The year has started with a legal bang: the Ontario Court of Appeal’s blockbuster decision upholding the trial judgment in Livent v. Deloitte. That begs the immediate question of whether the accounting firm will this year seek to take the case to the Supreme Court of Canada. But that’s not the only thing Legal Post is looking for in 2016.
Will the Livent v. Deloitte saga continue?
Last week the Ontario Court of Appeal upheld a trial ruling that orders Deloitte pay $118 million in damages and interest to what’s left of Livent. The receiver in Livent sued Deloitte, claiming the auditing firm should have caught the frauds that ultimately resulted in the company’s 1998 filing for bankruptcy protection and the 2009 criminal convictions for the company’s founders Garth Drabinsky and Myron Gottlieb.
Deloitte has fought back, first defending itself at the trial and then arguing the appeal that resulted in last week’s decision. Deloitte says it’s still reviewing the Court of Appeal decision. But it would be little surprise if Deloitte seeks leave to appeal the case to the Supreme Court of Canada, and not just because of the dollars at stake.
Canadian case law says corporate auditors are liable only to the corporations that hire them, and not the company’s investors. The Deloitte case is quirky. Livent’s receiver is directing this case, so it technically is a situation of the company suing its auditors. That said, it’s the creditors who will ultimately benefit from a recovery.
If Deloitte obtains leave to appeal, it opens the door for the Supreme Court to reconsider the relationship between auditors and investors.
Court upholds $118-million award against negligent Livent auditor DeloitteHedge funds, money managers big buyers of SPACs, report shows
Will break fees come to private M&A?
Lawyers at Bennett Jones LLP in Calgary expect there to be a pick up in the number of proposed private M&A deals that come with break fees.
Break fees are payments that one side must pay the other if a deal doesn’t close. They’re a standard feature of proposed friendly deals involving publicly traded companies, but they’re quite rare in private deals.
Adam Scrivens and Bryan Haynes of Bennett Jones estimate that break fees appear in only two or three per cent of private M&A deals. They expect this to change because the volatile energy market is making deal makers more cautious. Bidders and target companies are therefore likely to insert more deal protection provisions in their agreements, they say. “We feel this number may go up based on the shifting economic circumstances brought on by the collapse in oil prices.”
To de-spac or to not de-spac
We learned a new word in 2015: SPAC, which stands for special purpose acquisition company. A SPAC raises funds on the stock exchange, then pledges to use the money to buy a business. We’ve seen several list on the Toronto Stock Exchange, and they’ve raised hundreds of millions of dollars.
The thing to watch for in 2016 is whether one of these funds identifies a potential purchase and takes it to the investors for approval. If SPACs are to become a lasting part of the Canadian capital markets landscape, the current crop of listed SPACs will need to prove they’re capable of “de-SPACing” themselves through a successful acquisition.
What will the Liberals do with some of the previous government’s unfinished works?
With its election victory in October, Canada’s new Liberal government has inherited quite a collection of initiatives from the Conservatives. It remains to be seen whether Justin Trudeau’s Liberal government will embrace these ideas as their own.
An obvious one is the ongoing development of the Cooperative Capital Markets Regulatory System. Some important tax changes await enactment, such as a proposal to tighten up the rules on inter-corporate dividends.
One thing to watch is what might happen at the Financial Consumer Agency of Canada. In 2014, the Supreme Court confirmed that provinces can regulate the consumer-facing aspects of bank activities. The previous federal government had been working on a consumer code that could have transformed the FCAC into a powerful consumer regulator. Whether the Liberal government picks up on that idea could be an indication of how much it expects to regulate the banking sector.