Court File and Parties
COURT FILE NO.: CV-14-10518-00CL DATE: 2015-12-23 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36 AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF 1511419 ONTARIO INC., FORMERLY KNOWN AS THE CASH STORE FINANCIAL SERVICES, 1545688 ALBERTA INC., FORMERLY KNOWN AS THE CASH STORE INC., 986301 ALBERTA INC., FORMERLY KNOWN AS TCS CASH STORE INC., 1152919 ALBERTA INC., FORMERLY KNOWN AS INSTALOANS INC., 7252331 CANADA INC., 5515433 MANITOBA INC., 1693926 ALBERTA LTD. doing business as “THE TITLE STORE”
BEFORE: Regional Senior Justice G. B. Morawetz
COUNSEL: Jonathan Foreman and Lindsay Merrifield, for the Ontario Consumers Class Action James Harnum, Agent to Harrison Pensa David Mann and Robert Kennedy, for DirectCash in CCAA Proceedings Eric R. Hoaken, for DirectCash in Class Action Proceedings Peter Griffin and Matthew Lerner, for Gordon Reykdal Jeff Galway, for N. Bland Mark Polley and Eric Brousseau, for National Money Mart Company Andrew Faith and Jeff Haylock, for 1573568 Alberta Ltd. Geoff R. Hall and Stephen Fulton, for the Monitor (FTI Consulting Canada Inc.) Patrick Riesterer, for the Chief Restructuring Officer of the Applicants Michael Byers, for Craig Warnock Serge Khallughlian and Charles Wright, for the Ad Hoc Committee of Purchasers of Applicants’ Securities, including the Plaintiff in the Ontario Securities Class Actions Mary Margaret Fox, for ACE Insurance Company Doug McInnis, for Axis Reinsurance Company Brendan O’Neill and Carolyn Descours, for the Ad Hoc Committee of Noteholders Rebecca Wise, for Albert Mondor, Michael Shaw, Ron Chicoyne, William Dunn and Robert Gibson Ilan Ishai, for the McCann Entities David Hoffner, U.S. Counsel for the Monitor in Chapter 15 Proceedings
HEARD and ENDORSED: November 19, 2015 REASONS: December 23, 2015
ENDORSEMENT
settlement and plan of allocation
[1] On November 19, 2015, the record was endorsed as follows:
“The Settlement is approved. Allocation issues adjourned on terms set out on the typed attachment. Order signed. Reasons will follow”.
[2] These are the reasons.
[3] The terms of the adjournment are:
- The motion to approve the Plan of Allocation in the Fortier class action is adjourned with an endorsement on consent to the effect that:
“Despite the approval of the Plan of Arrangement and Settlement Agreement at Schedule “C”, and despite sections 4.2(e) and 4.4(a) and any other section or schedule of the Plan of Arrangement, the Plan of Allocation at Schedule “D” and any allocation in accordance with it is not approved and the motion for approval of the Plan of Allocation is adjourned to a date to be determined at a case conference before Morawetz R.S.J.”
The case conference shall be heard at the earliest possible date.
The purpose of the case conference shall be to determine the form and substance of the adjourned motion for approval of the Plan of Allocation, and the schedule of any steps pursuant to that motion.
No further steps in the motion for approval of the Plan of Allocation shall be taken by any party until a schedule is established at a case conference before Morawetz R.S.J.
There shall be a standstill of any proceeding of Cash Store against any of the group of clients until the hearing of the motion for approval of the Plan of Allocation.
For greater certainty, nothing in this order shall prohibit any person from filing claims for compensation from the D&O/Insurer Securities Class Action Settlement Amount (as defined in the Plan) or RicePoint Administration Inc. from receiving and processing claims before the motion for approval of the Plan of Allocation, provided that no determination of any class member’s entitlement to distribution shall be made, and no distribution shall be made, until the issue of the Plan of Allocation is determined by the Court.
[4] The Ad Hoc Committee of Purchasers of the Applicants Securities, including the Plaintiff in the Ontario Securities Class Action (“Securities Plaintiffs”) move for an order approving:
a. The Settlement between the Plaintiffs and Defendants in the Securities Class Actions (“Securities Settlement”) as reflected in the Settlement Agreement; and
b. The proposed plan for allocating and distributing the proceeds of the Settlement Agreement payable to the Securities Class Members (“Plan of Allocation”).
[5] As noted, the portion of the motion relating to the Plan of Allocation has been adjourned.
[6] The Plaintiffs in the Securities Class Actions allege, among other things, that 1511419 Ontario Inc., formerly known as The Cash Store Financial Services Inc. (“Cash Store”), Nancy Bland, Gordon J. Reykdal, Craig Wornock, J. Albert Mondor, Ron Chicoyne and Michael M. Shaw (collectively, “Defendants”) made false and misleading statements regarding Cash Store’s financial results, assets, business structure and transactions, which caused Cash Store’s securities to trade at artificially inflated prices.
[7] Under the terms of the Settlement Agreement, the Defendants have agreed to pay $13,779,167 in settlement of the Securities Class Actions.
