Bogue v. Miracle

(Ontario)

Can a receiver, acting on behalf of a non-First Indian creditor, recoup profits from an on-reserve business of a First Nation debtor?

No.

On September 29, 2022, the Ontario Court of Appeal affirmed the protections under section 89 of the Indian Act, 1985 ("Act") apply to the conduct of a receiver. The receiver could not recoup the profits from on-reserve businesses to satisfy a debt owed to a non-First Nation creditor but could seize property located off-reserve. In addition, the Court reaffirmed that s. 89 of the Act protects all on-reserve assets, from seizure by non-Indians, regardless of whether they are part of the 'commercial mainstream' or not.

An application for leave to appeal to the Supreme Court of Canada was filed on December 2, 2022.

BCIMC Construction Fund Corporation v. 33 Yorkville Residences Inc.

(Ontario)

If there is more than one mortgage, do liens pursuant to the Construction Act, 1990 (Ontario) have priority over each mortgage to the extent of any deficiency in the holdbacks required to be retained by the owner?

No.

In April 2022, the Ontario Superior Court of Justice (Commercial List) held that a lien claimant’s priority under the Construction Act, 1990 over the mortgages is limited to the extent of the deficiency in the owner's holdback. The Court observed that the number of mortgages is irrelevant. The key principle is that the Construction Act lien claimant receives priority only to the extent of any deficiency in the owner’s holdback.

On January 3, 2023, the Ontario Court of Appeal dismissed an appeal of this decision.

Stevens v. Hutchens

(Ontario)

Are mortgages granted by mortgagor corporations' for debts owed to creditors of the principal of such mortgagor corporations, fraudulent conveyances under the Fraudulent Conveyances Act, 1990 (“FCA”)?

Yes.

On November 14, 2022, the Ontario Court of Appeal dismissed an appeal, confirming the lower court’s decision that mortgages over six properties were void ab initio.

The trial Court found that the principal caused the mortgages to be granted by the mortgagor corporations as security for personal liabilities. She treated the properties registered in the name of the mortgagor corporations as her own. The Court agreed that the mortgages in question were made with the intent to defeat creditors or “others”, per s. 2 of the FCA. The Court held that “others” could include creditors of the mortgagor corporation’s principal, and was not restricted to creditors of the mortgagor corporations.

Just Energy Group Inc. (Re)

(Ontario)

When will a reverse vesting order (“RVO”) be granted?

Echoing the reasons in Harte Gold regarding when an RVO should be granted, the Ontario Superior Court of Justice (Commercial List) emphasized that courts must carefully consider whether an RVO is warranted in the circumstances. The Court identified that an RVO has been granted where – (i) the debtor operates in a highly-regulated environment; or (ii) the debtor is a party to certain key agreements that would be difficult or impossible to assign to a purchaser; or (iii) if maintaining the existing legal entities would preserve certain tax attributes that would be otherwise lost in a traditional vesting order transaction.

Just Energy is the first RVO to be recognized under Chapter 15 of the U.S. Bankruptcy Code.

Medipure Pharmaceuticals Inc. (Re)

(British Columbia)

Whether funds received from an interim financing lender can be used to pay that lender's secured pre-filing loan in priority to debts owing to other creditors?

No.

On October 7, 2022 the British Columbia Supreme Court dismissed an application for interim financing on the terms proposed by the applicant which included the pay out in full of the debtor’s pre-filing secured loan with the interim lender before other secured claims of the debtor.

The Court acknowledged that CCAA judges can grant an interim financing charge in priority to statutory deemed trust claims. However, the Court found that the use of new money from the proposed interim financing to pay out its pre-filing secured loan and priming all pre-filing charges is prohibited. The Court found that s. 11.2 (1) of the CCAA prevents an interim financing charge from securing pre-filing obligations through roll-up or take-out provisions to the prejudice of other creditors.

Golden Oaks Enterprises Inc. v. Scott

(Ontario)

In circumstances of fraud by a principal, when are creditors’ claims considered to be discoverable for the purposes of limitation periods?

The Ontario Court of Appeal declined to apply the principle of corporate attribution, which would have imputed Golden Oaks with the knowledge of fraud of its principal. As a result, the limitation period in respect of the unjust enrichment claim began to run when the trustee in bankruptcy was appointed.

There were strong style="color: #007ccf;" public policy grounds to resist imputing the principal’s knowledge on the bankrupt. Corporate attribution would have also undermined a fundamental tenet of insolvency law: the equitable distribution of a debtor’s assets between its creditors. Attribution would lead to the perverse outcome of allowing the appellants to retain certain fraudulent payments as well as depriving the Trustee of a civil remedy that would enlarge recoveries for the bankrupt’s other legitimate creditors.

