Metroland Media Group Ltd.

Metroland Media Group Ltd. – Status Report

We are writing with a status report on the Metroland bankruptcy proposal, and a review of several issues we identified from the non-union employees’ perspective.

1. The calculation of the non-union employees’ claims under the initial Proposal was incorrect

In the initial Proposal, the Proposal Trustee (Grant Thornton Limited) included a total amount of the non-union employees’ severance claim to be approximately $14M. They advised us that figure was calculated by Metroland staff and was solely based on minimum notice standards under the Ontario Employment Standards Act, 2000, SO 2000, c 41 (“ESA“). They provided us with an Excel file with their calculations. In reviewing that file, we found a number of errors and omissions that undercalculated the employees’ claims, in particular:

• • Misapplication of the mass termination provisions under the ESA;
  • No inclusion of common law notice of termination; and
  • The amount of pension contributions was incorrect and was included as an unsecured claim together with termination pay;  under section 60(1.5) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c B-3, claims for unpaid pension contributions operate to rank in priority in a Proposal and therefore are to be paid at 100 cents/dollar ahead of unsecured claims.

In addition to the applicable legal principles in the statute and case law, we reviewed numerous employment contracts, previous termination letters, and other employment related documents that were sent to us by employees.

The errors we identified led to prolonged negotiations with the lawyers for Metroland and the Proposal Trustee regarding the employee severance pay calculations. They eventually agreed to include common law severance and the pension contribution claim as a priority claim. The employee claim amount has therefore increased substantially, which should translate into increased recoveries for the employees.

We understand a revised, increased employee claim amount will be reflected in an updated Proposal presented in advance of the Creditors’ Meeting on December 11, 2023. We have not yet seen nor agreed to the revised amount, as discussions about certain details of the employee claim are still continuing. We will be in touch with you shortly about the revised claim amounts.

Please also note that we do not yet have updated information of the amount of other creditors’ claims (which may also be changing), and as such we cannot yet report with precision what recovery the employees can expect to be paid from the Proposal. We will report on this as soon as possible.

We will provide our advice to you about whether to vote for the Proposal before the Creditors’ Meeting on December 11, 2023.

2.The initial Proposal’s timing for a WEPP motion disadvantaged employees, and has now been changed

The Wage Earner Protection Program (“WEPP”) is a government program that automatically applies when an employer who is subject to a bankruptcy or receivership, terminates their employees without paying severance pay and certain other amounts owing to them. WEPP pays each eligible employee up to a maximum of $8278.83. Such a payment would be in addition to what employees would be paid from Metroland’s Proposal.

However, WEPP does not apply automatically under a Proposal and in order for it to apply, a motion must be brought before the court to issue an order that it applies.

In the initial Proposal, Metroland stated it would apply to court for a declaration that WEPP applies after the Proposal passes a vote of creditors. We told the Proposal Trustee and company lawyers this approach has two major problems: (i) it delays WEPP payments to employees; and (ii) it prolongs the uncertainty as to whether WEPP would be available for the employees. In extensive negotiations, we argued that the motion for a declaration that WEPP applies should be brought before the creditors vote on the Proposal. The Proposal Trustee and company lawyers eventually agreed.

Metroland was scheduled to bring the WEPP motion on November 28, 2023. However, the Department of Justice Canada contacted counsel for Metroland the day before and advised it would object to Metroland’s WEPP motion because Metroland was planning to continue to operate its business, albeit in a downsized form, which would not meet the criteria for WEPP to apply.  The motion was therefore adjourned to December 7, 2023, at 12 pm ET. Given the opposition from the Department of Justice and as per our recommendation, Metroland arranged for a receiver to be appointed (also Grant Thornton) over a Metroland account to create a receivership and thus make WEPP automatically apply. The motion by Metroland on December 7, 2023, has been revised for it to seek an order confirming that WEPP will apply and to ensure former employees are eligible to apply for it.

A copy of Metroland’s motion record can be accessed here.  If the requested order is issued by the court and Justice Canada does not oppose, the employees will be eligible to apply for a WEPP payment, separate from the funds that may be recovered from the Proposal.

