Rebuilding Success Magazine Features - Spring/Summer 2024 > 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 and Rui Gao
The financial restructuring group at Davies Ward Phillips & Vineberg LLP is tracking the following cases. We have briefly described issues and updates for each case relevant to the CAIRP membership. Unless otherwise noted, the information in the chart is current to January 9, 2024—more recent developments in each case are not reflected.
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.
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Case |
Issue |
Summary and 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. The Ontario Superior Court of Justice (Commercial List) held that the payments made in the fraudulent scheme were transfers at undervalue. The Ontario Court of Appeal held that permitting fraudsters to benefit at the expense of creditors would be perverse. In the context of transfers at undervalue under the Bankruptcy and Insolvency Act, 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. On December 5, 2023, the Supreme Court of Canada heard the appeal from the Ontario Court of Appeal’s decision, together with the appeal in Golden Oaks Enterprises Inc. v. Scott (see Row below). The Insolvency Institute of Canada (“IIC”) and the Attorney General of Ontario intervened in this appeal. This matter is currently under reserve. |
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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 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. On December 5, 2023, the Supreme Court of Canada heard the appeal in this case, together with Ernst & Young Inc. v. Aquino (see Row above). The IIC and the Attorney General of Ontario intervened in this appeal. This matter is currently under reserve. |
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Re Poonian (British Columbia) |
Does a “fresh start” granted in bankruptcy extinguish fraud related dues? |
No. The British Columbia Securities Commission imposed a disgorgement order and administrative penalty against the applicants on account of their fraudulent conduct in dealing with securities. The British Columbia Supreme Court (“BCSC”) granted an order that 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 the BIA. The British Columbia Court of Appeal (“BCCA”) dismissed an appeal against the BCSC’s decision. On December 6, 2023, the Supreme Court of Canada heard the appeal from the BCCA’s decision. Numerous parties intervened in the appeal, including the Canadian Association of Insolvency and Restructuring Professionals and the Superintendent of Bankruptcy. This matter is currently under reserve. |
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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 Bankruptcy and Insolvency Act (“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 British Columbia Supreme Court 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. A hearing date has not been set yet. |
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Bogue v. Miracle (Ontario) |
Can a receiver, acting on behalf of a non-First Nation 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 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 section 89 of the Indian Act protects all on-reserve assets, from seizure by non-First Nation parties, regardless of whether they relate to dealings that form part of the “commercial mainstream” that amount to normal business transactions or not. An application for leave to appeal to the Supreme Court of Canada was filed on December 2, 2022. Leave to appeal was denied on May 25, 2023. |
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Rural Municipality of Eye Hill v. Saskatchewan (Minister of Energy and Resources) (Saskatchewan) |
Will dues owed to a rural municipality rank in priority to claims related to unaddressed environmental obligations owed to the Crown? |
No. On March 7, 2023, the Saskatchewan Court of King's Bench rejected an attempt by a rural municipality (“RM”) to gain priority in distribution of residual proceeds from the sale of assets in an oil and gas receivership. The Receiver sold certain oil and gas assets of the debtor and sought to distribute the residual proceeds to the Ministry of Energy Resources to offset $20 million in unaddressed environmental obligations. The RM took the position that it should be paid in priority for municipal taxes owed by the debtor, the RM also asserted a priority over funds in the receivership estate based on an alleged lien and orders issued in the CCAA proceeding. The Court rejected RM’s claims while holding that rural municipalities cannot "lie in the weeds", waiting to assert their claims. RM appealed to the Saskatchewan Court of Appeal, which dismissed the appeal on November 1, 2023. The Court of Appeal disagreed with the lower court on some aspects. Most notably, the Court of Appeal found that RM should not be criticized for not advancing its claim earlier than it did, based on the record in this case. However, in the result, the Court of Appeal concluded that there was no error in law in the lower court’s principal findings. As of January 9, 2024, no application for leave to appeal to the Supreme Court of Canada has been filed. |
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Arrangement relatif à Blackrock Metals Inc. (Re) (Quebec) |
Are supervising judges under the CCAA authorised to grant a reverse vesting order (“RVO”)? |
Yes. On July 8, 2022 the Quebec Superior Court (Commercial Division) (“QCCS”) granted a RVO along with a release in favour of the debtors—BlackRock entities. The Court recognized that BlackRock operates in the highly regulated mining industry, and its business is comprised of assets that would be difficult to assign. Forcing BlackRock to proceed with a traditional asset could significantly increase costs and reduce the value of its assets. On August 5, 2022, the Quebec Court of Appeal refused an application for leave to appeal against the QCCS’ order, sought by BlackRock’s shareholders. The appellants sought to contest the power of supervising judges under the CCAA to issue an RVO and the release granted to the debtors. An application for leave to appeal to the Supreme Court of Canada was filed on October 21, 2022. Leave to appeal was denied on May 4, 2023. |
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Golfside Ventures Ltd (Re) (Alberta) |
