The Judgment Creditors brought a motion within a receivership proceeding seeking a declaration that they held valid, independent unsecured debt claims against two insolvent corporations, 230 and MM, arising from a consent order and minutes of settlement.
The Receiver and a preferred shareholder opposed, arguing the claims were equity claims.
The court applied the Van Laun principle to look behind the consent order and found that the obligations to purchase the shares and pay accrued dividends contravened the solvency and cross-holding provisions of the Business Corporations Act.
Consequently, the claims were unenforceable as debt, except for the costs component, which was remitted to the Receiver for a reasonableness review.
