Rebuilding Success Magazine Features - Spring/Summer 2025 > In Case You Missed It: Decisions on Our Radar
In Case You Missed It: Decisions on Our Radar
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By Natasha MacParland, Partner, and Rui Gao, Associate, Davies Ward Phillips & Vineberg LLP1
The blue shading of cells denotes new cases we have been tracking since the last issue of Rebuilding Success; the blue font denotes updates to cases described in a previous issue.
| Case | Issue | Update |
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Ernst & Young Inc. v. Aquino (Ontario) |
Was the false invoicing scheme carried out by the company’s directing mind a “transfer[s] at undervalue […] intended to defraud, defeat or delay a creditor”? |
Yes. Both the Ontario Superior Court of Justice (Commercial List) and the Ontario Court of Appeal held that the payments made in the fraudulent scheme were transfers at undervalue. In its analysis, the Court of Appeal also specifically imputed the fraudulent intentions of the company’s directing mind to that company, even though the directing mind was effectively defrauding the company as well. The lower court’s conclusions were upheld by the Supreme Court of Canada in a decision released on October 11, 2024. The Supreme Court held that the corporate attribution doctrine must be applied purposively, contextually, and pragmatically. Attributing the fraudulent intent to the company was appropriate in this case as it aligned with the aims of section 96 of the BIA, by allowing creditors to recover assets fraudulently transferred and protecting the pool of assets available for their claims. The appeal to the Supreme Court was heard together with the appeal in Golden Oaks Enterprises Inc. v. Scott (see Row 2 below). The Insolvency Institute of Canada (“IIC”) and the Attorney General of Ontario intervened. On November 7, 2024, the appellants moved for a re-hearing of the appeal. The Supreme Court dismissed the motion on December 16, 2024. |
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Golden Oaks Enterprises Inc. v. Scott (Ontario) |
In respect of a Ponzi scheme run by the principal of a company who subsequently files for bankruptcy, should the principal’s knowledge be imputed to the company in assessing when the trustee in bankruptcy’s claims to recover funds lost in Ponzi scheme are discoverable for the purposes of limitation periods? |
No. In a decision released on October 11, 2024, the Supreme Court of Canada upheld the Ontario Court of Appeal’s decision, in which it declined to apply the principle of corporate attribution to impute Golden Oaks with the knowledge of fraud of its principal. The limitation period in respect of the unjust enrichment claim advanced by Golden Oaks’ trustee in bankruptcy began to run only when the trustee in bankruptcy was appointed. The Supreme Court held that attributing the principal’s knowledge to the company would offend public policy, as it would undermine the purpose of the Limitations Act and the BIA by facilitating the retention of illegal proceeds and reducing the value of the debtor’s assets available to creditors. As noted above, the appeal to the Supreme Court was heard together with Ernst & Young Inc. v. Aquino (see Row 1 above). The IIC and the Attorney General of Ontario intervened in this appeal. |
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Re Poonian (British Columbia) |
Does a “fresh start” granted in bankruptcy extinguish fraud related debts and liabilities? |
No. If there is a direct link between the fraudulent activity and the value of the debts or liabilities ordered, they will be exempt from discharge under section 178(1)(e) of the BIA. The British Columbia Securities Commission imposed both a disgorgement order and administrative penalties against the bankrupts on account of their fraudulent conduct in dealing with securities. The British Columbia Supreme Court (“BCSC”) granted an order that these amounts owed by the Poonians would not be released by an order of discharge under the BIA. The BCSC relied on the provisions for ‘exemptions to the discharge of debts’, prescribed under sections 178(1)(a) and (e) of the BIA. The British Columbia Court of Appeal (“BCCA”) dismissed an appeal against the BCSC’s decision. In particular, the BCCA found that section 178(1)(a) did not apply, because it only exempted fines and penalties “imposed by a court”. However, the BCCA upheld the BCSC’s conclusion that both the disgorgement order and the administrative penalties were exempt from discharge under section 178(1)(e) because they are debts and liabilities “resulting from obtaining property or services by false pretences or fraudulent misrepresentation”. The BCCA’s decision was appealed to the Supreme Court of Canada. Numerous parties intervened in the appeal, including the Canadian Association of Insolvency and Restructuring Professionals