Sino-Forest - Indemnities For Advisors Are Deep In The Wilderness

The demise of a major timber player with over a six billion dollar market capitalization continues to leave its mark on the Canadian financial and legal industries. In a decision released on November 23^rd, the Ontario Court of Appeal upheld a lower court decision that indemnity claims of underwriters and auditors against a debtor company in a Companies' Creditors Arrangement Act ("CCAA") restructuring constitute equity claims, thereby subordinating these claims to the claims of unsecured creditors.

What does this mean for underwriters and auditors whose clients file for CCAA protection?

BACKGROUND

Sino-Forest Corp. listed on the Alberta Stock Exchange through a reverse takeover of a dormant shell company in 1994 and then graduated to the TSX in 1995. Since then, Sino-Forest has raised over $3-billion in the debt and equity capital markets. Canadian underwriters provided underwriting services in connection with three equity offerings in 2007 and 2009, and four