Question
From: (redacted)
Sent: Wednesday, May 28,20083:59 PM
To: Verne, B. Michael
Subject: 802.63question
Mike:
We represent acompany that is a bona fide creditor of company in financial distress. Ourclient and the other principal creditors are negotiating a debt workarrangement. The arrangement will be effected pursuant to the Companies'Creditors Arrangement Act of Canada (the "CCAA". Debtor has not yetpublicly announced its intention to file under the CCAA. In connection with thedebt workout, the creditors will assign their interests to a Newco in exchangefor voting securities/equity interests of Newco. The assignment will take placeafter the debtor-company publicly announces its filing under the CCAA. Newcowill exchange the debt it holds for the
assets of thedebtor company.
The question iswhether the exemption set out in Section 802.63 applies because the creditorsassign their rights to a new company after the debtor publicly announces itsintention to file under the CCAA. We believe that the exemption should applyassuming that only the preannouncement creditors hold equity of Newco becauseNewco is simply the vehicle that will used be used to accomplish the bona-fidedebt workout with the debtor's existing creditors. Newco is not a vulture fundattempting to acquire assets or control of a company after it has publicly announcedits intention to file for bankruptcy. We believe that in contrast to a vulturefund, Newco can be viewed as a creditor in a bona-fide credit transactionbecause it is simply the vehicle through a bona-fide debt workout is effected.
Please call me atyour convenience to discuss. Best regards,