Bankruptcy and Insolvency Law - ONCA

This is an appeal from a bankruptcy order against River Green (Thunder Bay) Inc. The appellant, John Beals, a shareholder, argued that the bankruptcy application by BNL Contracting Ltd. was brought for an improper purpose, relying on section 43(7) of the Bankruptcy and Insolvency Act.

The Court of Appeal upheld the application judge's decision, finding no palpable and overriding error in the rejection of the improper purpose allegation as speculative.

The court emphasized the highly deferential standard of review for discretionary decisions under section 43(7) and noted the appellant's failure to cross-examine the respondent's principal on the alleged conspiracy.

The Debtors (corporate and individual) sought leave to appeal two orders made in a receivership proceeding: an Approval and Vesting Order (AVO) for the sale of two residential properties and a Sale Procedure Order (SPO) for vacant development lands.

The Court of Appeal considered whether leave to appeal was required under s. 193 of the Bankruptcy and Insolvency Act and, if so, whether it should be granted.

The court concluded that leave was required under s. 193(e) as the orders did not fall under categories allowing appeal as of right (ss. 193(a)-(d)), primarily because they concerned present rights and methods of asset realization rather than affecting future rights or the value of property in a way that would trigger an automatic right of appeal.

The court further determined that leave should not be granted, finding the proposed appeal was not prima facie meritorious, as the lower court's discretionary decisions were entitled to deference, and the appeal did not raise issues of general importance.

Granting leave would also unduly hinder the insolvency proceeding.

The appellant, 2649360 Ontario Inc., appealed a motion decision that granted Grant Thornton Limited, as Trustee in Bankruptcy for Aiden Pleterski and AP Private Equity Limited, relief from forfeiture of a $500,000 real estate purchase deposit.

The deposit was paid by Pleterski using misappropriated investor funds for a property that was subsequently not purchased due to bankruptcy.

The motion judge applied the two-part test for relief from forfeiture (disproportionate to damages and unconscionable to retain) and ordered the deposit returned to the Trustee for the benefit of creditors.

The appellant argued the motion judge erred by considering creditor interests and by characterizing Grant Thornton as "innocent." The Court of Appeal dismissed the appeal, affirming that the motion judge was entitled to consider the full commercial context, including the source of funds and the benefit to creditors, and that a party causing breach is not absolutely barred from relief from forfeiture.

The court found no error in the discretionary decision.

The appellant, 2557904 Ontario Inc. (the stalking horse bidder), appealed a motion judge's order that dismissed the receiver's motion for an approval and vesting order (AVO) and instead approved the debtor's (1000093910 Ontario Inc.) motion to redeem a first mortgage.

The Court of Appeal found the motion judge erred by not ensuring 255 received compensation for costs thrown away and by granting provisional enforcement of the order after an appeal notice was filed.

The appeal was allowed in part, varying the order to require the debtor to pay $300,000 in compensation to 255 and setting aside the provisional execution.

The court also ordered that if the refinancing transaction does not close, the AVO for 255 will be granted.

Downing Street Financial Inc. sought leave to appeal an order dismissing its motion for summary judgment and granting summary judgment to the responding parties, which dismissed an action related to a co-tenancy agreement and alleged fraudulent conveyances/preferences under the Bankruptcy and Insolvency Act and other provincial statutes.

The Court of Appeal dismissed the motion for leave to appeal, finding that the proposed appeal was not prima facie meritorious and did not raise issues of significance to insolvency practice.

The court upheld the motion judge's findings that the parties dealt at arm's length and that deadlocked shareholders do not have de jure control for the purposes of the BIA, and that there was no intent to defeat creditors.

The Trustee in bankruptcy moved for orders that the appellants (related to the bankrupt Medcap) did not have an automatic right of appeal under BIA s. 193(a) or (c) from a lower court order, required leave to appeal, and should be denied leave.

The appellants argued that a single judge lacked authority to make such a determination, citing R. 61.16(2.2) of the Rules of Civil Procedure.

The court held that the lower court's order was purely procedural, thus no automatic right of appeal existed under BIA s. 193(a) or (c).

