Bankruptcy and Insolvency Law - SCJ

The applicant bank brought an application for a court-supervised receivership over the respondent debtors' trucking and logistics business following uncured defaults on approximately $11 million in credit facilities.

At the hearing, the respondents sought an adjournment, relying on an improperly filed affidavit from a lawyer at their own counsel's firm disclosing privileged settlement communications.

The court struck the affidavit, denied the adjournment, and granted the receivership order, finding that the bank had given all required notices, negotiated for nearly a year, and was entitled to enforce its security.

The plaintiff, Paula Lloyd, brought a motion seeking to enforce a debt against the defendant, Winners Apparel Ltd. The court found that previous judgments, one in the plaintiff's favour and one for costs against her, resulted in a set-off, leaving no amount owing by the defendant.

Furthermore, the plaintiff's prior bankruptcy in 2009 meant any debt would have vested in her Trustee, and she provided no evidence of the debt being reconveyed to her upon discharge.

Consequently, the plaintiff had no right to enforce the debt.

The motion was dismissed, and the defendant was awarded $4,000 in costs.

Opposition to a bankrupt’s discharge under the Bankruptcy and Insolvency Act by both the trustee and a former spouse creditor.

The court found numerous breaches of the bankrupt’s statutory duties, including failure to disclose assets, failure to keep the trustee informed of his address, and failure to provide required financial documentation.

The bankrupt had also reaffirmed a vehicle loan post‑bankruptcy while retaining the benefit of the vehicle but then ceased making payments, leaving a co‑obligor exposed.

The court held that reaffirmation of a debt through conduct during bankruptcy may render the debtor liable notwithstanding the bankruptcy.

Given the misconduct, the court granted a conditional discharge requiring payment to the trustee and permitting the opposing creditor to pursue reimbursement relating to the reaffirmed vehicle loan.

Applicants sought an initial order under the Companies’ Creditors Arrangement Act to obtain court protection while restructuring a national not‑for‑profit healthcare organization suffering significant liquidity shortfalls.

The court found the applicants insolvent and satisfied that the statutory requirements for CCAA protection were met.

The court granted a stay of proceedings, approved a modified cash management system, appointed a monitor and chief restructuring officer, and approved administration and directors’ charges and a key employee retention plan.

The court also appointed a receiver over certain intellectual property and goodwill to enable terminated employees to access benefits under the Wage Earner Protection Program Act.

A comeback hearing was scheduled to permit creditors to raise concerns.

A creditor applied for a bankruptcy order against the debtor under the Bankruptcy and Insolvency Act, alleging acts of bankruptcy including ceasing to meet liabilities generally as they became due and exhibiting a statement of assets and liabilities showing insolvency.

The court held that the applicant established a prima facie case that the debtor had ceased to meet liabilities generally, based on an unsatisfied judgment debt and unpaid tax arrears to the Canada Revenue Agency within the relevant six‑month period.

The debtor failed to provide independent evidence demonstrating the ability to meet liabilities or establishing a binding arrangement with the tax authority that would negate the inference of general non‑payment.

The court rejected the argument that the bankruptcy application was brought for an improper purpose.

The debtor was adjudged bankrupt and a trustee appointed.

The court determined costs arising from a motion relating to the sale of jointly owned property after one party filed a consumer proposal under the Bankruptcy and Insolvency Act.

The moving party had sought relief including lifting the statutory stay and authorizing the listing and sale of the property.

After a prior order lifted the stay and allowed the property to be listed for sale, the motion was ultimately dismissed as moot once the mortgagee took possession.

The court held that the motion became duplicative following the earlier order and should not have continued.

In the circumstances, the court declined to award costs to either party.

The plaintiff employer brought a civil action against a former employee alleging conversion, fraud, and breach of fiduciary duty arising from systematic theft of store funds through manipulation of cash register void transactions.

The defendant had previously pleaded guilty to a criminal theft charge and paid partial restitution.

The court accepted the employer’s statistical analysis of business records showing excessive void transactions and found, on a balance of probabilities, that the defendant misappropriated $70,699.93.

