GMAC Commercial Credit Corporation of Canada v. T.C.T. Logistics Inc., 2004 ONCA 11415

GMAC Commercial Credit Corporation of Canada v. T.C.T. Logistics Inc. et al [Indexed as: GMAC Commercial Credit Corp. of Canada v. T.C.T. Logistics Inc.]

71 O.R. (3d) 54

[2004] O.J. No. 1353

Docket No. C39988

Court of Appeal for Ontario

Feldman, MacPherson and Cronk JJ.A.

April 2, 2004.

Bankruptcy and insolvency -- Bankrupt having collective agreement with employees -- Interim receiver and then trustee in bankruptcy appointed -- Receiver or trustee in bankruptcy continuing bankrupt's business in order to sell business as going concern -- Bankruptcy court having jurisdiction to deny union leave to bring successor employer proceedings against receiver or trustee in bankruptcy before Labour Relations Act, R.S.O. 1990, c. L.2, ss. 69, 114 -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 47(2), 215.

Employment -- Labour relations -- Successor employer -- Bankruptcy and insolvency -- Bankrupt having collective agreement with employees -- Interim receiver and then trustee in bankruptcy appointed -- Receiver or trustee in bankruptcy continuing bankrupt's business in order to sell business as going concern -- Bankruptcy court having jurisdiction to deny union leave to bring successor employer proceedings against receiver or trustee in bankruptcy before Labour Relations Act, R.S.O. 1990, c. L.2, ss. 69, 114 -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 47(2), 215.

T.C.T. Logistics Inc. ("TCT"), amongst other things, operated a warehousing business with one of its five warehouses at 137 Horner Ave. in Toronto. TCT had a collective bargaining agreement with Industrial Wood and Allied Workers of Canada, Local 700 (the "Union") with respect to the 70 employees at the Horner Ave. warehouse.

In January 2002, TCT became insolvent and, by order dated January 24, 2002, KPMG Inc. was appointed interim receiver. Under the order, KPMG was empowered to sell TCT's businesses. The order terminated all employment by TCT but granted KPMG wide powers, including the power to retain or terminate employees without being a "successor employer" within the meaning of the Labour Relations Act. The order stated that no proceedings shall be commenced against KPMG without leave of the court. [page55 ]

Upon its appointment, KPMG advised the Horner Ave. employees that it would continue operations in order to evaluate selling the business. Operations did continue, but KPMG did not contribute to pension plans nor fund any arrears of vacation pay. In February 2002, KPMG became trustee in bankruptcy for TCT.

On April 12, 2002, KPMG entered into an Asset Purchase Agreement to sell TCT's warehousing business to Spectrum Supply Chain Solutions ("Spectrum"). The sale did not include the Horner Ave. warehouse. In May 2002, KPMG terminated the employment of all unionized employees at the Horner Ave. warehouse.

On May 13, 2002, without first seeking leave of the bankruptcy court, the Union applied to the Ontario Labour Relations Board ("OLRB") for, amongst other things, a declaration that Spectrum and/or KPMG were successor employers bound by the collective agreement. KPMG responded by bringing a motion before the OLRB for a stay of proceedings on the grounds that the Union could not proceed without leave of the court. The OLRB granted the stay. The Union then moved in the bankruptcy court for a variation of the court order of January 24, 2002.

By order dated April 29, 2003, Ground J. amended the paragraphs of the original order to protect KPMG as long as it was acting "qua realizer" of the assets. He denied the Union leave to commence successor employer proceedings before the OLRB because he held that KPMG had been acting "qua realizer". Leave to appeal having been granted, the Union appealed Ground J.'s order.

Held, the appeal should be allowed, and the matter remitted to the bankruptcy court.

Per Feldman J.A. (Cronk J.A., concurring): Under s. 47(2) of the Bankruptcy and Insolvency Act ("BIA"), which empowers the court to appoint and empower an interim receiver to take control of the debtor's property and to take such other action as the court considers advisable, the bankruptcy court did not have jurisdiction to deny the Union leave to apply to the OLRB for a declaration that KPMG was a successor employee; however, the bankruptcy court had jurisdiction to make this order pursuant to s. 215 of the BIA, which provides that except by leave of the court, no action lies against an interim receiver or a trustee with respect to any action taken pursuant to the BIA.

There was no language in s. 47(2) of the BIA that directly authorized the court to deem that actions taken by the receiver will not make it a successor employer or not have any other effect mandated by applicable law. On its own, s. 47(2) did not give the bankruptcy court the authority to make a determination that an interim receiver that operates the business of the debtor will not be a successor employer under the Labour Relations Act. The part of Ground J.'s order that provided that the receiver's actions in operating TCT's business if it acts "qua realizer" will not make it a successor employer was not authorized by s. 47(2), and it could not stand.

In order to address fairly the interests of every affected party and group and to achieve the best outcome for all concerned, it is critical that the situation be handled in the most controlled and orderly fashion by the interim receiver or trustee under the supervision of the bankruptcy court. Section 215 of the BIA gives the bankruptcy court a gatekeeper function, requiring it to grant leave before any action can be taken against an interim receiver or trustee with respect to any action taken pursuant to the Act. Section 215 was an integral [page56 ]part of the legislative policy that vests control of the entire bankruptcy or receivership in the bankruptcy court, allowing it to ensure that the trustee and interim receiver can carry out their duties with fairness and necessary speed, while balancing the interests of all those with a stake in the outcome. It was both necessary and appropriate that the bankruptcy court use its power under s. 215 to grant or deny leave to bring a receiver or trustee before the OLRB and to assist the receiver in achieving the best financial result for creditors and employees of the debtor, in most cases, by operating the business in order to sell it as a going concern.

In a constitutional law context, if the bankruptcy court denies leave and the OLRB is precluded from exercising its exclusive jurisdiction, then s. 72(1) of the BIA would be engaged. This section provides that provincial laws are not superceded by the BIA unless they are in conflict with it. When leave is denied to proceed to the OLRB the result is that s. 69(12) of the Labour Relations Act is superceded by s. 215 of the BIA.

A collective agreement is not terminated by a bankruptcy and if leave is granted by the bankruptcy court under s. 215 of the BIA, the OLRB has the exclusive jurisdiction to determine whether a receiver that carries on the business of the debtor is a successor employer. A bankruptcy court would have little basis to deny granting leave if it applied the test that historically has been used for s. 215. That test, however, was developed in the context of parties seeking to sue a trustee for alleged acts of malfeasance. The court's power under s. 215 was not limited to this circumstance. A fundamental issue that the bankruptcy court must be able to address when considering whether to grant leave under s. 215 and to allow a proceeding to be brought against the trustee in another forum is what the effect that proceeding may have on the bankruptcy process itself and the court's essential control over that process. Some important factors were: the timing of the application; the complexity of the receivership; the demands on the receiver as it carries out its obligations, the potential duration of the receiver's operation of the business before a sale; the availability of potential purchasers and their financial strength; the likelihood that a purchaser will be declared a successor employer; the practicality of proceeding before the OLRB; and the fairness to employees.

In the immediate case, Ground J. erred in exercising his discretion under s. 215 of the BIA by purporting to determine the successor employer question, which was a matter for the OLRB. Accordingly, the appeal should be allowed and the matter should be remitted back to determine whether leave should be granted.

Per Cronk J.A.: A narrow construction of the test for leave is inconsistent with the gatekeeper function of the bankruptcy court under s. 215 and with the intention of parliament concerning the regulation of bankruptcies and the bankruptcy court's control over the administration of bankrupt estates, as reflected in the BIA. In contrast, the augmented test for leave outlined by Feldman J.A., which requires that bankruptcy considerations be taken into account in deciding whether to grant leave, is intended to conceptually guide the bankruptcy judge in his or her approach on s. 215 leave applications so as to focus the bankruptcy judge's analysis on issues of fairness for all parties with an interest in the receivership or the bankruptcy. This approach to leave under s. 215 best supports and advances the goals sought by parliament to be achieved under the BIA.

Per MacPherson J.A. (dissenting, in part): Ground J. erred by not granting the Union leave to make an application to the OLRB. The bankruptcy court [page57 ]does not have jurisdiction under s. 47(2) of the BIA to deal with the question of successor employers. The issue of successor employers was within the exclusive jurisdiction of the OLRB. The key question was whether leave should have been granted for the Union to commence proceedings with respect to KPMG's potential status as a successor employer. On that question, the Mancini (Trustee of) v. Falconi judgment and several others established that the threshold the Union must cross is a low one. The new test proposed by Feldman J.A. was vague and it erected a much higher hurdle for employees and unions seeking leave than for all other applicants. As a matter of legal principle or bankruptcy and labour relations practice, the proposed test was inappropriate. The Mancini test was longstanding and it was recently applied by the Ontario Court of Appeal. The new test introduces through the side door of s. 215 of the BIA precisely what the receiver cannot do through the front door of s. 47(2). There was no principled legal basis for treating successor employer applications by employers and unions differently than by other applications. Applying the Mancini test, Ground J. erred by refusing to grant leave to the Union to commence proceedings against KPMG before the OLRB.

APPEAL from an order of Ground J., 2003 64272 (ON SC), [2003] O.J. No. 1603 (S.C.J.) refusing to grant a union leave to bring proceedings against a receiver and trustee in bankruptcy pursuant to s. 69 of the Labour Relations Act, 1995, S.O. 1995, c. 1, Sched. A.

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Ontario Ministry of Labour); Robinson v. Countrywide Factors Ltd., 1977 175 (SCC), [1978] 1 S.C.R. 753, 72 D.L.R. (3d) 500; [page58 ]Royal Crest Lifecare Group Inc. (Re) (2004), 2004 19809 (ON CA), 46 C.B.R. (4th) 126, [2004] O.J. No. 174 (C.A.), affg 2003 11504 (ON SC), [2003] O.J. No. 756, 2003 C.L.L.C. Â220-046, 40 C.B.R. (4th) 146 (S.C.J.); Royal Oak Mines (Re) (2001), 2001 23997 (ON CA), 143 O.A.C. 75, [2001] O.J. No. 562; Saan Stores Ltd. v. United Steelworkers of America, Local 596 (Retail Wholesale Canada, Canadian Service Section Division) (1999), 1999 NSCA 26, 173 N.S.R. (2d) 222, 172 D.L.R. (4th) 134, 527 A.P.R. 222, 9 C.B.R. (4th) 109 (C.A.); Sam Lévy & Associés Inc. v. Azco Mining Inc., [2001] 3 S.C.R. 978, 207 D.L.R. (4th) 385, 280 N.R. 155, 30 C.B.R. (4th) 105, 2001 SCC 92 (sub nom. Eagle River International Ltd. (Re)); Society of Composers, Authors and Music Publishers of Canada v. Armitage (2000), 2000 16921 (ON CA), 50 O.R. (3d) 688, 20 C.B.R. 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(4th) 389, 123 N.R. 241, 274 A.P.R. 15, 91 C.L.L.C. Â14,002 (sub nom. W.W. Lester v. U.A. Local 740) Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 14.06(1.2), 37, 47, 72, 193(e), 215 Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 Constitution Act, 1867, s. 92(13) Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101 Labour Code, R.S.Q. 1977, c. C-27, s. 45 Labour Relations Act, 1995, S.O. 1995, c. 1, Sched. A., s. 69(2) Labour Relations Act, R.S.O. 1990, c. L.2 [rep. S.O. 1995, c. 1, s. 1(2)], ss. 1(4), 63(17), 64(1), 65(2), 69, 96, 114, 116 Labour Relations Code, R.S.A. 2000, c. L-1, s. 46(1) Labour Relations Code, R.S.B.C. 1996, c. 244, s. 35 Pension Benefits Act, R.S.O. 1990, c. P.8 Authorities referred to Adams, G.W., Canadian Labour Law, 2nd ed., looseleaf (Aurora, Ont.: Canada Law Book Inc., 2003) Driedger, E.A., The Construction of Statutes (Toronto: Butterworths, 1974)

Stephen B.D. Wahl and Andrew J. Hatnay, for appellant Industrial Wood and Allied Workers of Canada. Frederick L. Myers and Geoffrey B. Morawetz, for respondent KPMG Inc. Orestes Pasparakis, for respondent GMAC Commercial Credit Corporation. [page59]

[1] FELDMAN J.A. (CRONK J.A. concurring): -- In this case, leave to appeal was granted under s. 193(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"), to allow this court to address a significant issue of law: whether the bankruptcy court has the authority to effectively immunize an interim receiver or a trustee in bankruptcy appointed under the BIA, that operates the business of the debtor in order to sell it as a going concern, from the obligations of a successor employer, by denying a union leave to bring successor employer proceedings before the Ontario Labour Relations Board ("OLRB").