The court further held that a single judge has the authority to determine appeal rights under BIA s. 193 due to the doctrine of federal paramountcy, which overrides provincial rules like R. 61.16(2.2) in bankruptcy matters.

Leave to appeal was denied as the proposed appeal lacked merit, did not raise issues of general importance, and would hinder bankruptcy proceedings.

Bluecore Capital Inc., the respondent on appeal, brought a motion to lift the automatic stay of a bankruptcy order against Sergio Grillone, the appellant, and for an order requiring Mr. Grillone to post security for costs of the appeal.

The motion judge granted the motion, finding that Mr. Grillone had not diligently prosecuted his appeal, his grounds of appeal were very weak, he had failed to satisfy previous cost orders, and the relative prejudice strongly favoured lifting the stay to allow a trustee to manage his assets for the benefit of creditors.

The court also ordered Mr. Grillone to post $30,000 as security for costs.

This is a costs endorsement following an appeal.

The respondent, Heliotrope Investment Corporation, provided costs submissions as requested, while the appellants, Jonathan Gary Beach and Martha Lorraine Beach, chose not to make any submissions.

The court awarded costs to the respondent in the amount of $20,000, inclusive of disbursements and relevant taxes.

Trade Capital Finance Corp. (TC) and Buduchnist Credit Union Limited (BCU) filed opposing motions in an insolvency appeal.

TC sought an extension of time and leave to appeal a lower court's final disposition order concerning the distribution of receivership proceeds, arguing the order allowed BCU to enforce judgments arising from transactions in breach of a Mareva order.

BCU sought to lift the automatic stay of proceedings and security for costs.

The Court of Appeal granted TC's motions for extension of time and leave to appeal, finding the appeal prima facie meritorious and raising issues of general importance regarding Mareva orders and creditor enforcement in insolvency.

The court denied BCU's motions to lift the stay and for security for costs, concluding that the BIA governed the appeal and that lifting the stay would render TC's appeal moot, and that security for costs was not fitting given BCU was the applicant below and TC's insolvency stemmed from the alleged fraud.

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

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

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

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

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

The Court of Appeal for Ontario heard two appeals concerning a priority dispute over accelerated interest in closed mortgages and a costs order in a receivership.

The primary issue was whether the first mortgagee, First National Financial GP Corporation (FN), was entitled to future, unearned, accelerated interest upon the early discharge of its closed mortgages due to the mortgagors' default and court-ordered sale.

The court found that the trial judge erred by failing to conduct a full contractual analysis of the mortgage provisions and by relying on a standalone common law entitlement to accelerated interest.

The Court of Appeal held that the mortgage terms explicitly provided for FN's entitlements upon default, which did not include accelerated interest.

The appeal regarding accelerated interest was allowed.

The appeal concerning the receiver's costs was dismissed, as the trial judge's discretion was properly exercised.

The appellant debtor appealed a motion judge's declaration that his debt to the respondent mortgagee was not released by his discharge from bankruptcy due to fraud, pursuant to s. 178(1)(e) of the Bankruptcy and Insolvency Act.

The appellant argued that fraud was not sufficiently pleaded in the original statement of claim and that consenting to judgment did not constitute an admission of fraud.

The Court of Appeal dismissed the appeal, affirming that specific reference to s. 178 or particularized pleading of fraud is not required for a debt to survive bankruptcy.

The court found that the motion judge correctly determined the nature of the debt by examining the pleadings, which clearly suggested fraudulent conduct, and that the consent judgment was broad enough to encompass fraud.

The Court of Appeal for Ontario granted leave to appeal and allowed an appeal concerning the interpretation of section 215 of the Bankruptcy and Insolvency Act (BIA).

The motion judge had erred in finding that permission was not required to sue a trustee in bankruptcy, holding that actions against trustees in a personal capacity or alleging omissions fell outside the scope of s. 215.

The Court clarified that s. 215 applies when the alleged wrongdoing is predicated on the individual having the powers and responsibilities of a trustee, regardless of whether the claim asserts a "personal capacity." Furthermore, s. 215 applies to actions alleging omissions unless the omission relates to something specifically and expressly mandated by the BIA.

The matter was remitted to the bankruptcy court to determine whether permission to sue the trustee should be granted.