Can, and if so, should, the Court exercise its inherent jurisdiction to grant a priority charge in favour of the trustee for the payment of its professional fees? |
In the circumstances of this case, yes. On February 15, 2023, the Alberta Court of King’s Bench granted an order in favour of the trustee to create a first priority charge on the bankrupt’s assets as security for payment of its professional fees. A lien was registered on the bankrupt’s estate after the commencement of bankruptcy. The trustee was not aware of this lien at the time of bankruptcy. Unless the Court’s inherent jurisdiction was applied in this situation, this lien, as a secured claim, would have priority over the trustee’s fees and expenses. The Court considered the 2 pre-conditions for exercising its inherent jurisdiction: (i) the Bankruptcy and Insolvency Act does not exhaustively deal with the matter of priorities between secured creditors and trustees; and (ii) after balancing competing interests, the benefit of granting the relief in favour of the trustee outweighed the relative prejudice to the lien holder. An appeal to the Alberta Court of Appeal was filed on March 16, 2023. The appeal was struck on July 18, 2023 for failure to submit an appeal record. As of January 9, 2024, no application to restore the appeal or to extend time has been brought, and it is unlikely that such an application will be made given the time lapsed. |
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Just Energy Group Inc. et. al. v. Morgan Stanley Capital Group Inc. et. al. (Ontario) |
When will a 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. No appeal has been brought and no leave to appeal has been sought. Just Energy is the first RVO to be recognized under Chapter 15 of the U.S. Bankruptcy Code. Since then, at least three other RVOs have been recognized in the United States under Chapter 15: (i) In re NextPoint Financial Inc., Case No. 23-10983 (Bankr. D. Del.) [Docket No. 155]; (ii) In re Acerus Pharmaceuticals Corporation, Case No. 23-10111 (Bankr. D. Del.) [Docket No. 78]; and (iii) In re Dynamic Technologies Inc., Case No. 23-41416 (Bankr. N.D. Tex.) [Docket No. 59] |
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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 Quebec Superior Court (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 appealed to the Quebec Court of Appeal, 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 intervened in the consolidated appeal. On October 18, 2023, the Quebec Court of Appeal dismissed the appeal. The Court of Appeal affirmed that the lower court had jurisdiction to grant super-priority charges ranking in priority to the Crown deemed trusts, based principally on a reading of the Supreme Court of Canada’s 2021 decision in Canada v. Canada North Group Inc. and an application of that decision to the BIA. On December 18, 2023, the Attorney General of Canada sought leave to appeal to the Supreme Court of Canada. As of January 9, 2024, the application for leave to appeal remains pending. |
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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 Quebec Superior Court 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 dismissed an appeal brought by the Quebec Revenue Agency and the CRA. The Court of Appeal 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 Court of Appeal 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. An application for leave to appeal to the Supreme Court of Canada on February 16, 2023. Leave to appeal was denied on August 24, 2023. |
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Bryton Capital Corp. GP Ltd. v. CIM Bayview Creek Inc. (Ontario) |
Can the holder of a disputed option seek declaratory relief to pre-emptively preclude or dismiss any creditor claims or claims under sections 95 and 96 of the BIA? |
No. On May 19, 2023, the Ontario Court of Appeal upheld the decision of the lower court to dismiss an application by an option holder to preclude or dismiss certain creditor claims challenging the option and any sections 95 and 96 claims under the Bankruptcy and Insolvency Act. The Court of Appeal agreed with the lower court that the court’s jurisdiction to make binding declarations of right is limited to confirming “legal rights that already exist”. The option holder could not obtain a declaration that pre-emptively bars claims that had not been made from being adjudicated on their merits. Moreover, declaratory relief is discretionary and can be refused based on a variety of considerations, and the lower court was entitled to exercise its discretion to refuse the declaration sought by the option holder. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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White Oak Commercial Finance, LLC v. Nygård Holdings (USA) Limited et al. |
Does the Court have jurisdiction to make a substantive consolidation order in respect of a corporation that is solvent? |
Yes. Although the Manitoba Court of Appeal found in this case that the relevant corporations were insolvent, it nevertheless clarified that a Court may order a substantive consolidation between solvent and insolvent corporations in appropriate circumstances. In this regard, the Court of Appeal endorsed case law from the United States, and also found that it is consistent with policy in favour of an equitable and orderly distribution of assets to creditors. The Court of Appeal further agreed with the lower court’s finding that prejudice to a related entity was outweighed by prejudice to a third party entity. In the alternative, even if the consolidation were not ordered, the Court of Appeal would have upheld the lower court’s decision to approve the allocation by the receiver of priority payment obligations and costs as against the proceeds of realization of the assets of the relevant corporations. The allocation was found to be fair and reasonable. Receivership expenses do not need to be allocated amongst debtors strictly on the basis of how assets were chronologically realized and costs paid. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Ontario Securities Commission v. Bridging Finance Inc. (Ontario) |
In a receivership, can the Court grant priority to claims arising from statutory rescission (based on the securities legislation)? |
