Bankruptcy and Insolvency Law - OCA

The appellants challenged an order in a bankruptcy proceeding concerning ownership of property and the bona fides of an alleged trust in favour of one respondent.

The Court of Appeal held that the motion judge acted within his discretion under the bankruptcy rules in deciding the merits on a motion rather than directing a trial of an issue, particularly given the appellants' primary position below.

Although conflicting evidence could have supported a different finding, the finding made was open to the motion judge on the totality of the record.

The appeal was dismissed with costs.

A foreign judgment creditor appealed the dismissal of a petition for a receiving order under the Bankruptcy and Insolvency Act based on an unpaid Ohio civil judgment arising from a fatal boating collision.

The Court of Appeal held that the bankruptcy judge erred in treating the foreign plaintiffs as a single creditor and in requiring the petitioning creditor to exhaust other civil enforcement routes before invoking the bankruptcy regime.

The court found there were at least three creditors, substantial unpaid liabilities under a final foreign judgment, and evidence of suspicious asset transfers that made bankruptcy remedies appropriate.

The appeal was allowed, the debtor was adjudged bankrupt, and a trustee was appointed.

In an insolvency appeal arising from a consumer proposal, the appellant bank challenged an order holding that an approved proposal compromised the unsecured portion of its secured claim and that a side agreement with the debtors was unenforceable.

The court held that, because the bank did not seek revision of the proposed assessment of its security, the approved proposal was binding on all unsecured claims under s.62(2)(a) of the Bankruptcy and Insolvency Act.

The court further held that equality among creditors is a basic insolvency principle and that a secret side agreement violating that equality amounts to a fraud on other creditors and is unenforceable.

The appeal was dismissed, Mr. Farmer was to be removed as an inspector, and the order was amended by consent to remove any reference to misconduct by the trustee.

Appeal from an order granting a combined suspended and conditional discharge from bankruptcy.

The court held that the rehabilitative purpose of the Bankruptcy and Insolvency Act must be balanced against creditor interests and the integrity of the bankruptcy system.

A bankrupt who is dishonest, evasive, untruthful, fails to make full disclosure, or refuses to co-operate with the trustee is not entitled to a discharge on any terms.

The bankrupt's non-cooperation, misleading evidence concerning a family trust, unexplained office arrangements, inaccurate income disclosure, and post-bankruptcy business activity required refusal of discharge.

In an insolvency-related appeal concerning a mining company restructuring, the appellants argued that the purchaser acquired the benefit of all confidentiality agreements, including those relating to a foreign mining property.

The court held that the agreement limited transferred rights to agreements relating to assets that pertained directly to the future operation of the Faro Property and Faro Equipment.

Information and causes of action concerning the Kassandra Mines were excluded assets and did not pass under the agreement.

The appeal was dismissed with costs, and the cross-appeal was withdrawn without costs.

The appellant appealed the dismissal of an application for leave under s. 215 of the Bankruptcy and Insolvency Act to commence an action against a trustee administering a court-approved proposal.

The Court of Appeal held that on a s. 215 motion the judge must only determine whether there is a factual basis for the claim and whether it discloses a cause of action, not finally decide the merits.

The motions judge erred by conclusively interpreting the proposal and the trustee's duties, thereby exceeding jurisdiction on the threshold application.

The court also declined to refuse leave on the basis that the appellant should have proceeded under s. 37 instead.

Leave to commence the action was granted.

The appellant challenged an order declaring that a judgment debt survived bankruptcy.

He argued that the respondent had delayed too long in bringing the application before the bankruptcy court and that a prior criminal compensation order concerning the same debt rendered further civil proceedings unnecessary.

The court rejected both submissions, finding no statutory bar, no prejudice arising from delay, and no legal basis for the proposition that the criminal compensation order displaced the respondent's bankruptcy remedy.

The appeal was dismissed.

The appellant creditor appealed a finding that the company was insolvent under s. 20(1)(d) of the Business Corporations Legislation Act.

The Court of Appeal was not persuaded that the master erred in making that finding.

The appeal was dismissed with costs.

The appeal concerned whether guarantors could rely on an improvident sale defence despite guarantee language permitting the secured creditor to deal with securities as it saw fit.

The court held that clauses purporting to eliminate guarantors' rights must be clearly worded, and ambiguous broad-form guarantee language is construed against the drafting creditor.

In light of the creditor's conceded improvident sale and the requirement under Part V of the Personal Property Security Act that the secured assets be disposed of in a commercially reasonable manner as against the principal debtor, the guarantors were not barred from advancing the defence.

The summary judgment against the guarantors was set aside and the bank's motion was dismissed.

The trustee appealed the dismissal of its application concerning a bankrupt's pending unjust dismissal award under the Canada Labour Code.

The court held that the unjust dismissal claim was property within the meaning of the Bankruptcy and Insolvency Act, and damages for lost wages could be characterized as wages, but the treatment of such compensation was governed by s. 68 rather than automatic vesting under ss. 67 and 71.

The court further held that the current version of s. 68 applied, that a trustee could invoke s. 68 after the bankrupt's discharge, and that failure to complete the s. 68 procedure did not bar interim protective relief.

The trustee was not entitled to intervene in the labour arbitration to pursue costs.

The appeal was allowed and the wage-related award was ordered paid into court pending determination under s. 68.

The appellant appealed an order setting aside a civil jury verdict and directing a new trial after the trial judge concluded there was no evidence to support the jury's finding.

