Judge rejects Thorneloe’s effort to revive $9.8M claim against Laurentian

LU renounced its agreement with Thorneloe, Huntington and the University of Sudbury, and damage claims were addressed by the claims officer appointed by the accounting firm monitoring the insolvency process. (File)

An Ontario court has rejected Thorneloe University’s efforts to revive its financial claim against Laurentian University.

Thorneloe, along with the University of Sudbury and Huntington University, operated for decades under a federated university agreement with LU.

But when Laurentian declared insolvency in February 2021, it renounced the agreement, claiming it was losing too much money under the terms of the deal.

It reached a settlement with Huntington, but the University of Sudbury and Thorneloe went through the claims process, seeking compensation.

The monitor of LU’s insolvency rejected Thorneloe’s claim of $9.8 million in losses, ruling it was owed nothing.

Lawyers for Thorneloe then appealed to Chief Justice G.B. Morawetz, the chief justice of Ontario’s Superior Court of Justice. Morawetz is the judge that oversaw LU’s insolvency process under the Companies’ Creditors Arrangement Act.

The appeal was heard earlier this month. Thorneloe’s lawyers argued that the court should be guided by a report prepared by “expert valuator,” Glenn Bowman of Farber Corporate Finance Inc.

That report estimated Thorneloe’s operating enterprise value to be worth $2.8 million and $3.3 million, along with other assets (mostly cash and cash equivalents) of $6.7 million.

“Thorneloe submits that when an entity has been destroyed by the actions of another such as by a breach of contract, the required approach to assess damages is the loss of commercial value approach,” the court transcript said.

“Thorneloe submits that the case law supports the proposition that even if the business is unprofitable it can still have value.”

In response, the monitor argued that the university lost money in each of the four years before LU declared insolvency. Losses ranged from more than $90,000 in 2018 to $1.15 million in 2021.

It also criticized the Farber report for not actually assessing the damages caused by LU’s ending of the federated university agreement.

“Instead, the Farber report presented a visibly flawed approach not based on the economic reality of Thorneloe,” the document said.

“This flawed approach sought to present a value for the business, the majority of which was the assets they retained, and the operational value based on the revenue earned versus the actual operating cash flow, which in all recent periods was negative.”

Further, the monitor argued that Thorneloe still had possession of its $6.7 million in investments, which were unaffected by the insolvency process.

“Additionally, the disclaimer does not prevent Thorneloe from continuing operation of its residences and, in fact, Thorneloe has continued to operate its residences,” the transcript said.

“Finally, the monitor submits that there has not been any evidence provided to support a decrease in the profitability of Thorneloe’s residences operation being caused by the disclaimer.”

In the end, the judge ruled that the Farber report falsely gave the impression that Thorneloe was profitable when it was not.

“The Farber report does not consider Thorneloe’s net cash flows – i.e. revenues net of expenses,” the judge ruled.

“Because Thorneloe’s net cash flow is reasonably expected to continue to be negative, it is not entitled to claim the loss of academic and commercial value.”

Read the full transcript here.