[2] T.C.T. Logistics Inc. and related companies (collectively "TCT") had operations across Canada and the United States and were engaged in four principal industries: trucking, high- tech, freight brokerage and warehousing. The warehousing business involved the storage of freight on behalf of manufacturers, distributors and retailers. One of the five warehousing facilities was located at 137 Horner Avenue in Toronto, while others were in Alberta. The Industrial Wood and Allied Workers of Canada, Local 700 (the "Union") was the exclusive bargaining agent for 70 employees at the Horner Avenue warehouse. TCT and the Union entered into a collective agreement with respect to this warehouse, to run from May 1, 2000 to April 30, 2004.

[3] In January 2002, TCT became insolvent. GMAC Commercial Finance Corporation -- Canada ("GMAC"), the largest secured creditor of TCT, moved under s. 47 of the BIA and s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the "CJA") for an order appointing KPMG Inc. as interim receiver over the assets of TCT. The bankruptcy judge issued the order on January 24, 2002, granting the interim receiver wide powers, subject to court supervision, to shut down and sell TCT's businesses and to assign TCT into bankruptcy. The order set out the interim receiver's powers in extensive detail. The following paragraphs of the order are of particular importance for this appeal.

[4] Subparagraph 3(h) of the order stated that KPMG was empowered:

(h) to engage, retain and to discharge or terminate such agents, assistants and employees of any of the Debtors as the Receiver may consider necessary or desirable, provided that such employment shall not constitute the Receiver a "successor employer" to any of the Debtors within the meaning of the Labour Relations Act, R.S.O. 1990, c. L.2 or any other provincial or federal statute or otherwise.[page60]

[5] Paragraph 8 of the Order stated that:

THIS COURT ORDERS that no actions or proceedings shall be commenced against KPMG Inc. or the Receiver in any Court or other tribunal unless the leave of this Honourable Court is first obtained on motion on at least seven (7) days notice to the Receiver or KPMG Inc . . . .

[6] Paragraph 15 of the Order stated that:

THIS COURT ORDERS that the employment of employees of the Debtors, including employees on maternity leave, disability leave and all other forms of approved absence is hereby terminated effective immediately prior to the appointment of the Receiver. Notwithstanding the appointment of the Receiver or the exercise of any of its powers or the performance of any of its duties hereunder, or the use or employment by the Receiver of any person in connection with its appointment and the performance of its powers and duties hereunder, the Receiver is not and shall not be deemed or considered to be a successor employer, related employer, sponsor or payer with respect to any of the employees of any of the Debtors or any former employees within the meaning of the Labour Relations Act (Ontario), the Employment Standards Act (Ontario), the Pension Benefits Act (Ontario), Canada Labour Code, Pension Benefits Standards Act (Canada) or any other provincial, federal, or municipal legislation or common law governing employment or labour standards (the "labour laws") or any other statute, regulation or rule of law or equity for any purpose whatsoever, or any collective agreement or other contract between any of the Debtors and any of their present or former employees, or otherwise. In particular, the Receiver shall not be liable to any of the employees of any of the Debtors for any wages (as "wages" are defined in the Employment Standards Act (Ontario)), including severance pay, termination pay and vacation pay, except for such wages as the Receiver may specifically agree to pay. The Receiver shall not be liable for an [sic] contribution or other payment to any pension or benefit fund.

[7] Although the order was obtained without notice to the Union, after obtaining the order and on the same day, January 24, 2002, KPMG sent a memo to the employees of TCT which explained that KPMG had been appointed interim receiver of TCT and that it intended "to continue operations in order to evaluate potential sales of various lines of business". Although the letter did not mention the status of the collective agreement, during the time it operated the business KPMG did not contribute to any pension plans nor fund any arrears of vacation pay.

[8] On February 22, 2002, KPMG brought a motion for an order authorizing it to file an assignment in bankruptcy on behalf of TCT. On February 25, 2002, as interim receiver and trustee in bankruptcy, KPMG met with the employees, advised them of its intention to continue operations in order to evaluate potential sales of the warehousing business and requested their support "to allow us to maximize the enterprise value for all stakeholders". [page61 ]

[9] On April 12, 2002, KPMG entered into an Asset Purchase Agreement with Spectrum Supply Chain Solutions Inc. ("Spectrum") to sell the assets of TCT's warehousing business. Spectrum purchased TCT's leasehold interests in three of the Alberta locations but not in the Toronto Horner Avenue premises and in one of the Alberta premises. KPMG determined that it had to wind down the operations at those two locations and disclaim the leases. KPMG retained Spectrum to manage the wind down.

[10] The Asset Purchase Agreement provided that KPMG would terminate all employees prior to the closing of the transaction, and that Spectrum would only re-hire certain specified employees. Spectrum is in the warehousing business. The president of Spectrum is the former Vice-President, Warehousing and Logistics, of TCT. Several of the warehouse managers of TCT became managers of Spectrum. Spectrum set up operations at 6099 McLaughlin Road in Mississauga, Ontario, with essentially the same customers that TCT had at the Horner Avenue warehouse.

[11] On April 16, 2002, KPMG met with employees working at the Horner Avenue warehouse facility and informed them of the sale and its intention to seek court approval of the sale on April 18, 2002. On May 9, 2002, KPMG terminated all unionized employees at the Horner Avenue location. Some of those employees were later hired by Spectrum, without regard to the Union seniority list, to work at the McLaughlin Road warehouse in Mississauga.

[12] On May 13, 2002, without first seeking leave from the bankruptcy court, the Union filed three applications with the OLRB for the following relief:

(1) a declaration that Spectrum is the successor employer to TCT and/or KPMG pursuant to s. 69 of the Ontario Labour Relations Act, R.S.O. 1990, c. L.2 (the "LRA") and is therefore bound by the collective agreement between the Union and TCT;

(2) a declaration that TCT and Spectrum are a single employer for the purposes of labour relations pursuant to s. 1(4) of the LRA;

(3) a declaration of unfair labour practice under s. 96 of the LRA and damages against TCT and/or KPMG and Spectrum for entering into a sale agreement that discriminates against unionized employees and eliminates the Union; and [page62 ]

(4) an order for the certification of the Union as the exclusive bargaining agent for the employees of Spectrum.

[13] In its applications, the Union alleged that Spectrum was incorporated for the sole purpose of acquiring TCT's warehousing assets and that the Asset Purchase Agreement entered into by Spectrum and KPMG was negotiated so as to oust the Union and allow Spectrum to operate TCT's warehousing business in Toronto under substantially the same management but without a union.

[14] In response to the Union's applications, KPMG brought a motion before the OLRB to stay the proceedings in which it was named, on the basis that under para. 8 of the January 24, 2002 order and s. 215 of the BIA, the Union was precluded from proceeding against KPMG without leave of the court. The OLRB granted the stay on August 27, 2002: I.W.A. Canada v. Spectrum Supply Chain Solutions Inc., 2002 29612 (ON LRB), [2002] O.L.R.D. No. 2866, 37 C.B.R. (4th) 81.

[15] The Union then moved on October 24, 2002, in the bankruptcy court: (1) for an order deleting certain provisions of the January 24, 2002 order, including the parts of subpara. 3(h) and para. 15 that provided that KPMG was not and could not be deemed a successor employer; and (2) for leave to proceed before the OLRB.

[16] By order dated April 29, 2003, the bankruptcy judge amended the paragraphs of the original order that provided that KPMG could not be deemed a successor employer, and modified them to protect KPMG as long as it was acting "qua realizer" of the assets. He then denied the Union leave to commence successor employer proceedings before the OLRB against KPMG, on the basis that, in accordance with the amended order, KPMG had in fact acted "qua realizer", and not as a successor employer in its administration of the TCT bankruptcy and interim receivership.

[17] The bankruptcy judge also considered other factors that militated against the granting of leave. He found that the receiver did not mislead the employees on the terms of their hiring, that the receiver had acted expeditiously in operating the business to effect a sale that was approved by the court, and that the actions of the receiver had been approved by the court without any objection by the Union, although the employees had been told about the sale and about the date for the court approval of the sale. Most importantly, the business had been sold to Spectrum and the Union was proceeding before the OLRB to have Spectrum declared a successor employer. [page63 ]

[18] On December 18, 2003, this court granted the Union leave under s. 193(e) of the BIA to appeal the order of the bankruptcy judge.

ISSUES

(1) Did the bankruptcy judge have jurisdiction under s. 47(2) or under s. 215 of the BIA to deny the Union leave to apply to the OLRB for a declaration that the interim receiver and trustee became a successor employer to TCT and was therefore bound by the collective agreement?

(2) If the bankruptcy judge had jurisdiction, did he err in the exercise of his discretion by denying leave?

ANALYSIS

Issue 1: The Jurisdiction of the Bankruptcy Court to Deny Leave Under s. 215 of the BIA

A. The current state of the law

[19] Recent caselaw reflects the practical and legal tension between the roles and jurisdiction of the bankruptcy court and the labour board when a business plummets into financial trouble and creditors seek to extricate the business from its problems and maximize the value for all stakeholders. Where there are unionized employees subject to a collective agreement, and the receiver or trustee operates the business on an interim basis in order to sell the business as a going concern, both the receiver or trustee and the employees want to know the nature of the receiver's obligations to the employees in terms of wages, pension contributions, vacation pay, termination pay, grievances, seniority, etc. The underlying question, of course, is whether the receiver or trustee is bound by the collective agreement.

