Bankruptcy and Insolvency Law - SCC

The appellant sought a declaration that student loan debt was released under s. 178(2) of the Bankruptcy and Insolvency Act, arguing the seven-year bar in s. 178(1)(g)(ii) should run from an earlier loan-funded study period rather than her final study period.

The Court held that s. 178(1)(g)(ii) adopts a single-date approach based on the date the bankrupt last ceased to be a full- or part-time student under applicable student loan legislation before bankruptcy.

Because the appellant remained a student until 2009 and filed a consumer proposal in 2013, the student loan debt was not discharged.

The Court also held that a student loan creditor relying on s. 178(1)(g) need not obtain a separate judicial determination beyond filing a proof of claim.

A partial dissent would have interpreted the provision as a conditional bar tied to seven continuous non-student years for specific loans.

The appellants, including the directing mind of two family-owned construction companies, participated in a false invoicing scheme that drained tens of millions of dollars from the debtor companies prior to insolvency.

The trustee in bankruptcy and monitor applied under s. 96(1)(b)(ii)(B) of the Bankruptcy and Insolvency Act to recover the false invoice payments as transfers at undervalue on the basis that the debtor companies intended to defraud, defeat, or delay creditors.

The Supreme Court held that insolvency is not a prerequisite to establishing fraudulent intent under s. 96(1)(b)(ii)(B), and that the directing mind's fraudulent intent was properly attributed to the debtor corporations.

The Court confirmed that the corporate attribution doctrine must be applied purposively, contextually, and pragmatically, and that the fraud and no benefit exceptions to corporate attribution do not apply in the context of s. 96 of the BIA because applying them would undermine the creditor protection purpose of that provision.

Appeal dismissed.

The appellant investors, who participated in a Ponzi scheme operated by a one-person corporation, sought to have the trustee in bankruptcy's unjust enrichment claims statute-barred under Ontario's Limitations Act, 2002 by attributing the directing mind's knowledge of illegal interest and commission payments to the corporation.

The majority held that the corporate attribution doctrine applies to one-person corporations on the same purposive, contextual, and pragmatic basis as to other corporations, and that courts retain discretion to decline attribution when it would undermine the purposes of the laws engaged — here, the limitations and bankruptcy regimes.

In concurrence, a separate judge held that resort to the common law corporate attribution doctrine was unnecessary because the codified agency rules in s. 12 of the Limitations Act, 2002 provided a complete answer, and that the claims were not discoverable until the trustee was authorized by the court to bring them.

All judges agreed that the investors were disentitled from equitable set-off for lack of clean hands, that the referral agreements were illegal contracts at common law, and that one appellant was not dealing at arm's length with the corporation.

The appellants, undischarged bankrupts, sought to have administrative penalties and disgorgement orders imposed by the British Columbia Securities Commission released upon bankruptcy discharge.

The Commission had sanctioned the appellants for market manipulation contrary to the Securities Act, ordering $13.5 million in administrative penalties and approximately $5.6 million in disgorgement orders.

The majority held that neither the administrative penalties nor the disgorgement orders fall within s. 178(1)(a) of the BIA because orders of an administrative tribunal registered with a court are not 'imposed by a court' within the meaning of that provision.

As to s. 178(1)(e), the majority held that administrative penalties do not result directly from the fraudulent scheme and therefore are dischargeable, but the disgorgement orders — representing the exact value of property obtained by fraud — are directly linked to the fraudulent misrepresentation and survive bankruptcy.

The dissent would have held that both orders survive under s. 178(1)(e) as debts resulting directly from deceitful conduct, without requiring a correspondence between the debt quantum and the gain derived.

The appellants sought a stay of proceedings in favour of arbitration under s. 15 of the Arbitration Act, R.S.B.C. 1996, c. 55, after the court-appointed receiver commenced a civil claim to collect amounts allegedly owed under contracts containing mandatory arbitration clauses.