and the Superintendent of Bankruptcy. On July 31, 2024, in a 5-2 decision, the Supreme Court of Canada allowed the appeal in part, and addressed the applicability of both section 178(1)(a) and section 178(1)(e). With respect to section 178(1)(a), the Supreme Court of Canada found that neither the disgorgement order nor the administrative penalties were exempt from discharge and upheld the BCCA’s conclusion that the words “imposed by a court” in this provision do not capture orders made by administrative tribunals or regulatory agencies that are subsequently registered as judgments of a court. The Supreme Court of Canada also agreed that this exemption is not restricted to fines and penalties associated with criminal or quasi‑criminal proceedings. With respect to section 178(1)(e), the Supreme Court of Canada ruled that provision exempted the disgorgement order from discharge, but not the administrative penalties. This is because: (1) there was a direct link between the fraudulent conduct and the amount of the disgorgement order; and (2) by contrast, the administrative penalties imposed by the Commission were not a direct result of the fraudulent activities, but rather an administrative decision unrelated to the value of property or services obtained as a result of the fraudulent conduct. More generally, the Supreme Court of Canada clarified that for a debt or liability to survive bankruptcy under section 178(1)(e), three elements must be established: (1) false pretences or fraudulent misrepresentation; (2) a passing of property or provision of services; and (3) a link between the debt or liability and the fraud. A motion for rehearing of the appeal was brought to the Supreme Court of Canada on August 30, 2024. On November 28, 2024, the Court dismissed the motion. |
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Piekut v. Canada (Minister of National Revenue) (British Columbia) |
Does the seven-year period in in section 178(1)(g)(ii) of the BIA (“within seven years after the date on which the bankrupt ceased to be a full- or part-time student”) run from the latest date that the bankrupt ceased to be a full- or part-time student, irrespective of whether the studies at that latest date were financed by one or more student loans secured through a government program? |
Yes. On April 19, 2023, the BCCA upheld the decision of the chambers judge regarding the interpretation of section 178(1)(g)(ii) of the BIA. The Chambers Judge had relied on the 2015 decision of the BCSC in Mallory (Re) on this same issue. The BCCA acknowledged that there were conflicting decisions in other jurisdictions (for instance, St. Dennis (Re), 2017 ONSC 2417). In those decisions, other courts had found that the seven-year period in section 178(1)(g)(ii) of the BIA runs from the latest date that the bankruptcy ceased being a full- or part-time student in studies financed through a federal or provincial student loans program. However, the BCCA concluded that the Mallory, rather than those other decisions, was correctly decided. On December 14, 2023, the Supreme Court of Canada granted leave to appeal in this matter. On April 27, 2024, the Supreme Court of Canada granted leave to intervene to numerous parties, including the Canadian Association of Insolvency and Restructuring Professionals. The appeal was heard on November 5, 2024. As of February 4, 2025, this matter is currently under reserve. |
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Atlantic Sea Cucumber Ltd. v. Weihai Taiwei Haiyang Aquatic Food Co. (Nova Scotia) |
Does a legal or operational conflict exist between the notice and service requirements under the CCAA and Nova Scotia’s Civil Procedure Rules? |
No. In this case, Atlantic Sea Cucumber Ltd. filed an application to the Supreme Court of Nova Scotia for a conversion of a BIA proposal to an arrangement under the CCAA. The application documents were not filed and served within the time limit under Nova Scotia’s Civil Procedure Rules. Atlantic Sea Cucumber Ltd. sought an abridgment of time. The Court found the creditor was prejudiced and declined to abridge the time. Given the insufficient notice, the conversion application was dismissed. Atlantic Sea Cucumber Ltd. appealed, alleging a paramountcy conflict between the time limits under the CCAA and the Civil Procedure Rules. The Court of Appeal for Nova Scotia (“NSCA”) dismissed the appeal on the basis that Atlantic Sea Cucumber Ltd. was required, but failed, to seek leave to appeal. The NSCA nevertheless commented on the merits of the matter, noting that there is no legal or operational conflict between the CCAA and Nova Scotia’s Civil Procedure Rules. Both the CCAA and the Civil Procedure Rules gave the judge discretion to waive or abridge the time limits, and the same criteria would govern the exercise of that discretion. The lower court did not err in denying the abridgement of time. On May 27, 2024, Atlantic Sea Cucumber Ltd. filed an application for leave to appeal to the Supreme Court of Canada. The application was dismissed with costs on December 5, 2024. |