[20] In this context, courts across Canada have been faced with many issues including: the status of employees upon bankruptcy, the status of a collective agreement upon bankruptcy, and whether a receiver or trustee that operates a debtor's business can or should become a successor employer with the sometimes potentially significant personal liabilities that can attach to that status. Bankruptcy courts have had to resolve how to address these issues under their statutory mandate and in the face of provincial legislation that gives exclusive jurisdiction over the determination of successor employer status to provincial labour relations boards. See for example, [page64 ]Re Rizzo & Rizzo Shoes Ltd., 1998 837 (SCC), [1998] 1 S.C.R. 27, 154 D.L.R. (4th) 193 (the employment of all employees is terminated on bankruptcy); Re St. Marys Paper Inc. (1994), 1994 1232 (ON CA), 19 O.R. (3d) 163, 116 D.L.R. (4th) 448 (C.A.) (the trustee in bankruptcy that operated the business was an employer under the Pension Benefits Act, R.S.O. 1990, c. P.8 (the "PBA") and therefore was obliged to make all required pension contributions to the employees' pension plans; Abella J.A. in dissent stated that contracts of employment including collective agreements terminate with bankruptcy); Re 588871 Ontario Ltd. (1995), 1995 7375 (ON SC), 33 C.B.R. (3d) 28, [1995] O.J. No. 1466 (Gen. Div.) (the collective agreement terminates on bankruptcy); Associated Freezers of Canada Inc. (Trustee of) v. Retail Wholesale Canada, Local 1015 (1996), 1996 5624 (NS CA), 151 N.S.R. (2d) 376, 39 C.B.R. (3d) 311 (C.A.), affg (1995), 1995 4412 (NS SC), 149 N.S.R. (2d) 385, 36 C.B.R. (3d) 36 (S.C.) (in obiter: the collective agreement terminates on bankruptcy); Re Royal Oak Mines (2001), 2001 23997 (ON CA), 143 O.A.C. 75, [2001] O.J. No. 562 (the receiver was not required to make pension contributions because the order appointing it said that it was not the employer: it was not appointed to operate the mine, which operation was continued by the debtor); Saan Stores Ltd. v. United Steelworkers of America, Local 596 (Retail Wholesale Canada, Canadian Service Section Division) (1999), 1999 NSCA 26, 173 N.S.R. (2d) 222, 172 D.L.R. (4th) 134 (C.A.) at para. 64 (although employment terminates on bankruptcy, "the employment and the collective agreement were not terminated for all purposes"; the successor employer obligations on a purchaser of the debtor's business are statutory and unaffected by the termination of the employment relationship between the debtor and its employees); and Syndicat national de l'amiante d'Asbestos Inc. v. Jeffrey Mines Inc., 2003 47918 (QC CA), [2003] R.J.Q. No. 420, 40 C.B.R. (4th) 95 (C.A.) (a monitor appointed under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA") but, like an interim receiver, given control over the debtor's property and the authority to carry on its business, is bound to abide by the terms of the collective agreement where there is a certified union in the workplace).

[21] In light of the difficulties and inconsistencies in the developing jurisprudence, leave to appeal the decision of the bankruptcy judge in this case was granted under s. 193(e) of the BIA, to give this court the opportunity to address the issue of the bankruptcy court's jurisdiction under the BIA to deal with the successor employer status of an interim receiver and trustee in bankruptcy. [page65 ]

B. The jurisdiction of the bankruptcy court under s. 47(2) of the BIA

[22] Section 47 of the BIA provides as follows:

47(1) Where the court is satisfied that a notice is about to be sent or has been sent under subsection 244(1), the court may, subject to subsection (3), appoint a trustee as interim receiver of all or any part of the debtor's property that is subject to the security to which the notice relates, for such term as the court may determine.

(2) The court may direct an interim receiver appointed under subsection (1) to do any or all of the following:

(a) take possession of all or part of the debtor's property mentioned in the appointment;

(b) exercise such control over that property, and over the debtor's business, as the court considers advisable; and

(c) take such other action as the court considers advisable.

(3) An appointment of an interim receiver may be made under subsection (1) only if it is shown to the court to be necessary for the protection of

(a) the debtor's estate; or

(b) the interests of the creditor who sent the notice under subsection 244(1). [See Note 1 at end of the document]

[23] This section gives the bankruptcy court very broad authority to direct an interim receiver to take action, including whatever power and authority it may need to take possession of and exercise control over the debtor's property and to "take such other action as the court considers advisable". In this context, the question that arises is whether the ability to grant a power also includes the authority to deem the actions taken by an interim receiver pursuant to that power to have an effect in law that may be contrary to a provincial statute. In particular, is the language of s. 47(2) broad enough to give the bankruptcy court the power to deem that the conduct of an interim receiver will not make it a successor employer under the LRA?

[24] Typically, the original order appointing an interim receiver under s. 47 of the BIA may include a clause similar to para. 15 of the original order in this case, providing that if the [page66 ]receiver carries on the business of the debtor and engages employees to do so, the receiver will not be deemed a successor employer under the LRA and subject to the collective agreement between the debtor company and the union.

[25] The propriety of such clauses in a s. 47 order has recently been questioned. In Re Big Sky Living Inc., 2002 ABQB 659, [2002] ABQB 659, 37 C.B.R. (4th) 42, the Alberta court was asked to approve an ex parte order appointing an interim receiver. The order included many typically sought standard clauses granting the receiver not only necessary powers to operate or dispose of the debtor's business, but also broad powers, exemptions and immunities that the receiver may or may not have needed and that could have affected the rights of persons not before the court, including employees of the debtor. The court commented that this boiler-plate form of order was too broadly worded at the initial stage of the receivership and sent the parties back to redraft it, omitting unnecessary powers and immunities until the needs of the receiver were clear and notice could be given to potentially affected persons.

[26] A similar sentiment was expressed by Farley J. in Re Royal Crest Lifecare Group Inc. (2003), 2003 11504 (ON SC), 40 C.B.R. (4th) 146, [2003] O.J. No. 756 (S.C.J.), affd 2004 19809 (ON CA), [2004] O.J. No. 174, 46 C.B.R. (4th) 126 (C.A.). He was asked first, by the trustee in bankruptcy, to include in an order a grant of up-front immunity from becoming a successor employer while operating the business with a view to sale, and second, by the union, to grant leave to commence proceedings before the OLRB to declare the trustee a successor employer. Farley J. denied the union's motion for leave as premature, a decision that was upheld on appeal. However, he also declined to include a provision for successor employer immunity as part of the initial order, indicating that the order might be modified later and that in the meantime, the trustee would have to work with the union regarding demands for the payment of union dues, pension contributions and a grievance procedure.

[27] The concerns expressed by these courts are particularly significant when considered in light of the provisions of the LRA [see Note 2 at end of the document] that deal with the sale of a business that is governed by a collective agreement. These provisions alter the common law notion of privity of contract as between an employer and employee and provide that where such a business is sold, the purchaser is bound by the collective agreement: G.W. Adams, [page67] Canadian Labour Law, 2nd ed. (Aurora: Canada Law Book Inc., 2003) (looseleaf) at 8.10. Section 69(2) of that Act defines when a person becomes a successor employer, and ss. 69(12), 114(1) and 116 provide that the OLRB has the exclusive jurisdiction to decide whether a person is a successor employer:

69(1) In this section . . . "sells" includes leases, transfers and any other manner of disposition, and "sold" and "sale" have corresponding meanings.

(2) Where an employer who is bound by or is a party to a collective agreement with a trade union or council of trade unions sells his, her or its business, the person to whom the business has been sold is, until the Board otherwise declares, bound by the collective agreement as if the person had been a party thereto and, where an employer sells his, her or its business while an application for certification or termination of bargaining rights to which the employer is a party is before the Board, the person to whom the business has been sold is, until the Board otherwise declares, the employer for the purposes of the application as if the person were named as the employer in the application.

(12) Where, on any application under this section or in any other proceeding before the Board, a question arises as to whether a business has been sold by one employer to another, the Board shall determine the question and its decision is final and conclusive for the purposes of this Act.

114(1) The Board has exclusive jurisdiction to exercise the powers conferred upon it by or under this Act and to determine all questions of fact or law that arise in any matter before it, and the action or decision of the Board thereon is final and conclusive for all purposes, but nevertheless the Board may at any time, if it considers it advisable to do so, reconsider any decision, order, direction, declaration or ruling made by it and vary or revoke any such decision, order, direction, declaration or ruling.

116. No decision, order, direction, declaration or ruling of the Board shall be questioned or reviewed in any court, and no order shall be made or process entered, or proceedings taken in any court, whether by way of injunction, declaratory judgment, certiorari, mandamus, prohibition, quo warranto, or otherwise, to question, review, prohibit or restrain the Board or any of its proceedings.

[28] The term "successor employer" refers to a status under the LRA. It is clear that ss. 69(12) and 114(1) of the LRA give the OLRB the unequivocal, exclusive jurisdiction to decide the issue of successor employer for labour relations purposes in every case. Section 47(2) of the BIA gives the bankruptcy court the authority to direct the interim receiver to take possession and exercise control over property, and to take other actions. There is no language in s. 47(2) that directly authorizes the court to deem that actions taken by the receiver will not make it [page68 ]a successor employer or not have any other effect mandated by applicable law.

[29] Furthermore, s. 72 of the BIA provides:

72(1) The provisions of this Act shall not be deemed to abrogate or supercede the substantive provisions of any other law or statute relating to property and civil rights that are not in conflict with this Act, and the trustee is entitled to avail himself of all rights and remedies provided by that law or statute as supplementary to and in addition to the rights and remedies provided by this Act.

[30] Read as a whole, this section appears to be targeted at ensuring that in the conduct of its duties, a trustee can use both provincial as well as bankruptcy laws that may appear to overlap or serve similar purposes, such as, for example, for attacking preferences: see Robinson v. Countrywide Factors Ltd., 1977 175 (SCC), [1978] 1 S.C.R. 753, 72 D.L.R. (3d) 500. However, the first half of the section clearly states that the BIA will not abrogate or supercede any provincial law unless that law is in conflict with the BIA. The language of s. 47(2) of the BIA does not conflict with the successor employer sections of the LRA and therefore does not abrogate or supercede that Act.

[31] Furthermore, s. 47(2) must be read in the context of the entire BIA, including s. 14.06(1.2). That section specifically protects an interim receiver and trustee that carries on the business of the debtor, from inheriting any obligations of the debtor that arose prior to the bankruptcy or receivership, including obligations that would have arisen under federal or provincial law. Sections 14.06(1.1) and (1.2) provide:

14.06 (1.1) In subsections (1.2) to (6), a reference to a trustee means a trustee in a bankruptcy or proposal and includes an interim receiver or a receiver within the meaning of subsection 243(2).

(1.2) Notwithstanding anything in any federal or provincial law, where a trustee carries on in that position the business of the debtor or continues the employment of the debtor's employees, the trustee is not by reason of that fact personally liable in respect of any claim against the debtor or related to a requirement imposed on the debtor to pay an amount where the claim arose before or upon the trustee's appointment.

[32] Section 14.06(1.2) was enacted in 1997 in response to this court's decision in St. Marys Paper, supra, where the majority held that the trustee had become an employer within the meaning of the PBA and, as such, was obliged under that Act to make all payments that the debtor, as previous employer, had failed to make. Section 14.06(1.2) protects a trustee or receiver that operates the business of a debtor and has become an employer from responsibility for making good the defaults of the debtor. However, the section is silent on any obligations that the [page69 ]trustee or receiver may incur on a go-forward basis that are unrelated to a claim against the debtor or a requirement imposed on the debtor, including as a possible successor employer under the LRA.

[33] Read together, ss. 14.06(1.2) and 47(2) suggest that without anything further, a trustee or receiver that is granted the authority to carry on the business of the debtor, may potentially incur obligations under federal and provincial laws, including as a successor employer, but only for obligations incurred after the date of the bankruptcy or receivership. I conclude that on its own, s. 47(2) does not give the bankruptcy court the authority to make a determination that an interim receiver that operates the business of the debtor will not be a successor employer under the LRA.

[34] In light of this conclusion, the portion of para. 15 of the receivership order, as amended by the bankruptcy judge, that provides that the receiver's actions in operating TCT's business if it acts "qua realizer" will not make it a successor employer, is not authorized by s. 47(2). Accordingly, it cannot stand.

C. The jurisdiction of the bankruptcy court to deny leave under s. 215 of the BIA

[35] However, s. 47(2) on its own does not determine the scope of the bankruptcy judge's authority to shield an interim receiver. It is s. 215 of the BIA that gives the bankruptcy court a gatekeeper function, requiring it to grant leave before any action can be taken against a trustee or interim receiver "with respect to . . . any action taken pursuant to, this Act". It provides:

215. Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act.

