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The future of the Davie shipyards now hinges on a decision by a Quebec Superior Court judge Thursday morning. The ruling will determine whether the insolvent company can pull itself out of bankruptcy and qualify to bid for a share of multi-billion-dollar federal shipbuilding contracts.

The deadline for bidding on the contracts has been set at 2 p.m. ET Thursday, giving the parties little time to conclude the complexities of a major business transaction. Which explains why Justice Étienne Parent sat until 11:30 p.m. Wednesday as the drama unfolded over a last-minute transaction that was still being negotiated while the court was in session.

The deal involves the acquisition of Davie Yards Inc. by Ontario-based shipbuilder Upper Lakes Group Inc., which under a wholly-owned subsidiary would take full control of Davie's assets. If approved by the court, the agreement would pave the way for Upper Lakes Group, along with engineering firm SNC-Lavalin and South Korean shipbuilder Daewoo, to form a joint venture and seek recognition by Ottawa as a qualified bidder for the federal contracts.

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That would place the newly-owned Davie shipyard in competition with Irving Shipbuilding Inc. of Halifax and Washington Marine Group's Vancouver Shipyards in North Vancouver.

The federal government will eventually choose two shipyards to build navy warships, coast guard cutters and other vessels. One of the conditions was that bidders needed to prove their solvency by having in hand at least one large shipbuilding contract, which Davie shipyard would be able to meet if the deal with Upper Lakes Group is approved.

"Some have called this deal a miracle," said Louis Dumont, a lawyer representing SNC-Lavalin. "I can say that the bid (for the federal contracts) is ready. I don't know how we did it, but it's ready."

If Judge Parent approves the deal Thursday morning, the bid will immediately be sent to the federal Treasury Board.

It is expected the federal government will determine the consortium's eligibility to bid on the huge contracts by next week at the latest. If the consortium becomes an eligible bidder it will then be in the running to obtain an important portion of the $35-billion in contracts that include a fleet of defence, patrol and scientific research vessels as well as frigates and an icebreaker. The contracts, which extend over many years, are expected to be awarded in October.

However should the federal government refuse to consider the Upper Lakes Group consortium as an eligible bidder, the transaction to buy the Davie shipyards will be nullified, ending all hopes of reviving a company that has been on the brink of bankruptcy for several years.

The agreement with Upper Lakes Group was finalized during a week of intensive negotiations after Italian shipbuilder Fincantieri pulled out of talks last week aimed at acquiring the Davie shipyard.

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At stake are over a 1,000 shipyard jobs and almost as many in related contracts that would give a major boost to the city of Lévis where Davie is located, just across the Saint-Lawrence River from Quebec City.

The key to the deal involved the Quebec government's approval to give financial assistance to Upper Lakes Group in meeting financial obligations to creditors. The government's aid package was kept confidential but it may include writing off over $26-million in aid to the Davie shipyard.

Opposition to the deal was argued by lawyers representing Ocean Hotels who contend that they should have been consulted before the agreement was struck. Lawyers for Ocean Hotels argued that their client didn't receive fair treatment because a contract for repairs to two of the company's ships will never be completed even after forwarding tens of millions of dollars to Davie shipyards for the uncompleted work.

But the lawyer for Davie Yards, Martin Desrosiers, said the transaction represented the best possible deal for all parties including creditors, who will likely receive less than 3 per cent in dividends under the proposed agreement.

"This proposed transaction has major advantages and benefits," Mr. Desrosiers told the court. "This is the best chance we have to ensure Davie shipyards long term viability....Without it we face sure bankruptcy within only a few days."

While much of the attention has been focused on who will get the federal contracts, experts say the vast bulk of the work likely won't be done by the winning shipyard.

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There are two major contracts up for grabs, one for $25-billion to build about 20 large combat vessels for the navy, and a second for $8-billion to build the smaller vessels for the coast guard and supply ships. A further $2-billion will be spent on other small craft and repair contracts.

The federal government has been at pains to emphasize that the bidding process will be fair and has delegated the responsibility for assessing the bids to a committee of deputy ministers from across a range of government departments.

With a report from The Canadian Press

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