Gone, yes. Forgotten? Not likely.

Mr. Carfagnini, like just about every insolvency or restructuring practitioner who has had occasion to joust before James Farley (now that he is no longer a judge, the J is for James, not Justice), is pondering what the rules of a Canadian bankruptcy will be in the post-Farley universe.

Apologies. The “b” word went out with acid-washed jeans during the restructuring revolution of the late 1980s early, 1990s as Corporate Canada followed the lead of Corporate America and altered its nomenclature and modus operandi, eschewing the term bankruptcy, preferring insolvency and really digging restructuring.

The restructuring revolution, with Justice Farley, a former corporate lawyer, riding shotgun, created an interesting dynamic inside the Bay Street insolvency bar.

The aggressive litigators who dominated the bar ever since the first corporate dream went belly up started sharing the limelight with corporate dealmakers.

And a skinny, “legislation-light” upstart known as the Companies’ Creditors Arrangement Act (CCAA) — which had been more or less gathering dust since 1933 — was polished up and became the nemesis of U.S. insolvency practitioners schooled in the rigours of Chapter 11, its southern cousin.

But perhaps their nemesis was really Judge Farley, whose 17-year career as the supervising judge of the commercial list of the Ontario Superior Court of Justice coincided with the CCAA’s rise in prominence. Sometimes, that involved making the rules.

“Judge Farley was a pragmatist focused on getting the deal done, not focused on process or rules,” says Andrew Kent, chair of McMillan Binch Mendelsohn’s debt products and restructuring practice.

That pretty much ensured Canadian restructurings had the potential to be interesting, if not entertaining to those who did not have millions of dollars at stake. The rules not so much so.

Justice Farley was legendary for his meetings in chambers during which he forced even the bitterest opponents to birth a compromise. The rules were occasionally shaped to fit after the fact. The question now is whether that practice lives on.

“I think we are going back to the days when matters were argued and decided and dealt with all in front of the bench, out in open court with fewer meetings behind the scenes,” says S. Richard Orzy, co-chair of the bankruptcy and restructuring practice at Bennett Jones.

“I think there will be more confidence in the system now.”

Mr. Orzy wears his bias on his sleeve — the bulk of his practice is U.S. bondholders and international creditors, a group rarely invited to Judge Farley’s private pow-wows

Mr. Carfagnini, however, does not anticipate a revolution.

“The Ontario commercial court is in very good hands, with a lot of strong smart commercial judges,” he says. “If anything, we will develop more depth, because the commercial list is being spread out more.”

Well, maybe not.

The way Mr. Orzy’s U.S. bondholder clients see it, Judge Farley ended up with 90% of the CCAA cases. He was not the first judge to do so: Before him, Judge Lloyd Houlden dominated the lists perhaps even more. And some insolvency practitioners are already anointing a Farley successor.

That would be Geoffrey Morawetz, Mr. Carfagnini’s former partner at Goodmans.

While not in Justice Farley’s mold he’s a seasoned, sophisticated and savvy dealmaker and, as a former top-ranked restructuring practitioner, could end up with more than an equitable share of the CCAA cases and bankruptcies. Er, insolvencies.

Perhaps he will even preside over a solution to the real nemesis of every sizeable restructuring: the pension debacle.

Many people, you see, expect pensions to be the proving ground.

Mr. Orzy thinks the pension situation is a “disaster” and things will get worse before they get better.

“Pensions permeates every file you have small or large, except companies without pension plans. Fifteen years ago, one of our biggest issues in restructurings was getting pension surpluses out.

“I don’t think I’ve seen a pension plan on a restructuring file in the last five years that doesn’t have a significant deficit.”

Stelco’s pension deficit, for a long time a stumbling block to its restructuring — much as was the case in Air Canada before — was about $1.3-billion. That’s a lot of pennies.

“The amounts are staggering,” agrees Mr. Carfagnini.

And not just in Canada. In the United States, many companies have been dumping their pension obligations on the Pension Benefits Guarantee Corporation, saddling it with a US$23.3-billion deficit of its own at the start of 2006.

Out of self-defence both the PBGC and Ontario’s Pension Benefits Guarantee Fund, its only Canadian equivalent, are becoming active players on restructuring files.

The PBGF, represented by Goodmans, was very active on Stelco, trying to make sure the Ontario government and taxpayers were not left holding the bag.

Mr. Orzy points to the litigation in Ivaco Inc., which pitted beneficiaries of Ivaco’s underfunded pension plans against Ivaco’s financial and trade creditors, as a harbinger of fights to come in which pension plan recipients will fight creditors and banks for priority status.

Last week’s Federal Court of Appeal decision upheld Judge Farley’s ruling that provincially deemed trusts do not enjoy priority under the federal bankruptcy statute.

Mr. Orzy thinks recent restructurings, especially Stelco, have created an environment in which “unions and pensions authorities [got] status that they did not deserve.”

He expects more litigation as a result, and no solution in sight.

“To change it, the federal government would have to change labour laws in Ontario, which would mean you’d never get elected again.”

Mr. Kent is more sanguine, but that’s because he’s just pulled off a modest-sized restructuring for Roman Corporation Ltd., in which a union shop agreed to switch from a defined benefit plan to a defined contribution plan — one of the most contentious and costly issues around pension costs and deficits.

“I don’t think Stelco points the way to the future,” says Mr. Kent. “What happened in Roman Corp, with the union agreeing to switch to a D.C. plan to get the deal done, we will see more of that.”

The real test, of course, will be what happens on the next Stelco- sized restructuring.

GM Canada, perhaps?

Judge Morawetz is waiting.

(Copyright National Post 2006)