On May 16, 2003, Justice Daniel Tingley of the Québec Superior Court, sanctioned and approved the consolidated plan of arrangement filed on behalf of Uniforêt Inc., Uniforêt scierie pâte Inc. and Foresterie Port-Cartier Inc.
The plan of arrangement provided for seven classes of creditors, including a class of all senior noteholders issued under the same U.S. indenture. A group of six noteholders was successful at first in temporarily suspending the meeting of creditors, while contesting the composition of that class of creditors or the right to vote within that class of Jolina Capital Inc., on the basis that there was no commonality of interest among the creditors and that Jolina was in a conflict of interest because of its status as a “controlling” shareholder, with conflicting interests.
By judgment, rendered on October 23, 2002, Justice Dionysia Zerbisias of the Québec Superior Court upheld the classification proposed by the debtors, maintained Jolina Capital’s right to vote and ordered that the meeting of creditors for the class 2 creditors, which was suspended, to be held. Leave to appeal was refused by Justice Joseph Nuss of the Québec Court of Appeal.
The same group of noteholders also contested the sanction and approval of the plan of arrangement claiming that it was unfair, oppressive and confiscatory. The plan was approved by a majority of the creditors. These opposing noteholders suggested that the court should instead authorize a formal sale and marketing process and, failing a sale of the assets at their fair market value under such a court-authorized process, the court should make substantial changes to the plan of arrangement to provide additional equity in favour of the senior noteholders.
The court held that a sale and marketing process would entail important risks, and that the chances of obtaining significant additional recoveries for the creditors. The court also concluded that the plan of arrangement was fair and reasonable and offered an adequate share of the equity in favour of the senior noteholders through a debt to equity conversion mechanism representing a possible 55 per cent dilution of existing shareholders.
Uniforêt was represented by Ogilvy Renault, with a team that included Louis Gouin, Sylvain Rigaud and Bernard Quinn. The court appointed monitor, Richter & Associés Inc., was represented by Denis Ferland and Philippe Buist of Davies Ward Phillips & Vineberg LLP. Jolina Capital was represented by C. Jean Fontaine and Simon Richard of Stikeman Elliott LLP. The opposing noteholders were represented by George Hendy, Martin Desrosiers and David Tardif-Latourelle of Osler, Hoskin & Harcourt LLP.