Thorneloe shouldn't be held responsible for mismanagement at LU, court hears
SUDBURY -- Thorneloe University shouldn't pay the price for years of mismanagement at Laurentian University, a court hearing was told Thursday.
Thorneloe is fighting LU's decision to terminate its agreement with three federated universities as part of its ongoing insolvency process. Laurentian estimates the move will save about $7 million a year.
But Thorneloe lawyer Andrew Hatnay argued his client shouldn't be forced into bankruptcy because of poor decisions by Laurentian.
"Laurentian's problems are of its own making," Hatnay said. "It mismanaged itself."
The school kept offering courses with low or no enrollment, he said, and kept running up losses instead of cutting those programs to be fiscally responsible.
"That is plain university mismanagement," Hatnay said.
In fact, Thorneloe cancelled its motion picture program because of low enrollment, he said. While they were criticized by others – including LU, ironically – he said it was the right decision to be fiscally responsible.
"Unfortunately, that's what Laurentian never got around to doing," Hatnay said.
He also argued that Thorneloe's operations have no real impact on Laurentian, and that the roughly $30 million in savings achieved already through program and staffing cuts is enough to put it on a path to financial viability.
"It's not fair to say Thorneloe costs Laurentian money at all," Hatnay said.
Thorneloe had an analysis done by the firm Farber, which concluded the university has no way to continue operating if its agreement with Laurentian is terminated.
He said the court is obligated to balance the effect of terminating the agreement with Thorneloe with Laurentian's need to successfully restructure. Since Laurentian has already saved more than $30 million, Hatnay said they don’t need to terminate the agreement with Thorneloe to survive.
"Laurentian can certainly survive now, and it can survive with Thorneloe," he said. "Thorneloe is very small. Laurentian is a behemoth compared to Thorneloe."
He also argued that Laurentian is effectively trying to eliminate a competitor, trying to grab revenue from Thorneloe for its own operations.
"That is the motive," Hatnay said. "Lessening competition."
But D.J. Miller, lawyer for Laurentian, said all the students are Laurentian students. While there are 91 students at Thorneloe, there are 9,000 at Laurentian, so in no way are they competitors.
While Hatnay argued that terminating the agreement is not necessary, Miller said it was recommended by the monitor of the insolvency – Ernst & Young – a fact that the courts must give considerable weight.
She said it's an important element of LU's motion to extend CCAA proceedings to Aug. 31 and access an additional $10 million in emergency funding (called DIP funds) Laurentian needs to borrow to continue operating through the summer.
The lawyer for the DIP lenders, Vern DaRe, said lenders require the added revenue from cancelling the federated universities agreement to approve the additional funding and they would oppose any attempt by the court to order them to loan LU more money, saying it would send a "chill" into the DIP market.
Miller also said the savings achieved so far doesn't include money Laurentian will need to pay off its loans, deal with its $100 million in existing debts, and to set aside money for operations and a "rainy day" fund in case of unexpected challenges.
Geoffrey B. Morawetz, Chief Justice of the Superior Court of Justice who is hearing the case, said he wouldn't reveal his ruling until there's a decision on the University of Sudbury's motion, which will be heard Friday morning.
The U of S is also fighting the termination of the agreement, and is seeking to take over all French programs offered at Laurentian.
Morawetz said he expected both decisions to be announced sometime Sunday, May 2 at 11:00 p.m.