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Peakhill Capital Inc. v. 1000093910 Ontario Inc. (Ontario) |
Is there an automatic right to appeal a procedural order approving a sales process and a stalking horse agreement in a receivership? |
Yes, pursuant to s. 193(1)(c), if the procedural order has the effect of putting in play, and jeopardizing, the value of property by an amount exceeding $10,000. Prior to the receivership order, the debtor entered into an unconditional agreement of purchase and sale (APS) with a third party to sell its principal asset for $31,000,000. After the receivership order was issued, the receiver entered into a stalking horse agreement as part of a proposed auction sale with the same third party for a minimum sale price of $24,255,000, and providing for a break fee of $250,000 to the third party if a superior bid is secured. The Ontario Superior Court of Justice (Commercial List) approved the sales process and stalking horse agreement and refused to hear a cross-motion by the debtor to approve the original APS. The Commercial List found that the cross-motion was short served and could not be considered without notice, and that it had little chance of success in any event. The debtor sought to appeal the decision. The receiver objected to the appeal on the basis that there was no automatic right to appeal because the order was procedural in nature. The Ontario Court of Appeal concluded that the debtor had an automatic right to appeal. Although the order was procedural in nature, it had the effect of putting into play, and jeopardizing, the value of property by an amount exceeding $10,000. This conclusion was based on: (i) a comparison of the terms of the original APS and the stalking horse agreement; and (ii) a finding that the order deprived the debtor of any ability to complete or enforce the original APS. The appeal as of right by the debtor was subsequently dismissed in 2024 ONCA 261. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Qualex-Landmark Towers Inc. v. 12-10 Capital Corp (Alberta) 2023 ABCA 177 (granting leave to intervene to Canadian Bankers’ Association) 2024 ABCA 115 (appeal from the ABKB decision) |
Does an environmental remediation obligation take priority over creditors, including secured creditors such as mortgagees, outside of formal bankruptcy proceedings? |
No. In this case, Capital Corp’s land had contaminants that spread onto Qualex-Landmark Towers Inc. (“QLT”)’s land. Capital Corp was allegedly insolvent but had not yet entered formal insolvency proceedings. QLT was concerned that Capital Corp would not be able to satisfy its environmental remediation obligations. At first instance, the Alberta Court of King’s Bench (“ABKB”) relied on the Supreme Court’s decision in Redwater (styled as Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5), and held that there was a reasonable likelihood that environmental remediation obligations can take a super priority charge over property even outside formal bankruptcy proceedings and without involvement of a regulator. The Court held that entities have a duty to the public to comply with their environmental remediation obligations and that they should not be able to avoid this duty because they have not yet entered into formal bankruptcy proceedings. Capital Corp. and three of its mortgagees filed fast-track appeals from this decision to the Alberta Court of Appeal (“ABCA”). The Canadian Bankers’ Association obtained leave to intervene in the appeals. The ABCA allowed the appeal and set aside the previous order. Among other things, the Court found that the lower court had erred in displacing valid statutory priorities and in implementing “a change in the law that is not the courts’ to make”. Further, the ABCA held that the Redwater analysis could not be expanded in the manner proposed by QLT. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Peakhill Capital Inc. v. Southview Gardens Limited Partnership (British Columbia) 2023 BCCA 368 (application to lift stay of proceedings triggered by appeal) 2024 BCCA 246 (appeal on the merits) |
Can the Court grant a reverse vesting order (“RVO”) in a receivership proceeding where the main benefit of the RVO structure is the avoidance of a tax liability? |
