British American Tobacco PLC said March 12 that its Canadian subsidiary, Imperial Tobacco Canada Ltd., has received creditor protection after losing an appeal against a C$15.6 billion class-action lawsuit alongside Canadian units of Philip Morris International Inc. and Japan Tobacco Inc.
Under the government's Companies' Creditors Arrangement Act, or CCAA, the protection will suspend legal proceedings against Imperial Tobacco and allow the company to trade as usual while it seeks to resolve the litigation in a court-supervised process.
"Imperial Tobacco Canada has informed us that it disagrees with the court's judgment," BAT said in a statement. However, the company said it believes the CCAA protection will provide "an opportunity to settle all of its outstanding tobacco litigation under an efficient and court-supervised process whilst continuing to run its business in the normal course."
BAT said Imperial Tobacco's decision to file for protection follows the Quebec Court of Appeal's ruling, holding the tobacco industry jointly liable for people who developed lung and respiratory illnesses after smoking cigarettes. It also comes after Japan Tobacco's JTI-Macdonald Corp. subsidiary sought the same protection after the court found it liable to pay C$1.77 billion.
BAT said if Imperial Tobacco had not obtained court protection, it could have been required to pay for all or part of JTI-Macdonald's share of the Quebec judgment in addition to its own, which could reach a maximum of C$9.2 billion.
The London-based tobacco maker added that Imperial Tobacco will also look to resolve all other tobacco litigation in Canada under a court-supervised process after other tobacco plaintiffs and provincial governments moved to seek significant damages which, according to BAT, substantially exceed its Canadian unit's total assets.
BAT said the unit's filing will not negatively affect the group's adjusted net debt to adjusted EBITDA ratio, and that any charges would be treated as an adjusting item in its income statement.
Philip Morris' Rothmans Bensons & Hedges is the only company involved in the litigation that has yet to seek creditor protection. However, it earlier said it will appeal the Supreme Court's decision, arguing that the judgment should be reversed because of the lack of evidence from the class-action members.
Analysts have suggested that the Canadian tobacco units could face bankruptcy following the court case.