[36] As a result, besides acting with the authority of the court and as officers of the court, when trustees and interim receivers carry out their duties in accordance with the authority granted to them by the bankruptcy court, the bankruptcy court is required to screen any actions that third parties may wish to take against them and only grant leave in appropriate circumstances. Further protection is provided to trustees in bankruptcy by s. 37 of the BIA, which allows a person aggrieved by an act of the trustee to apply to the bankruptcy court for a remedy, including reversal or modification of the trustee's act or decision. These provisions are part of the scheme provided by the BIA to allow the bankruptcy court to fully supervise bankruptcy and receivership regimes. [page70 ]

[37] For a business debtor, a bankruptcy or interim receivership can be an equally cataclysmic event for the owners, creditors and employees. It is critical that the situation be handled in the most controlled and orderly fashion by the interim receiver or trustee under the supervision of the bankruptcy court in order to address fairly the interests of every affected party and group and to achieve the best outcome for all concerned. In order to do that most effectively, Parliament has given the bankruptcy court complete control over the proceedings and over its officers who administer insolvent estates.

[38] The Supreme Court of Canada recently focused on Parliament's legislative policy of "single control" in the context of: (a) a bankruptcy that affected parties in more than one province, and (b) a proposed action that was arguably within the jurisdiction of the civil courts as opposed to the bankruptcy court. In Sam Lévy & Associés Inc. v. Azco Mining Inc., 2001 SCC 92, [2001] 3 S.C.R. 978, 207 D.L.R. (4th) 385 at para. 26, Binnie J. referred to the winding-up case of Dominion Trust Co. (liquidator of) v. LePage (1916), 1916 626 (SCC), 53 S.C.R. 337, 29 D.L.R. 607 (also referred to as Stewart v. LePage) where the court held that it was the policy of Parliament in a winding-up that one court control not only the assets and property of the company in liquidation, but all of its litigation as well. Binnie J. then said at para. 27:

Stewart was, as stated, a winding-up case, but the legislative policy in favour of "single control" applies as well to bankruptcy. There is the same public interest in the expeditious, efficient and economical clean-up of the aftermath of a financial collapse. Section 188(1) [enforceability of bankruptcy court orders across Canada] ensures that orders made by a bankruptcy court sitting in one province can and will be enforced across the country

(Bracketed words added)

[39] Section 215 is an integral part of the legislative policy that vests control of the entire bankruptcy or receivership in the bankruptcy court. It is for that court to determine the propriety of any proposed proceedings against the interim receiver or trustee. With respect to the expertise of the bankruptcy judge, MacPherson J.A. recently stated in Royal Crest, at paras. 21-22:

A bankruptcy is a disaster. A company has failed; in many cases it will not survive. Creditors, who provided goods and services in good faith, may lose substantial sums of money. Employees of the bankrupt company instantly lose their jobs.

The bankruptcy judge is thrown into the middle of the disaster. The judge will need to make important decisions that will affect the future of the company, creditors and employees. The qualities of a good bankruptcy judge are therefore expertise, sensitivity and speed. [page71 ]

[40] These qualities have been developed by bankruptcy courts across the country in the course of the administration of innumerable bankruptcies and interim receiverships, as well as the related procedures under the CCAA. These skills and expertise are the necessary corollary of the legislative policy that the bankruptcy court controls the full conduct and administration carried out by receivers and trustees of the affected estates.

[41] The supervisory role of the bankruptcy court has been recognized by the OLRB. It is instructive to observe one expert tribunal, the OLRB, emphasizing the importance of and deferring to the expertise of another expert body, the bankruptcy court, in insolvency matters. The OLRB has made its comments in the context of deferring to the bankruptcy court for its leave before entertaining successor employer applications relating to trustees and interim receivers. For example, in Page Flooring Enterprises Inc., 2002 3544 (ON LRB), [2002] O.L.R.D. No. 4262, 44 C.B.R. (4th) 47, the union applied to the OLRB for a declaration that there had been a sale of a business by a trustee in bankruptcy. In declining to hear the application because the union had not first obtained leave from the bankruptcy court, the OLRB stated at para. 12:

In the Board's view, it is appropriate to be cautious and where there is doubt, err on the side of respecting the stay provisions in the BIA. As the cases illustrate, the goal of the stay proceedings of the BIA is to permit the court to exercise its supervisory powers over the estate of the bankrupt and realize on the assets for the benefit of the creditors. By declining to proceed, the Board is not preventing the applicant from continuing its action. Instead, the Board is inviting the applicant to go to the commercial court and seek its permission to proceed before the Board. In that way, the court can, presumably, determine whether proceeding with these matters before the Board will undermine the purpose of the BIA in these circumstances, or not.

[42] The OLRB's decision in the present case not to hear the Union's successor employer application without leave of the bankruptcy court, is another illustration of the deference of the OLRB to the role and expertise of the bankruptcy court. In Spectrum Supply Chain, supra, the OLRB stated at para. 21:

The Court has an inherent supervisory and statutory jurisdiction over the preservation and realization of debtors' assets. Leave of the Court must be sought to ensure fairness and order in the insolvency process and to avoid a multiplicity in proceedings.

[43] These observations concerning the purpose and effect of s. 215 are consistent with the contextual and purposive approach to statutory interpretation approved by the Supreme [page72 ]Court of Canada based on Driedger's formulation in The Construction of Statutes (Toronto: Butterworths, 1974) at p. 67:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context, in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

See Rizzo Shoes, supra, at paras. 21-23 and Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, 212 D.L.R. (4th) 1, at para. 26. Section 215 is a fundamental part of Parliament's legislative scheme in the BIA for the regulation of bankruptcies and receiverships in Canada. That scheme vests control of the entire process in the bankruptcy court, allowing it to ensure that the trustee and interim receiver can carry out their duties with fairness and necessary speed, while balancing the interests of all those with a stake in the outcome.

D. The granting of leave under s. 215 of the BIA

[44] Historically, the test for granting leave under s. 215 has developed in the context of parties seeking to sue a trustee for alleged acts of malfeasance, such as torts or fraud. In that context, the courts determined that in order to grant leave to commence proceedings, it was necessary to ensure that there was a cause of action against the trustee and a factual foundation for the claim that was not frivolous or vexatious. The test was not so stringent, however, as to require a demonstration that the case would be made out. The threshold for leave has been characterized as a low one: see Mancini (Trustee of) v. Falconi (1993), 61 O.A.C. 332, [1993] O.J. No. 146 and Society of Composers, Authors and Music Publishers of Canada v. Armitage (2000), 2000 16921 (ON CA), 50 O.R. (3d) 688, 20 C.B.R. (4th) 160 (C.A.). However, where the conduct complained of had already been approved by the court, Blair J. held that the threshold should be the higher one of "strong prima facie case": Bank of America Canada v. Willann Investments Ltd. (1993), 23 C.B.R. (3d) 98, [1993] O.J. No. 3039 (Gen. Div.), at paras. 9-10. He observed that otherwise, there would be little point in the receiver obtaining the approval of the court for its actions as that approval would provide little protection.

[45] However, even on application of the strong prima facie case standard, if the only issue is whether there is a factual basis for the OLRB to declare the receiver a successor employer, the bankruptcy court could have a difficult time denying leave in most cases where the receiver is operating the business with employees. This is because the caselaw on the meaning of the [page73] "sale" of a business has emphasized the very broad interpretation to be given to that concept for the purpose of successor employer status. In W.W. Lester (1978) Ltd. v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry, Local 740, 1990 22 (SCC), [1990] 3 S.C.R. 644, 76 D.L.R. (4th) 389, at para. 64, which concerned a Newfoundland statutory sale provision similar to that contained in the LRA, McLachlin J. (as she then was) stated:

In keeping with the purpose of successorship provisions -- to protect the permanence of bargaining rights -- labour boards have interpreted "disposition" broadly to include almost any mode of transfer and have not relied on technical legal forms of business transactions. As explained by the Ontario Board in United Steelworkers of America v. Thorco Manufacturing Ltd. (1965), 65 C.L.L.C. para. 16,052, an expansive definition accords with the purpose of the section -- to preserve bargaining rights regardless of the legal form of the transaction which puts bargaining rights in jeopardy.

[46] Furthermore, a number of labour board and court decisions have held that where a receiver or trustee carries on the business of the debtor, that conduct can amount to a sale of a business under s. 69(2) of the LRA: see H. & S. Reliance, [1998] OLRB Rep. November/December 935, [1998] O.L.R.D. No. 4087; Deloitte & Touche, [1993] O.L.R.D. No. 458; Maritime Life Assurance Co. v. Chateau Gardens (Hanover) Inc. (1983), 1983 1979 (ON SC), 43 O.R. (2d) 754, 2 D.L.R. (4th) 553 (H.C.J.). For example, in Deloitte & Touche, Deloitte was appointed by the court as receiver and manager of an Ottawa nursing home. The receiver operated the nursing home but refused to bargain with the union or to adhere to the terms of the collective agreement. The case report notes that the OLRB application proceeded without leave of the bankruptcy court based on a concession by counsel for the receiver. The OLRB concluded that for labour relations purposes, if not for commercial purposes, the operation of the business by the receiver constituted a sale within the meaning of the LRA. The receiver was the employer of the employees, and it exercised control over the business. The fact that its operation of the business was to be for a limited period only, pending sale, did not preclude a finding of successorship.

E. The status of a collective agreement upon bankruptcy

[47] In spite of this caselaw, some bankruptcy courts have nevertheless refused to grant leave to a union to proceed before the OLRB for a successor employer declaration on the basis, in part, that as a matter of bankruptcy law, collective agreements terminate with bankruptcy. As a result, these courts have held that they ought not to grant leave for a proceeding to be brought [page74 ]before the OLRB where a finding could be made in that proceeding that was contrary to bankruptcy law: see for example, 588871 Ontario Ltd., supra, and Associated Freezers, supra.

[48] The proposition that a collective agreement is a contract that terminates upon bankruptcy was first stated in the following way in dissenting reasons by Abella J.A. in St. Marys Paper, supra, at p. 181 O.R.: "contracts of employment with employees, including collective agreements, terminate with a bankruptcy" (emphasis added).

[49] As stated, to the extent that an employee's contract of employment with a bankrupt employer is contained in a collective agreement, the employee's contract is terminated on bankruptcy. This does not mean, however, that a collective agreement is terminated for all purposes upon bankruptcy; nor do I understand Abella J.A.'s quoted statement, properly understood, to necessarily indicate such a legal result.

[50] The status of a collective agreement is governed by the LRA and is only terminated in specific circumstances set out under that Act, such as abandonment (s. 63(17)), fraud (s. 64(1)) or failure to bargain (s. 65(2)). Upon the sale of a business by an interim receiver or trustee in bankruptcy, the OLRB may declare that the purchaser is a successor employer and bound by the collective agreement that was in place between the debtor and the union: Vulcan Containers Ltd., [1997] OLRB Rep. July/August 765, [1997] O.L.R.D. No. 2662.

[51] Also, recent appellate cases from Nova Scotia and Quebec have recognized that a collective agreement is not terminated following bankruptcy or interim receivership: Saan Stores, supra; Jeffrey Mines, supra. I agree.

F. The scope of the test to be applied under s. 215 of the BIA

[52] As I have said, since a collective agreement is not terminated on bankruptcy, and the jurisprudence holds that a receiver that carries on the business of the debtor can be a successor employer, in many cases the bankruptcy court would have little basis to deny leave to proceed on a s. 215 application if its only role was to determine if there are facts that could allow the OLRB to declare the receiver a successor employer.

