Canadian Bankruptcy andInsolvency Law
Cases, Text, and Materials
Second Edition
Anthony J. DugganProfessor
Faculty of LawUniversity of Toronto
Stephanie Ben-IshaiAssociate Professor
Osgoode Hall Law SchoolYork University
Thomas G.W. TelferAssociate Professor
Faculty of LawUniversity of Western Ontario
Roderick WoodProfessor
Faculty of LawUniversity of Alberta
Jacob S. ZiegelProfessor Emeritus
Faculty of LawUniversity of Toronto
2009EMOND MONTGOMERY PUBLICATIONS LIMITED
TORONTO, CANADA
Detailed Table of Contents
Preface iiiAcknowledgments vShort Table of Contents ixTable of Cases xxvTable of Abbreviations xxixFurther Readings on Bankruptcy and Insolvency Law xxxi
PART I INTRODUCTION
Chapter One Introduction, Evolution, and Modern Objectives 3I. Introduction 3
A. Why Study Bankruptcy Law? 3B. Scope of Casebook 5C. Bankruptcy Terminology 5
II. Evolution of Bankruptcy Law 7Report of the Study Committee on Bankruptcy and
Insolvency Legislation 7Canadian Insolvency Statistics: 1966-2008 25
III. Modern Bankruptcy Objectives 26Thomas H. Jackson, The Logic and Limits of
Bankruptcy Law 27Elizabeth Warren, "Bankruptcy Policy" 38Douglas G. Baird, "Loss Distribution, Forum Shopping, and
Bankruptcy: A Reply to Warren" 46
Chapter Two Constitutional Aspects and Judicial and AdministrativeStructure of Bankruptcy System 55
I. Constitutional Aspects 55A. Introduction 55
Ontario (Attorney General) v. Canada (Attorney General) . . . . 55Reference Re Orderly Payment of Debts Act 1959 (Alberta) 61Donald A. Robinson v. Countrywide Factors Ltd 68Sam Levy & Associes Inc. v. Azco Mining Inc 79
II. Outline of Canada's Bankruptcy System 87A. Proceedings Under the BIA 87
Report of the Study Committee on Bankruptcy andInsolvency Legislation 87
B. Role of Registrars in Bankruptcy 94
xiii
xiv Detailed Table of Contents
PART II BANKRUPTCY
Chapter Three Initiation of Bankruptcy Proceedings andConsequences of Bankruptcy 97
I. Introduction 97II. Initiation of Bankruptcy Proceedings 97
Re Dixie Market (Nurseries) Limited 98Re Holmes and Sinclair 99Re Mastronardi 101Platt v. Malmstrom 108Valente v. Fancsy Estate 112Moody v. Ashton 116Bank of Montreal v. Scott Road Enterprises Ltd 117Re Dahl 125Re Wale 128
III. Consequences of Bankruptcy Order: Stay of Proceedings 135Vachon v. Canada
(Employment & Immigration Commission) 135R v. Fitzgibbon 143
Chapter Four Property of the Estate 149I. Introduction 149
II. What Is "Property"? 150Saulnier v. Royal Bank of Canada -. 150Re Holley 161
III. Secured Creditors 167Re Giffen 167Re Fields 175
IV. Bona Fide Purchasers and the Like 181V. Trusts 181
Baltman v. Melnitzer 183VI. The Intersection of Bankruptcy and Family Law 188
VII. Sales 190VIII. Set-off 192
R.M. Goode, Principles of Corporate Insolvency Law 192Coopers & Lybrand v. Lumberland Building Materials 193Canada Trustco Mortgage Co. v. Sugarman 198
Chapter Five Review of Pre-Bankruptcy Transactions 205I. Introduction 205
II. The Provincial Fraudulent Conveyance Laws 206A. Introduction 206
Profile United Industries Ltd. v. Coopers & Lybrand 207Optical Recording Laboratories v. Digital Recording Corp 210
Detailed Table of Contents xv
III. The BIA Transfers at Undervalue Provision 218A. Prior law 218B. Shortcomings of Prior Law 219C. The 2007 BIA Amendments 220
Standard Trustco Ltd. (Trustee of) v. Standard Trust Co. 221Peoples Department Stores Inc. (Trustee of) v. Wise 224
IV. The BIA Preference Provisions 228Alan Schwartz, "A Normative Theory of
Business Bankruptcy" 232Blaine L. Hudson, Trustee v. Benallack 235Canadawide Fruit Wholesalers Inc. (Trustee of) v.