Yes, if the criteria for granting an RVO are met. The debtor company had been placed in receivership and was pursuing an RVO in connection with a sale of its undertaking. The purpose of the RVO structure, as opposed to a standard approval and vesting order, was to avoid a tax liability of $3.5 million. The Province of British Columbia opposed the structuring of the transaction as an RVO. The BCSC relied on Payslate Inc. (Re), 2023 BCSC 608, in finding that RVOs are available tools in insolvency contexts other than CCAA proceedings. Upon finding jurisdiction, the Court found that the Harte Gold factors (set out in Harte Gold Corp. (Re), 2022 ONSC 653) were met and that the RVO structure was justified. The Court found that there was nothing unlawful about avoiding the tax liability through an RVO, given that the tax liability was one that could be readily avoided in a non-insolvency context. The Province appealed to the BCCA, triggering an automatic stay of proceedings under s. 193 of the BIA. The purchaser applied for an order lifting the stay of proceedings to allow for the sale transaction to complete on time. The Court granted the order, lifting the stay with certain conditions to protect the Province in the event the appeal is successful. On July 2, 2024, the BCCA dismissed the Province’s appeal. The Province filed for leave to appeal to the Supreme Court of Canada on October 1, 2024. As of February 4, 2025, leave had not yet been granted. |
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Royal Bank of Canada v. Canwest Aerospace Inc. (British Columbia) |
Is the court authorized to grant an RVO in a receivership proceeding? |
Yes. Canada opposed the proposed RVO on the basis that that the court has no power to order an RVO in a receivership proceeding, similar to the Province’s position in Peakhill. The BCSC followed the decision in Peakhill Capital Inc. v. Southview Gardens Limited Partnership, 2023 BCSC 1476 (summarized above and decided a few months prior), holding that the Court has jurisdiction to grant an RVO in a receivership. At the time, the appeal in Peakhill had not yet been decided. While Peakhill was under appeal, until any appellate authority calls Peakhill into question, the Court stated it was bound to follow it and reject Canada’s argument. Upon finding jurisdiction, the Court found that the Harte Gold factors were met and that the RVO structure was justified. The time period for seeking leave to appeal to the BCCA has lapsed. Leave was not sought. |
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Invico Diversified Income Limited Partnership v. NewGrange Energy Inc. (Alberta) |
Are gross overriding royalties interests in land that cannot be “vested out”, i.e., removed from title to the assets being purchased in an RVO? |
In this case, no. Gross overriding royalties can constitute an interest in land, or can be contractual rights to receive royalty payments without constituting an interest in land. The ABKB found that the gross overriding royalties in this case were not interests in land, and that they could be therefore vested out in an RVO. The Court declined to consider whether in the event that the gross overriding royalties were interests in land, they could still be vested out in an RVO. In determining the royalty interests did not “run with the land,” the Court employed the test from Bank of Montreal v Dynex Petroleum Ltd, 2002 SCC 7 to ascertain the intentions of the parties. Despite language in the royalty agreement purporting to create an interest in the land, the language in the royalty assignment clause and the surrounding factual circumstances indicated otherwise. NewGrange Energy Inc. (the holder of the gross overriding royalties) sought leave to appeal the decision of the ABKB. On July 5, 2024, the ABCA granted leave to appeal. |
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In the Matter of The Body Shop Canada Limited (Ontario) 2024 ONSC 5938 (extending the stay of proceedings) |
When are factors determinative in a decision to appoint representative counsel in a contested motion? |
In this contested motion, the Ontario Superior Court of Justice (Commercial List) denied the motion to appoint representative counsel for the terminated employees of The Body Shop Canada Limited. The Court considered the factors discussed in CanWest Publishing Inc. (Re), 2010 ONSC 1328 (while noting that they are neither exhaustive nor mandatory) in denying the motion for representative counsel in this case. Consideration was given to the fact that the universe of potential class members was relatively small, and that the potential claims of the terminated employees were relatively straightforward. Further, there was no evidence of significant diverging interests between or among different employee groups. Critically, the Court considered the appropriateness of including a mandatory opt-out mechanism in the proposed order. At the time of the motion, only 38 of the 220 terminated employees had retained representative counsel. Such a mechanism (and the appointment of representative counsel) would, in effect, subject the terminated employees to a mandatory discount to the gross amount they would otherwise recover from the company. Moreover, the Court found that the proposed scope of representative counsel’s immunity from liability is too broad in this case. It would seek to immunize representative counsel (if appointed) from any liability related to “its duties in carrying out the provisions of [the order sought]”. Even though such immunity was routinely granted in representation orders, the Court pointed out that representative counsel are differently positioned than Court officers or amicus curiae. While representative counsel owe duties to their client group, Court officers and amicus curiae owe duties to the Court. |
