Friday, July 20, 2001
Published in Magazine:
Monday, October 01, 2001
On July 20, 2001, Mr. Justice Tysoe of the British Columbia Supreme Court confirmed the initial order which he made in the proceedings commenced by 360networks inc. and its related Canadian subsidiaries (plus one US subsidiary) under the Companies’ Creditors Arrangement Act on June 28, 2001 and extended the stay of proceedings granted in their favour until December 31, 2001. The CCAA filing by 360networks is the first stage in the restructuring process of this Canadian global enterprise which was only incorporated in 1998. In the process of building a world-wide fibre-optic network, 360networks encountered a cash crisis when the problems currently endemic to the telecommunications industry eliminated its traditional sources of financing earlier this year. This resulted in a missed installment payment on US$1.4 billion of unsecured bondholder obligations, which in turn precipitated the insolvency filing.
The 360networks group has more than US$3 billion of debt in North America and comprises more than 90 companies situated in 33 different jurisdictions. Despite recent staffing reductions, the group still has more than 1,000 employees, the majority of which are employed in Canada. The attempted restructuring involves not only the Canadian CCAA proceedings based in Vancouver, but also parallel restructuring proceedings under Chapter 11 of the US Bankruptcy Code commenced in the New York Bankruptcy Court, administration proceedings in the UK and liquidation proceedings in several other jurisdictions in Europe. At the initiation of the proceeding in Canada on June 28, 2001, Mr. Justice Tysoe approved a protocol dealing with the coordination of the Canadian and US proceedings which is expected to be approved by the US Bankruptcy Court shortly.
Insolvency counsel for 360networks in Canada is Fasken Martineau DuMoulin LLP, with a team led by Michael Fitch, Q.C. and John Grieve and the in-house team at 360networks under the direction of general counsel, Catherine McEachern. US counsel for 360networks is Alan Lipkin of Willkie Farr & Gallagher in New York, and European counsel is Ken Baird of Freshfields Bruckhaus Deringer.
The application on July 20 was attended by many lawyers from BC, Alberta and elsewhere, including New York counsel to the US Creditors’ Committee. Recognizing that there are limited restructuring mechanisms available outside of North America, 360networks confirmed to the court that its restructuring efforts are now primarily focused on consolidating the company’s North American footprint, with an expectation that other assets outside of North America will likely need to be liquidated as part of the restructuring. The arguments in court focused on the potential issues that will arise as the restructuring proceeds in relation to possible terminations of executory contracts and the implications this could have on the various entities who have entered into the myriad of contractual arrangements that support the fibre-optic network. In that regard, the court directed that 360networks give at least 30 days’ notice of such intended terminations so that affected parties could seek to extend the notice period or prevent the terminations on appropriate grounds. The court also directed that any contracts subject to the US Bankruptcy Court’s jurisdiction (such as contracts involving cross-border network facilities) would require joint orders from both the Canadian and US courts before terminations could be implemented.
William Kaplan, Q.C., Kevin McElcheran and Michael Harquail of Blake, Cassels & Graydon LLP are Canadian counsel for 360networks’ secured lenders (who are owed $1.2 billion). New York counsel for the secured lenders is Harold Novikoff of Wachtell, Lipton, Rosen & Katz. The Monitor, PricewaterhouseCoopers, is represented by Clive Bird of Borden Ladner Gervais LLP. Other key creditors include Shaw Communications Inc. (Doug Knowles, Q.C. of Fraser Milner Casgrain LLP), TELUS (Frank Dearlove and Chris Simard of Bennett Jones LLP), Canadian National (Philippe Bélanger of McCarthy Tétrault LLP’s Montreal office and R. Barry Fraser of the Vancouver office), Canadian Pacific (Kelly Doyle of Lawson Lundell) and Enron Broadband Services, Inc. (William Skelly of Heenan Blaikie).