Flight (Re)
(Ontario)

Can a trustee in bankruptcy be sued without the leave of the Court?

Section 215 of the BIA requires that the Court’s permission be obtained to bring an action against a trustee in bankruptcy “with respect to a report made under, or any action taken pursuant to, this Act”.

On July 13, 2022, the Court of Appeal for Ontario held that if the claim alleges wrongdoing in the performance of the trustee's role, naming an individual rather than the corporate trustee as a defendant or asserting the claim is brought against the trustee in a personal capacity is sufficient to avoid the broad gatekeeping function of Section 215.

Section 215 allows the Bankruptcy Court to screen out frivolous, vexatious actions that do not disclose a cause of action or for which there is no factual support so that the trustee need not respond to them. This avoids the cost and distraction of litigation that would make the bankruptcy process unworkable.

AG and Agence du revenu du Québec v Richter Advisory Group Inc. (“ChronoMétriq”)
(Quebec)

Can the Court grant charges in favour of interim lenders and others that rank in priority to the Crown’s deemed trust claims?

On October 27, 2021, the Superior Court of Quebec, Commercial Division approved an interim lender's charge, an administration charge and a directors’ and officers’ charge ranking in priority to any trusts (statutory or otherwise).

The Attorney General of Canada and the Agence du revenu du Québec filed notices of appeal with the Court of Appeal of Quebec, arguing the Court did not have authority to rank the charges above Crown deemed trusts.

CIBC, the Canadian Bankers’ Association and the Insolvency Institute of Canada are each authorized to intervene in the consolidated appeal.

Antchipalovskaia v. Guestlogix Inc.
(Ontario)

How should reasonable notice be calculated when an employee is terminated immediately before and then rehired immediately after a court-approved sale under the CCAA?

On June 9, 2022, the Court of Appeal for Ontario held that the employee’s pre-CCAA service period remains relevant in determining their without-cause damages payable by a subsequent purchaser regardless of any release or distribution during the CCAA proceedings.

A purchaser of a restructured business who intends to employ existing employees may be assuming at least a portion of the employees’ seniority regardless of any release obtained in the CCAA proceedings.

Arrangement relatif a Bloom Lake
(Quebec)

Do input tax credits (e.g., HST/GST credits) resulting from the payment of damages for the disclaimer of agreements constitute pre- or post-filing claims under the CCAA for set-off or compensation?

Does a court seized of a CCAA matter have the jurisdiction to hear a CBCA motion?

In two separate decisions, issued on November 8, 2021, and August 12, 2021, respectively, the Superior Court of Quebec held:

Input tax credits resulting from the payment of damages for the disclaimer of agreements constitute post-filing claims under the CCAA that may not be set off or compensated with pre-filing claims; and

As a “national court”, the CCAA court has the jurisdiction to hear and dispose of a CBCA motion even where the relevant corporate entity’s head office is outside the CCAA court’s province.

The Agence du revenu du Québec’s application for leave to appeal to the Court of Appeal of Quebec was granted on December 17, 2021.

Canada v. Canada North
(Alberta)

Does the CCAA empower a judge in a CCAA proceeding to grant super-priority charges in priority to all other claims, including Crown deemed trust claims under the Income Tax Act, Canada Pension Plan, Employment Insurance Act and Excise Tax Act?

The Supreme Court of Canada dismissed the Crown's appeal, confirming that the CCAA provides authority for a judge in CCAA proceedings to grant super-priority charges with priority over Crown deemed trust claims.

The Court emphasized the importance of the remedial purposes of the CCAA, the broad discretionary statutory authority of Section 11 of the CCAA, and the necessity of priming charges.

This case has been cited in at least twelve other reported decisions since the Supreme Court of Canada’s decision was issued in July 2021, including in decisions by the Court of Appeal for Ontario and the Court of Appeal of Alberta.

DGDP-BC Holdings Ltd. v Third Eye Capital Corporation, PricewaterhouseCoopers
(Alberta)

Can an order made in proceedings under the BIA legally alter the validity or priority of or extinguish the charges contained in an earlier order granted under the CCAA in the same insolvency proceedings without the consent of the affected creditor?

Can gross overriding royalties be used as payment in full of outstanding DIP loans?

On June 17, 2021, the Court of Appeal of Alberta dismissed the two appeals in this matter, confirming that:

A supervising judge can issue an order approving a receiver’s borrowing charge, which primes a DIP lender’s charge granted in the debtor’s CCAA proceedings. The court held that despite the existence of this discretion to prime DIP charges, doesn’t mean that it should routinely be done.

An approval and vesting order can extinguish a DIP lender’s security interest in the assets of one of the debtor entities sold even though such charge was not paid in full.

On August 10, 2021, the Court of Appeal of Alberta dismissed the application for leave to appeal a separate decision of the lower court approving the sale of the debtor’s remaining assets. This decision confirms that gross overriding royalties can be used as payment in full of outstanding DIP loans.

