Maple Bank GmbH (Re), 2016 ONSC 7218

CITATION: Maple Bank GmbH (Re), 2016 ONSC 7218

COURT FILE NO.: CV-16-11290-00CL

DATE: 2016-11-18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IN THE MATTER OF MAPLE BANK GmbH

AND IN THE MATTER OF THE WINDING-UP AND RESTRUCTURING ACT, R.S.C. 1985, C.W-11, AS AMENDED

AND IN THE MATTER OF THE BANK ACT, S.C. 1991, C.46, AS AMENDED

BEFORE: Regional Senior Justice Geoffrey B. Morawetz

COUNSEL: Alex MacFarlane and Thomas Gertner, for KPMG Inc., in its capacity as the Liquidator of the Business in Canada of Maple bank GmbH and its Assets as defined under s. 618 of the Bank Act

Peter Hamilton and Maria Konyukhova, for the German Insolvency Administrator

Samantha Gordon, for the Bank of Montreal

HEARD: November 18, 2016

ENDORSEMENT

[1] KMPG Inc. (the “Liquidator”) brought this motion, on consent of the parties present, for an order (the “Approval and Vesting Order”) for:

(a) Approving a settlement (the “Settlement”) contemplated by a letter agreement dated October 31, 2016 (the “Settlement Agreement”) between the Liquidator and the Bank of Montreal (“BMO”), as appended to the Confidential Supplement to the Eighth Report of the Liquidator dated November 15, 2016 (the “Confidential Supplement”);

(b) Approving the sale transaction (the “Sale Transaction” and collectively with the Settlement the “Transactions”) contemplated by a letter agreement dated October 31, 2016 (the “Sale Agreement”) between the Liquidator and BMO, as appended to the Confidential Supplement and vesting in BMO, Maple Bank’s right, title and interest in and to the assets described in the Sale Agreement; and

(c) Sealing the Confidential Supplement until all remaining amounts owing by Maple Bank to any counterparty in connection with the early termination of any of Maple Bank’s derivative transactions in Canada have been settled and paid, unless otherwise ordered by the Court.

[2] The facts with respect to this motion are fully set out in the Eighth Report of the Liquidator dated November 15, 2016 (the “Eighth Report”) and the Confidential Supplement. The facts are also briefly outlined in the Factum submitted by counsel to the Liquidator. Accordingly, the facts are not repeated in this Endorsement.

[3] With respect to to the Settlement Agreement, the major terms are as follows:

(a) BMO will pay to the Liquidator the Final Payment (as defined in the Settlement Agreement) within 15 days of the date on which the conditions precedent to the settlement are satisfied or waived by the parties;

(b) BMO will retain the BMO Held Securities;

(c) Maple Bank will retain the Toronto Branch Held Securities;

(d) The Liquidator agrees not to disclose any Confidential Information (as defined in the agreement) subject to certain exclusions including:

i. If the Liquidator believes that such disclosure is necessary in order to discharge its duties, or as otherwise directed by the Court; or

ii. If required to be disclosed by applicable law to any governmental or regulatory authority;

(e) Mutual releases will be provided by BMO and Maple Bank in connection with the Repo Transactions, the early termination of the ISDA Transactions and the Master Agreement; and

(f) There is an outside date by which the conditions precedent are to be satisfied or waived by the parties failing which the Settlement Agreement automatically terminates.

[4] With respect to the Sale Agreement, the major terms are as follows:

(a) The effective date of the purchase is October 7, 2016;

(b) The purchase price includes reimbursement of principal and interest payments received by BMO under the Maple MBS since February 16, 2016;

(c) The purchase price is payable within fifteen days from the date upon which all of the conditions precedent have been satisfied or waived by the parties;

(d) The sale is on an “as is, where is” basis, with no representations and warranties other than the Liquidator confirming that all of the Maple MBS constituted withdrawn NHA MBS pursuant to the Maple Assets APS;

(e) The conditions precedent to closing include the Court granting an order approving the transaction and vesting in BMO all of the right, title and interest of Maple Bank, if any, in the Maple MBS free and clear of all encumbrances; and

(f) There is an outside date by which the conditions precedent must have been satisfied or waived by the parties failing which the transaction is automatically terminated.

[5] The Confidential Supplement consists of unredacted copies of the Settlement Agreement and the Sale Agreement. Counsel to the Liquidator requests a sealing order, in order to prevent the disclosure of commercially sensitive information that could be prejudicial to the interests of the Toronto Branch. The following information has been redacted in the copies of the Settlement Agreement and Sale Agreement included in the Liquidator’s Eighth Report:

(a) In respect of the Settlement Agreement:

i. the final payment amount;

ii. the outside date; and

iii. Schedules A, A-1 and B, which provide a detailed build-up of the final payment amount;

(b) In respect of the Sale Agreement:

i. the purchase price;

ii. the outside date; and

iii. schedule A, which provides details of the purchase price.