The dispute arose from a creditor's claim, authorized under s. 38 of the Bankruptcy and Insolvency Act, to recover from settlement proceeds allegedly attributable to the respondent's pre-bankruptcy wage loss claim in motor vehicle litigation.

The Court of Appeal held there was some evidence from which the jury could infer that part of the settlement compensated pre-bankruptcy income loss, such that the trial judge erred in invoking the 'no evidence' rule under Rule 52.08(1)(c).

The appeal was allowed, judgment was entered for the appellant, and the respondent's cross-appeal was dismissed.

A receiver appointed at the instance of a secured creditor sought recovery of deferred management fees withdrawn before receivership and operating funds deposited into a new bank account shortly before the appointment.

The Court of Appeal held that both claims were subject to equitable setoff because the respondent's cross-obligations arose from the same management relationship and were closely connected to the receiver's claims.

The court rejected arguments that the new account involved conversion or that the management agreement created a trust excluding the respondent's claims.

The appeal was dismissed and costs were awarded to the respondent.

The appellant appealed the dismissal of its motion seeking to strike an action brought by a debenture trustee and assignee arising from an alleged failure to perform duties undertaken during a corporate restructuring and bankruptcy context.

The court held it had not been demonstrated that the respondent could not succeed at trial on the issue of capacity, accepting that the floating charge over the debtor's assets, including choses in action, could crystallize on bankruptcy and support the trustee's standing.

Assuming without deciding that leave was required to sue the appellant in its role as monitor, the absence of leave was treated as an irregularity and leave was granted nunc pro tunc because there was a proper basis for the claim and no demonstrated prejudice.

The argument that individual debentureholders had to be added as parties was also rejected, and the appeal was dismissed with costs.

In a winding-up of a charitable corporation facing extensive institutional abuse claims, the liquidator sought appellate clarification on whether assets allegedly held on special purpose charitable trusts were shielded from tort creditors whose claims arose elsewhere within the charity’s operations.

The court held that Canadian law recognizes no charitable immunity from tort liability and rejects any trust-fund theory that would immunize charitable assets from execution.

In the winding-up context, all assets of the charitable corporation, whether beneficially owned or held on trust for charitable purposes, were available to satisfy legitimate tort claims.

The court also struck out a paragraph of the order suggesting it was not intended to affect related British Columbia proceedings, while confirming that the British Columbia court remained free to make its own factual findings on ownership issues.

Appeal concerning priority between prior perfected PPSA security interests and a later court-ordered charge granted to a mortgagee in possession for occupancy costs incurred while warehousing the bankrupts' personal property.

The court held that the priority issue was not governed by either the Bankruptcy and Insolvency Act or the Personal Property Security Act, and instead had to be resolved under common law and equitable principles.

The majority concluded that, although the appellants' security interests were first in time, their continuing and concerted misconduct in delaying payment of occupancy costs justified postponing their priority in favour of the mortgagee's charge.

The appeals were dismissed and the mortgagee's priority was upheld.

The applicant sought a 45-day extension of time to file a proposal under the Bankruptcy and Insolvency Act.

Several creditors opposed, arguing prejudice from erosion of secured receivables and raising concerns about the debtor's good faith, including refusal to consent to a receivership.

The court held that material prejudice under s. 50.4(9) must be measured by the prejudice caused by the extension itself, not by the absence of positive cash flow, and found no creditor materially prejudiced.

The court also found the debtor had acted in good faith and with diligence since filing its notice, and that a viable proposal was likely.

The motion was granted with no costs.

The appellant challenged a Commercial List order refusing an adjournment and dismissing its appeal from the disallowance of a proof of claim in a winding-up proceeding for want of prosecution.

The Court of Appeal held that the motion judge was aware of the full context, including the appellant's prolonged inaction, failure to file responding materials, and failure to explain either the asserted conflict with counsel or the delay.

The court rejected the appellant's procedural fairness argument and found no error in the exercise of discretion.

The appeal was dismissed with costs.

The appellant insurer appealed from summary judgment granted in favour of a bankruptcy trustee under an errors and omissions policy issued to the bankrupt insured.

The court held there were genuine issues for trial regarding the insured's state of mind when placing insurance with an unregistered offshore insurer and regarding whether the policy extended coverage although the insured was not a registered insurance broker.

Because the exclusion clause turned on whether the insured committed an intentional wrongful act, error or omission, the evidentiary record was insufficient to justify summary judgment.

The appeal was allowed, the summary judgment was set aside, and the action was directed to proceed to trial.

On a motion to quash an appeal from a sale approval order in a receivership, the court held that an unsuccessful prospective purchaser had no standing to appeal because the order did not finally dispose of any legal or proprietary right of that bidder.

The court emphasized that the purpose of a sale approval motion is to determine whether the proposed sale is in the best interests of parties directly interested in the proceeds, primarily creditors, not disappointed bidders.

The court rejected arguments that the bidder acquired appeal rights through the terms of a prior negotiation order or by being heard below.

The appeal was quashed with costs to the moving party.

The trustee in bankruptcy appealed an order setting aside its disallowance of a secured claim based on an alleged purchase money security interest.

The court held that the general curative provision in s. 9(2) of the Personal Property Security Act cannot override the specific attachment requirements in s. 11, including the requirement that the debtor sign the security agreement.

A complete absence of execution is not a defect or omission curable under s. 9(2).

The respondent's claimed security interest was therefore not effective against the trustee.