In February 2021, Laurentian University became the first publicly funded university in Canada to file for protection under the Companies’ Creditors Arrangement Act (CCAA), a process Ontario’s auditor general said was “designed as a last resort for private companies.”
Laurentian’s journey under the CCAA was to last the rest of 2021, as well as most of 2022, for a total of 22 months in all.
The process, which Ontario Auditor General Bonnie Lysyk said Laurentian never needed to enter in the first place, included mass layoffs and program cancellations, the severing of ties with federated universities operating on campus (resulting in even more layoffs and program cancellations) and a plan of arrangement that will see most LU creditors receive only roughly 14 to 24 per cent of what they’re owed over the next three years.
The situation has attracted national media attention and resulted in damage to Laurentian’s reputation.
Legal dispute with Ontario’s auditor general
At the beginning of 2022, Laurentian University’s lawyers were engaged in a legal dispute with Ontario Auditor General Bonnie Lysyk’s office, which had been tasked with conducting a value-for-money audit of LU by the Ontario legislature.
Laurentian’s lawyers maintained the university was not compelled to provide Lysyk’s audit team with privileged information under the Auditor General Act.
Due to this dispute, Lysyk has asked the courts for an interpretation of what is allowed for under the Auditor General Act.
On Jan. 12, Chief Justice Geoffrey Morawetz, the judge who has heard most matters related to LU’s CCAA filing, ruled in favour of Laurentian in this case. He said the Auditor General Act does not “demonstrate a clear and unambiguous intent to abrogate solicitor-client privilege.”
Lysyk would go on to appeal this ruling in November.
Area NDP MPPs France Gélinas (Nickel Belt) and Jamie West (Sudbury) also have a bill before the legislature to eliminate any future challenges to the role or powers of Ontario’s auditor general.
While Chief Justice Morawetz ruled in Laurentian’s favour in this specific case, the clock was ticking on another process to compel LU to provide the requested documents.
In December 2021, the Ontario legislature had issued a rare Speaker’s warrant to compel Laurentian to produce a long list of privileged documents to be used by Lysyk’s audit team by Feb. 1.
Laurentian went before the courts to request a stay of the Speaker’s warrant. However, Chief Justice Morawetz agreed that Laurentian should be required to provide most of the documents the legislature had demanded.
However, he extended the stay with regards to certain documents covered by a court-ordered sealing order granted at the beginning of Laurentian’s insolvency.
Auditor general releases Laurentian reports
With the documents she needed now in her hands thanks to the legislature’s Speaker’s Warrant, Ontario Auditor General Bonnie Lysyk dropped a bombshell on April 13, when she released her preliminary 13-page report on Laurentian.
She said she believed the data shows Laurentian University did not have to file for creditor protection under the Companies Creditors’ Arrangement Act (CCAA).
This action was “strategically planned” and Laurentian “chose to take steps to file for creditor protection in the Ontario Superior Court of Justice on February 1, 2021.”
Speaking at the April 20 Laurentian senate meeting, Robert Haché, then still the university’s president (he’s since been terminated by Laurentian), stuck to his guns, saying LU turned to creditor protection only as a last resort.
On Nov. 17, Lysyk released her full report on Laurentian University, in which she upheld and expanded on the findings of her preliminary report.
“Laurentian did not have to file for CCAA protection in response to its financial decline,” she said. “Instead of following precedent and making a robust effort to secure government assistance to build an effective go-forward plan or work transparently with its unions, Laurentian, on the advice of external counsel, chose to file for creditor protection under CCAA.”
Laurentian's overdependence on external legal and financial advisors led to the “unsuitable and damaging choice” to seek creditor protection using a legal process designed for private sector entities, she said.
That decision was made because the taxpayer-funded university was in a perilous financial position, resulting largely from a series of “questionable strategic decisions” made by senior administration and a “lack of competent financial oversight and transparency” from the board of governors.
“Although Laurentian’s operations were impacted by several external factors, the main cause of its financial decline from 2010 to 2020 was its poorly planned and costly capital expansion and modernization,” said Lysyk, in the report’s overall conclusion.
“As the university began to amass more than $87 million in debt to pay for this capital expansion, the senior administration exacerbated the situation by making a series of questionable financial and operational decisions, including amending its internal policies to allow it to incur even more debt and increasing its senior administration’s costs.
