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Canadian court rejects cannabis firm iAnthus’ restructuring plan for now

Troubled multistate marijuana operator iAnthus Capital Holdings said a deadline to reach a restructuring and recapitalization deal has been extended after a Canadian court declined to approve a plan of arrangement for the reorganization.

At issue is a form of release of claims between the New York-based cannabis operator and its secured and unsecured noteholders, which was not approved by Justice Geoffrey Gomery of the Supreme Court of British Columbia after a Sept. 25 hearing.

In reasons for judgment delivered orally on Monday and posted online Tuesday, Gomery said the plan of arrangement includes a permanent injunction that would prevent “all persons” from pursuing legal action and enforcing judgments or claims against iAnthus and its current or former officers, directors, employees, shareholders, auditors, financial advisers, lawyers and agents, although it excludes liabilities and claims related to “gross negligence, fraud or willful misconduct” as determined by a court.

The judge said he did not believe the release barring claims of historical shareholders could be justified under British Columbia’s Business Corporations Act.

Gomery also said he did not believe “the release sought in this case can be justified as a fair and reasonable balancing of the interests of the historical shareholders, who receive nothing under the plan and may very well be unaware of this proceeding.”

“If former shareholders have suffered losses resulting from the negligence of iAnthus’ former auditors, officers or directors, it is difficult to see why they should lose their rights of action as an incidence of the company’s insolvency, obtaining nothing in return,” the judge continued.

The cannabis MSO sought the restructuring deal in July after defaulting on interest payments earlier this year.

Under the plan, the amount owed to noteholders would be reduced 28% from $168.7 million as of June 30, 2020, to $121.4 million.

However, Gomery did not fully dismiss iAnthus’ petition for a plan of arrangement.

“It is possible that iAnthus and the noteholders may agree to amend the plan to narrow the release and injunction to the point of acceptability,” he wrote, giving the company an opportunity “to apply, if it thinks fit, on the basis of an amended plan of arrangement.”

Parties to the restructuring support agreement have agreed to extend the deadline to Oct. 6, iAnthus said.

Hadley Ford resigned as iAnthus’ CEO in April after an internal investigation uncovered an apparent conflict of interest.

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