Thorneloe University loses fight to reverse termination of its relationship with Laurentian University

The Court of Appeal for Ontario has rejected an attempt by Thorneloe University to reverse the decision by Laurentian University to terminate its relationship.

As part of its insolvency process, LU ended the federated university agreement it has had with Thorneloe, the University of Sudbury and Huntington University since the 1960s. Huntington reached a separation agreement with Laurentian, while the U of S and Thorneloe appealed to the courts, which sided with Laurentian.

Thorneloe appealed that ruling, and in a decision dated June 23, the appeals court sided with Laurentian.

"At the heart of its submissions is its contention that allowing the disclaimer will result in Thorneloe’s insolvency and yet provide only de minimis (minimal) financial benefit to Laurentian, and that the motive for the disclaimer is the elimination of competition, which is inconsistent with the duty to act in good faith," the three appeals judges wrote in their decision.

But under the Companies' Creditor Arrangement Act (CCAA), through which LU declared insolvency, when an agreement is disclaimed, courts must strike a balance between considering the harm to institutions like Thorneloe with the need for the insolvency process to succeed.

When there are no win-win decisions in cases like this, courts must make "the least undesirable choice."

The judge hearing the CCAA case said terminating the agreements with the three federated universities would result in an additional $7.7 million in increased revenue for LU. And that agreeing to maintain the agreement with Thorneloe would mean Huntington would receive the same treatment.

Under its deal with LU, "if Thorneloe or U Sudbury are permitted to continue to receive funding from Laurentian to teach courses or programs, Huntington will be similarly entitled," the transcript of the decision said.

'If Laurentian collapses, Thorneloe will collapse'

And terminating the agreement was also required by the DIP lender – the term for the group forwarding Laurentian loans for operations until the insolvency process is concluded.

Restoring Thorneloe's agreement with LU would have the effect of endangering the university's attempt to restructure, the court ruled.

"The CCAA judge found that if Laurentian collapses, Thorneloe will collapse," the transcript said.

"Thorneloe could only be an ongoing solvent entity if Laurentian could successfully restructure while keeping the agreements with Thorneloe in place. But that option was not available, as the CCAA judge accepted the monitor’s view that the disclaimer of the agreements was necessary for a viable restructuring of Laurentian to occur."

So in this case, the least undesirable decision is to allow the termination of the agreements to stand, the justices ruled.

"While we recognize the serious financial implications of the disclaimer for Thorneloe, we are simply not persuaded that there is an arguable basis for interfering with the CCAA judge’s factual findings or legal conclusions."

Read the full decision here.