UPDATE 2-Canadian court puts key ABCP decision on hold

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By Frank Pingue

TORONTO, May 16 (Reuters) - An Ontario court delayed a crucial decision on a C$32 billion ($32 billion) restructuring plan for Canada's nonbank asset-backed commercial paper market on Friday until the judge hears further submissions.

In a written decision, Judge Colin Campbell said that after two days of submissions, "I have concluded that the approval motion should be adjourned for the purpose of further submissions on behalf of interested parties."

Campbell, who acknowledged that his decision may be seen as "counter-productive", said the parties must return to court no later than May 30.

The move comes about nine months after Canada's ABCP market ground to a halt as investors lost confidence in the instruments given their perceived exposure to the U.S. subprime mortgage crisis, and banks refused to give emergency funding.

A key sticking point in the proposed restructuring plan is that it prevents corporate noteholders from suing the banks and brokerages that sold them the stricken asset-backed commercial paper, which has been frozen since last August.

Canadian banks have agreed to fund the restructuring plan as long as they are not sued, while opponents of the plan argue that legal releases from being sued could rule out fraud claims.

Judge Campbell said he is not convinced that the plan's proposed legal releases, which he said are broad enough to encompass release from fraud, are "necessarily fair and reasonable."