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Mobilicity has been granted more time to restructure its business and sell assets by an Ontario court.

Kevin Van Paassen/The Globe and Mail

An Ontario court is giving struggling wireless carrier Mobilicity more time to restructure its business and complete a potential sale to Telus Corp.

Justice Frank Newbould of the Ontario Superior Court of Justice signed an order Thursday extending the "stay period" during which Mobilicity is shielded from any new or existing legal actions until Dec. 20.

That grace period had been set to expire Oct. 30, but the small carrier wanted additional time to secure the federal government's approval for a proposed sale. Although Mobilicity has declined to identify its potential buyer, sources say it is in talks with Telus to rekindle a sale that Ottawa rejected in June.

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Separately, it was revealed Thursday that Mobilicity's president and chief operating officer Stewart Lyons is preparing to leave the company at the end of this month.

By extending the stay period until late December, Mobilicity is also edging closer to the expiration of a federal ban on transferring its spectrum licences to an incumbent like Telus. That standstill period ends in February.

Telus's original $380-million offer to buy Mobilicity was quashed because of that prohibition. Telus, however, is now lobbying Ottawa to ease the "regulations on the purchase of existing Canadian wireless companies," according to an update in the federal lobbyist registry.

On Wednesday, Telus secured Ottawa's blessing to acquire another struggling new entrant carrier, Public Mobile, for an undisclosed amount. Public Mobile, though, never faced any restrictions on selling its spectrum because the type it purchased is considered less valuable.

Mobilicity paid $243.1-million for licences reserved for new entrants during the 2008 spectrum auction. In contrast, Public Mobile paid $52.38-million for licences subject to open bidding.

Mobilicity's lawyer Orestes Pasparakis told the court on Thursday the company held talks with Industry Canada on the proposed sale transaction as late as Wednesday.

"Those discussions are continuing," Mr. Pasparakis said. "They are very active and very dynamic."

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Mobilicity, which is legally known as Data & Audio-Visual Enterprises Holdings Inc., was first granted protection under the Companies' Creditors Arrangement Act at the end of September.

At the same time, the court approved a $30-million debtor-in-possession financing from some of Mobilicity's existing noteholders in a bid to keep it operational until spring 2014.

"The company is focused on financial stability and conserving cash," added Mr. Pasparakis, adding Mobilicity does not expect to draw on the DIP until December.

That is because Mobilicity is making better-than-expected progress on both its cash flow and customer retention, he said.

According to a monitor's report filed by Ernst & Young Inc., Mobilicity will have receipts totalling about $20.3-million and disbursements of roughly $25.7-million for the period spanning Oct. 12, 2013 to Jan. 10, 2014.

The company's cash position on Oct. 12 was estimated to be $7.4-million. By Dec. 6, that balance is expected to fall below $2-million, according to the report.

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As of Sept. 30, the company had 189,239 active subscribers, down from 235,980 on Dec. 31, 2012. Still, during that period, declines have occurred at a "relatively consistent rate" of about 5,200 a month, added the report.

Mobilicity's revenue for the third quarter of 2013 totalled $18.9-million, according to other court filings. Meanwhile, its operating loss was $8.2-million and its loss for the period was $24.6-million.

Ernst & Young also disclosed Thursday that Mr. Lyons would leave his role as president on Oct. 31. He will be replaced on an interim basis by chief customer officer Anthony Booth.

"I'm proud of the team at Mobilicity and what we accomplished but it's time for me to move on to another opportunity. I wish Mobilicity nothing but success as the company goes through this process," Mr. Lyons said in an e-mailed statement.

Also Thursday, private equity firm Catalyst Capital Group Inc., which is a major bondholder for Mobilicity, asked Justice Newbould to adjourn a separate motion to challenge the carrier's $30-million DIP financing (which was provided by other noteholders).

As part of that motion, Catalyst had also been seeking a court order to create a creditors committee to ensure "fair and even treatment" of all Mobilicity noteholders.

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Catalyst has previously said it offered to provide Mobilicity with a superior DIP loan – a claim that was contested by the company's chief restructuring officer in court documents.

But the court heard that Catalyst agreed late Wednesday to request an adjournment of its motion. Even so, the private equity firm is reserving the right to pursue it at a later date.

Catalyst has been engaged in legal wrangling with Mobilicity since earlier this year and tensions were evident in court on Thursday.

"It is a little bit like the boy who cried wolf," Mr. Pasparakis told the court in reference to Catalyst's now-adjourned motion.

Catalyst's lawyer David Cameron Moore said his clients simply determined that after "six months of fighting" that it would be more sensible to forgo this particular fight at this time to pursue more fruitful discussions with Mobilicity with the help of its monitor.  "I don't agree that this matter was a waste of time," added Mr. Moore.

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