An application for leave to appeal to the Supreme Court of Canada was filed on October 20, 2022.

Flight (Re)
(Ontario)

Can a trustee in bankruptcy be sued without the leave of the Court?

No.

Section 215 of the BIA requires that the Court’s permission be obtained to bring an action against a trustee in bankruptcy “with respect to a report made under, or any action taken pursuant to, this Act”.

On July 13, 2022, the Court of Appeal for Ontario held that if the claim alleges wrongdoing in the performance of the trustee’s role, naming an individual rather than the corporate trustee as a defendant or asserting the claim is brought against the trustee in a personal capacity is not sufficient to avoid the broad gatekeeping function of Section 215.

As clarified by Flight, Section 215 is important as it allows the Bankruptcy Court to screen out frivolous, vexatious actions that do not disclose a cause of action or for which there is no factual support so that the trustee need not respond to them. This avoids the cost and distraction of litigation that would make the bankruptcy process unworkable.

The Court distinguished Flight, in which the allegations were based in common law, from other cases in which the allegations were the failure to take or do an action specifically and expressly required by the BIA, which the Court held was outside Section 215.

An application for leave to appeal to the Supreme Court of Canada was filed on October 28, 2022.

AG and Agence du revenu du Québec v Richter Advisory Group Inc. (“ChronoMétriq”)
(Quebec)

Can the Court grant charges in favour of interim lenders and others that rank in priority to the Crown’s deemed trust claims?

Yes.

On October 27, 2021, the Superior Court of Quebec, Commercial Division approved an interim lender's charge, an administration charge and a directors’ and officers’ charge ranking in priority to any trusts (statutory or otherwise).

The Attorney General of Canada and the Québec Revenue Agency filed notices of appeal with the Court of Appeal of Quebec, arguing the Court did not have authority to rank the charges above Crown deemed trusts. CIBC, the Canadian Bankers’ Association and the Insolvency Institute of Canada are each authorized to intervene in the consolidated appeal.

As of January 23, 2023, the appeal hearing has not been scheduled.

Antchipalovskaia v. Guestlogix Inc.
(Ontario)

How should reasonable notice be calculated when an employee is terminated immediately before and then rehired immediately after a court-approved sale under the CCAA?

On June 9, 2022, the Court of Appeal for Ontario held that the employee’s pre-CCAA service period remains relevant in determining their without-cause damages payable by a subsequent purchaser regardless of any release or distribution during the CCAA proceedings.

A purchaser of a restructured business who intends to employ existing employees may be assuming at least a portion of the employees’ seniority regardless of any release obtained in the CCAA proceedings.

Leave to appeal this decision to the Supreme Court of Canada was not sought and the time period has lapsed.

Agence du revenu du Québec v. FTI Consulting Canada Inc.

(Arrangement relatif à Bloom Lake (Re))

(Quebec)

Do input tax credits (e.g., HST/GST credits) resulting from the payment of damages for the disclaimer of agreements constitute pre- or post-filing claims under the CCAA for set-off or compensation?

They are post filing claims.

In a decision issued on November 8, 2021, the Superior Court of Quebec held that Input tax credits (“ITC”) resulting from the payment of damages for the disclaimer of agreements constitute post-filing claims under the CCAA that may not be set off or compensated with pre-filing claims.

On December 22, 2022, the Quebec Court of Appeal (“Appellate Court”) dismissed an appeal brought by the Quebec Revenue Agency and the CRA. The Appellate Court upheld the Superior Court’s ruling that a plain reading of the provisions in the Excise Tax Act and the Quebec Sales Tax Act led to the conclusion that when an amount is paid because of the termination of an agreement for a taxable supply, the person is deemed to have paid for the supply and the registrant is deemed to have collected the tax, on the day that the amount was paid.

Hence, the ITCs could only have been claimed by the debtor when the suppliers received partial payment on the damage claims. Since this occurred when the interim distribution was made, long after the initial order, the ITCs were post filing claims. The Appellate Court also agreed that there can be no set-off between claims arising before and after an initial CCAA order and that the trial judge appropriately refused to exercise its discretion.

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.

The Ontario Superior Court of Justice (Commercial List) held that the payments made in the fraudulent scheme were transfers at undervalue.

The Court of Appeal for Ontario held that permitting fraudsters to benefit at the expense of creditors would be perverse. In the context of transfers at undervalue under the BIA, the fraudulent intentions of the company’s directing mind should be imputed to the company to achieve the social purpose of providing proper redress to creditors.

Leave to appeal brought by Aquino was granted by the Supreme Court of Canada on January 19, 2023.

Manitok Energy Inc (Re)
Alberta

Whether end-of-life obligations associated with the abandonment and reclamation of unsold oil and gas properties must be satisfied by the receiver from the company’s estate in preference to satisfying what may otherwise be first-ranking builders’ lien claims based on services provided by the lien claimants before the receivership date.