The moving parties (original respondents) sought a stay of execution of judgments totalling over $33 million, pending their application for leave to appeal to the Supreme Court of Canada.

The judgments were for transfers at undervalue under the BIA and CCAA.

The court applied the three-part test for a stay (serious issue, irreparable harm, balance of convenience).

The motion was dismissed because the moving parties failed to demonstrate irreparable harm, especially given the responding parties' undertaking not to distribute seized assets, and because no security was offered for the judgment.

The appellant, Guestlogix Inc., appealed a judgment that awarded the respondent, Marina Antchipalovskaia, twelve months' common law notice for wrongful dismissal.

The core issue was whether the motion judge erred in treating the respondent's employment as continuous from 2011 to 2019, despite a termination and re-hiring in 2016 during Companies’ Creditors Arrangement Act (CCAA) proceedings, which included a court-ordered release of prior claims.

The Court of Appeal found that the motion judge erred by not giving effect to the 2016 termination and the CCAA release.

However, the court also held that the respondent's prior five years of experience still provided a benefit to the appellant and should be considered in determining the notice period.

The Court of Appeal substituted the twelve-month notice period with a seven-month notice period, recognizing both the effect of the CCAA release and the value of the respondent's previous service.

Medcap Real Estate Holdings Inc. appealed a bankruptcy order made against it, arguing the application judge erred in not exercising discretion to dismiss the application under s. 43(7) of the Bankruptcy and Insolvency Act.

Medcap claimed it could pay its debts, the application was improperly motivated, and a bankruptcy would serve no purpose.

The Court of Appeal dismissed the appeal, finding Medcap failed to prove its ability to pay all debts, that the applicants had an improper motive, or that a bankruptcy would be purposeless, thereby upholding the application judge's discretionary decision.

The appellants, Adamson & Associates Inc. and John Adamson, brought a motion to amend their notice of appeal to add an alternative request for leave to appeal under s. 193(e) of the Bankruptcy and Insolvency Act.

The original appeal relied on sections that did not require leave.

The motion judge granted the amendment despite the appellants' lack of a reasonable explanation for the delay, finding no prejudice to the respondent, Brian Wayne Flight, and noting the merits of the proposed leave request.

The decision also addressed the striking of inadmissible and non-compliant affidavit material filed by the responding party, emphasizing strict compliance with evidentiary rules for serious allegations.

The appellant, Vdopia Inc., appealed an order requiring it to pay US$373,731.23 to the court-appointed receiver of the respondents.

Vdopia Inc. argued that the motion judge erred by not considering its outstanding counterclaim for equitable set-off.

The Court of Appeal found no error, affirming that the motion judge's finding of indebtedness was well-supported by the record and that the appellant failed to adduce any evidence to support its set-off claim despite ample notice.

The appeal was dismissed, and costs were awarded to the receiver.

This appeal concerned the standing of a defendant to challenge a s. 38 order under the Bankruptcy and Insolvency Act (BIA).

Traders General Insurance Co. appealed the dismissal of its motion to set aside a s. 38 order that allowed the Carrolls to commence a bad faith action against Traders.

The Court of Appeal affirmed that a proposed defendant generally lacks standing to challenge a s. 38 order, except in limited circumstances like abuse of process or misrepresentation, which were not found here.

The court also addressed, obiter, arguments regarding whether the Carrolls were creditors and whether the bad faith claim was property of the bankrupt estate, concluding these were not determinative issues for the s. 38 order itself, but rather for the merits of the assigned action.

The appeal was dismissed.

The Court of Appeal for Ontario refused leave to appeal a sealing order issued by a CCAA supervising judge in the Laurentian University insolvency proceedings.

The moving parties, including faculty unions, sought access to confidential documents (letters between Laurentian and the Ministry of Colleges and Universities) that were sealed to protect restructuring efforts.

The Court applied the Sierra Club test for sealing orders and the four-factor test for leave to appeal in CCAA cases, finding the proposed appeal was not prima facie meritorious, would unduly hinder the time-sensitive restructuring, and was not of sufficient significance to the action.

The court emphasized deference to the supervising judge's discretion in complex CCAA matters.