'Laurentian did not have to file for CCAA protection,' auditor general concludes

Ontario Auditor General Bonnie Lysyk said Laurentian University did not have to declare insolvency in February 2021, describing it as a deliberate choice.

"We believe Laurentian did not have to file for (Companies' Creditors Arrangement Act) protection," Lysyk wrote in a report dubbed 'Preliminary Perspective on Laurentian University.'

"It strategically planned and chose to take steps to file for creditor protection."

The preliminary report concluded that high capital spending in the last decade was the primary cause of the school's financial crisis.

Lysyk said LU was offered money by the province to keep operating, but opted to declare insolvency instead. That decision had a negative and deep effect on the community.

"The repercussions were profound and stirred up strong reactions, especially in Sudbury, where the university is an important contributor to the social and economic fabric of the community," the report said.

"And by opting for creditor protection under the CCAA, Laurentian was able to bypass provisions in its collective labour agreements, allowing the administration to effectively terminate more senior employees and clear a number of long-standing union grievances."

In the process, she said Laurentian eliminated 36 per cent of its programs, affecting the academic and career plans of an estimated 932 students. It also fired 195 staff and faculty with "little notice and severance."

In terms of causes, Lysyk wrote that a capital spending spree between 2010 and 2019 was to blame.

"The primary cause of the university’s financial deterioration was its pursuit of poorly considered capital investments," Lysyk wrote.

"It proceeded with expansion projects without procedures in place requiring senior administrators to make a reasonable assessment of the value and viability of the plans, or to fully consider the risks associated with a rapid growth in debt."

She also pointed the finger at a "weak" board of governors.

"This poor management was allowed to continue in large part because of weak oversight by Laurentian’s board," Lysyk said.

"It lacked key operational and governance practices and expertise, and allowed transparency to decline."

She said the province also failed to monitor what was going on and failed to "proactively intervene in a timely manner to provide guidance to help Laurentian slow — or ultimately respond to — its worsening financial deterioration."

Other highlights from the report:

- Starting in 2009, LU's capital spending added $87 million in long-term debt, with interest and other related payments rising to $7.9 million a year. "We found the university’s senior management did not develop or work from a long-term plan that considered the risks associated with a rapid growth in debt. Nor did it gauge, before making large capital expenditures, to what extent the projects would increase revenues. Instead, it appears Laurentian took a risky “build it and they will come” approach.

- While LU complained about faculty costs, spending on senior administration soared by 75 per cent between 2010 and 2020, to more than $4 million annually in 2018.

- Weak oversight by the board of governors meant they often didn't understand what was happening with the financial health of the university and failed to provide oversight, and too many closed-door meetings were held.

In response to Lysyk's report, LU declined to provide anyone for an interview, but released a statement in which it said it "welcome(s) the document and its guidance.

"The perspectives provide important contributions to better understanding – and correcting – the shortcomings of Laurentian in prior years, and will enable the university to take the critical actions necessary to move forward with conviction," the statement said.

"We will carefully examine her findings as we build a new foundation for success and take steps to ensure Laurentian can never repeat the mistakes of the past. We look forward to working with the auditor general and her team in an open and transparent manner to help her complete her final report." 

Province responds

And Jill Dunlop, Ontario's Minister of Colleges and Universities, released this statement:

"My top priority has and will always be ensuring postsecondary students across the province are able to receive the world-class education Ontario institutions have to offer. When Laurentian University made the decision to file for CCAA, we provided direct financial supports for students who needed to enroll at a new institution to continue their studies.

"Our government also stepped up to replace the former Debtor-in-Possession (DIP) loan lender and appointed five new members to the board to provide a stable pathway for Laurentian to reach a plan of arrangement with its creditors and assure students that their education year would not be in jeopardy. Every action our government takes has and will continue to be in the best interest of students.

"As the auditor stated in her report, Laurentian is an autonomous institution that has sole responsibility over its academic and administrative affairs. While my ministry has been working with Laurentian throughout this period, the decisions they have made in regards to program offerings, staffing, and navigating the CCAA process have been at the sole discretion of the institution and it's advisers.

"As the CCAA process is still underway, it would be inappropriate for me to comment any further. Again, I want to thank the Auditor General for tabling her preliminary perspective today and will continue to cooperate with her office throughout this process."

Read the full report here.