TORONTO (HedgeWorld.com)–A Hong Kong hedge fund manager, Victor Li, appears to have won an auction for control of Air Canada, subject to the possibility of further court action.

Mr. Li, the principal of Trinity Time Investments Ltd., has been bidding against Cerberus Capital Management LP, New York, for the position known under Canada’s bankruptcy law as “equity plan sponsor,” a position that will allow Trinity to exercise effective control of the restructured corporation.

Air Canada filed for and obtained protection from its creditors under the Companies’ Creditors Arrangement Act on April 1. The Ontario Superior Court appointed Ernst & Young Inc. as monitor.

On Dec. 8, the court approved an initial agreement between the board and Trinity, but it also allowed Air Canada to consider an alternative proposal from Cerberus. Cerberus offered its proposal on Dec. 10, and Trinity responded by sweetening its own, Dec. 19.

Ernst & Young, as monitor, prepared a report on the two proposals over the weekend, relying in large part upon an analysis offered it by Seabury Securities LLC, Air Canada’s financial adviser.

Meanwhile, Mizuho International plc London, a hedge fund subsidiary of Mizuho Financial Group, a Japanese banking group and one of Air Canada’s financial creditors, had sought leave to appeal the court’s Dec. 8 approval of the initial Trinity offer immediately after. Mizuho had objected that the court should not have acted before seeing Cerberus’ Dec. 10 offer.

On Dec. 17, the Court of Appeal for Ontario dismissed Mizuho’s motion for leave to appeal.

On Dec. 22, the board of directors met and confirmed their selection of Trinity as equity plan sponsor, in effect accepting the revised offer.

The terms of the revised offer will give Trinity 31.13% of the equity in the reorganized company. The two classes of creditors will receive 65.86% of the equity combined. Air Canada’s management will receive 3%, and existing shareholders will receive the remainder of the equity: 0.01%.

CFaille@HedgeWorld.com