The Supreme Court of Canada dismissed the appeal, holding that a court-appointed receiver may be a party to a debtor's pre-receivership arbitration agreement, but that an arbitration agreement may be found inoperative under s. 15(2) where enforcing it would compromise the orderly and efficient resolution of a court-ordered receivership under the Bankruptcy and Insolvency Act.

The majority applied a two-part framework: the technical prerequisites for a mandatory stay were met, but the arbitration agreements were inoperative because the multiple overlapping arbitral proceedings contemplated would compromise the objectives of the BIA.

The concurring judges agreed on the result but reasoned that the Receivership Order itself authorized the receiver to sue in court and thereby disclaim the arbitration agreements.

An insolvent consulting engineering firm became subject to CCAA proceedings, after which the appellant municipality refused to pay for post-initial order work and sought to effect compensation between amounts owed to the firm and two pre-order fraud-related claims.

The majority held that participation in Quebec's Voluntary Reimbursement Program does not in itself establish that a claim relates to fraudulent misrepresentation under s. 19(2)(d) of the CCAA.

The majority further held that a supervising judge has broad discretion under ss. 11 and 11.02 to stay a creditor's right to pre-post compensation, though the absolute prohibition from the Quebec Court of Appeal was tempered to allow for exceptional cases.

The initial stay order covered the appellant's right to effect pre-post compensation, and no basis was shown to lift the stay on either claim.

Brown J. dissented, arguing the matter should have been remanded to the supervising judge to exercise her discretion.

The appellant Crown challenged court-ordered super-priority priming charges granted to an interim lender, monitor, and directors in CCAA restructuring proceedings, arguing that its deemed trust for unremitted employee source deductions under s. 227(4.1) of the Income Tax Act took priority over those charges.

The majority dismissed the appeal, holding that s. 227(4.1) does not create a proprietary interest in specific debtor assets and that court-ordered super-priority charges under s. 11 of the CCAA are not security interests within the meaning of s. 224(1.3) of the ITA, so no conflict arises between the two statutes.

The concurring justices agreed there was no conflict but relied on the CCAA's remedial flexibility and s. 6(3)'s requirement that the Crown be paid in full under any plan of compromise.

Four justices dissented, concluding that Parliament's use of broad notwithstanding language in s. 227(4.1) granted the Crown's deemed trust absolute priority over all claims including CCAA priming charges.

The appeal was dismissed with costs, Abella, Moldaver, Brown and Rowe JJ. dissenting.

The appellant general contractor sought to enforce a subcontract clause that imposed a ten-percent forfeiture of the subcontract price upon the respondent subcontractor's bankruptcy.

The majority held that the anti-deprivation rule, a longstanding principle of Canadian common law, renders void any contractual provision that is triggered by insolvency and removes value from the insolvent's estate that would otherwise have been available to creditors.

Applying an effects-based test, the majority found that clause VII Q(d) constituted a direct violation of the anti-deprivation rule and could not be rescued by the law of set-off.

Côté J. dissented, concluding that the anti-deprivation rule should incorporate a bona fide commercial purpose element derived from its common law origins, and that the clause at issue served such a purpose.

In the context of ongoing CCAA proceedings where substantially all assets of the debtor companies had been liquidated, the supervising judge barred the sole secured creditor from voting on a proposed plan of arrangement on the basis that it was acting for an improper purpose, and authorized the debtor companies to enter into a third party litigation funding agreement as interim financing.

The Quebec Court of Appeal set aside those orders.

The Supreme Court of Canada restored the supervising judge's orders, holding that: (1) a supervising judge has discretion under s. 11 of the CCAA to bar a creditor from voting on a plan of arrangement where the creditor is acting for an improper purpose; and (2) a supervising judge may approve third party litigation funding as interim financing pursuant to s. 11.2 of the CCAA, provided the funding agreement does not constitute a plan of arrangement.

The Court affirmed the high degree of deference owed to discretionary decisions of a supervising judge and found the Court of Appeal had failed to treat those decisions with the appropriate degree of deference.

The appellants, a provincial energy regulator and an orphan well association, appealed from a decision holding that provincial oil and gas licensing obligations could not be enforced against a trustee in bankruptcy because they conflicted with the federal Bankruptcy and Insolvency Act.