“The poor management of the university’s financial affairs and operations was allowed to continue because of weak Board governance and Ministry oversight.”
Laurentian University issued a statement in the wake of the release of the auditor general’s report, saying it embraces the report’s findings.
Dominic Giroux, who was Laurentian’s president from 2009-2017, and is now the president of Sudbury’s hospital, Health Sciences North, declined to comment on the criticisms of his leadership contained in Lysyk’s report.
Plan of arrangement
Meanwhile, the CCAA process continued to move on throughout 2022, with Laurentian University finally revealing its plan of arrangement in July.
A plan of arrangement is a plan put forward by an insolvent organization to pay out its creditors, and it must be approved by these creditors.
A pool of cash of up to $53.5-million for Laurentian’s creditors is to come from the sale of university real estate to the province of Ontario, as per an agreement this spring with the province. The minimum floor for the pool of cash has been set at $45.5 million.
Exactly what assets the province is purchasing has still not yet been revealed, although the timeline for these real estate purchases was eventually changed from four years to three, meaning creditors will get a faster payout.
Except for some classifications of creditors now paid out in full, court filings provided creditors with an estimate of a 14.1- to a 24.2-per-cent recovery on what they’re owed.
In the event the plan was not approved, and Laurentian’s assets were liquidated, creditors were told to expect 8.5 to 16.7 per cent.
Two unions representing fired LU workers who are creditors of the university encouraged their members to vote in favour of the plan of arrangement. However, a group called the Terminated Faculty Committee urged their colleagues to vote against it.
The plan of arrangement went to a vote on Sept. 14, and passed by a slim margin.
It had to be approved by a majority of the affected creditors, with the votes also representing at least two-thirds of the total dollar value of proven claims.
The plan of arrangement was approved by 87.4 per cent of the number of eligible voters who cast ballots, which means the first test was met.
The second test was also met, but by a much narrower margin. Creditors representing 68.9 per cent of the total value of the claims voted in favour, meaning the vote was only 2.2 per cent over the two-thirds threshold.
On Oct. 5, Chief Justice Morawetz granted Laurentian a “sanction order,” approving the plan of arrangement, and paving the way for LU to exit creditor protection, something it expected to do by the end of November.
On Nov. 28, after 22 months under creditor protection, Laurentian University finally exited insolvency restructuring under the CCAA.
Sealed documents become public
With Laurentian’s CCAA exit, the public finally got to view documents that were sealed from the public record at the beginning of Laurentian’s insolvency.
These documents are letters exchanged between Laurentian University and the Ministry of Colleges and Universities from January 2021, in the days leading up to when LU filed for creditor protection under the CCAA.
Confidential Exhibit EEE is a letter from Ross Romano, then the minister of Colleges and Universities, to then Laurentian president Dr. Robert Haché, dated Jan. 21, 2021. Confidential Exhibit FFF is a letter from Haché to Romano, dated Jan. 25, 2021.
The Jan. 21 letter from Romano references a $100-million ask by Laurentian to address its financial problems.
Romano said “at this point in time” the province is “not in a position to provide support on the order of magnitude of $100 million as requested in your presentation.”
The politician speaks about appointing a special advisor to provide advice and recommendations to the Minister of Colleges and Universities with respect to the current financial state of Laurentian University.
He said “in recognition of the immediate cash flow challenges facing Laurentian University,” the ministry had approved a grant of up to $12 million for the period ending March 31, 2021.
“Approximately $6.1 million of the grant is proposed to be flowed upon signing of the agreement,” said Romano’s letter. “A further amount of up to $5.9 million will be released as further due diligence on the financial situation is undertaken.”
The grant would be conditional “upon Laurentian’s agreement to support and collaborate with the Special Advisor’s review as well as Laurentian’s agreement to not file for protection under the Companies’ Creditors Arrangement Act.”
However, in his Jan. 25 letter, Haché turned down the ministry’s offer.
“Unless a very different option arises over the next five days, we believe that the commencement of a CCAA proceeding currently represents the best path forward for Laurentian University,” he said.
Haché said the province’s $12 million offer would be inadequate. He also talks about the importance of the court-ordered protection for Laurentian and its board that the stay of proceedings under the CCAA offered.