Hapco Farms Inc 240St. Anne Nackawic Pulp Co. (Trustee of) v.
Logistec Stevedoring (Atlantic) Inc 243V. The Provincial Preference Provisions 250
Tamara M. Buckwold, Reform of Fraudulent Conveyances andFraudulent Preferences Law, Part II: Preferential Transfers ... 250
Chapter Six Executory Contracts 255I. Introduction 255
II. Disclaimer 256A. Introduction 256B. Landlord and Tenant Agreements 257
Commercial Tenancies Act 258Re Vrablik 259
C. Other Contracts 265New Skeena Forest Products Inc. v.
Don Hull & Sons Contracting 265In re Thomson Knitting Co. 267Creditel of Canada Ltd. v. Terrace Corp 270Armadale Properties Ltd. v. 700 King St. (1997) Ltd 275
III. Affirmation 278A. Introduction 278B. Landlord and Tenant Agreements 279C. Other Contracts 279
Potato Distributors Inc. v. Eastern Trust Company 280In the Matter of the Bankruptcy of
North American Steamships Ltd. 284IV. Assignment 290
Re Darrigo Consolidated Holdings 291
xvi Detailed Table of Contents
Chapter Seven Claims Against the Estate and Recovery of Claims 295I. Introduction 295
II. Illustrative Cases 297Ontario New Home Warranty Program v. Jiordan Homes Ltd.... 297Re Dunham 299Claude Resources Inc. (Trustee of) v. Dutton 304Re Wiebe 310Bukvic v. Bukvic 312Bittner v. Borne Chemical Company, Inc 315In re Chavez 319In re FV Steel and Wire Co 324
III. Mass Tort Claims 329In re Roman Catholic Archbishop of Portland in Oregon 331National Bankruptcy Review Commission, Bankruptcy:
The Next Twenty Years 336
Chapter Eight Secured Creditors, Crown Claims, andStatutory Deemed Trusts 343
I. Introduction 343II. Secured Creditors' Claims 344
A. Introduction 344B. Definition of Secured Creditor 345C. Enforcement of Security Interests 345
R v. Ford Credit Canada Limited 346D. Secured Creditors' Right to Post-Bankruptcy and
Post-Discharge Collateral 355Holy Rosary Parish (Thorold) Credit Union Ltd. v.
Robitaille (Trustee of) 355Holy Rosary Parish (Thorold) Credit Union Ltd. v. Bye 358J.S. Ziegel, "Post-Bankruptcy Remedies of Secured Creditors:
Some Comments on Professor Buckwold's Article" 359III. Crown Claims 365
A. Introduction 365Husky Oil Operations Ltd. v. Canada
(Minister of National Revenue—MNR) 367B: The 1992 Reformed Approach to Crown Claims 372
Re Gillford Furniture Mart Ltd 372C. Statutory Deemed Trusts 376
British Columbia v. Henfrey Samson Belair Ltd 376
Detailed Table of Contents xvii
D. Deemed Trusts Under the Income Tax Act 381Barbara K. Morgan, "Should the Sovereign Be Paid First—
A Comparative International Analysis of the Priority forTax Claims in Bankruptcy" 382
First Vancouver Finance v. Canada(Minister of National Revenue—MNR) 384
Canada (Deputy Attorney General) v.Schwab Construction Ltd 387
E. Reform Options 389
Chapter Nine Ranking of Creditors and Distribution of Proceeds 393I. The Bankruptcy Scheme of Distribution 393
II. Unpaid Suppliers 394Jacob S. Ziegel, "New and Old Challenges in Approaching
Phase Three Amendments to Canada's CommercialInsolvency Laws" 394
Thomson Consumer Electronics Canada, Inc. v. ConsumersDistributing Inc. (Receiver Manager of) 396
Port Alice Specialty Cellulose Inc. (Bankruptcy) v.ConocoPhillips Co 398
III. Wage Claims 405Kevin Davis and Jacob Ziegel, "Assessing the Economic Impact
of a New Priority Scheme for Unpaid Wage Earners andSuppliers of Goods and Services" 405