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John Doe (G.E.B. #26) v. Roman Catholic Episcopal Corporation of St. John’s (Newfoundland and Labrador) 2024 NLSC 180 (Updated reasons for judgment) |
Do the BIA or the CCAA fix the date for valuing tort claims against an insolvent defendant as of the initial filing date? |
No. In this case, the debtor was subject to significant potential liabilities relating to over 150 tort claimants presenting claims with an aggregate value of greater than $50,000,000. Some of the tort claimants had deceased following the debtor’s initial filing date, and as a result their claims passed on to their estates pursuant to the Survival of Actions Act , RSNL 1990, c.S-32 (the “SAA”). However, section 4 of the SAA restricts of the nature of recoverable damages to “only damages that have resulted in actual monetary loss to the estate”. To avoid this restriction, the estates argued that the CCAA and BIA should be interpreted as fixing the date for valuing creditors’ claims as of the initial filing date, and that if the tort claimants were alive on the initial filing date but later died, the restrictions in the SAA should not apply to their estates’ claims. This argument was rejected by the Supreme Court of Newfoundland and Labrador. The estates appealed to the Court of Appeal of Newfoundland and Labrador (“NLCA”), which appeal was dismissed on July 22, 2024. The NLCA noted that neither the BIA nor CCAA sets out specific rules for the evaluation of tort claims, and there is no reason inherent in the objectives of insolvency legislation to depart from basic tort and statutory law when valuing tort damages in an insolvency, and that the trial judge appropriately exercised their discretion under the statutes. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Griffon Partners Operation Corporation (Re) (Alberta) 2024 ABCA 279 (granting leave to appeal) |
Can the doctrine of marshalling be applied where there is not a single common debtor? |
Yes, in exceptional circumstances, which did not exist in this case. This insolvent debtor in this case owed obligations to both senior secured creditors and a subordinate secured creditor. The debtor’s obligations to both sets of creditors were secured by its present and after-acquired property. Its obligations to the senior creditors were further secured by a guarantee from the holding company of one of the debtor’s directors. The subordinate creditor argued that the doctrine of marshalling should apply such that the senior secured creditor should enforce on the guarantee first. The doctrine provides that if a creditor has two funds to draw upon to satisfy a debt, the Court may require the creditor to resort to the fund that other creditors cannot access. Ordinarily, the doctrine requires that both funds belong to a single debtor. The ABKB recognized that some cases have applied an exception to the “single-debtor” requirement. However, it declined to apply the exception in this case because: (i) the fact that the debtor and guarantor shared a director was not enough for the entities to be “effectively one company”; (ii) the circumstances were not sufficiently extraordinary as to justify piercing the corporate veil; and (iii) applying the doctrine of marshalling would be inequitable to the guarantor holding company. The subordinate creditor obtained leave to appeal on August 26, 2024. The matter was discontinued on November 26, 2024, and the appeal is no longer proceeding. |
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Williams Moving & Storage (B.C.) Ltd. v. Canada (Minister of National Revenue) (British Columbia) |
Can the Court exercise its discretion pursuant to s. 187(5) of the BIA to vary an Order approving a proposal, even though the test for rectification is not met? |
Yes. This involved a drafting error in a proposal under the BIA that resulted in the unintended exclusion of certain related parties from the definition of “Unaffected Creditor”, such that the debtor’s ongoing debts to these parties were not recognized. This precluded the debtor from accessing certain tax loss carry forwards, resulting in additional taxable income of roughly $9 million. The debtor sought the equitable remedy of rectification, and in the alternative, asked the Court to exercise its discretion under the BIA to amend the proposal. The BCSC dismissed the application for both remedies. On appeal, the BCCA agreed with the BCSC that there was insufficient evidence to grant rectification, but found that the lower court should have exercised its discretion to vary the order approving the proposal under s. 187(5) of the BIA. In reaching this conclusion, the BCCA reviewed and discussed factors that should guide the courts’ consideration of section 187(5). The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Arrangement relatif à Gestion Juste Pour Rire inc. (Quebec) |
