Two weeks ago, Canada’s court of appeal upheld an earlier ruling that demanded the tobacco industry pay almost £8bn (C$13.6bn) in damages to thousands of Quebec smokers who successfully argued that cigarette makers failed to warn them of the health risks.
Japan Tobacco’s JTI-Macdonald business, which is also liable for the damages, filed for the same Companies’ Creditors Arrangement Act (CCAA) protection earlier this week.
Had ITCAN – BAT’s Canadian subsidiary – not followed suit, it said it could have been required to pay all or part of JTI-Macdonald’s share of the judgment.
Now that it is under creditor protection, it won’t have to shell out any funds to the claimants for the time being.
“Imperial Tobacco Canada has informed us that it disagrees with the court's judgment,” said a BAT spokesperson.
“However, we understand that CCAA protection will provide Imperial Tobacco Canada with 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.”
Following the 1 March ruling, ITCAN made an initial deposit of £436mln (C$768mln) into an escrow account, although its total share of the damages could be as much as £5.3bn (C$9.2bn).
Process could take years
“The filing enables ITCAN to restructure its financial affairs to avoid bankruptcy,” said Liberum analyst Nico von Stackelburg in a note to clients.
“We're told the litigation will probably take a couple of years to settle. We've previously discussed this and believe most watchers of BAT shares were aware of the potential for this outcome.”
He added: “In addition to the Quebec judgement, ITCAN is subject to sizeable healthcare recoupment damages that significantly exceed its assets, so this [protection] would enable ITCAN to continue trading while pulling together all of these judgements.”
BAT shares were down 1.5% to 3,040p on Wednesday morning.