[53] The scope of the bankruptcy court's proper inquiry under s. 215, however, is not so limited. As the labour board has recognized (as discussed in para. 41 above), a fundamental issue that the bankruptcy court must be able to address when considering whether to grant leave under s. 215 and to allow a proceeding to be brought against the trustee in another forum, is the effect that [page75 ]proceeding may have on the bankruptcy process itself and the court's essential control over that process. These bankruptcy considerations are critically important where an interim receiver could be declared a successor employer of the debtor if it carries on the debtor's business in order to sell it as a going concern. Whether to carry on the business is one of the most significant decisions that the receiver must make. That decision affects the entire direction of the bankruptcy and its outcome and, importantly, the ability of the receiver to maximize the value of the bankrupt's estate for the benefit of the affected stakeholders.

[54] In cases to date dealing with leave under s. 215 of the BIA, such as Mancini, where the issue has been trustee wrongdoing, factors relating to the bankruptcy court's control over the process have not arisen. In such cases, if leave is granted, the trustee will hire a lawyer to defend it in court, and the trustee will proceed to carry out its duties conducting the receivership or bankruptcy. However, where leave is sought to proceed before the OLRB to determine if the receiver is a successor employer, the outcome of the decision whether to grant leave may well affect the receiver's entire course of conduct and its decision whether to operate the business to sell it as a going concern, or to wind it up and sell off the assets. As I stated, that decision is central to the bankruptcy or receivership and critical for all stakeholders, including the employees. The role of the bankruptcy court is to balance all of the affected interests when making fundamental decisions concerning the bankruptcy or receivership. That is not the role or function of the OLRB, whose mandate is only the interests of employees and employers. The balancing of all interests must therefore be carried out by the bankruptcy court at the stage when leave is sought.

[55] Counsel for the receiver has argued that if receivers and trustees are going to be subject to a hearing before the OLRB in virtually every case where they operate the debtor's business on an interim basis, then no receiver or trustee will be prepared to do anything but wind up the business and liquidate the assets, even if that would not result in the best outcome for the stakeholders. Counsel says that receivers and trustees will not want the uncertainty or the potential of costly personal liability for all the obligations under a collective agreement including pension obligations, vacation pay, severance, grievance procedures, etc.

[56] I do not know what receivers will do in the future. However, the uncertainty and potential for increased costs are clear and will necessarily affect the practice of appointing receivers [page76 ]and the decisions of creditors as to how they will proceed, and could affect the willingness of a receiver or trustee to act. Where a creditor is funding the receivership, any personal liability imposed on the receiver for complying with a collective agreement will be factored in as an additional cost of the receivership; where there is a trustee in bankruptcy with no one to fund it but the estate, different considerations will certainly apply and will affect the trustee's decision as to what risks of liability the estate can afford to take.

[57] In my view, therefore, a leave application under s. 215 of the BIA to permit successor employer proceedings before the OLRB requires the bankruptcy court to go beyond the Mancini test. Certainly, these overriding bankruptcy considerations may also be applied in any type of leave decision under s. 215 of the BIA where they arise. However, there has been no occasion to develop or apply them to date.

[58] The factors that the bankruptcy court applies on a s. 215 application will relate to both procedural and substantive aspects of the process. Some important factors will include: the timing of the application, the complexity of the receivership and the demands on the receiver as it carries out its obligations, the potential duration of the period that the receiver intends to operate the business before it can be sold (normally as brief as possible), the availability of potential purchasers and their financial strength, and the likelihood that a purchaser will be declared a successor employer and assume all of the obligations under the collective agreement. This latter factor may be particularly important because it will give practical assurance to the union that all of the terms of the collective agreement will be honoured and the employees protected. Another key factor is the practicality of proceeding before the OLRB and the timeliness of a hearing before that tribunal in the context of the proposed temporary operation of the business and its sale.

[59] Finally, the court may consider the issue of immediate fairness to employees, including any arrangements that the receiver has made with the union to attempt to accommodate its requirements during the period before the business is sold. In Royal Crest, at paras. 31-32, Farley J. stated:

The trustee will also have to appreciate that if it does not accede to the union demands for union dues, pension contributions and grievance-type procedures, then conceivably after a period of time (which may vary in length) the personnel which it has employed may become disenchanted with continuing at the various locations and value may evaporate or start to do so unless "corrective" or "ameliorating" measures are not [sic] taken. [page77 ]

Further, it seems that any purchaser from a trustee would have to take into account in determining how much to bid and/ or agree to pay the liabilities that the purchaser as new employer will or may "inherit".

Obviously, every situation will be different and will require varying accommodation measures. For example, if the business is to be sold quickly, the union may be less concerned with the receiver's adherence to all or part of the collective agreement than if the receiver is to operate the business for an extended period.

[60] In my view, it is both necessary and appropriate that the bankruptcy court use its power under s. 215 to grant or deny leave to bring a receiver or trustee before the OLRB, to assist the receiver in achieving the best financial result for creditors and employees of the debtor, in most cases, by operating the business in order to sell it as a going concern.

[61] If the receiver can show that by operating the business for a short time it can maximize the value of the business for the benefit of creditors and, at the same time, thereby save as many jobs as possible, it will make sense for the court to deny leave, particularly where the OLRB will, if appropriate, determine that the purchaser is a successor employer, obliged to carry out the collective agreement. In that way, the union and employees are protected and the receiver can make its decision whether to operate the business knowing the extent of its obligations.

[62] As pointed out in such cases as Big Sky and Royal Crest, and by the bankruptcy judge in this case, the practice of receivers attending on the bankruptcy judge ex parte, with a draft order that gives the receiver extensive powers, while at the same time cloaking it with immunity from responsibilities to parties who are not before the court, can no longer be sanctioned. Where unions are involved, the receiver will want to meet with them in order to try to negotiate an accommodation as the basis on which the receiver can proceed to operate the business on an interim basis. There will be leverage, of course, on both sides, as it will normally be in everyone's interest that the business ultimately continue. If the parties can reach an accommodation, then the order can reflect that accommodation, together with a come-back clause to deal with changes in circumstances. If they cannot achieve a consensual accommodation, the bankruptcy judge will be positioned to assist.

[63] Without the ability in the bankruptcy court to use s. 215 to deny leave, any accommodation that the receiver and the unions may reach cannot be enforced. That was the unfortunate result in St. Marys Paper, supra. In that case, as the bankruptcy terminated the employment of all employees, the trustee [page78 ]negotiated with both unionized and non- unionized employees as to the terms of their engagement to continue to operate the paper mill pending sale. One of the terms was that the trustee would fund certain costs of the employees' pension plans but would not be responsible for unfunded liabilities under the plans. Despite the agreement, once an administrator for the pension plans was engaged, the administrator took the position that by its actions in retaining the employees, the trustee had become an employer under pension legislation and was obliged to fund the unfunded liabilities under the plans. The majority of this court agreed.

[64] Similarly, any agreement with a trustee must be enforceable by the bankruptcy court in order to ensure that both sides in any negotiation view the negotiation as meaningful.

[65] I conclude therefore, that s. 215 is part of the scheme of the BIA that gives the bankruptcy court control over the entire bankruptcy and receivership process. In that important context, s. 215 can be used by the court, in proper cases, to deny leave to bring an application before the OLRB to have a trustee or receiver declared a successor employer.

G. Section 72(1) of the BIA

[66] The parties took the position throughout that no constitutional question was raised on this appeal because no party was seeking to strike down any legislation.

[67] Section 72(1) of the BIA specifically provides for the interrelationship between provincial laws and the BIA by stating that provincial laws are not superceded by the BIA unless they are in conflict with it.

[68] In the constitutional context, the proper approach when federal and provincial legislation are potentially in conflict was set out by Gonthier J. in Husky Oil Operations Ltd. v. Canada (Minister of National Revenue), 1995 69 (SCC), [1995] 3 S.C.R. 453, 128 D.L.R. (4th) 1, at para. 87:

One must first determine whether the laws are respectively valid federal or provincial legislation. If so, the actual operation of the laws must be examined to determine whether they are in operational conflict, that is, inconsistent or incapable of being fully complied with in a given situation. If they are in operational conflict, the federal legislation prevails and the provincial legislation is without effect to the extent of this conflict.

[69] Because the denial of leave under s. 215 of the BIA can be used by the bankruptcy court in appropriate circumstances to preclude the OLRB from exercising its exclusive jurisdiction to declare a person a successor employer, it is in operational conflict [page79 ]with s. 69 of LRA when such leave is denied. When that occurs, s. 72(1) of the BIA is engaged, with the result that s. 69(12) of the LRA is superceded by s. 215 of the BIA.

Conclusions on Issue 1

[70] -- Section 47(2) of the BIA does not give the bankruptcy court the authority to determine whether a receiver or trustee that carries on the business of a debtor is a successor employer;

-- A collective agreement does not terminate on bankruptcy and can bind a successor employer who takes over the business of the debtor, if the OLRB so declares;

-- The OLRB has exclusive jurisdiction to declare a person who carries on a business formerly conducted by another person to be a successor employer;

-- Section 215 of the BIA is a key part of the legislative scheme of the Act that vests control over all proceedings in and arising out of the bankruptcy process in the bankruptcy court;

-- The bankruptcy court, in the exercise of its supervisory control and based on factors that are relevant to the bankruptcy and in the best interests of all the stakeholders, can use s. 215 of the BIA, in a proper case, to deny leave to bring a successor employer proceeding against a trustee or receiver before the OLRB;

-- If the bankruptcy court denies leave under s. 215 of the BIA to proceed against the trustee or receiver before the OLRB, an operational conflict arises with s. 69(12) of the LRA. In that case, under s. 72(1), the BIA prevails.

Issue 2: Did the Bankruptcy Judge Err in the Exercise of his Jurisdiction not to Grant Leave?

[71] In this case, the bankruptcy judge denied the Union's application for leave under s. 215 of the BIA based on his assessment of the underlying facts that could form the basis for a claim of successor employer status. He also looked at the circumstances of the receivership.

[72] On the first issue, the bankruptcy judge applied a test that has been developed in recent caselaw, which required him to assess whether the receiver in this case was acting as a "realizer" or as an "employer" when it operated the business prior to the sale to Spectrum. He concluded that because KPMG had only [page80 ]acted "qua realizer" and not "qua employer", the case had not been made out for the successor employer claim to proceed.

[73] As I stated earlier, there is nothing in the BIA that gives the bankruptcy court the authority to determine the successor employer issue. During oral argument before this court, counsel for the trustee was asked whether a trustee ever acts other than as a realizer. I think it is fair to say that counsel agreed that the role of a trustee and receiver is always to act as a realizer and not in any other capacity, even if the receivership goes on for an extended time. I agree. In that sense, a trustee or receiver always acts "qua realizer".

[74] In my view, the bankruptcy judge erred by applying the "realizer versus employer" test to effectively determine whether the receiver was a successor employer. The bankruptcy court has no jurisdiction to make that determination. What the bankruptcy court can do, as part of its analysis under s. 215, is to answer whether a prima facie case for successor employer status has been made out. For that limited purpose, the court should apply the factors applied by the OLRB and those set out by MacLachlin J. in W.W. Lester (1978), supra, at p. 676 S.C.R., para. 70, including the nature of the business before and after the alleged "sale", the nature of the work covered by the collective agreement, what employees were transferred, what other assets were transferred, and continuity of location, of management and of work performed.

[75] Although the bankruptcy judge erred by determining the successor employer issue as part of the basis for denying leave under s. 215, he also considered some of the appropriate bankruptcy factors that I have referred to. The decision whether to grant or deny leave under s. 215 is an exercise of discretion. Nevertheless, and despite considering some bankruptcy factors, because the bankruptcy judge erred by applying an incorrect threshold test as a basis for denying leave, his decision must be set aside.

