Bankruptcy and Insolvency Law - SCJ

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The court held the issuer had mistakenly issued an outdated form of note contrary to the prior court order approving the amended form.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 Companies’ Creditors Arrangement Act proceedings, the applicant debtor entities sought authorization to pay pre-filing invoices owed to a foreign supplier of critical components necessary for ongoing aerospace manufacturing.

The supplier had refused to continue supplying goods despite a critical supplier provision in the initial CCAA order requiring continued supply.

The court reviewed the jurisprudence recognizing inherent jurisdiction to authorize payment of pre-filing obligations to critical suppliers where necessary to maintain operations during restructuring.

Given the debtor’s dependence on the supplier, the lack of alternative sources, the risk to a major customer’s production lines, and the monitor’s support, the court held that business realities justified authorizing payment notwithstanding concerns about rewarding the supplier’s non-compliance with the order.

A proposal trustee brought a motion without notice seeking approval of interim professional fees and disbursements incurred during the period following the filing of a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act.

The trustee relied on provisions of the BIA and Directive 27R to justify payment before a proposal was filed and without notifying creditors.

The court held that the statutory provisions relied upon did not authorize such payment where no proposal had yet been filed and the trustee was not carrying on the debtor’s business.

The court emphasized that creditors, particularly secured creditors, may wish to oppose the request.

The motion was refused, with leave to bring the request again on notice to creditors.

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.

In CCAA proceedings, the applicant sought approval of a sale transaction involving substantially all of its pulp mill assets pursuant to s. 36 of the Companies’ Creditors Arrangement Act.

Certain creditors opposed the transaction and urged the court to consider a late competing offer that proposed a higher purchase price.

The court held that the sales process had been extensively marketed internationally, complied with the court‑approved process, and was conducted with the oversight of the monitor and consultation with key stakeholders including the Province.

Applying the Soundair principles and s. 36(3) of the CCAA, the court found that the monitor had acted prudently, the process maintained integrity and fairness, and the later competing offer did not demonstrate that the accepted transaction was improvident.

The court approved the transaction and granted the requested vesting order.

The moving party sought leave under Rule 60.07(2) of the Rules of Civil Procedure to issue a writ of seizure and sale more than six years after judgment relating to a motor vehicle accident claim assigned to the Motor Vehicle Accident Claims Fund.

The responding party had filed a consumer proposal under the Bankruptcy and Insolvency Act and listed the Fund as an unsecured creditor.

The court held that the Bankruptcy and Insolvency Act binds the Crown and that s. 69.2(1) imposes a stay of proceedings preventing creditors from enforcing provable claims once a consumer proposal is filed.

The judgment debt was a provable claim in bankruptcy and therefore enforcement remedies, including issuing a writ of seizure and sale, were barred during the proposal process.

Leave to issue the writ was denied.

A creditor in a bankruptcy proceeding sought a declaration permitting set-off of a substantial costs award owed to the bankrupt against the creditor’s proven unsecured claim in the bankruptcy estate.

The court considered whether the claim satisfied the requirements for legal or equitable set-off under the Bankruptcy and Insolvency Act.

It held that legal set-off was unavailable because the costs debt arose after the bankruptcy and lacked the necessary mutuality with the creditor’s claim against the estate.

Equitable set-off was also unavailable because the adverse costs award related to a discrete tort claim and was not sufficiently connected to the contractual debt forming the creditor’s proven claim.

The motion for set-off was dismissed, and the court granted the bankrupt’s counsel a charging order over the costs award pursuant to the Solicitors Act, giving the solicitor priority as a secured creditor.

The moving party sought advice and directions under a court‑approved CCAA Plan of Arrangement governing the restructuring of Canada’s third‑party asset‑backed commercial paper market.

The administrator argued the Plan and related agreements permitted it to terminate credit default swap transactions and fund termination payments from collateral without dealer consent below specified thresholds.

A dealer noteholder opposed, asserting the agreements required negotiated consent where collateral beyond a specific trade would be affected.

The court held that the contractual language did not eliminate consent requirements and that the court’s broad CCAA jurisdiction could not be used to effectively rewrite the negotiated agreements.

The request for declaratory or corrective relief was refused.

The moving parties sought orders staying two Ontario proceedings pending a determination by the Quebec Superior Court regarding jurisdiction and forum in a parallel creditors’ action.

The actions arose from the collapse of an offshore bank alleged to have operated a multibillion-dollar Ponzi scheme, with claims that the defendant bank was liable for wrongful acts or omissions in providing correspondent banking services.

The court granted an interim stay of the Ontario “placeholder” action commenced by joint liquidators to preserve limitation periods, finding that parallel proceedings justified holding the Ontario action in abeyance pending the Quebec court’s determination.

The court also temporarily stayed a separate Ontario action brought by a small group of creditors to avoid duplicative litigation until the jurisdictional dispute in Quebec was resolved.

Costs were awarded to the joint liquidators as moving parties.

Following earlier motions seeking to set aside or vary an ex parte order and discharge certificates of pending litigation registered against properties connected to bankrupt estates, the trustee sought costs.

The moving parties argued they had achieved partial success and that costs should be in the cause or borne by each party.

The court found the trustee had been essentially successful in maintaining the certificates of pending litigation and defending the scope of the production order, notwithstanding limited clarification provided in the earlier endorsement.

