In our view, it was clearly open to the motion judge to accept the receiver's assessment that a guilty plea to one count and an acquittal on all other counts under this plea agreement carried less risk of exposure to civil liability that a conviction on all counts.

[9] Assuming without deciding that the Richter was bound to consider White's personal exposure to liability as a director, the degree of his exposure is at most no more than that of Ravelston. We agree with the submission that the issue for the motion judge was whether it was better to plead guilty under this plea agreement or proceed to trial, not whether some better plea agreement could be imagined.

Conclusion

[10] We see no reason to interfere with the thorough and balanced decision of the motion judge. Accordingly, assuming that leave to appeal is required, we would grant leave to appeal but dismiss the appeal. The parties are at liberty to make brief written submissions as to the costs of the appeal, the respondents to file their submissions within ten days of the release of these reasons, and the appellants to file theirs within ten days thereafter.

Appeal dismissed.