The majority of the Supreme Court allowed the appeal, holding that the regulator's use of its statutory powers to enforce end-of-life abandonment and reclamation obligations did not create an operational conflict or frustration of purpose with the BIA.

The majority found that s. 14.06(4) of the BIA shields trustees only from personal liability, not the liability of the bankrupt estate, and that a bona fide public regulator enforcing public duties is not a creditor asserting a claim provable in bankruptcy.

Moldaver and Côté JJ. dissented, finding a genuine operational conflict and frustration of purpose under both branches of the paramountcy test, and that the Abitibi three-part test for provable claims was satisfied.

The Court allowed the appeal, adopted the dissenting reasons from the Federal Court of Appeal, and reinstated the Federal Court order answering the stated legal question in the affirmative, with costs throughout in favour of the appellant.

The Court expressly declined to comment on the scope of the deemed trust or liability under s. 222 of the Excise Tax Act before bankruptcy.

The appeal considered whether a provincial driver-licensing suspension mechanism could continue to compel payment of a debt released by bankruptcy discharge.

The Court held that the provincial scheme, insofar as it enforced a provable claim discharged under the federal insolvency statute, was constitutionally inoperative under federal paramountcy.

The majority found both operational conflict and frustration of the federal rehabilitation purpose, while concurring reasons relied on frustration of purpose alone.

The appeal was dismissed and the debtor could not be denied driving privileges solely for non-payment of the discharged judgment debt.

The Court dismissed the appeal and held that Ontario’s permit-suspension enforcement mechanism is constitutionally inoperative to the extent it enforces a bankruptcy-provable toll debt discharged under s. 178(2) of the Bankruptcy and Insolvency Act, because it creates an operational conflict and frustrates Parliament’s financial rehabilitation purpose.

In an insolvency appeal, the Court considered whether provincial farm-protection preconditions conflicted with the national receivership regime under the federal bankruptcy statute.

The majority held there was no operational conflict and no frustration of federal purpose, emphasizing a restrained paramountcy analysis and cooperative federalism.

The purpose of the federal receivership provision was read narrowly as creating a national appointment mechanism, not guaranteeing a uniformly rapid timeline free from provincial conditions.

The provincial 150-day process and mediation framework therefore remained operative when a secured creditor sought appointment of a receiver over farm-related assets.

A dissent would have found the provincial scheme frustrated federal objectives of timeliness, flexibility, and emergency responsiveness.

The appellants appealed from the Court of Appeal's reversal of the CCAA court's decision regarding the priority of pension plan wind-up deficiency claims over court-ordered DIP financing charges.

The majority held that wind-up deficiencies under s. 75(1)(b) of the Pension Benefits Act were subject to a statutory deemed trust under s. 57(4), but that the deemed trust was superseded by the DIP charge by virtue of the doctrine of federal paramountcy.

The majority further held that while the employer-administrator breached its fiduciary duty by failing to ensure the pension plan beneficiaries had adequate notice and representation in the CCAA proceedings, a constructive trust was not an appropriate remedy because the breach did not result in an identifiable asset that it would be unjust for the wrongdoer to retain.

In an insolvency appeal, the Court addressed when environmental remediation orders issued by a provincial regulator constitute provable monetary claims under the Companies’ Creditors Arrangement Act.

The majority held that orders not framed in monetary terms may still be compromised where the statutory and factual context shows sufficient certainty that compliance will ripen into a financial liability to the regulator.

Applying that framework, the majority found the remediation orders fell within the claims process and dismissed the appeal.

The dissenting judges would have required evidence approaching certainty that the province would itself perform remediation before treating most orders as contingent monetary claims.

In a tax enforcement appeal, the Court considered whether a statutory requirement to pay issued to a bank lost priority after the tax debtor later filed a notice of proposal under federal insolvency legislation.

The Court endorsed the Federal Court of Appeal's reasoning that the subsequent insolvency filing did not displace the earlier requirement to pay under the tax statute.

The appeal was dismissed.

No costs were awarded.