YLO: CBCA, For Now

Tim Kiladze of the Globe and Mail reports:

Yellow Media’s hopes of amending its restructuring proposal have been smacked down by a Quebec court just days before the company faces a vote on its much-criticized plan.

Early last week, Yellow Media put together a conference call to threaten that it would seek creditor protection in order to reduce almost $2-billion of debt should stakeholders vote against its current restructuring proposal. Those efforts were shot down just a few days later by judge Robert Mongeon, who delivered his ruling just a few hours before the long weekend started.

The sequence of events is a bit tricky to follow, but the gist of the story is that Yellow Media’s restructuring proposal has been filed under the Canada Business Corporations Act (CBCA). Last week, Yellow Media chief executive officer Marc Tellier tried to complicate the matter by amending the current resolution to implement the plan through the Companies’ Creditors Arrangement Act (CCAA) if the current effort “appears for any reason impracticable.”

Judge Mongeon didn’t let that language influence him. “I am of the view that the proposed amendment should not be part of the process currently envisaged under the CBCA inasmuch as it deals only with another proceeding under a different statute and which is, at this time, purely hypothetical.”

He explained his reasoning in detail. First, the judge noted that even Yellow Media admits that the proposed amendment isn’t necessary to pursue arrangement currently up for debate under the CBCA. Second, the CBCA and CCAA have different tests of admissability and different procedures, so having one proposal technically apply to both would be very tricky.

I am, of course, not a lawyer, but it’s my understanding that the CBCA is for solvent companies and the CCCA is for insolvent ones. Different admissabilities indeed!

I have previously recommended that preferred shareholders should vote against the plan:

YLO has four series of preferred shares outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D. I recommend that preferred shareholders vote against the plan, on the grounds that they are being treated as if they have all be forcibly converted into common at the YLO.PR.A / YLO.PR.B rates prior to the conversion of the old common into new securities. That’s reasonable for YLO.PR.A and YLO.PR.B, but not so much for YLO.PR.C and YLO.PR.D, which are not convertible by the company. And, even for the A & B holders – you’re not getting paid to vote yes, so why give it away? If the company wants a yes vote from you, they should provide a little sweetener; the offer that’s on the table is already a worst-case scenario.

2 Responses to “YLO: CBCA, For Now”

  1. like_to_retire says:

    The Board of Directors of Yellow Media has decided to amend the plan of arrangement pursuant to Section 6.3 thereof so that the Company’s existing convertible unsecured subordinated debentures will be exchanged, as part of the recapitalization, for an increased number of existing common shares, on the basis of 50 shares, up from 12.5 shares, for each $100 principal amount of existing subordinated debentures.


  2. Drew says:

    Your point about the arrangement provisions being available only to solvent companies (which is in fact a requirement stipulated by the CBCA) is interesting in light of YLO’s threat to proceed under the CCAA if the arrangement is not approved: if YLO is solvent enough to proceed under the CBCA, how can YLO credibly assert that the situation is so dire that if the arrangement is not approved it will proceed under the CCAA, legislation designed for insolvent companies?

    I don’t know whether the CCAA is by its terms only available to insolvent companies, but if it is, the problem of credibility becomes a problem of lawfulness: if they’re eligible for the CBCA arrangement provisions they’re not for the CCAA, and vice versa. Interesting stuff that might come back to haunt YLO.

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