IV Pension Fund Contributions 408Re Graphicshoppe Ltd 408
V. Environmental Claims 410Dianne Saxe, "Trustees' and Receivers' Environmental
Liability Update" 410VI. Preferred Claims 416
New Zealand Law Commission, Priority Debts in theDistribution of Insolvent Estates: An Advisory Report tothe Ministry of Commerce 417
ReMilad 419VII. Contractual Subordination 420
Re Air Canada 420VIII. Postponed Claims 425
A. Postponement Under the BIA 425Re Blue Range Resource Corp 426
B. Equitable Subordination 433Thomas G.W. Telfer, "Transplanting Equitable Subordination:
The New Free-Wheeling Equitable Discretion in CanadianInsolvency Law?" 433
xviii Detailed Table of Contents
Chapter Ten Liability of Corporate Directors and Insolvency 439I. Introduction 439
II. Directors' Personal Liability for Corporate Debts 440Barrette v. Crabtree Estate 440
III. Sanctions for Director and Officer Conduct Detrimental to Creditors 451A. Directors' Duties and the Interests of Creditors:
The Evolution of the Duty 451Jacob S. Ziegel, "Creditors as Corporate Stakeholders:
The Quiet Revolution—An Anglo Canadian Perspective" . . . 451Andrew Keay and Mao Zhang, "Incomplete Contracts,
Contingent Fiduciaries, and a Director's Dutyto Creditors" 452
Peoples Department Stores Inc. (Trustee of) v. Wise 453North American Catholic Educ. Programming Found, v.
Gheewalla 463B. The Oppression Remedy 466
BCE Inc. v. 1976 Debentureholders 466Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc 478Danylchuk v. Wolinsky 483
C. Wrongful and Reckless Trading Statutes 491Efficiency and Fairness in Business Insolvencies 491
Chapter Eleven Individual Bankruptcies and Consumer Issues 495I. Introduction 495
A. Growth in Consumer Insolvencies 495II. Role of Trustees 496
A. Initiation of Proceedings 496Stephanie Ben-Ishai and Saul Schwartz,
"Bankruptcy for the Poor" 497B. Trustee Fees 502
Re Berthelette 503III. Exempt Property 509
A. General Considerations and Purposes of Exemption Law 509Thomas G.W. Telfer, "The Proposed Federal Exemption
Regime for the Bankruptcy and Insolvency Act" 510B. The Choice of Provincial Law for Federal Bankruptcy Exemptions . . . . 511
Thomas G.W. Telfer, "The Evolution of BankruptcyExemption Law in Canada 1867-1919:The Triumph of the Provincial Model" 511
C. Personal Insolvency Task Force Recommendations 512Personal Insolvency Task Force, Final Report 513Re Guest 515
D. Time for Determining the Exempt Status of Property 517E. Consequences of Disposition of Exempt Assets 517
Re Gruber 517
Detailed Table of Contents xix
F. Exempt Property and Valuation Issues 520Re McKay 520
G. Non-Purchase Money Security Interests inExempt Personal Property 525
H. RRSP Exemptions in Bankruptcy 526Persona] Insolvency Task Force, Final Report 526
IV Debtor's Obligation to Contribute Surplus Income to the Estate 529Re Landry 530Cargill Ltd. v. Meyers Norris Penny Ltd 539Charles J. Tabb, "Consumer Bankruptcy After the Fall:
United States Law Under Section 256" 541V. Discharge 542
A. The Canadian Discharge Regime 542Thomas G.W. Telfer, "The Canadian Bankruptcy Act of 1919:
Public Legislation or Private Interests?" 543B. The Theory of the Bankruptcy Discharge 544
Re McAfee 545C. The 2007 Amendments 550D. Non-Dischargeable Debts and Liabilities 551
Stephanie Ben-Ishai, "Government Student Loans,Government Debts and Bankruptcy:A Comparative Study" 552
