Judge Rules Proposed $32.5B Tobacco Deal Could Succeed

An Ontario judge believes that any remaining issues related to a proposed $32.5 billion settlement between three major tobacco companies and their creditors can be resolved in the upcoming months.

Ontario Superior Court Chief Justice Geoffrey Morawetz has provided his rationale for approving a motion last week to allow representatives for creditors to review and vote on the proposal in December.

While one of the companies, JTI-Macdonald Corp., voiced its objections to the current form of the plan and requested a postponement of the vote until certain issues were addressed, the other two companies, Rothmans, Benson & Hedges, and Imperial Tobacco Canada Ltd., did not oppose the motion but retained the right to contest the proposed plan in the future.

The proposed settlement, announced last month, includes $24 billion for provinces and territories looking to recover smoking-related health-care costs and approximately $6 billion for smokers across Canada and their families.

If the proposed deal garners the approval of a majority of creditors, it will then proceed to the next stage: a court hearing to obtain final approval, tentatively scheduled for early next year.

In a written decision issued on Monday, Morawetz noted that some unresolved issues existed at this point in the proceedings.

He highlighted “outstanding issues” among the companies regarding their respective portions of the total payout and a debate over the creditor status of one of JTI-Macdonald’s affiliate companies.

In order for creditors to vote on the proposal, the court must be convinced that the plan is not destined to fail either with creditors or during court approval, as was discussed last week.

Lawyers representing plaintiffs in Quebec class actions, smokers throughout Canada, and the majority of provinces and territories have voiced their support for the proposal, according to the judge’s ruling.

Although JTI-Macdonald expressed lingering concerns, the company’s attorney acknowledged that the issues were resolvable, Morawetz stated.

“At this stage, I cannot conclude that the plans are doomed to fail,” he stated. “While there are several outstanding issues among the parties, none are insurmountable.”

The proposed settlement is the result of over five years of negotiations in what Morawetz described as one of the most intricate insolvency proceedings in Canadian history.

The companies sought creditor protection in Ontario in 2019 after Quebec’s highest court upheld a groundbreaking ruling requiring them to pay roughly $15 billion to plaintiffs in two class-action lawsuits.

All legal actions against the companies, including lawsuits from provincial governments, have been on hold during the negotiations, with that halt now extended until the end of January 2025.

In total, the companies faced claims in excess of $1 trillion, as per court records.

In October of last year, the court instructed the mediator in the case, former Chief Justice of Ontario Warren Winkler, and the monitors appointed to each company to devise a proposed plan for a global settlement, with input from the companies and creditors.

A year later, they presented a plan involving initial payments and subsequent annual payments based on the companies’ net after-tax income and any tax refunds, court documents reveal.

The monitors estimate that it would take the companies about 20 years to fulfill the complete amount, as per the documents.