Coventree Inc. (NEX:COF.H) says it will begin formal windup proceedings in about three weeks, beginning a court-supervised process for liquidating the company’s assets and distributing the proceeds to creditors.

The Toronto-based firm was a central figure in Canada’s ABCP crisis in mid-2007 when about $32 billion of asset-backed commercial paper became frozen — affecting pensions, companies and individuals who couldn’t redeem their notes.

At the time, Coventree was Canada’s biggest non-bank arranger of the debt instruments, which were short-term notes with claims on interest payments from pools of assets such as mortgages, credit card receivables and car loans.

The Canadian ABCP market collapsed in August 2007 after investors became concerned some of the notes were backed by risky U.S. subprime mortgages and stopped rolling over debt when it matured or buying new notes.

Coventree’s business essentially dried up after the Canadian ABCP market froze and its shareholders voted in June 2010 to wind up the company when the time was right.

The company said Wednesday the company’s liquidator will ask the Ontario Superior Court of Justice on Feb. 15 to supervise the identification, resolution and dismissal of claims against Coventree and its officers and directors.

Coventree said it expects claims will have to be filed by March or April but there’s no guarantee how long the process will take or how much money will be available to creditors.

It also announced Wednesday that co-founders Geoffrey Cornish and Dean Tai have decided to appeal a regulatory decision calling for them to each pay $500,000 in penalties for their part in failing to warn the public of problems facing the company in 2007.

A panel of the Ontario Securities Commission found that the company and the two men should have made announcements on two occasions in 2007 after they received information about the way the commercial paper was rated.

The company has previously said it wouldn’t appeal the $1-million penalty levied against it, or a provision in the ruling that allows the two men to ask Coventree to pay the penalties against them.

It said Cornish, who remains with the company, has agreed to limit the amount of legal fees and other costs that will be Coventree’s responsibility to pay on his behalf and he’ll remain involved with the liquidation process.

“Mr. Cornish has agreed that Coventree’s liability to indemnify him for legal expenses and other costs or awards arising from the appeal will be limited to $725,000. The company has agreed to support Mr. Cornish in his appeal but will not participate in it. There is no similar agreement with Mr. Tai.”

In fact, Coventree said it is taking action to recover assets it claims to be owed by Tai, who left the company some time ago.