[76] The decision whether to grant or deny leave under s. 215 is to be made by the bankruptcy court using its expertise. Consequently, I would remit the matter back to the bankruptcy judge to determine whether to grant leave, based on the test I have outlined, including a full assessment of all the relevant bankruptcy factors that the bankruptcy court may now consider applicable in this case.

CONCLUSION

[77] I would allow the appeal, set aside the decision of the bankruptcy judge and remit the matter back to the bankruptcy [page81 ]court. Costs of the appeal and of the leave motion to the appellant on the partial indemnity scale fixed in the total amount of $15,000, inclusive of disbursements and GST.

MACPHERSON J.A. (dissenting): --

A. INTRODUCTION

[78] I have had the advantage of reading the draft reasons prepared by my colleague, Feldman J.A. I agree with her summary of the facts and with some of her analysis and conclusions. However, I disagree with other portions of her analysis and with her proposed disposition of the appeal. I would allow the union's appeal and declare that the bankruptcy judge erred by not granting the union leave, pursuant to s. 215 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA"), to make an application to the Ontario Labour Relations Board ("OLRB") for a declaration that the interim receiver was a successor employer within the meaning of s. 69(2) of the Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A. ("LRA").

B. FACTS

[79] I agree with Feldman J.A.'s careful and comprehensive summary of the facts. I would add the following observations to place the facts in context.

[80] Bankruptcy proceedings in a corporate context typically involve three entities -- a struggling debtor company, a worried creditor or creditors, and a professional manager (a receiver or trustee [see Note 3 at end of the document]) brought in to take control of the debtor company.

[81] The receiver is put in place for a single clear and blunt purpose -- to realize on the assets of the debtor company and distribute the proceeds to the creditors. In pursuit of this purpose, a receiver will usually adopt one of two strategies: (1) terminate the company's operations, sell off its assets, and distribute the proceeds to the creditors; or (2) continue the operations of the company as a "going concern" with a view to selling it, and then distribute the funds obtained through the sale to the creditors.

[82] If the receiver adopts the second strategy, it will need people to operate the company. An obvious potential source is the employees of the company. Those employees had employment contracts with the debtor company. Many may also be covered by collective agreements negotiated by their union and the company. [page82 ]

[83] In the present case, T.C.T. Logistics Inc. ("TCT") was in financial difficulty. GMAC Commercial Finance Corporation -- Canada ("GMAC") was TCT's largest secured creditor. It moved under the BIA for an order appointing KPMG Inc. ("KPMG") as interim receiver over the assets of TCT. The bankruptcy judge, Ground J., granted the order on January 24, 2002.

[84] Neither the employees of TCT nor their union received notice of GMAC's motion, in spite of the fact that KPMG's plan was to continue to operate the warehouse as a going concern with a view to a sale.

[85] The initial order appointing KPMG as interim receiver had many provisions that directly and negatively affected the employees. The most important provision, from the employees' perspective, was probably para. 15:

15. THIS COURT ORDERS that the employment of employees of the Debtors, including employees on maternity leave, disability leave and all other forms of approved absence is hereby terminated effective immediately prior to the appointment of the Receiver. Notwithstanding the appointment of the Receiver or the exercise of any of its powers or the performance of any of its duties hereunder, or the use or employment by the Receiver of any person in connection with its appointment and the performance of its powers and duties thereunder, the Receiver is not and shall not be deemed or considered to be a successor employer, related employer, sponsor or payer with respect to any of the employees of any of the Debtors or any former employees within the meaning of the Labour Relations Act (Ontario), the Employment Standards Act (Ontario), the Pension Benefits Act (Ontario), Canada Labour Code, Pension Benefits Act (Canada) or any other statute, regulation or rule of law or equity for any purpose, whatsoever, or any collective agreement or other contract between any of the Debtors and any of their present or former employees, or otherwise. In particular, the Receiver shall not be liable to any of the employees of any of the Debtors for any wages (as "wages" are defined in Employment Standards Act (Ontario)), including severance pay, termination pay and vacation pay, except for such wages as the Receiver may specifically agree to pay. The Receiver shall not be liable for an [sic] contribution or other payment to any pension or benefit.

[86] On the same day the court made its order, KPMG notified TCT's employees that it had been appointed as interim receiver of TCT. KPMG advised the employees that its intention was "to continue operations in order to evaluate the potential sales of various lines of business". The memo said that wages would be paid, but did not point out any of the features of para. 15 of the court order, including that the employees' employment "is hereby terminated effective immediately".

[87] Between the initial order on January 24, 2002 and May 9, 2002, the employees continued to work at the TCT warehouse in Toronto. KPMG paid their wages but did not contribute to their pension plans or fund arrears of vacation pay. [page83 ]

[88] KPMG sold the assets of TCT to Spectrum Supply Chain Solutions Inc. ("Spectrum") in April 2002. One of the terms of the sale, accepted and acted on by KPMG, was that KPMG would terminate all employees prior to the closing of the sale. KPMG did not tell the employees about this consequence until May 9, 2002 -- the very day it fired them, effective May 16.

[89] As my colleague points out, the president of Spectrum is a former vice-president of TCT. Spectrum is operating out of new premises in Mississauga but is servicing mostly the former TCT customer base. Spectrum hired several of TCT's warehouse managers to perform similar duties for Spectrum. Spectrum also hired several of TCT's unionized employees, but without regard to the seniority list.

[90] KPMG knew, and was an active party in achieving, all of this in the January-May 2002 period.

C. ISSUES

[91] I would frame the issues somewhat differently than my colleague:

(1) Does s. 47(2) of the BIA provide a bankruptcy judge with authority to declare that a receiver is not a successor employer under the LRA?

(2) If the answer to (1) is "No", then did the bankruptcy judge err by refusing to grant leave to the union, pursuant to s. 215 of the BIA, to commence proceedings against the receiver before the OLRB?

D. ANALYSIS

(1) The Bankruptcy Court and the Question of Successor Employer

[92] In Ontario, the subject matter of successor employer is dealt with in s. 69(2) of the LRA:

69(2) Where an employer who is bound by or is a party to a collective agreement with a trade union or council of trade unions sells his, her or its business, the person to whom the business has been sold is, until the Board otherwise declares, bound by the collective agreement as if the person had been a party thereto and, where an employer sells his, her or its business while an application for certification or termination of bargaining rights to which the employer is a party is before the Board, the person to whom the business has been sold is, until the Board otherwise declares, the employer for the purposes of the application as if the person were named as the employer in the application.

(Emphasis added) [page84 ]

[93] This court considered the successor employer provisions of the LRA in Ajax (Town) v. National Automobile, Aerospace and Agricultural Implement Workers Union of Canada (CAW-Canada), Local 222 (1998), 1998 7179 (ON CA), 41 O.R. (3d) 426, 166 D.L.R. (4th) 516. Goudge J.A. described their purpose and implications at p. 432 O.R.:

The statutory definition is inclusive: "'sells' includes leases, transfers and any other manner of disposition". Because of the remedial purpose of s. 64 [now s. 69], namely the preservation of bargaining rights, this definition is to be given a broad and liberal interpretation. Moreover, it is not required that the transfer take any particular legal form nor take place by way of a legal transaction. In W.W. Lester, supra, at pp. 674-75, McLachlin J. put it this way:

Ten of the labour acts have provisions similarly worded to s. 89 of the Newfoundland Act, referring to transactions such as sale, lease, transfer or disposition. (The Quebec Act also contains a successorship provision but the section uses the phrase "alienation or operation".) Although the terms "sale" and "lease" may have restricted meanings, the words "transfer" and "other disposition" have been broadly interpreted to include several types of transactions, including exchange, gift, trust, take overs, mergers, and amalgamation.

In keeping with the purpose of successorship provisions to protect the permanence of bargaining rights -- labour boards have interpreted "disposition" broadly to include almost any mode of transfer and have not relied on technical legal forms of business transactions. As explained by the Ontario Board in United Steelworkers of America v. Thorco Manufacturing Ltd. (1965), 65 C.L.L.C. 16,502, an expansive definition accords with the purpose of the section -- to preserve bargaining rights regardless of the legal form of the transaction which puts bargaining rights in jeopardy.

[94] The question of whether a business has been sold comes within the exclusive jurisdiction of the OLRB: see ss. 69(12) and 114(1) of the LRA. In Ajax, Goudge J.A. observed, at p. 429 O.R., that in making this determination the OLRB "is engaged in one of those tasks that most obviously engages its specialized expertise, namely the determination of whether the labour relations obligations of one employer pass to another employer".

[95] Acting pursuant to s. 69 of the LRA, the OLRB has found both a court appointed receiver and a receiver appointed by private instrument to be successor employers: see Deloitte & Touche, [1993] O.L.R.D. No. 458 and H & S Reliance Ltd., [1998] O.L.R.D. No. 4087.

[96] KPMG and GMAC do not quarrel with the general jurisdiction of the OLRB in the successor employer domain. However, they contend that in a bankruptcy context, the bankruptcy court has a parallel jurisdiction to deal with the same question by virtue of s. 47(2) of the BIA: [page85 ]

47(2) The court may direct an interim receiver appointed under subsection (1) to do any or all of the following:

(a) take possession of all or part of the debtor's property mentioned in the appointment;

(b) exercise such control over that property, and over the debtor's business, as the court considers advisable; and

(c) take such other action as the court considers advisable.

KPMG and GMAC rely, in particular, on s. 47(2)(b). They submit that a decision by a bankruptcy judge to immunize a receiver from successor employer status is a permissible element of the court's exercise of control over the debtor's business.

[97] For several reasons, I disagree with KPMG's and GMAC's submissions on this point.

[98] First, the parties explicitly disclaim any constitutional challenge to either s. 69(2) of the LRA or s. 47(2) of the BIA. They assert that these provisions can and should be read together. I agree.

[99] Second, the starting point for reading the provisions together is s. 72(1) of the BIA:

72(1) The provisions of this Act shall not be deemed to abrogate or supercede the substantive provisions of any other law or statute relating to property and civil rights that are not in conflict with this Act . . . .

Since the LRA is a law relating to civil rights (labour law has long been held to come within provincial jurisdiction under s. 92(13) of the Constitution Act, 1867: see Toronto Electric Commissioners v. Snider, 1925 331 (UK JCPC), [1925] A.C. 396, [1925] 2 D.L.R. 5), and since there is no issue of conflict, it follows that s. 47(2) of the BIA should not be interpreted to abrogate or supercede s. 69(2) of the LRA.

[100] Third, the Supreme Court of Canada made precisely the same point in a very recent decision, Crystalline Investments Ltd. v. Domgroup Ltd., 2004 SCC 3, [2004] S.C.J. No. 3, [2004] 1 S.C.R. 60. In that case, the court considered the impact of the BIA on provincially regulated property and civil rights. Major J. stated at para. 43:

[E]xplicit statutory language is required to divest persons of rights they otherwise enjoy at law . . . [S]o long as the doctrine of paramountcy is not triggered, federally regulated bankruptcy and insolvency proceedings cannot be used to subvert provincially regulated property and civil rights.

