"Diligently and in good faith": tobacco companies get another 6 month extension on insolvency protection

In a now familiar pattern, Justice MacEwen's court quickly arrived at a decision to give Canada's 3 large tobacco companies a further 6 month extension on insolvency protection. All lawsuits and other claims against them are stayed until March 31, 2022.

Between 10:13 and 10:31, his virtual courtroom was in session. Youtube noted that 28 people watched the proceedings which involved an even larger number participating in the Zoom call that now substitutes for an in-person court hearing. 

During those 18 minutes, 6 lawyers representing each of the companies and each of their accounting-firm monitors gave near-identical presentations.  The companies were working 'diligently and in good faith' on a 'resolution with all stakeholders and in concert with other firms'. They were carrying on business as usual -- and making investments in new packaging equipment and new off-shore suppliers to ensure future operations.

Only 2 of the parties with claims against the companies addressed the judge -- lawyers representing Ontario and Quebec (the 2 largest claims) confirmed that they did not oppose the stay extension. 

Lawyers representing the Quebec class action (the only claim that has been upheld by a court ruling) expressed no concerns about the pace of negotiations or the impact of the delay on the injured smokers they represent, as they had done previously. Nor did the lawyers representing Ontario's tobacco farmers, whose request to be excluded from the proceedings had been twice shot down by Justice McEwen (in March, and then in June). Their new silence may reflect their satisfaction with developments behind the mediator's curtain, or merely a resignation to being in the back-seat of a process in which the provinces, as the largest claimants, will ultimately call the shots.

From a public health perspective, it is noteworthy that the recent business investments cited by the companies to foster future sales -- $20 million here to upgrade shipments to retailers, $29 million there to replace packaging equipment, $4 million in severance for workers displaced by off-shore production, $94 million budgeted for promotions and marketing -- significantly exceed the investments by governments or others to reduce tobacco consumption in the same period.

Business as usual, indeed!

Post script:

The stay extension orders can be found here:

• Imperial Tobacco (endorsement)
• Rothman's, Benson & Hedges (endorsement)
• JTI-Macdonald (endorsement)

Tobacco companies are asking for another 6 months' insolvency protection

In only 9 days (September 30) the current time-out ("stay") on lawsuits against Canada's 3 large tobacco companies will expire. In only 6 days (September 27th) the Ontario court which is charged with setting the terms (if any) of their insolvency protection will convene to hear a request for another 6 month extention.

Court rules require the documents for this hearing to be made public. Those available to date are linked below:

Companies' motions for extension

• JTI Macdonald
• Rothmans, Benson & Hedges
• Imperial Tobacco

Monitor's Reports:

• Rothmans, Benson & Hedges
• Imperial Tobacco
• JTI Macdonald

Creditor's motions

• Ontario Flue-Cured Tobacco Marketing Board

The public will be able to view the hearing through the following Youtube link:

• https://www.youtube.com/watch?v=_ze7onPW__I

The Monitor's reports provide updates on the Canadian tobacco market and their operations during this period. From this we know:

Progress of negotiations:

• Little information on the negotiations is provided in the report, other than statements  that the  discussions are continuing "with a view to facilitating a pan-Canadian global settlement of Tobacco Claims"

Positions of creditors

• The federal government is now among the creditors (as the payments required under a previous settlement have not been paid and as Revenue Canada has assessed an additional $227 million on a previous tax year)

The companies are making long-term investments

• The companies are making long-term investments in new packaging and distribution equipment.
• ITL is expanding the number of VUSE stores in Canada from 4 to 9 by the end of the year. 
• ITL is shifting its source of fine-cut tobacco from Mexico to Germany and Hungary.
• RBH will shift 25% of its production to to Mexico 
• Rothmans plans to launch a vapour-based product in Canada this fall ("Veev, starting in the fall and gradually rolling it out nationally, region by region.") 
• JTI has signed a long-term (6 year) collective agreement with its workers, and is shifting some operations to the Philippines. 

Some investments are being challenged by creditors

• The Quebec class action lawyers objected to Imperial Tobacco's intention to pay $55 million to BAT operations in Mexico related to the undepreciated cost of manufacturing equipment that will no longer be requird by ITL as a result of new plain packaging requirements

The companies continue to operate with a high profit margin

• Because it raised prices, Imperial Tobacco generated slightly more revenue than it had expected, even though sales volumes were down (by an unspecified amount). It's gross revenues (less tobacco taxes) for the period were 876 million, and its net revenues for the half year were $400 million. 
• Rothmans, Benson and Hedges' sold more cigarettes than it expected, with revenues (less tobacco taxes) were $876 million, from which it retained $466 million.
• JTI-Macdonald's revenues (after tobacco taxes) were $617 million, of which $124 million was retained.

Lawyers and accountant billings continue

• During the 6 month period, ITL spent $3.5 million on professional fees, RBH spent $2.7 million on 'restructuring costs' and JTIM spent $3.5 on legal and accounting services.  

The "kitty" remains far short of the $500+ billion claims

• For the past 30 months, the companies have not been permitted to send their profits to the multinational owners. Each company has to report on the amount of cash that is available to creditors. As of September 2021, RBH has $3.5 billion available,  Imperial Tobacco has $2.2 billion available and JTIM has $694 million set aside.