Bankruptcy and Insolvency Law - SCJ

At a status hearing under Rule 48.14 of the Rules of Civil Procedure, the plaintiff was required to show cause why the action should not be dismissed for delay.

The defendants argued that the plaintiffs failed to advance the litigation diligently and that the action was a nullity due to the corporate plaintiff’s bankruptcy.

The court applied the two‑part test requiring an acceptable explanation for the delay and the absence of non‑compensable prejudice to the defendants.

Although the delay was significant, the court accepted the plaintiffs’ explanation relating to related litigation, financial constraints, and a change of counsel, and found insufficient prejudice to the defendants.

The action was permitted to proceed subject to a strict timetable, and the defendants were awarded partial indemnity costs of the status hearing.

In ongoing Companies’ Creditors Arrangement Act proceedings, the applicants sought advice and directions regarding the application of a directors’ and officers’ liability insurance policy issued by the insurer.

The dispute concerned whether a US$10 million retention applied to defence costs incurred by executives facing claims arising from alleged pre‑filing misconduct.

The applicants argued that the CCAA stay prevented the company from indemnifying the executives, thereby triggering the policy’s non‑indemnifiable loss provisions and eliminating the retention requirement.

The court held that the indemnity obligation was a pre‑filing obligation and that the stay prevented payment, rendering the loss non‑indemnifiable within the meaning of the policy.

As a result, the insurer was required to respond to the executives’ losses without reference to the retention.

In Companies’ Creditors Arrangement Act proceedings, the applicant sought an extension of the stay period, an increase to debtor-in-possession financing, authorization to honour pre-filing prepayments made by merchant customers for loyalty program points, and a variation of the initial order to defer statutory notice to certain creditors.

The court granted the stay extension and approved the increased DIP facility, finding the debtor had acted in good faith and required additional financing to continue operations during the sale and investor solicitation process.

The court also authorized the debtor to honour prepayments for loyalty points where doing so would preserve customer relationships and enhance prospects for a going‑concern sale, applying a cost‑benefit approach consistent with earlier CCAA jurisprudence permitting payment of certain pre‑filing obligations.

However, the court refused to vary the statutory notice requirements under s. 23 of the CCAA, emphasizing that transparency and creditor notification are foundational principles of CCAA proceedings.

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.

The court heard two motions in a receivership proceeding.

The Receiver moved for its discharge and release from liability, having completed its mandate to close a sale transaction.

A creditor brought a motion to compel the Receiver to answer 114 questions, unseal confidential appendices, and pay out funds held in trust for its s. 81.1 claim.

The court dismissed the creditor's requests for answers and payment, finding the questions to be an unreasonable fishing expedition and the payment premature as the claim was not yet determined.

The request to unseal documents was adjourned to allow the affected party to respond.

The court granted the Receiver's discharge, finding no evidence of improper conduct.

In CCAA restructuring proceedings, shareholder class action plaintiffs sought to limit the scope of a stay of proceedings so that certification, leave, and amendment motions in related Ontario and Quebec securities class actions could proceed against auditors, underwriters, and former directors.

The court applied the established test for lifting a CCAA stay, considering relative prejudice, balance of convenience, and the merits.

Given the pending appeal concerning whether shareholder claims constituted “equity claims” under the Companies’ Creditors Arrangement Act and the imminent creditor meeting regarding a proposed plan of arrangement, the court found that maintaining the stay temporarily would avoid prejudice and promote orderly proceedings.

The court held that the balance of convenience favoured maintaining the stay so that the auditors and underwriters could focus on the appeal and restructuring process.

The motion to limit the stay was dismissed without prejudice to renewal after the creditor meeting.

The court-appointed receiver of a non-profit housing co-operative moved for approval of an agreement of purchase and sale with a non-profit corporation.

The sale would preserve the property as affordable housing but required an increase in occupancy fees to fund necessary repairs.

A competing bidder submitted a revised offer after the bid deadline, matching the financial terms and offering a one-year freeze on occupancy fees, but without a long-term commitment to affordable housing.

Applying the Soundair test and considering the special factors for co-operative housing, the court found the receiver's process was fair and the recommended offer was not improvident.

The motion to approve the sale was granted.

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.

The defendants brought a motion for summary judgment seeking to dismiss portions of a civil action alleging damages arising from the disclosure of confidential taxpayer information by a government employee to police during an arson investigation.

The estate of the deceased plaintiff alleged reputational harm, loss of property, and Charter breaches.

The court held that the cause of action relating to damage to property arose before the deceased’s discharge from bankruptcy and therefore vested in the bankruptcy trustee under the Bankruptcy and Insolvency Act.

As a result, the estate lacked legal capacity to pursue claims relating to property loss.

The court dismissed those claims but allowed the personal claim for damage to reputation to proceed to trial, while striking Charter breach allegations that could not survive the claimant’s death.

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.

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.

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.

A secured creditor applied for judgment on a promissory note and the appointment of a receiver over the debtor company’s assets under a general security agreement.

The debtor alleged it had made advance payments toward the note and counter‑applied for the return of equipment seized by the creditor.

The court found the alleged payments were unrelated to the promissory note and that the debtor had defaulted on the required installment.

Because assets of the purchased company had been transferred contrary to the note’s terms, the entire debt became immediately due.

Judgment for $100,000 was granted, a receiver‑manager was appointed, and the debtor’s claim for return of seized equipment was dismissed.

A creditor brought a motion to compel the bankrupt to satisfy an undertaking given during an examination under s. 163(1) of the Bankruptcy and Insolvency Act.

The undertaking required production of complaints made by the bankrupt to the Law Society and the Human Rights Tribunal to clarify the nature of his relationship with another individual, an issue relevant to the bankrupt’s family unit status and estate.

The bankrupt sought to provide the documents only to the trustee and argued they contained confidential information.

The court held that where examining counsel conducts a s. 163 examination on behalf of the trustee and creditors, undertakings must be fulfilled by delivering documents to that examining counsel.

The bankrupt was ordered to obtain and deliver the documents, with directions that the trustee not file them in the public record without further court order due to potential confidentiality concerns.

The applicant sought declarations that funds advanced under a provincial training funding agreement were held in trust and should be returned following the insolvency of the recipient limited partnership.

The court considered whether the funds were impressed with a Quistclose trust and whether a receiver’s charging order nonetheless had priority over those funds.

Applying authorities including Quistclose and Twinsectra, the court held that the agreement restricted the use of funds to a specific training project and required repayment of unspent funds, demonstrating the necessary intention to create a trust.

The court found the remaining funds held by the receiver were impressed with a trust in favour of the applicant but concluded they were subject to the receiver’s previously granted charging order.

The funding agreement was declared terminated.

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.

In a bankruptcy proceeding, the trustee sought an order permitting employees and retirees of the bankrupt corporation who were creditors to nominate and vote on the election of inspectors at the first meeting of creditors.

Section 113(3) of the Bankruptcy and Insolvency Act generally prohibits employees from voting on the appointment of inspectors unless the court grants permission.

The court considered the circumstances, including that employee severance claims and pension deficit claims constituted a substantial portion of the unsecured creditor claims and that no party opposed the request.

The court concluded it was fair and appropriate to allow employees and retirees who were creditors to participate in the election of inspectors, subject to the standard requirements for filing proofs of claim and vote counting under the Act.