[101] Fourth, I agree with Feldman J.A. that a collective agreement does not terminate on bankruptcy and can bind a successor employer who takes over the business of the debtor: see Saan Stores Ltd. v. United Steelworkers of America, Local 596 (Retail Wholesale Canada, Canadian Service Section Division) (1999), 1999 NSCA 26, 172 D.L.R. (4th) 134, 173 N.S.R. (2d) 222 (C.A.), and [page86 ]Syndicat national de l'amiante d'Asbestos Inc. v. Jeffrey Mines Inc., 2003 47918 (QC CA), [2003] J.Q. No. 264, 40 C.B.R. (4th) 95 (C.A.). As expressed by Dalphond J.A. in Jeffrey Mines [see Note 4 at end of the document] at para. 60:

The collective agreements continue to apply like any contract of successive performance not modified by mutual agreement after the initial order or not disclaimed (assuming that to be possible in the case of collective agreements). Neither the monitor nor the court can amend them unilaterally.

[102] In my view, these four points strongly suggest that the general wording of s. 47(2) of the BIA should not be interpreted to carve out an exception to the clear import of s. 69(2) of the LRA and the relevant case law -- the issue of successor employer is one within the exclusive jurisdiction of the OLRB. In short, exclusive means exclusive.

[103] My colleague, Feldman J.A., summarizes some of her conclusions in this fashion:

-- Section 47(2) of the BIA does not give the bankruptcy court the authority to determine whether a receiver or trustee that carries on the business of a debtor is a successor employer;

-- A collective agreement does not terminate on bankruptcy and can bind a successor employer who takes over the business of the debtor, if the OLRB so declares;

-- The OLRB has exclusive jurisdiction to declare a person who carries on a business formerly conducted by another person to be a successor employer; . . . .

I agree with these conclusions.

(2) Section 215 of the BIA and the Question of Leave

[104] Although the LRA gives the OLRB exclusive jurisdiction to determine successor employer applications, in bankruptcy proceedings a party seeking to challenge a decision by a trustee must seek leave from a judge pursuant to s. 215 of the BIA:

215. Except by leave of the court, no action lies against . . . a trustee with respect to any report made under, or any action taken pursuant to, this Act.

[105] The bankruptcy judge refused to grant leave on the basis that as long as KPMG acted in its role as realizer of assets, it was not really acting as an employer. Accordingly, he concluded that KPMG "did not continue TCT's business in the sense contemplated by the OLRB". [page87 ]

[106] I have two difficulties with this analysis and conclusion.

[107] First, the conclusion in the quoted passage is a determination of the successor employer issue with respect to KPMG. This is precisely the question that the bankruptcy judge cannot decide because it comes within the exclusive jurisdiction of the OLRB under s. 69(2) of the LRA.

[108] Second, the purported distinction between the receiver acting qua realizer of assets and the receiver acting qua employer is, with respect, illusory. The receiver is always acting with a single focus -- to realize on assets for the benefit of the creditors. Any decision the receiver makes concerning the employees of the debtor company is grounded in that singular role.

[109] In spite of these difficulties, the key question remains: should the bankruptcy judge have granted the union's application for leave to commence proceedings before the OLRB with respect to KPMG's potential status as a successor employer? On that question, the threshold that the union must cross is a low one: see Mancini (Trustee of) v. Falconi (1993), 61 O.A.C. 332 [1993] O.J. No. 146; Society of Composers, Authors and Music Publishers of Canada v. Armitage (2000), 2000 16921 (ON CA), 50 O.R. (3d) 688, 20 C.B.R. (4th) 160 (C.A.) ("SOCAN"); Vanderwoude v. Scott and Pichelli Ltd. (2001), 2001 6622 (ON CA), 143 O.A.C. 195, [2001] O.J. No. 1264; and Re Royal Crest Lifecare Group Inc., 2004 19809 (ON CA), [2004] O.J. No. 174, 46 C.B.R. (4th) 126 (C.A.).

[110] The test for granting leave under s. 215 of the BIA was stated by Osborne J.A. in Mancini at p. 334 O.A.C.:

The following principles can be taken from the decided cases:

1. Leave to sue a trustee should not be granted if the action is frivolous or vexatious. Manifestly unmeritorious claims should not be permitted to proceed.

2. An action should not be allowed to proceed if the evidence filed in support of the motion, including the intended action as pleaded in draft form, does not disclose a cause of action against the trustee. The evidence typically will be presented by way of affidavit and must supply facts to support the claim sought to be asserted: see Peat Marwick Ltd. v. Thorne Riddell, supra.

3. The court is not required to make final assessment of the merits of the claim before granting leave: see Re Lufro Ltée; Leblond v. Tremblay (1985), 54 C.B.R. (N.S.) 199 (Que. C.A.).

[111] My colleague, Feldman J.A., does not accept and apply the Mancini test in the context of a s. 215 leave application in the successor employer domain. She posits a test that is, in my view, both more vague and more elaborate than the Mancini test. [page88 ]Importantly, it also erects a much higher hurdle for employees and unions seeking leave than for all other applicants. My colleague frames her test in this fashion:

The factors that the bankruptcy court applies on a s. 215 application will relate to both procedural and substantive aspects of the process. Some important factors will include: the timing of the application, the complexity of the receivership and the demands on the receiver as it carries out its obligations, the potential duration of the period that the receiver intends to operate the business before it can be sold (normally as brief as possible), the availability of potential purchasers and their financial strength, and the likelihood that a purchaser will be declared a successor employer and assume all of the obligations under the collective agreement. This latter factor may be particularly important because it will give practical assurance to the union that all of the terms of the collective agreement will be honoured and the employees protected. Another key factor is the practicality of proceeding before the OLRB and the timeliness of a hearing before that tribunal in the context of the proposed temporary operation of the business and its sale.

Finally, the court may consider the issue of immediate fairness to employees, including any arrangements that the receiver has made with the union to attempt to accommodate its requirements during the period before the business is sold.

[112] With respect, I do not think that this is an appropriate test, as a matter of legal principle or bankruptcy and labour relations practice. I say this for several reasons.

[113] First, the Mancini test is a longstanding and regularly cited and applied test in the context of BIA s. 215 applications for leave: see, for example, SOCAN and Vanderwoude.

[114] Second, and importantly, this court unanimously applied the Mancini test two months ago in Royal Crest, a case involving a union's application to commence a successor employer application in relation to a receiver before the OLRB. In Royal Crest, the court divided on the question of whether the bankruptcy judge properly exercised his discretion in refusing to grant leave. However, there was no disagreement about the test for granting leave. The majority said, at para. 25, that the "case law establishes that the threshold for granting leave under s. 215 of the BIA is a low one" and cited Mancini in support of this proposition. Borins J.A., in dissent, grounded his comprehensive reasons in an application of the Mancini test. In light of Royal Crest, I do not think it is appropriate or desirable to carve out a single subject matter (successor employer applications brought by employees and unions) and apply a different and much stricter test to this subject matter and these applicants.

[115] Third, my colleague concludes that s. 47(2) of the BIA does not give the bankruptcy judge the authority to determine [page89 ]whether a receiver that carries on the business of the debtor company is a successor employer. I agree. The wording in s. 47(2) that the receiver relies on in support of its position authorizes the court to direct the receiver to "exercise such control . . . over the debtor's business, as the court considers advisable". The test proposed by my colleague to give the court jurisdiction to immunize a receiver from a successor employer proceeding (and thus effectively declare the receiver not to be a successor employer) strikes me as merely an elaborate formulation of s. 47(2). In short, and with respect, my colleague introduces through the side door of s. 215 (a leave provision, not a provision conferring authority on the receiver) precisely what she correctly does not permit the receiver to do through the front door of s. 47(2).

[116] Fourth, I do not see any principled legal basis for treating successor employer applications brought by employees and unions differently than any other applications. If leave applications by creditors to commence actions against the receiver (SOCAN and Vanderwoude) are determined by the bankruptcy judge under the low threshold test of whether the proposed action is frivolous or vexatious, I fail to see why leave applications by employees or unions relating to successor employer or unfair practice issues should be subject to a more stringent test. On the contrary, it seems to me that the receiver's conduct in the administration of the debtor company should be treated on the same plane in relation to all stakeholders. Creditors do not deserve greater protection from the bankruptcy court than do employees and unions.

[117] I turn, therefore, to a consideration of the Mancini test.

[118] In my view, there is nothing frivolous or vexatious about the union's application to the OLRB concerning KPMG's potential status as a successor employer.

[119] On January 24, 2002, a considerable number of employees worked at TCT's Toronto warehouse. They were protected by a collective agreement. On that date, a court order with an immediate and blunt impact on these employees was made:

15. THIS COURT ORDERS that the employment of employees of the Debtors, including employees on maternity leave, disability leave and all other forms of approved absence is hereby terminated effective immediately prior to the appointment of the Receiver.

Neither the employees nor their union received notice of the court hearing at which this order was made.

[120] On the same day, KPMG notified the employees that it had been appointed interim receiver. KPMG did not inform the employees that their employment had been terminated by court [page90 ]order; on the contrary, it indicated that it intended to continue operations with a view to a sale and that it would pay wages to the employees.

[121] During the next three months, KPMG respected some provisions of the collective agreement (for example, wages) and did not comply with other provisions (for example, pension contributions and vacation pay).

[122] On April 18, 2002, the court approved the sale of TCT to Spectrum. On May 9, KPMG gave the employees notice of termination effective May 16.

[123] I do not recite this chronology to indicate that in my view KPMG was a successor employer during the period of its receivership. Nor do I suggest that KPMG engaged in any unfair labour practices with respect to TCT's employees. Rather, I recite these events to indicate that there is a live issue concerning KPMG's potential status as a successor employer during the period of its receivership. This issue deserves to be considered by the OLRB, which has exclusive jurisdiction in this domain.

[124] I conclude with a general observation. Although bankruptcy proceedings are stressful for a debtor company, its creditors, the receiver and the bankruptcy judge, the position of the employees of the debtor company cannot be ignored, especially if they are protected by collective agreements.

[125] In Reference Re Public Service Employee Relations Act (Alberta), 1987 88 (SCC), [1987] 1 S.C.R. 313, 38 D.L.R. (4th) 161, at p. 368 S.C.R., Dickson C.J.C. observed:

Work is one of the most fundamental aspects in a person's life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person's employment is an essential component of his or her sense of identity, self-worth and emotional well-being.

[126] In Jeffrey Mines, supra, at paras. 44-46, Dalphond J.A. stated:

There is nothing in the orders rendered about the abolishment or modification of the certifications. Thus, the appellant's certifications are still valid and in effect. Furthermore, it is doubtful that the Superior Court would have jurisdiction to rule on such matters, as determined by the majority in conjunction with winding-up of the Coopérants (Syndicat des employés de cooperatives d'assurance-vie v. Raymond, Chabot, Fafard, Gagnon inc., [1997] R.J.Q. 886 (C.A.)), unless that were allowed under a constitutionally valid provision in the CCAA. It follows that the appellants' exclusive representation continues, which, incidentally, is recognized in paragraph 6 of the initial order, where it is stated that a notice to their union constitutes a notice to their employees.

Since the certifications are still valid, their effects must be recognized, described as follows in Noël v. Société d'énergie de la Baie-James, 2001 SCC 39, [2001] 2 S.C.R. 207, at paras. 41 and 42: [page91 ]

. . . Once certification is granted, it imposes significant obligations on the employer, imposing on it a duty to recognize the certified union and bargain with it in good faith with the aim of concluding a collective agreement . . . Once the collective agreement is concluded, it is binding on both the employees and the employer . . .

. . . Certification, followed by the collective agreement, takes away the employer's right to negotiate directly with its employees. Because of its exclusive representation function, the presence of the union erects a screen between the employer and the employees. The employer loses the option of negotiating different conditions of employment with individual employees.

Consequently, the monitor cannot disregard the appellants' exclusive representation with regard to the positions covered by certification units. Signing an individual contract with a person occupying any certified position violates the appellants' exclusive representation and is therefore illegal.