Re Kelly 555VI. Reaffirmation of Discharged Liabilities 559
Seaboard Acceptance Corp. v. Moen 560Bank of Nova Scotia v. Jorgensen 562Personal Insolvency Task Force, Final Report 566
VII. Credit Granting Practices and Their Impact on Bankruptcy Filings 568Jacob Ziegel, "Consumer Insolvencies, Consumer Credit, and
Responsible Lending" 569
PART III The Companies' Creditors Arrangement Act
Chapter Twelve The Companies' Creditors Arrangement Act: Introduction... 573I. Origins, Philosophy, Evolution, and Comparative Aspects 573
A. Comparative Developments 575II. The Objectives of Restructuring Law 576
Re Lehndorff General Partner Ltd. 576ATB Financial v. Metcalfe & Mansfield Alternative
Investments II Corp. 578Andrew J.F. Kent, Wael Rostom, Adam Maerov, and
Tushara Weerasooriya, "Canadian Business RestructuringLaw: When Should a Court Say 'No'?" 579
xx Detailed Table of Contents
III. Scope of the CCAA 581Enterprise Capital Management Inc. v. Semi-Tech Corp 581Re Stelco Inc 587
IV. The Initial Filing 591Bargain Harold's Discount Ltd v. Paribas Bank of Canada 593Re San Francisco Gifts Ltd 594Michael McNaughton and Mary Arzoumanidis, "Substantive
Consolidation in the Insolvency of Corporate Groups" . . . . 598V. Scope of the Stay 601
Re Doman Industries (Trustee of) 601Re Richtree Inc 602
Chapter Thirteen Carrying On Business During CCAA Proceedings 607I. Introduction 607
II. The Monitor 608Andrew J.F. Kent, Wael Rostom, Adam Maerov, and
Tushara Weerasooriya, "Canadian Business RestructuringLaw: When Should a Court Say 'No'?" 608
III. Governance 611Andrew J.F. Kent, Wael Rostom, Adam Maerov, and
Tushara Weerasooriya, "Canadian Business RestructuringLaw: When Should a Court Say 'No'?" 611
IV. Executory Contracts 616A. Introduction 616B. Disclaimer 616
Re Doman Industries Ltd 617Syndicat national de I'amiante dAsbestos inc. v.
Jeffrey Mine Inc 628C. Affirmation and Assignment 635
V. Derivatives 636Stephanie Ben-Ishai and Peter Kolla,
"Derivatives and the CCAA" 636VI. Debtor-in-Possession Financing 640
Michael B. Rotsztain and Alexandra Dostal,"Debtor-in-Possession Financing" 640
VII. Asset Sales 646Re Consumers Packaging Inc 647Re 1078385 Ontario Ltd 649Royal Bank of Canada v. Fracmaster Ltd 650
Chapter Fourteen Claims 655I. Introduction 655
II. Disputed and Late Claims 656Pine Valley Mining Corp 656Re Blue Range Resource Corp. 658
Detailed Table of Contents xxi
III. Priorities 662A. Secured Creditors 662B. Unsecured Creditors 663C. Subordinated Claims 663D. Crown Claims 663E. Deemed Trusts 664F. Thirty-Day Goods 664G. Environmental Claims 665H. Wage and Pension Claims 665I. Equity Claims 665
Re Ivaco Inc 666IV. Avoidable Transactions 669V Set-off 670
Re Air Canada 670
Chapter Fifteen Approval of CCAA Plans 675I. Introduction 675
II. Voting and Classification of Claims 675Norcen Energy Resources Limited v. Oakwood Petroleums 676
III. Acquisition of Claims 684In re Allegheny International, Inc 684
IV. Treatment of Shareholders 687Re Loewen Group Inc 687
V. Treatment of Equity Claims 691VI. Court Approval 691
Re Sammi Atlas Inc 692ATB Financial v. Metcalfe & Mansfield Alternative
Investments II Corp 695
PART IV BIA PROPOSALS
Chapter Sixteen BIA Commercial Proposals 709I. Genesis and Evolution of Commercial Proposals 709