The former Laurentian president also spoke about the need to enter the CCAA to avoid a strike by Laurentian University Faculty Association members in the winter of 2021.
Leadership turnover
The university exited the CCAA minus both its most recent president, Robert Haché, and provost, Marie-Josée Berger, who departed from LU this fall as part of the terms of Laurentian’s plan of arrangement.
Both Haché and Berger were terminated on a “without cause” basis, according to the minutes of in-camera Laurentian board of governors meetings.
As both Haché and Berger were terminated while Laurentian was still under the CCAA, Sudbury.com reached out to the university to see if they’d be treated in the same manner as other employees terminated during the proceedings.
Laurentian employees let go as part of LU’s restructuring in the spring of 2021 were forced to join the creditor pool to receive what they were entitled as of their termination, and will only receive a small percentage of that amount.
We were pointed to Laurentian’s plan of arrangement, specifically section 10.1, which is the “conditions precedent to plan implementation.”
The plan of arrangement does, indeed, say that Haché and Berger will be treated as creditors of the university following their terminations.
Subsection “f” of that part of the plan of arrangement said “the renewal of senior management of the applicant (Laurentian University) shall become effective no later than immediately prior to the effective time (meaning the plan of arrangement implementation has occurred).”
That subsection also said that “any such claims arising therefrom having been calculated in accordance with the Compensation Claims Process Order and constituting an Affected Claim hereunder.”
Other Laurentian administrators stepped in to replace Haché and Berger during the fall and early winter until longer-term interim appointments could be found.
Haché was replaced for a short period of time by Tammy Eger, and Berger by Céline Larivière.
On Dec. 7, Laurentian named the two new interim leaders who would lead the university following LU’s exit from creditor protection.
Sheila Embleton has now assumed the role of interim president, working alongside Brenda Brouwer, who's serving as interim provost. Both started their new posts on Jan. 1, 2023.
Both the interim president and provost are being seconded from large Ontario universities — Embleton from York University and Brouwer from Queen’s University — until permanent appointments can be made for the top Laurentian jobs.
The employment contracts for Embleton and Brouwer have been posted publicly on Laurentian’s website.
Under the terms of a secondment agreement with their home universities, both Laurentian University’s incoming interim president and provost will be paid substantially more than their most recent predecessors.
It’s expected that a permanent president and provost will be put in place at Laurentian in 2024.
Embleton said it’s her goal to “get the ship steady again and get it back on course” after LU recently came out of 22 months of creditor protection.
Laurentian’s board of governors has also seen a considerable shake-up since December 2021, when 11 members stepped down as part of a provincial financial package, and five others were appointed.
Several more people have left and joined the board since that time. At one point in 2022, only half of the voting positions on LU’s board were filled.
Jeff Bangs, who was appointed to LU’s board by the province in December 2021, stepped up last year to head the university’s board until June 30, 2023.
Future of Laurentian University
During a Nov. 10 Greater Sudbury Chamber of Commerce event, board chair Bangs gave his vision of LU’s future.
Bangs said LU’s future actions will be closely watched by the province and the auditor general, among others.
“Our work will be scrutinized like no other public institution in Ontario or Canada for years to come,” he said.
He told the Chamber audience that Laurentian has an oversight agreement in place with the province that will last for years.
Ontario Auditor General Bonnie Lysyk has also indicated her intention to produce a follow-up audit in 2024 and each year after, for at least three years.
Bangs said Laurentian’s recovery will proceed with the continued court supervision of a monitor. The court-appointed monitor of Laurentian’s insolvency restructuring has been the firm Ernst & Young.
Other tasks on Laurentian’s to-do list include finding permanent replacements for Laurentian’s president and provost, developing a new strategic plan, completing the necessary real estate transactions with the province, hiring a management consultant to make sure Laurentian has proper systems in place, and making changes to the board of governors.
He spoke of his optimism for Laurentian’s future, invoking a phrase that’s often used to describe the career of boxing great Mohammed Ali: “The comeback is always greater than the setback.”
“If we do this right, Laurentian’s best years are yet to come,” said Bangs. “Just watch us.”
Heidi Ulrichsen is Sudbury.com’s associate content editor. She also covers education and the arts scene.
