Financial documents belonging to Castor Holdings Ltd. are seen in a file photo.Shaun Best
A 23-year legal saga is close to conclusion after creditors voted this month to approve a settlement in long-running Castor Holdings Ltd. lawsuits, resolving negligence claims that have languished in court for decades.
Castor's lenders have agreed to accept total payments topping $240-million to settle legal claims totalling $1.6-billion against audit firm Coopers & Lybrand. The deal would see $74.5-million of the total paid personally by former partners of the accounting firm, while the remainder will come from money remaining in the company as well as insurers and other parties.
The payments will settle claims that Coopers & Lybrand was negligent in its audit of Castor Holdings, a Montreal real estate lender that collapsed in 1992, spurring dozens of lawsuits that have remained unresolved. Castor, which provided high-yield mortgage loans to developers, was accused of overstating its revenue and its loan portfolio in financial statements.
Coopers & Lybrand merged with Price Waterhouse in 1998 after the Castor Holdings case was under way, but a separate company was retained to hold assets and manage the litigation.
According to a report by Castor's court-appointed monitor, 73 per cent of lenders, who represent 77 per cent of the total $1.6-billion claimed by the lending group, voted in favour of the proposed settlement plan at a meeting on July 7. All of Castor's general creditors, owed $12.3-million, also voted in favour of the plan.
Justice Frank Newbould of Ontario Superior Court sanctioned the deal in a ruling on July 15, which should allow payouts to begin in August. The settlement will apply to all creditors, even if they voted against the deal.
Following years of expensive litigation, the main parties – including a group of Canadian and German banks – agreed late last year to try to negotiate a settlement to resolve the case before all remaining funds were lost to lawyers' bills and court costs.
Coopers & Lybrand partner Michael Macey told the court in December that the litigation has been "calamitous" for everyone involved. He said 275 partners of the audit firm were facing financial ruin and possible bankruptcy from the outstanding claims, even though many had nothing to do with the Castor audit.
FCA Canada Inc. (Chrysler), whose pension plan was a large investor in Castor , initially opposed the settlement plan, saying it was inappropriate to settle the case using Canada's bankruptcy protection legislation to shield the former audit partners.
However, the auto maker reached a deal with the group in April, agreeing to join the other creditors in supporting the settlement. As part of the deal, the Coopers group agreed to sweeten the total payout pot by an additional $5.7-million.
Alex Morrison, senior vice-president of Ernst & Young Inc., the court-appointed monitor , said the proposed settlement under the Companies' Creditors Arrangement Act (CCAA) is the best possible solution.
If the plan was not approved, the remaining Coopers & Lybrand assets would be "substantially reduced" through continued court litigation, and potential contributions from individual audit partners would be reduced as they age, Mr. Morrison said in a report filed in court last week.
"The monitor is of the view that the CCAA plan is fair and reasonable," he said. "Among other things, the CCAA plan is the product of and reflects the extensive discussions and negotiations that resulted in the term sheet and the support agreement."
The RCMP issued an arrest warrant for Castor founder Wolfgang Stolzenberg in 2012, alleging that he committed fraud and conspiracy when he raised funds from investors in the company. He is believed to be living in Germany, which does not allow the extradition of its citizens.
Janet McFarland