Joël Turgeon

The Court of Appeal for Ontario allowed the appeal of RPG Receivables Purchase Group Inc., finding that the bankruptcy judge erred in concluding that payments made by Specialty Chemical Industries Inc. to American Pacific Corporation were not void as preferences under section 95 of the Bankruptcy and Insolvency Act.

The Court held that an insolvent debtor’s intention to continue in business can only rebut the statutory presumption of intent to prefer if there is a reasonable basis to believe that the business continuation will benefit creditors generally.

Here, there was no such reasonable basis, and the payments must be repaid.

The decision concerns a motion by creditors Jennifer Look-Hong and Geoffrey MacKay in the bankruptcy of The Aggressive Good Inc. The motion sought, among other things, to challenge the eligibility of Christopher Falconi to act as an inspector and to have his votes at the first meeting of creditors revoked.

The court found that the Trustee made a palpable and overriding error in determining the date Mr. Falconi ceased to be a director, and that Mr. Falconi was not dealing at arm’s length with the debtor within the year prior to bankruptcy.

The court also found that Mr. Falconi was ineligible to act as an inspector due to his involvement in contested actions against the estate.

The motion was granted, and the order was signed as requested, with a new meeting of creditors to be held.

The Proposal Trustee brought a motion for court approval of the debtor company's amended proposal to creditors under s. 58 of the Bankruptcy and Insolvency Act.

An opposing creditor argued the proposal should be rejected under s. 59(3) because the debtor failed to perform its statutory duties by initially omitting the creditor's claim and a related party's secured debt from its statement of affairs.

The court found the debtor had failed in its duties but exercised its discretion to approve the proposal, noting the debtor provided reasonable security for the payments, the proposal offered a better return than bankruptcy, and it was supported by the vast majority of creditors.

Conforti Holdings Limited (CHL) and its Proposal Trustee sought leave to appeal a lower court's dismissal of their motion.

The motion requested an order advising the Proposal Trustee not to adjudicate Moroccanoil Inc.'s proof of claim and CHL's cross-claim, and to lift a stay to allow litigation to continue in New Jersey.

The motion judge denied the request, holding that s. 135(1.1) of the Bankruptcy and Insolvency Act (BIA) required the trustee to determine the claim and that there was no jurisdiction to exempt this function.

Even if there were jurisdiction, the judge found it inappropriate as continuing New Jersey proceedings would not be materially more efficient.

The Court of Appeal dismissed the motion for leave to appeal, finding no prima facie merit, as the motion judge's discretionary decision was unassailable and entitled to deference.

In a bankruptcy proposal proceeding, a creditor (Moroccanoil) moved for an order declaring that no secured indebtedness was owing by the debtor (CHL) to a related company (BEI) and prohibiting a credit bid based on that debt.

The court found that the alleged debt, which consisted of management fees agreed to in 2019 for services rendered in previous years, was based entirely on past consideration.

Applying the rule that past consideration is not good consideration, the court held the agreement unenforceable and granted the order prohibiting the credit bid.

The Proposal Trustee brought a motion for advice and directions, seeking an order to not undertake the adjudication of a proof of claim filed by Moroccanoil and a cross-motion by the insolvent Company, and instead lift the stay of proceedings to allow the claims to be determined in ongoing U.S. litigation.

The Court dismissed the motion, finding that section 135(1.1) of the Bankruptcy and Insolvency Act unambiguously requires the Proposal Trustee to determine and value the claim, and the Court's inherent jurisdiction does not extend to displacing this mandatory statutory process.

The appellant, a mortgagee, appealed a motion judge's decision that granted priority to construction lien claimants over his registered third mortgage.

The Court of Appeal dismissed the appeal, affirming that the advances made by the mortgagee did not fall within the exceptions of s. 78(2) or s. 78(6) of the Construction Act.

The court held that advances must be "made in respect of" the mortgage and the intention to secure financing must operate prospectively to gain priority over liens.

The decision reinforces the general principle of priority for lien claimants and the onus on mortgagees to clearly fall within statutory exceptions.