The court further held the defendant occupied a position of trust as a night manager and therefore acted in a fiduciary capacity.

Judgment was granted for damages and a declaration that the debt arose from fraud while acting in a fiduciary capacity under the Bankruptcy and Insolvency Act and would survive bankruptcy; punitive damages were refused.

During CCAA proceedings involving an aerospace manufacturer, former directors and officers sought an interlocutory injunction restraining the provincial environmental regulator from issuing a Director’s Order under the Environmental Protection Act pending determination of a related motion concerning adjudicative procedures for claims in the CCAA process.

The moving party argued that a “status quo” exception permitted injunctive relief against the Crown to preserve the court’s process.

The court held that the Proceedings Against the Crown Act generally bars injunctions against the Crown and that the asserted status quo exception did not apply because there was no government wrongdoing and the Environmental Protection Act provides a complete statutory scheme for issuing and appealing environmental orders.

The court further held that the moving party failed to meet the RJR‑Macdonald test, including establishing a serious issue to be tried or irreparable harm.

The motion was dismissed.

A creditor applied for a bankruptcy order against the respondent debtor under s. 43 of the Bankruptcy and Insolvency Act based on multiple unpaid judgments exceeding $5 million.

The debtor conceded that an act of bankruptcy had occurred but argued the application should be dismissed under s. 43(7) because it was brought for an improper purpose and because bankruptcy would produce no benefit for creditors.

The court rejected allegations that the application was motivated by malice, finding it was a legitimate attempt by a judgment creditor to enforce a debt, particularly given the existence of additional unpaid judgments.

The court also rejected the debtor’s unsupported claim of having no assets, concluding that a trustee’s investigation could uncover realizable assets.

The application was granted and the debtor was adjudged bankrupt.

The applicant corporation sought an Initial Order under the Companies’ Creditors Arrangement Act to obtain protection from creditors and pursue restructuring options.

The evidence showed the corporation owed more than $11 million to creditors, had a significant working capital deficit, and faced termination of a key commercial agreement that generated most of its revenue.

The court found the statutory requirements of the CCAA were met, including insolvency and claims exceeding $5 million.

The court granted a 30‑day stay of proceedings, appointed a monitor, and approved administrative, directors’, and DIP lender charges to facilitate restructuring efforts.

The moving parties sought reconsideration of case management scheduling orders that set hearing dates for a bankruptcy application and a receiver’s motion to pass accounts on the Commercial List.

They argued the hearings should be adjourned until the Court of Appeal determined a separate appeal relating to a solicitor’s file delivery order.

The court reviewed the procedural history, including prior adjournments, disclosure orders, and repeated failures by the moving parties to comply with deadlines for filing objections and conducting examinations.

Finding that the evidentiary materials had long been available and that no concrete prejudice was demonstrated, the court concluded further delay was unwarranted.

The request to adjourn the scheduled hearings was refused.

The bankrupt appealed a registrar’s determination concerning the characterization of a disability tax credit refund received during bankruptcy.

The issue was whether the refund constituted “property” under s. 67 of the Bankruptcy and Insolvency Act or “income” under s. 68.

Relying on prior bankruptcy jurisprudence and policy considerations underlying the disability tax credit, the court held that the credit functions to augment income available to persons with disabilities.

Accordingly, the refund was properly treated as income under s. 68 of the Act rather than property of the estate.

In a bankruptcy proceeding involving the estate of a bankrupt developer, the moving parties sought determination of priorities among claims.

During the hearing, counsel requested that transcripts of viva voce evidence be provided in a fully searchable electronic format for use in the continuation of the hearing.

The court found the request reasonable in modern litigation practice, noting the increasing reliance on electronic transcripts by both counsel and judges.

Given the lack of standardized electronic transcript formats prescribed by the Ministry of the Attorney General, the court ordered that the transcripts be produced in a fully word-searchable electronic format.

In a receivership proceeding on the Commercial List, the receiver sought approval of a sale of a dormant condominium development project and related vesting relief.