[8] Counsel to the Securities Plaintiffs submit that the Securities Settlement is the product of hard-fought and protracted negotiations which were conducted by counsel having extensive experience in securities class actions in both Canada and the United States.
[9] Counsel further submits that the Securities Settlement is fair, reasonable, and in the best interests of the Securities Class Members. In particular:
a. The Securities Settlement is the product of arms-length negotiations over the course of two formal mediations before The Honourable George Adams;
b. The Securities Settlement represents a substantial recovery for the Securities Class Members; and
c. There are a number of legal impediments to recovery from the Defendants, which weigh in favour of the Securities Settlement.
[10] The factual background to the Securities Class Actions is summarized in the comprehensive factum submitted by counsel to the Securities Plaintiffs. The factual summary was not challenged and the motion for approval was not opposed.
[11] It is also noted that Notice of the D&O/Insurer Global Settlement Agreement has been delivered to the Securities Class Members in accordance with the Notice and Representation Order. Representative Counsel has received no objections regarding the quantum of the Settlement amount for the approval of Securities Settlement as a whole.
[12] The key terms of the Securities Settlement are as follows:
a. The Securities Class Action Settlement Amount of Cdn. $13,779,167 shall be allocated to the Securities Class Members, with Cdn. $4,875,000 assigned to Shareholder Class Members and Cdn. $8,904,167 assigned to Noteholder Class Members.
b. The Securities Class Action Settlement amount shall be distributed pursuant to a Plan of Allocation to be approved by the Court. No portion of the Securities Class Action Settlement shall revert back to the Defendants, regardless of the quantity of claims filed or amount of funds remaining after all eligible claimants have been paid pursuant to Plan of Allocation.
c. In consideration of the Securities Class Action Settlement amount, the Defendants shall receive a Full and Final Release in respect of all Securities Class Actions claims against them.
[13] The issue is whether the Settlement Agreement should be approved.
[14] In assessing a settlement within the CCAA context, the court looks at three factors:
a. Whether the settlement is fair and reasonable;
b. Whether it provides substantial benefit to other stakeholders; and
c. Whether it is consistent with the purpose and spirit of the CCAA.
(See: Labourers Pension Fund of Central and Eastern Canada v. Sino-Forest Corp., 2013 ONSC 1078).
[15] Further, where a settlement also provides for a release, courts assess whether there is “a reasonable connection between the third party claim being compromised in the Plan and the restructuring achieved by the Plan to warrant inclusion of the third party release in the Plan.” Applying this “Nexus” test requires consideration of the following factors:
a. Are the claims to be released rationally related to the purpose of the Plan?
b. Are the claims to be released necessary for the Plan of Arrangement?
c. Are the parties who have claims released against them contributing in a tangible and realistic way?
d. Will the Plan benefit the debtor and the creditors generally?
(See: Labourers Pension Fund of Central and Eastern Canada, supra at para. 50 and Metcalfe & Mansfield Alternative Investments II Corp., (Re) 2008 ONCA 587)
[16] The test for whether a class action settlement ought to be approved is similar to the test for approval of a settlement under the CCAA.
[17] Counsel submits that to approve a class action settlement, the test is whether “in all the circumstances, the settlement is fair, reasonable, and in the best interest of those affected by it” (See: Dabbs v. SunLife Assurance Co. of Canada, (1998) O.J. No. 1598). Counsel submits that the class action cases have established the following additional principles are relevant on the settlement approval motion:
a. The resolution of complex litigation through the compromise of claims is encouraged by the court and favoured by public policy;
b. There is a strong initial presumption of fairness when a proposed settlement, which was negotiated at arms-length by counsel for the class, is presented for court approval;
c. To reject the terms of a settlement and require the litigation to continue, a court must conclude that the settlement does not fall within a range of reasonableness;
d. A court must be assured that the settlement secures appropriate consideration for the class in return for the surrender of litigation rights against the defendants; and
e. It is not the court’s function to substitute its judgment for that of the parties or to attempt to renegotiate a proposed settlement.
[18] In this case, the Settlement Agreement provides for a total payment of Cdn. $13,779,167 in settlement of all claims against the Defendants in relation to the Securities Class Actions.
[19] Having reviewed the record and hearing submissions, I am satisfied that the Securities Settlement is fair and reasonable under all of the circumstances and provides substantial benefit to other stakeholders.
[20] Further, I am satisfied that the Release of the Defendants is also fair and reasonable in the circumstances and that the Release is “justified as part of the compromise or arrangement between the debtors and its creditors... . The facts were not challenged. I am satisfied that there is a reasonable connection between the third party claim being compromised in the Plan the restructuring achieved by the Plan.” (See: ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp., Supra). Further, in order to effect any distribution, the Defendants’ Release must be approved as part of the Settlement Agreement.
[21] The Settlement Agreement is approved and the order to give effect to the foregoing has been signed.
Regional Senior Justice Morawetz
Date: December 23, 2015