No. This case involved, among other issues, a dispute as to whether priority should be granted to unitholders seeking to exercise rights of statutory rescission based on the Securities Act (Ontario) that arose before the appointment of the receiver, ahead of other unitholders. At first instance, the Ontario Superior Court of Justice (Commercial List) had ruled that unitholders claiming statutory rescission should be granted priority over the general unitholders. On appeal, the Ontario Court of Appeal set aside this ruling. The Court of Appeal found that there was no basis to find that the statutory rescission claimants were entitled to a priority. Nothing in the Securities Act (Ontario) suggested that the legislature intended to grant a priority. When legislatures grant priorities, they do so in clear and unambiguous terms. Further, there was no basis to grant priority to unitholders claiming statutory rescission over those that may claim common law rescission. The nature of the remedy sought by both groups is the same. In an Aide-Memoire submitted on January 5, 2024, representative counsel for the various groups of unitholders have indicated that leave to appeal to the Supreme Court of Canada will not be sought. |
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Ontario Securities Commission v. Traders Global Group Inc. (Ontario) |
Can a receiver be appointed in Ontario despite a U.S. Court finding receivership not to be necessary? |
Yes. In this case, the Ontario Securities Commission (“OSC”) investigated the Respondents for fraud after receiving a request from the U.S. Commodities and Futures Trading Commission (the “CFTC”). In the U.S. proceeding, based on the applicable legal regime, the District Court for the District of New Jersey declined to appoint a receiver to supervise an asset freeze, finding that it was not necessary to do so. Despite that result in the U.S., upon request by the OSC, the Ontario Superior Court of Justice (Commercial List) appointed a receiver on December 21, 2023 pursuant to s. 129 of the Ontario Securities Act. Under that provision, a receiver may be appointed if the Court is satisfied that it is: (i) in the best interests of the creditors of the person or company to do so; or (ii) appropriate for the due administration of Ontario securities law. The Court found that both of these requirements were met in this case, and that the U.S. decision was not determinative of the analysis the Court has to conduct based on evidence before it and the law in Ontario. |
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Mantle Materials Group Ltd v. Travelers Capital Corp (Alberta) & Cardillo v. Medcap Real Estate Holdings Inc. (Ontario) |
Do the statutory rights of appeal under section 193 of the BIA extend to decisions of a procedural nature? |
No. Within two months of one another, the Alberta Court of Appeal and the Ontario Court of Appeal both clarified that the statutory rights of appeal provided for in section 193 of the BIA do not extend to appeals from decisions that are procedural in nature. For instance, although section 193(c) provides a statutory right of appeal if the value of the property at issue is more than $10,000, this does not mean that there is an automatic right of appeal applies to any order or decision in a proceeding where the value of the property exceeds $10,000. If the order in question does not result in a gain or loss to either party, the decision is likely procedural in nature and leave to appeal must be sought. On December 20, 2023, an application for leave to appeal the Alberta Court of Appeal’s decision in Mantle Materials to the Supreme Court of Canada was filed. As of January 9, 2024, the application for leave to appeal remains pending. As of January 9, 2024, no application for leave to appeal to the Supreme Court of Canada from the Ontario Court of Appeal’s decision in Cardillo has been filed. |
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Garcha v. 690174 B.C. Ltd. (British Columbia) |
Can the Court order a trustee in bankruptcy to reduce and refund already-paid expenses and fees retroactively? |
Yes, in certain circumstances. In this case, the BCSC found that the trustee had only been granted authority to use trust funds for ongoing expenses on interim basis, for a limited purpose. Such authority and the expenses were subject to further Court review. Yet, the BCSC found that the trustee failed to consider the financial consequences of its conduct and took unreasonable legal positions. All of this resulted in significant administrative expenses and fees that exceeded the authority that the trustee had been granted. In the result, the BCSC ordered that the trustee’s expenses and fees be reduced after they had already been incurred. The BCSC also ordered the trustee to pay certain costs of the proceedings personally. On appeal to the BCCA, the trustee argued that the lower court erred in retroactively depriving the trustee of its lawful authority to pay administrative expenses and fees, and that such a retroactive deprivation would have a serious chilling effect on bankruptcy proceedings and the willingness of trustees to take on highly contentious bankruptcies. The BCCA rejected these arguments of the trustee and upheld the lower court’s decision in this regard. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |
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Bank of Montreal v. Iskenderov (Ontario) |
Does the basic two-year limitation period apply to fraudulent conveyances? |
Yes. In this notable decision, the Ontario Court of Appeal overruled its prior decision in Anisman v. Drabinsky, 2021 ONCA 120, holding that Anisman was decided without the benefit of the relevant historical authority. In this case, the Court of Appeal clarified that the ten-year limitation period in section 4 of the Real Property Limitations Act does not apply to an action to declare a fraudulent conveyance of real property void as against creditors under section 2 of the Fraudulent Conveyances Act. This is because the ten-year limitation period in section 4 of the Real Property Limitations Act applies to “an action to recover any land”. It does not apply to relief sought pursuant to the Fraudulent Conveyance Act, which does not lead to the recovery of any land. Instead, the two-year limitation period under the Limitations Act, 2002 applies. The time period for seeking leave to appeal to the Supreme Court of Canada has lapsed. Leave was not sought. |