The receiver and secured creditors also sought a declaration confirming the validity of mortgage amendments that increased the secured debt amounts, where the amendments had been registered using Land Titles instruments titled “Notice” and “Application (General)” rather than the standard Charge/Mortgage form.

The court held that registration under s. 71 of the Land Titles Act provided effective notice of the amended security interests and rendered the amendments valid.

The court approved the sale as the highest and best offer obtained through a fair and transparent sale process and granted the requested declarations and sealing order.

The court considered a motion by a court-appointed receiver seeking approval of professional fees incurred during a complex receivership investigation.

The receivership arose after the judgment debtor engaged in extensive efforts to conceal assets through individuals and corporate entities in order to avoid enforcement of a judgment owed to a former spouse.

The receiver, counsel, and forensic investigator undertook substantial asset tracing and recovery efforts that resulted in over $2 million being realized for the estate.

The court found the professional fees reasonable and necessary given the complexity of the concealment and the extensive investigative work required.

The motion to approve the professional fees was granted.

A creditor sought an order under s. 163 of the Bankruptcy and Insolvency Act requiring a third party to attend for examination regarding the affairs of a bankrupt estate.

The responding party argued that s. 163(1) did not permit a creditor to conduct such an examination.

The court held that, where the trustee lacks funds and creditors authorize the examination, a creditor’s counsel may conduct the examination in the trustee’s name.

In the alternative, the evidentiary record satisfied the “sufficient cause” threshold under s. 163(2) because the proposed examination concerned potential estate assets and conflicting evidence about corporate ownership and loans involving the bankrupt.

The motion was granted and the third party was ordered to attend for examination.

Former directors sought declarations that claims advanced in a Quebec class action concerning pension losses were barred by releases granted during Companies’ Creditors Arrangement Act proceedings.

The court held that it had jurisdiction to determine the motion because the dispute concerned the effect of orders and releases issued within the CCAA restructuring.

The contractual releases executed by the union on behalf of beneficiaries were broadly worded and applied to all claims relating to facts existing at the time of the release, whether known or unknown.

The court found that the claims process and releases extinguished any potential claims against the directors relating to the pension deficit.

Accordingly, the Quebec class action claims against the directors were fully and irrevocably released.

Competing applications sought declarations regarding when interest began accruing on a promissory note issued as part of consideration for a receiver-approved asset sale.

The note holder argued that interest accrued from the asset purchase agreement’s final closing date, while the issuer sought rectification of the note to reflect a court‑approved amended form that tied interest payments to the note issuance date.

The court held the issuer had mistakenly issued an outdated form of note contrary to the prior court order approving the amended form.

Rectification was granted so the issued note conformed to the court‑approved amended note.

Interest therefore began accruing only once the note was issued following the priorities order identifying the noteholder and principal amount.

In CCAA restructuring proceedings, the applicants sought approval of an asset sale transaction and related vesting order.

The provincial environmental regulator opposed the transaction and argued that a pre‑filing environmental remediation order was regulatory in nature and not subject to the CCAA stay.

The court held that where an insolvent debtor with no ongoing operations would necessarily incur financial obligations to comply with the environmental order, the order effectively enforced a payment obligation and was therefore stayed.

The court further held that the regulator could file a claim for remediation costs but could not use regulatory orders to create a super‑priority inconsistent with the CCAA priority scheme.

The proposed asset sale was approved as the result of a comprehensive marketing process and in the best interests of stakeholders.

In CCAA proceedings, the applicant sought an order declaring that shareholder class action claims alleging losses from the purchase or sale of its securities constituted “equity claims” under s. 2 of the Companies’ Creditors Arrangement Act.

The applicant also sought a determination that indemnity and contribution claims advanced by auditors and underwriters in relation to those shareholder actions were likewise equity claims.

The court held that shareholder claims alleging losses from trading in the company’s securities fall squarely within the statutory definition of equity claims and are subordinated to creditor claims.

Indemnification and contribution claims arising from those shareholder actions were also characterized as equity claims because their nature derives from the underlying shareholder claims.

However, the court left open the possibility that claims for defence costs might not necessarily be equity claims depending on the outcome of the underlying litigation.