[127] The implications from these passages are clear. In a bankruptcy context, as in any other employment context, the position and rights of employees must be considered and respected, including by the receiver and the bankruptcy judge. Moreover, if a collective agreement is in place, the receiver and the bankruptcy judge cannot ignore it. Specifically, the receiver cannot "cherry pick" the terms of the collective agreement, and seek court approval for such a decision. If the receiver seeks to operate the debtor company as a going concern with a view to a future sale, it will need to involve the employees and their union in an open, honest and comprehensive discussion about the basis on which the employees will continue their employment during the receivership. If the receiver proposes to change any of the terms of employment or provisions in the collective agreement during the receivership, it will need the consent of the employees and their union.

[128] For these reasons, I conclude that the bankruptcy judge erred by refusing to grant leave to the union to commence proceedings against KPMG before the OLRB.

E. DISPOSITION

[129] I would allow the appeal, delete para. 15 of the Order of the bankruptcy judge dated January 24, 2002 as amended by the Order dated April 29, 2003, and grant leave to the appellant to continue proceedings before the OLRB respecting successor employer and unfair labour practices claims in relation to the respondent KPMG Inc.

[130] I would award the appellant its costs of the appeal on the partial indemnity scale fixed at $15,000 inclusive of disbursements and GST. [page92 ]

[131] CRONK J.A. (concurring): -- I have had the benefit of reading the reasons for judgment of my colleagues Feldman and MacPherson JJ.A. I agree with the reasons of Feldman J.A., including her conclusion that it is appropriate in this case, for the reasons outlined by her, to remit this matter back to the bankruptcy judge for reconsideration whether leave should be granted to the Union [see Note 5 at end of the document] under s. 215 of the BIA to commence successor employer proceedings against KPMG before the OLRB. However, I wish to add the following comments on the role of the bankruptcy court on a s. 215 leave application and the scope of the test for leave under s. 215 of the BIA.

(1) Role of the Bankruptcy Court

[132] I agree with Feldman J.A. that, in the case of a business debtor, a bankruptcy or interim receivership can be a cataclysmic event for all affected parties. It signals a sea change in the operations and financial vitality of the debtor, displaces the pre-bankruptcy or pre-receivership status quo, and leaves the debtor on the equivalent of corporate life support. For that reason, measures which could have the practical effect of preventing a trustee or receiver from exploring all reasonable options for the maximization of the value of the debtor's estate, or from agreeing to operate the business of the debtor as a going concern, are undesirable. If the interests of all stakeholders in a bankruptcy or receivership are to be respected and maximized, including those of affected employees, it is essential that the role of the trustee in bankruptcy or the receiver not be confined to the delivery of only palliative care for the ailing debtor.

[133] Parliament has determined that one court should enjoy sole control over the assets and property of bankrupt companies and companies in liquidation: see Sam Lévy & Associés Inc. v. Azco Mining Inc., 2001 SCC 92, [2001] 3 S.C.R. 978, 207 D.L.R. (4th) 385 at paras. 26 and 27. This single control policy underlies Parliament's broader statutory scheme, established by the BIA, for the regulation of bankruptcies and receiverships in Canada and the administration of bankrupt estates. In that context, Parliament has assigned to the bankruptcy court an important gatekeeper function under s. 215 of the BIA. This section, which requires the prior approval of the bankruptcy court for the commencement of proceedings against officers of the court who report or take action [page93 ]under the BIA, is intended to facilitate Parliament's enunciated policy of single control and to ensure that a receivership or bankruptcy is not interrupted, delayed or diverted by litigation without just cause.

[134] In order to ensure that the bankruptcy court's gatekeeper function under s. 215 is meaningful, it is appropriate that in determining whether to grant leave under s. 215, the bankruptcy court take into account the potential impact of the proposed litigation on the administration and conduct of the bankruptcy or the receivership. To do otherwise, in my view, is to render the function of the bankruptcy court under s. 215 perfunctory and to undermine Parliament's intention concerning the purpose of s. 215.

(2) Scope of the Test for Leave Under s. 215 of the BIA

[135] In his reasons for judgment in this case, my colleague MacPherson J.A. indicates that Feldman J.A. does not accept and apply the test developed in Mancini (Trustee of) v. Falconi (1993), 61 O.A.C. 332, [1993] O.J. No. 146 in the context of a s. 215 leave application in the successor employer domain.

[136] He also suggests that the test posited by Feldman J.A. is both more vague and more elaborate than the Mancini test and that it creates a higher hurdle for employees and unions seeking leave under s. 215 than for all other applicants. He later returns to this theme in his reasons, when he observes that successor employer applications brought by employees and unions should not be treated differently than any other applications. Finally, he expresses his view that the s. 215 test for leave propounded by Feldman J.A. is inappropriate and undesirable having regard to the recent decision of this court in Re Royal Crest Lifecare Group Inc., 2004 19809 (ON CA), [2004] O.J. No. 174, 46 C.B.R. (4th) 126 (C.A.). With respect, I disagree with these conclusions, for several reasons.

[137] First, the principles to be derived from the existing case law concerning s. 215 leave applications require that, in deciding whether to grant leave under s. 215, the bankruptcy court focus on the merits of the proposed litigation and the sufficiency of the evidence filed in support of the leave application, to ensure that frivolous or vexatious claims against trustees and receivers do not proceed. The objective, once again, is to ensure that bankruptcies and receiverships are not interrupted, delayed or diverted without just cause.

[138] The approach to s. 215 leave applications urged by Feldman J.A. does not abrogate these organizing principles for the test for leave under that section. They remain intact even [page94 ]where the leave application concerns proposed successor employer proceedings. In addition, however, in such cases, the principles that underlie the Mancini test are to be augmented by regard to specific bankruptcy considerations.

[139] Second, as Feldman J.A. recognizes in her reasons, the factors that she identifies as relevant to the bankruptcy court's determination whether to grant leave under s. 215 of the BIA may apply to s. 215 leave applications not concerned with proposed successor employer proceedings before the OLRB. If that proves to be the case as the bankruptcy court jurisprudence develops, the augmented test for leave set out in this case will not present a higher hurdle for employees and unions who seek leave than for other applicants who seek leave for purposes unrelated to successor employer proceedings.

[140] Third, in my view, this court's decision in Royal Crest does not impede adoption of an augmented Mancini test in appropriate cases, including cases where leave under s. 215 is sought to permit successor employer proceedings before the OLRB. In Royal Crest, the core issue for determination by the court was whether the bankruptcy judge had erred in denying leave under s. 215 of the BIA having regard to the timing of the union's application to commence successor employer proceedings in connection with a receiver. On a s. 215 leave application, the timing of proposed litigation is an important bankruptcy consideration. In addition, while the Mancini test for leave under s. 215 was recognized in Royal Crest, the content of that test was not in issue in the case.

[141] Finally, at its heart, this appeal requires consideration of both the expertise and jurisdiction of the OLRB in relation to successor employer determinations and, as well, the expertise and jurisdiction of the bankruptcy court in relation to bankruptcies and receiverships. The role and expertise of bankruptcy judges, the need for the bankruptcy court to maintain control over the administration and conduct of bankruptcies and receiverships, and the necessity of formal mechanisms to enforce agreements entered into by receivers and unions, must inform the scope of the test to be applied under s. 215 of the BIA.

[142] The test for leave developed in Mancini contemplates that leave will be granted under s. 215 where the existence of a genuine cause of action is demonstrated, regardless of the likelihood of ultimate success in the litigation. I do not believe that this formulation of the test for leave was intended to be so strictly construed as to preclude consideration of the potential impact of the proposed litigation, should leave be granted, on the administration of the bankrupt's estate and the receiver's [page95 ]or the trustee's ability to maximize the value of the estate for all stakeholders.

[143] Such a narrow construction of the test for leave is inconsistent with the gatekeeper function of the bankruptcy court under s. 215 and with the intention of Parliament concerning the regulation of bankruptcies and the bankruptcy court's control over the administration of bankrupt estates, as reflected in the BIA. In contrast, the augmented test for leave outlined by Feldman J.A. in this case, which requires that bankruptcy considerations be taken into account in deciding whether to grant leave, is intended to conceptually guide the bankruptcy judge in his or her approach on s. 215 leave applications so as to focus the bankruptcy judge's analysis on issues of fairness for all parties with an interest in the receivership or the bankruptcy. I conclude that this approach to leave under s. 215 best supports and advances the goals sought by Parliament to be achieved under the BIA.

Order accordingly.

APPENDIX A

Alberta Labour Relations Code, R.S.A. 2000, c. L-1

46(1) When a business or undertaking or part of it is sold, leased, transferred or merged with another business or undertaking or part of it, or otherwise disposed of so that the control, management or supervision of it passes to the purchaser, lessee, transferee or person acquiring it, that purchaser, lessee, transferee or person is, where there have been proceedings under this Act, bound by those proceedings and the proceedings shall continue as if no change had occurred, and

(a) if a trade union is certified, the certification remains in effect and applies to the purchaser, lessee, transferee or person acquiring the business or undertaking or part of it, and

(b) if a collective agreement is in force, the collective agreement binds the purchaser, lessee, transferee or person acquiring the business or undertaking or part of it as if the collective agreement had been signed by that person.

British Columbia Labour Relations Code, R.S.B.C. 1996, c. 244

35(1) If a business or a part of it is sold, leased, transferred or otherwise disposed of, the purchaser, lessee or transferee is bound by all proceedings under this Code before the date of the disposition and the proceedings must continue as if no change had occurred.

(2) If a collective agreement is in force, it continues to bind the purchaser, lessee or transferee to the same extent as if it had been signed by the purchaser, lessee or transferee, as the case may be. [page96 ]

(3) If a question arises under this section, the board, on application by any person, must determine what rights, privileges and duties have been acquired or are retained.

(4) For the purposes of this section, the board may make inquiries or direct that representation votes be taken as it considers necessary or advisable.

(5) The board, having made an inquiry or directed a vote under this section, may

(a) determine whether the employees constitute one or more units appropriate for collective bargaining,

(b) determine which trade union is to be the bargaining agent for the employees in each unit,

(c) amend, to the extent it considers necessary or advisable, a certificate issued to a trade union or the description of a unit contained in a collective agreement,

(d) modify or restrict the operation or effect of a provision of a collective agreement in order to define the seniority rights under it of employees affected by the sale, lease, transfer or other disposition, and

(e) give directions the board considers necessary or advisable as to the interpretation and application of a collective agreement affecting the employees in a unit determined under this section to be appropriate for collective bargaining.

Quebec Labour Code, R.S.Q. 1977, c. C-27

45. The alienation or operation by another in whole or in part of an undertaking shall not invalidate any certification granted under this code, any collective agreement or any proceeding for the securing of certification or for the making or carrying out of a collective agreement.

New employer bound

The new employer, notwithstanding the division, amalgamation or changed legal structure of the undertaking, shall be bound by the certification or collective agreement as if he were named therein and shall become ipso facto a party to any proceeding relating thereto, in the place and stead of the former employer.

Notes

1. In its application, KPMG also relied on s. 101 of the CJA which provides:

101(1) In the Unified Family Court or the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an inter- locutory order, where it appears to a judge of the court to be just or convenient to do so.

2. See Appendix A attached for comparable legislation in other provinces.

3. In these proceedings, KPMG Inc. performed both roles. I will use the term "receiver" throughout these reasons.

4. Jeffrey Mines was a case under the Companies' Creditors Arrangements Act, R.S.C. 1985, c. C-36. In my view, the analysis and conclusion in Jeffrey Mines are equally appli- cable to a case under the BIA.

5. Throughout these reasons, I employ the abbreviations used by Feldman J.A. in her reasons for judgment.