Although presenting the court with a “dilemma,” two Ontario Superior Court of Justice judges say they allowed Laurentian University to sever ties with the federated universities operating on campus because the alternative was allowing LU to go bankrupt.
The judges have now released the detailed reasoning behind their rulings, which were released earlier this month.
Laurentian argued that given its insolvency, it cannot afford to continue to transfer around $7 million per year to the federated universities.
Thorneloe University, the University of Sudbury and Huntington University had all offered courses counting toward Laurentian degrees. But with the severing of ties to the federated universities, Laurentian plans to educate these students in-house.
Spring classes at all three federated universities have now been cancelled due to the situation.
Both Thorneloe and the University of Sudbury went to court late last month to fight Laurentian’s plans to terminate the federation agreement that goes back to the founding of the university more than 60 years ago.
The third federated university operating on campus, Huntington University, has a transition agreement with Laurentian, and did not fight the “disclaimer” of the federation agreement in court.
Chief Justice Geoffrey Morawetz, who heard the Thorneloe matter, and Justice Cory Gilmore, who heard the University of Sudbury’s case, issued endorsements of Laurentian’s plans May 2, promising detailed reasoning would follow. Those detailed endorsements came out May 7.
In his decision, Morawetz refers to Laurentian University’s debtor-in-possession (DIP) lender attaching a loan condition requiring the termination of LU’s relationship with the federated universities.
Laurentian needed a further $10-million loan from the DIP lender (on top of the $25 million it had already borrowed) to continue operating until Aug. 31. Morawetz said this presented the court with a “dilemma.”
“In addition, it seems to me that, in the circumstances of this case, it is necessary to consider the broader implication of disallowing the Notice of Disclaimer – namely the potential demise of Laurentian,” said Morawetz, in his decision.
“The dilemma facing the court is clear. If Thorneloe’s motion succeeds, with the result that the Disclaimer is not effective, it could lead to an unraveling of Laurentian’s restructuring plan and the collapse of Laurentian.
“This in turn would have significant impact on all faculty, students and the greater Sudbury community. It would also result in the financial collapse of Thorneloe. Obviously, this is not a desirable outcome.
“If the Notices of Disclaimer are upheld, I acknowledge that this could lead to the cessation of operations of Thorneloe. I do not lightly discount the impact on faculty, employees and students at Thorneloe, but the impact is significantly less than if Laurentian and Thorneloe are both forced to suspend or cease operations.
“Given these two undesirable options, the better choice or to put it another way, the least undesirable choice, is to uphold the Notices of Disclaimer.”
Justice Cory Gilmore made a similar statement in her detailed ruling.
“It is this Court’s view that a bankruptcy for LU must be avoided in keeping with the objectives of the CCAA,” Gilmore said.
“The bankruptcy for LU will displace students and faculty, and will have a detrimental effect on stakeholders, suppliers and service providers in the Sudbury community.
“Avoidance of a bankruptcy and all of its deleterious effects on LU and its community means, amongst other consequences, a dissolution of the Federation Agreements. Difficult decisions must sometimes be made with unpleasant consequences. This is one of those decisions.”
Morawetz also pointed out in his decision that the court-appointed monitor of Laurentian’s insolvency restructuring approved the “disclaimer” of the federation agreement.
He also agreed the severing of the federation agreement will “enhance the prospects of a viable compromise or arrangement being made in respect of Laurentian.”
Morawetz conceded the disclaimer of the agreement will have financial consequences for Thorneloe, “but this is not a sufficient reason to disallow the Notice of Disclaimer. Thorneloe was offered an alternative, similar to Huntington, which was not accepted.”
With respect to the University of Sudbury, Gilmore said it is “hard to understand” why the federated university was fighting the termination of the federation agreement.
She pointed out that the University of Sudbury announced in March of this year (prior to Laurentian’s announcement about its plans to terminate its agreement with the federated universities) that it plans to become a Francophone university.
“This is a laudable and important goal, which it is hoped that (the University of Sudbury) can achieve in the near future,” Gilmore said.
As such, the University of Sudbury had already “found itself incompatible with the current bilingual and tri-cultural mandate of the federated universities.”
“Finally, it would not benefit the Francophone community if LU is forced into bankruptcy,” Gilmore said, in her ruling.
“That would no doubt result in no educational offerings to the Francophone community at all. LU has made a firm commitment to continuing as a bilingual and tri-cultural institution. Indeed, much of its funding is tied to compliance with those goals.
“The current restructuring will ensure that the number of students currently enrolled in French courses (43 programs) is maintained.
“Previously, the majority of courses offered by (the University of Sudbury) were in English. Post Disclaimer, (the University of Sudbury) is free to re-invent itself as a Francophone university and without the constraints of the Federation Agreements.
“Indeed, providing such an option to the northern community would be desirable and would not be impeded by LU’s restructuring.”
Laurentian University announced Feb. 1 it is insolvent, and had filed for creditor protection under the Companies Creditors’ Arrangement Act (CCAA), a move that’s unprecedented in the post-secondary sector.
The university, which had $321.8 million in liabilities as of April 30, 2020, said it would have run out of cash to meet its payroll obligations by the end of February if it hadn’t secured a $25 million debtor-in-possession (DIP) loan through the insolvency process.
Under the auspices of the CCAA, Laurentian is undergoing court-supervised restructuring. That includes massive cuts to its programs and employees, which were made public April 12, as well as the termination of the federation agreement.
After securing another $10 million DIP loan and another four months’ of creditor protection, Laurentian is now in phase 2 of its restructuring, which will last until Aug. 31.
Phase 2 will include a review of its assets and real estate holdings to see if they can be monetized, as well as coming up with a plan to deal with its creditors.
Those creditors include Laurentian’s terminated employees, who have to join the creditors’ pool in an attempt to receive their severance.