Does the Wage Earner Protection Program Act (“WEPPA”) apply to former employees of insolvent corporations that are restructured pursuant to an RVO under the CCAA? |
Yes. The WEPPA stipulates that the Government of Canada must pay outstanding wages to individuals whose employment is terminated as a result of an insolvency. In this case, the Superior Court of Quebec considered whether WEPPA payments were owed to employees who were terminated prior to an RVO. With reference to the purpose of the Act, the Court determined that the relevant time for assessing whether the WEPPA applies is the moment at which an insolvent entity’s employees are terminated due to a bankruptcy or restructuring. Subsequent transfers of employee rights or obligations between entities are irrelevant to the analysis. Consequently, the employees were entitled to receive the WEPPA payments. The Attorney General of Canada applied for leave to appeal from this decision. On November 1, 2024, the Quebec Court of Appeal (“QCCA”) dismissed the application. |
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Continental Shed Rentals Inc. v. Trustee in Bankruptcy, Allan Marshall & Associates Inc., in the matter of the bankruptcy of Ileana Negru (New Brunswick) |
Is an unperfected security interest effective if the debtor files an assignment in bankruptcy? |
No. A lessee failed to make monthly payments for a utility shed under a rent-to-own arrangement. The lessor did not register its interest under the Personal Property Security Act (“PPSA”) but successfully obtained a judgment from the New Brunswick Small Claims Court to seize the shed. Before the Sheriff could execute on the Order for Delivery of Personal Property, however, the lessee filed an assignment in bankruptcy. Despite the Small Claims Court’s ruling, the lessee’s Trustee in Bankruptcy disallowed the lessor’s claim to the utility shed on the basis that bankruptcy “takes precedence over all judicial or other attachments”. On appeal, the Court of King’s Bench of New Brunswick sided with the trustee and ruled that the lessor’s unperfected security interest was ineffective. On further appeal, the Court of Appeal of New Brunswick affirmed the King’s Bench ruling. As the lessor had not perfected its interest through registration or possession before the bankruptcy, the lease was not terminated and remained part of the lessee’s estate. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Valeo Pharma Inc. v. Ernst & Young Inc. / Autorité des marchés financiers v. Valeo Pharma inc. (Quebec) 2024 QCCS 3636 (granting Initial Order) 2024 QCCS 4251 (discussing and rejecting the objections of the Autorité des marchés financiers) 2024 QCCA 1741 (granting leave to appeal to the Autorité des marchés financiers) 2025 QCCA 103 (granting leave to intervene to the Ontario Securities Commission) |
Does the CCAA supervising court have jurisdiction to exempt a reporting issuer from continuous disclosure obligations and audit committee requirements under provincial securities law? |
Yes (subject to appeal). Valeo Pharma Inc. is a reporting issuer in Ontario, and filed for CCAA protection. In issuing the Initial Order and subsequently the Amended and Restated Initial Order, the Quebec Superior Court granted exemptions from continuous disclosure obligations and audit committee requirements to Valeo Pharma Inc. and its affiliates under the CCAA. The Autorité des marchés financiers (“AMF”), the Quebec securities regulator, has sought and obtained leave to appeal to the QCCA. The AMF challenges the validity of the exemptions, arguing that they: (i) infringe on its exclusive jurisdiction and authority to regulate reporting issuers and protect investors; and (ii) are contrary to the public interest and the objectives of the CCAA. The AMF contends that the Superior Court erred in applying the doctrine of federal paramountcy to override the provincial securities laws. The Ontario Securities Commission has sought and obtained leave to intervene in the appeal, in support of the AMF's position. Valeo Pharma Inc. and its affiliates have indicated that they will not be responding to the appeal. It remains seen how the appeal will unfold in these circumstances, including whether other parties may seek to intervene in the appeal. |
1 The authors are grateful for the assistance of Konner Fung-Kee-Fung (articling student at Davies Ward Phillips & Vineberg LLP) during the preparation of the chart.