LEXPERT MAGAZINE
|
JULY/AUGUST 2017 37
| ART OF THE DEAL |
enced insolvency practitioners in the coun-
try. ornton's practice, as he puts it, is
like working in an emergency room. "Stuff
comes in bleeding every day. And you try
to find a way to stop the bleeding and find
a solution."
He started in insolvency work about the
time the Companies' Creditors Arrange-
ment Act was, as he put it, "rediscovered." A
barebones statute passed during the Great
Depression, it was refined and became a
foundational tool in Canadian insolven-
cies and restructuring when it was used as
Dome Petroleum came close to bankrupt-
cy in 1987 before being acquired by Amoco
Canada for $5.5 billion.
ornton's job as monitor was to be
an independent voice and to try to keep
people from diverting the process from its
most efficient course. Court proceedings
were happening simultaneously at the On-
tario Superior Court of Justice in Toronto
and in the United States, in a Delaware
bankruptcy court.
e co-operative courts were connected
by video conferencing devices, and aer
motions were made, the Canadian and
United States judges oen retreated to pri-
vate rooms and conferred by phone about
motions and issues.
Largely, says ornton, few things had
to be litigated, mainly due to the diligent
work the lawyers for PSG, Sagard and Fair-
fax had done on both sides of the border.
"is was a pretty calm proceeding."
But, adds ornton, in Delaware, the
judge and lawyers weren't quite sure what
to make of his role. "Our American cous-
fax executive ever since. "What
I personally do before each deal,
and this really goes back to my
earliest days working on Fairfax
deals, is read the very last page of
Fairfax's Annual Report, which
has eight guiding principles in
it." ose principles, he says, also
apply and are well understood by
the Torys team. "Honesty and
integrity are key to all their rela-
tionships and will not be compro-
mised. ey are results-oriented.
ey are team players with no
egos. ey are hardworking, but
not at the expense of family. ey
encourage calculated risk taking
and never bet the company on
any one acquisition, and they believe in
having fun — even at work!"
"At the end of the day," continues Chai-
kof, "Fairfax stands for Fair, Friendly Ac-
quisitions. And really that is how they,
from their earliest days, proceeded on all
their acquisitions. ey have never walked
away from a deal once they have committed
to the transaction." Before every deal, he re-
views those principles with every member
of his team.
Working with Chaikof on the 11-mem-
ber Torys' team was David Bish, a Toronto
partner with expertise and cross-border
experience in advising clients facing bank-
ruptcy and insolvency matters.
Dealing with a company like PSG, em-
broiled in court-monitored bankruptcy
proceedings in two countries, was a delicate
process laced with potential land mines
that could have destroyed its value before it
was acquired. e question for Torys, says
Bish, as it worked on behalf of Fairfax, was
how to take a failing but valuable business,
transfer it to a purchaser, "and still have all
of that value at the end of the process that
you had at the beginning of the process. If
that's not properly structured and executed
... value can be eroded as the public learns of
the distress, as customers, buyers, etc., start
to change their behaviours."
Monitoring It All
Watching over the process as the lawyer
for EY, the court-appointed monitor on
the Canadian side of things, was Robert
ornton. A partner in ornton Grout
Finnigan LLP, he's one of the most experi-
ins try to figure out what a monitor is
and in what box they should fit it. But it
really is a different beast than any other
concept that's involved in American re-
structuring proceedings."
The Salad (and Stress) Days
As the fuse crackled towards default, the
Canadian and US courts heard from con-
cerned creditors, investors and PSG about
how it should restructure or sell itself.
Meanwhile the Sagard/Fairfax stalk-
ing horse bid did what it seemed cleverly
designed to do: it both attracted potential
bidders, just in case someone else might
offer more money for the company, and
at the same time repelled them. With its
US$575-million bid, not to mention a
$20.1-million break fee and $3.5-million
reimbursement owed to Sagard if a higher
bidder emerged, Sagard Holdings and Fair-
fax Firancial appeared determined to hang
on to Performance Sports Group.
In fact, in mid-November, a few weeks
aer Sagard and Fairfax announced their
stalking horse bid and their proposed auc-
tion process for PSG assets, scheduled to
run from January 4 to 9, 2017, an ad hoc
committee of shareholders filed a legal ob-
jection in the Delaware court. ey com-
plained that the short timeline through the
Christmas holiday season and the deal's
structure had the appearance of an "inside
job" that would undermine an auction pro-
cess "where a board favourite had the 'in-
side track' to winning."
e courts eventually extended the auc-
tion timing by two weeks, to January 25,
PHOTO:
SHUTTERSTOCK