[6] Counsel submits that on account of the fact that the Liquidator is engaged in ongoing negotiations in respect of the valuation of certain other terminated ISDA transactions with another financial institution (the “Other FI”), it is necessary to have the Confidential Supplement sealed until the earlier of:

(a) All remaining amounts owing by Maple Bank to any counterparty in connection with the early termination of any of Maple Bank’s derivative transactions in Canada have been settled and paid; and

(b) Further order of the court on notice to the Liquidator.

[7] The issues to be determined are:

(a) Should the court approve the Settlement Agreement and vest the Maple MBS in BMO?

(b) Should the court approve the Sale Transaction?

(c) Should the court seal the Confidential Supplement to the Eighth Report?

Issue 1 - Should the court approve the Settlement Agreement?

[8] In assessing a settlement in the context of an insolvency proceeding, the following factors are considered:

(a) Whether the settlement is fair and reasonable;

(b) Whether it provides substantial benefits to other stakeholders; and

(c) Whether it is consistent with the purpose and spirit of the relevant insolvency legislation.

(See: Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest Corporation, 2013 ONSC 1078 Ont. S.C.J. [Commercial List]).

[9] Further, where the matter that is the subject of a settlement is complex, the court can also take into account the business judgment of a court officer involved in the negotiation of a settlement (See: Nortel Networks (Re), 2010 ONSC 1096 (Ont. S.C.J.) [Commercial List]).

[10] Having reviewed the Record and hearing submissions, I am satisfied that the Settlement Agreement is fair and reasonable in the circumstances. I accept that it has been designed to maximize value and avoid potentially costly and uncertain litigation. I am also satisfied that the Settlement Agreement provides substantial benefit to the Toronto Branch Estate. As noted, the GIA had consented to the Settlement Agreement. The GIA is essentially the most affected stakeholder with an economic interest in the Settlement Agreement. The Settlement Agreement is approved.

Issue 2 - Should the court approve the Sale Transaction and vest the Maple MBS in BMO?

[11] In considering whether it is appropriate to approve the sale of assets by a court-appointed officer, including in proceedings conducted under the WURA, the following factors outlined by the Ontario Court of Appeal in Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA), [1991] O.J. No. 1137 (C.A.) are considered:

(a) Whether sufficient effort has been made to obtain the best price and the applicant has not acted improvidently;

(b) The interests of all parties;

(c) The efficacy and integrity of the process by which offers were obtained; and

(d) Whether there has been unfairness in the process.

(collectively, the “Soundair Principles”).

[12] I am satisfied that it is appropriate to approve the Sale Transaction. In arriving at this conclusion, I have taken into account that the assets were marketed as part of a marketing process approved by the court to arrange for potential purchasers and that the assets have been on sale for over six months. I have also noted that the Liquidator is of the view, based on the realizations it generated on the sale of other assets approved by the court, during these WURA proceedings that the Sale Agreement is commercially reasonable in the circumstances and is in the best interests of the Toronto Branch Estate. Again, the GIA has consented to the Sale Transaction and the GIA is effectively the only stakeholder with an economic interest in the Sale Transaction.

Issue 3 - Should the court seal the Confidential Supplement to the Eighth Report?

[13] The test for determining whether a sealing order should be granted is set out in Sierra Club v. Canada (Minister of Finance), 2002 SCC 41, [2002] S.C.J. No. 42 (S.C.C.). The test is as follows:

A confidentiality order under Rule 151 should only be granted when:

(a) Such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and

(b) The salutary effects of the confidentiality order, including the effects on the right of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which, in this context, includes the public interest in open and accessible court proceedings.

[14] I am satisfied that the documents in question are commercially sensitive and that the disclosure of any or all of this commercially sensitive information would be harmful to the Toronto Branch, as it would prejudice the ability of the Liquidator to resolve a similar outstanding ISDA dispute with the Other FI emanating from the form of the 1992 Master Agreement. It is noted that the Liquidator submits that sealing the Confidential Supplement will not have any deleterious effects on any parties with an interest in these proceedings. I accept this submission.

[15] Having considered the foregoing, I am satisfied that it is appropriate to grant an order sealing the Confidential Supplement.

[16] In the result, the motion is granted and the requested Approval and Vesting Order has been signed in the form submitted.

Regional Senior Justice G.B. Morawetz

Date: November 18, 2016