After considering objections regarding time spent on cross-examinations and the factors in rule 57.01(1), the court fixed partial indemnity costs in favour of the trustee.

Following dismissal of a motion to annul a bankruptcy, the court determined the appropriate costs award.

The bankrupt sought full indemnity costs based on unproven allegations of fraud, while the opposing party argued for minimal costs in the cause.

The court held that the motion to annul lacked any realistic basis due to extreme delay and that costs should be payable within 30 days.

However, because no findings were made on the fraud allegations, the court awarded costs on a partial indemnity basis.

The court fixed costs at $10,000 inclusive of HST after considering the factors under Rule 57.01 and the allocation of work between the annulment motion and a separate expungement motion.

Following the dismissal of a bankrupt’s appeal from a surplus income order under s. 68 of the Bankruptcy and Insolvency Act, the court determined the appropriate costs payable to the trustee.

The trustee sought costs on a substantial indemnity basis on the ground that the appeal lacked merit and that notice had been given of the intention to seek elevated costs.

The court declined to award substantial indemnity costs and instead applied the usual partial indemnity standard.

Considering the factors under Rule 57.01 of the Rules of Civil Procedure, including the bankrupt’s financial circumstances, the court fixed costs at a reduced amount inclusive of HST.

The moving party sought to re-open aspects of a prior family law trial decision concerning pension equalization and spousal support following the responding party’s post‑trial assignment into bankruptcy.

The court found that the bankruptcy constituted a material change in circumstances because it reduced the moving party’s ability to recover the previously ordered equalization payment.

The court ordered a transfer from the responding party’s pension into a locked account to satisfy the equalization amount, arrears, and interest.

The court also revisited spousal support and increased the monthly amount to the mid‑range of the Spousal Support Advisory Guidelines.

Additional property matters were resolved on consent.

The applicants sought an order directing that funds collected by a court‑appointed receiver from proceeds payable to the respondent be paid to them.

The evidence established that one of the applicants was a creditor of the respondent for more than $1.2 million arising from a loan guarantee and secured by a general security agreement.

The respondent withdrew its opposition at the hearing, while a third-party creditor requested that the successful applicant’s payment be held in court pending potential litigation.

The court held that the applicant’s creditor claim clearly ranked ahead of any shareholder interest and rejected the request to hold the funds as premature security for an uncommenced action.

The motion was granted directing payment of most of the fund to the creditor applicant.

In a proceeding under the Companies’ Creditors Arrangement Act, the applicants sought several restructuring-related orders, including increased priority for certain court-ordered charges, suspension of special pension payment obligations under an individual pension plan, and approval of an engagement letter for a financial advisor.

The court held that it had jurisdiction under ss. 11.2, 11.4, 11.51 and 11.52 of the CCAA to grant super‑priority charges and accepted the applicants’ submissions regarding critical suppliers, DIP lenders, and a directors’ charge.

The court also approved the suspension of special pension payments and the engagement of the proposed financial advisor on specified terms.

Certain issues relating to a key employee incentive plan were deferred for later determination.

An order was issued granting the requested relief.

The bankrupt appealed a registrar’s order lifting the automatic stay under s. 69 of the Bankruptcy and Insolvency Act to permit a creditor’s civil action to proceed.

The creditor alleged that the debt arose from misappropriation of funds received in a fiduciary capacity, potentially falling within s. 178(1)(d) of the Act such that the debt could survive bankruptcy discharge.

The court held that the registrar properly applied the governing legal principles and correctly concluded that the pleadings disclosed a sufficient basis to lift the stay.

The bankruptcy court’s role was not to determine the merits of the underlying claim but only whether sound reasons existed to allow the action to continue.

The appeal was dismissed with costs.

A creditor and former spouse brought a motion under s. 181(1) of the Bankruptcy and Insolvency Act to annul a bankruptcy more than a decade after the alleged fraudulent conduct giving rise to the request was known.

The moving party relied on earlier family court findings that the bankrupt had diverted income and engaged in deceit prior to the bankruptcy.

The court held that applications to annul a bankruptcy must be brought with diligence once the relevant facts are known.

Given a delay of at least twelve years and the absence of any satisfactory explanation, the motion was fatally late.

The court also noted potential prejudice arising from the long passage of time and questioned the practical purpose of the application.

The applicants sought approval under the Companies’ Creditors Arrangement Act for a sale of substantially all of their assets following a court‑approved sales and investor solicitation process.

The court considered the statutory factors in s. 36 of the CCAA, including the fairness and reasonableness of the process, the role of the monitor, consultation with creditors, and the adequacy of the consideration.

A late competing bid was rejected to preserve the integrity of the court‑approved sales process.

The court also addressed priority issues involving a DIP lender, secured creditors, and potential claims to HST refunds under the Financial Administration Act.

The proposed transaction and distribution scheme were approved as fair and reasonable in the circumstances.

The applicant sought a bankruptcy order based on a loan debt that had become due more than two years before the bankruptcy application was commenced.

The respondent argued that the claim was statute‑barred under the Limitations Act, 2002 and therefore could not support a bankruptcy application.

The court held that the Limitations Act, 2002 bars a remedy but does not extinguish the underlying debt, meaning the debt may still constitute a debt “owing” for the purposes of the Bankruptcy and Insolvency Act.

The court also found written acknowledgments of the debt within the limitation period that would revive the claim in any event.

The bankruptcy application was granted and a trustee appointed.