3.If the Proposal passes and a bankruptcy of Metroland is avoided, the following potential legal claims would not be pursued:

Terminated employees have a potential “common employer” claim against Torstar

The law states that an employee can have more than one employer, and other entities in a corporate “web” of companies can be held responsible for the debts of other companies for amounts owing to employees. Many of you have provided evidence that demonstrates a relationship between Metroland and Torstar and the common control over those companies. If successful, a common employer claim could yield additional recoveries for the employees.  As part of Metroland’s Proposal, Torstar is seeking a full release of claims that could be made against it. If the Proposal passes, the release will operate to protect Torstar from litigation such as a common employer claim from terminated Metroland employees.

The proceeds of the sale of Metroland assets that were used to repay Canso may be a preferential payment that can be legally challenged in a bankruptcy, but not in the Proposal

The report of the Proposal Trustee dated October 17, 2023, discusses the arbitration decision of the litigation dispute between Jordan Bitove and Paul Rivett that led to a sale of Metroland’s assets which generated $27.5M, and which was then used to repay the loan from Canso.  Canso is the lender who loaned money to Nordstar, the entity operated at the time by Bitove and Rivett that acquired Torstar and its subsidiary, Metroland. The Proposal Trustee has not done a close analysis on the viability of legally challenging this payment as an unlawful “preference” that has the effect of defeating the claims of creditors of Metroland, which became insolvent after the sale of its assets and the payment to Canso. If the Proposal passes, this potential claim would not be pursued. In a bankruptcy, the trustee can be directed to pursue this claim and if successful, such a challenge could yield additional recoveries for all creditors.

Torstar’s unsecured claim against Metroland may be classified as an equity claim, which has the lowest priority for recovery  

Torstar is claiming to be owed $35M for amounts it says it loaned to Metroland. Under the Proposal, Torstar would waive this claim, making more of the Proposal funds available for all creditors. However, in a bankruptcy, Torstar says it would assert this claim, thereby diluting recoveries to all creditors. In our view, this different approach by Torstar is designed to encourage creditors to vote for the Proposal and avoid a bankruptcy of Metroland.  However, under insolvency law, Torstar’s debt claim may be characterized as an equity claim, not a debt claim, and if so, it would rank at the bottom of the creditor recovery hierarchy that says equity claims can only be paid after all other creditors are paid in full. If so, Torstar would not dilute creditors’ claims in a bankruptcy, and a bankruptcy may be more attractive than the Proposal. We have asked for additional information from the Proposal Trustee about Torstar’s debt, however, the information that has been provided to date is incomplete and not determinative of the issue from a legal perspective.

We trust the above is helpful at this time. If you have any questions, please contact us by email at metrolandemployees@kmlaw.ca.

We will report further soon.

We have received many documents and agreements from employees that relate to the amounts owing to them from Metroland. However, we are still missing information and do not have a complete set of documents that are required to determine all the components of the employee claims. We sent the following list to the company and Proposal Trustee (Grant Thornton Limited), and we are continuing to wait for the requested documents and information.

• • Employment agreements
  • Minutes of Settlement if you were terminated with a settlement
  • Releases if you were terminated with a release
  • Voluntary Departure Program (“VDP”) agreements
  • A copy of the Vertical Share Plan
  • Copies of a post-retirement benefits plan or policy

While we await information from the company and Proposal Trustee, please review the list and if you have any such information, please send it to us as soon as possible. For those of you who have sent in documents already, we thank you.

We are pleased to report that our effort to adjourn the creditors meeting scheduled for today, in order to allow the WEPPA application to the court to proceed first was achieved today.

The Proposal Trustee (Grant Thornton Limited) called the First Meeting of Creditors to order and at our request, and that of the union, then sought a resolution to postpone a vote on the Proposal and reschedule the creditors meeting. The resolution was passed. The next Meeting of Creditors has been scheduled for Monday, December 11, 2023, at 9:30 am ET. The application to the court for the WEPPA declaration is tentatively set for November 28, 2023. We will report further developments shortly.