II. Key Features of the Commercial Proposal Regime 712J.S. Ziegel and R.S. Sahni, "An Empirical Investigation of
Corporate Division 1 Proposals in the TorontoBankruptcy Region" 712
III. Case Law 717A. Dismissal of Proceedings 718
Re Cumberland Trading Inc 718B. Interim Financing Applications 722
Re Bearcat Explorations Ltd 722C. Disclaimer of Leases 724
Re Carr-Harris & Co 724Re Superstar Group of Companies 728
Detailed Table of Contents
D. Classification of Creditors 731Re Points West Fashion Outlets Inc 731
E. Approval/Refusal of Proposals 734Re Wandler 734
F. Secured Claims 739Bruncor Leasing Inc. v. Zutphen Bros. Construction Ltd.
(Trustee of) 739G. Claims of Post-Proposal Creditors 747
Re Model Craft Hobbies Ltd 747H. Annulment of Proposals 752
Re No. 289 Taurus Ventures Ltd 752IV. Operational Experience Under Part III.l 755
Jacob S. Ziegel, "New and Old Challenges in ApproachingPhase Three Amendments to Canada's CommercialInsolvency Laws" 755
Chapter Seventeen Consumer Proposals 757I. Alternatives to Consumer Bankruptcies 757
A. Evolution of Alternatives 758B. Consumer Proposals Under BIA Part III.2 758C. Structure of BIA Part III.2 759D. Division II Consumer Proposals Versus Business Division I
Proposals 760E. Scope of Consumer Proposals 760F. Annulment of Consumer Proposals (Section 66.3) 761G. Comparison to the United States 762H. Non-Profit Debt Repayment and Credit Counselling Service
Agencies 763II. Case Law on Consumer Proposals 764
Automotive Finance Corp. v. Davies 764Rejalal 769ReH. andK. TerMors 771Standing Senate Committee on Banking, Trade and
Commerce, Debtors and Creditors Sharing the Burden:A Review of the Bankruptcy and Insolvency Act and theCompanies' Creditors Arrangement Act 774
III. Credit Counselling and Consumer Education as Part of theBankruptcy Process 775
J.S. Ziegel, Comparative Consumer Insolvency Regimes 775Saul Schwartz, "Counselling the Overindebted:
A Comparative Perspective" 776
Detailed Table of Contents xxiii
PART V RECEIVERSHIPS
Chapter 18 Receiverships 781I. Introduction 781
II. The Position at Common Law 781Ostrander v. Niagara Helicopters Ltd 782Peat Marwick Ltd. v. Consumers Gas Co 787
III. The Statutory Regulation of Receiverships 791John Deere Credit Inc. v. Doyle Salewski Lemieux Inc 793Beresford Building Supplies (1984) Ltd. v.
Caisse Populaire de Petit-Rocher Ltee 795IV. Priorities 799V. The Rise and Fall of the Interim Receiver 801
Re Big Sky Living Inc 801VI. Template Receivership Orders 809
VII. The New Approach to Receiverships 810
PART VI INTERNATIONAL INSOLVENCIES
Chapter 19 International Insolvencies 815I. Introduction 815
II. Jurisdiction of Canadian Courts 816In re Maxwell Communication Corporation pic 817
III. Recognition and Enforcement of Foreign Insolvencies 822A. Evolution of Canadian Law 822B. Treatment of Corporate Groups 823C. Effects of Recognition of Foreign Insolvency Proceedings 824D. Chattel Security Problems 825E. Discharge of Debts Under Foreign Insolvency Law 826F. Recognition and Effects of Foreign Reorganizational Proceedings 827G. Cross-Border Insolvency Provisions 827H. Impact of Model Law on the BIA and CCAA 829
1. Pre-Model Law Developments in Canada 8292. Canadian Version of the Model Law 830
Jacob Ziegel, "Cross-Border Insolvencies" 831I. Case Law 833
1. Recognition of Foreign Insolvency Proceedings 833Re Singer Sewing Machine Co. of Canada Ltd 833Re Babcock & Wilcox Canada Ltd 837Holt Cargo Systems v. ABC Containerline N.V. (Trustees of) ... 841
2. Coopera t ion with and Release of Assets to Foreign Jurisdiction . . . 853In re HIC Casualty and General Insurance Ltd. 853
3. Recognition of Discharge of Debts Under ForeignBankruptcy Law 861
Re Bialek 861