Yes.

On March 30, 2022, the Court of Appeal of Alberta allowed an appeal finding that end-of-life obligations associated with the abandonment and reclamation of unsold oil and gas properties must be satisfied in priority to the builders’ lien claims. The Court held that, as in Redwater, the proceeds of the sale of the valuable assets must be applied toward the reclamation of the worthless orphaned assets.

Leave to appeal this decision before the Supreme Court of Canada was not filed and the time period has lapsed.

Nolet v AG
(Quebec)

Can tax credits be pro-rated such that the pre-insolvency filing portion is set off against pre-insolvency filing debt?

Yes.

The plaintiff sought the court’s permission to withdraw the class action upon finding that the arguments of the CRA and the interveners (including the Canadian Association of Insolvency and Restructuring Professionals and Superintendent of Bankruptcy) were well founded. In its judgment dated October 4, 2022, the Superior Court of Quebec approved a settlement and withdrawal of the class action.

The CRA confirmed that it will continue to allocate the tax credit per past practice with respect to those individuals in Canada whose BIA proposals were approved between 2017 to 2021, whose assessment in the year of the proposal generated a tax credit that has not as of the date hereof been allocated for offset purposes. This approach was accepted by the Court.

Peace River Hydro Partners v Petrowest Corporation

(Supreme Court of Canada)

Is a court-appointed receiver bound to arbitrate disputes under contracts that include mandatory arbitration clauses?

No.

The Court of Appeal for British Columbia (“BC Court of Appeal”) previously dismissed an appeal, confirming that, due to the doctrine of separability, which recognizes that arbitration clauses are independent agreements within the impugned agreement, the receiver effectively disclaimed the arbitration clause/agreement by bringing the contractual claim in court. As a result, the arbitration clause was of no force or effect.

On November 10, 2022, the Supreme Court of Canada unanimously dismissed the appeal, supporting the conclusion of the BC Court of Appeal but not supporting the use of the doctrine of separability employed by the BC Court of Appeal. The majority found the arbitration provisions were inoperative. Ultimately, it was held that an arbitration agreement can be considered inoperative if enforcing it would compromise the orderly and efficient resolution of the insolvency proceeding.

Sirius Concrete Inc. (Re)
(Ontario)

Can a payment to the debtor on the eve of bankruptcy be returned to the payor on the basis of a constructive trust?

Yes.

On July 13, 2022, the Court of Appeal for Ontario held that the specific facts asserted by the payor could give rise to a constructive trust as a remedy for unjust enrichment. The Court directed the matter to return to the bankruptcy court for directions on the procedure to be followed for a determination of the issue.

Leave to appeal this decision to the Supreme Court of Canada was not sought and the time period has lapsed.

Urbancorp Toronto Management Inc. (Re)
(Ontario)

Should a lease provision which states that proceeds of a transfer are payable to the landlord be invalidated under the pari passu rule or the anti-deprivation rule?

On September 16, 2021, the Superior Court of Justice, Commercial List held that the provision was valid.

The pari passu rule, which invalidates contractual terms that prefer one creditor ahead of the others, does not apply given the language of the provision. The anti-deprivation rule also does not apply as the relevant clause did not mention insolvency or bankruptcy. Instead, it is the lease transfer that triggers the clause.

On March 3, 2022, the Court of Appeal for Ontario dismissed the debtor’s motion for leave to appeal.

Wiebe v Weinrich Contracting Ltd
(Alberta)

Does a supervising judge in a CCAA proceeding have the jurisdiction and authority to retroactively expand the scope of the initial stay of proceedings regarding third-party claims?

Yes.

The Court of Appeal of Alberta allowed the appeal on November 9, 2020, holding that while a court may have the jurisdiction to expand the scope of an initial stay retroactively, procedural fairness considerations overrode the necessity to perform this analysis, and the impugned paragraphs of the vesting order were struck. Specifically, in this case, the appellants were not provided with a reasonable opportunity to respond to the impugned provisions included in the approval and vesting order.

Following the issuance of the above-noted order of the Court of Appeal of Alberta, the scope of the initial stay was reconsidered by the case management judge, who issued an order that arguably retroactively expanded the scope of the initial stay regarding certain third-party claims.

Leave to appeal this decision was granted by the Court of Appeal of Alberta on July 2, 2021.On May 11, 2022, the Court of Appeal of Alberta dismissed the appeal. It held that the interpretation by the case management judge was reasonable. Accordingly, an appellate intervention was not warranted, as decisions of CCAA supervising judges are entitled to considerable deference.

An application for leave to appeal to the Supreme Court of Canada was filed on August 18, 2022.