On September 3, 2021, the Court of Appeal of Alberta dismissed an application for a stay pending leave to appeal to the Supreme Court of Canada.

Leave to appeal to the Supreme Court of Canada was not filed.

Ernst & Young Inc. v. Aquino
(Ontario)

Was the false invoicing scheme carried out by the company’s directing mind a “transfer[s] at undervalue […] intended to defraud, defeat or delay a creditor”?

The Ontario Superior Court of Justice (Commercial List) held that the payments made in the fraudulent scheme were transfers at undervalue.

The Court of Appeal for Ontario held that permitting fraudsters to benefit at the expense of creditors would be perverse. In the context of transfers at undervalue under the BIA, the fraudulent intentions of the company’s directing mind should be imputed to the company to achieve the social purpose of providing proper redress to creditors.

An application for leave to appeal to the Supreme Court of Canada was filed by Aquino on June 3, 2022.

Manitok Energy Inc (Re)
Alberta

Whether end-of-life obligations associated with the abandonment and reclamation of unsold oil and gas properties must be satisfied by the receiver from the company’s estate in preference to satisfying what may otherwise be first-ranking builders’ lien claims based on services provided by the lien claimants before the receivership date.

On March 30, 2022, the Court of Appeal of Alberta allowed an appeal finding that end-of-life obligations associated with the abandonment and reclamation of unsold oil and gas properties must be satisfied in priority to the builders’ lien claims. The Court held that, as in Redwater, the proceeds of the sale of the valuable assets must be applied toward the reclamation of the worthless orphaned assets.

Nolet v AG
(Quebec)

Can tax credits be pro-rated such that the pre-insolvency filing portion is set off against pre-insolvency filing debt?

This matter has yet to be heard, but a hearing is expected to occur in October 2022.

The Canadian Association of Insolvency and Restructuring Professionals filed an intervention in this matter which was granted on June 25, 2021.

O’Reilly v ClearMRI Solutions Ltd.
(Ontario)

Can a Court issue an order against a company director for unpaid wages before (i) the liquidation, wind-up or formal bankruptcy, or (ii) execution against the company being returned unsatisfied, as required by section 131 of the OBCA?

On June 7, 2021, the Court of Appeal for Ontario held that a Court could issue an order for unpaid wages against a director before (i) formal insolvency or liquidation proceedings or (ii) the return of an unsatisfied execution against the company, where the liability imposed by such order is conditional on the occurrence of such events referred to in section 131 of the OBCA.

The Supreme Court of Canada dismissed an application for leave to appeal on March 10, 2022, by former CEO O’Reilly on a different issue.

Petrowest Corporation v Peace River Hydro Partners
(British Columbia)

Is a court-appointed receiver bound to arbitrate disputes under contracts that include mandatory arbitration clauses?

The Court of Appeal for British Columbia dismissed an appeal on November 30, 2020, confirming that, due to the doctrine of separability, which recognizes that arbitration clauses are independent agreements within the impugned agreement, the receiver effectively disclaimed the arbitration clause/agreement by bringing the contractual claim in court. As a result, the arbitration clause was of no force or effect.

Leave to appeal to the Supreme Court of Canada was granted on June 10, 2021. The hearing on the appeal took place on January 19, 2022, and judgment was reserved.

The Insolvency Institute of Canada, the Canadian Federation of Independent Business, the Canadian Commercial Arbitration Centre, the Chartered Institute of Arbitrators (Canada) Inc. and Arbitration Place are each an intervener in this matter.

Re In the Matter of the Bankruptcy of Sanaa Ismail Abed Ali
(British Columbia)

Who is responsible for interpreter costs in a summary administration bankruptcy?

On February 3, 2022, the Supreme Court of British Columbia set aside the order of its Registrar and confirmed that a Trustee is entitled to recover interpreter expenses.

Sirius Concrete Inc. (Re)
(Ontario)

Can a payment to the debtor on the eve of bankruptcy be returned to the payor on the basis of a constructive trust?

On July 13, 2022, the Court of Appeal for Ontario held that the specific facts asserted by the payor could give rise to a constructive trust as a remedy for unjust enrichment. The Court directed the matter to return to the bankruptcy court for directions on the procedure to be followed for a determination of the issue.

Urbancorp Toronto Management Inc. (Re)
(Ontario)

Should a lease provision which states that proceeds of a transfer are payable to the landlord be invalidated under the pari passu rule or the anti-deprivation rule?

On September 16, 2021, the Superior Court of Justice, Commercial List held that the provision was valid.

The pari passu rule, which invalidates contractual terms that prefer one creditor ahead of the others, does not apply given the language of the provision. The anti-deprivation rule also does not apply as the relevant clause did not mention insolvency or bankruptcy. Instead, it is the lease transfer that triggers the clause.

On March 3, 2022, the Court of Appeal for Ontario dismissed the debtor’s motion for leave to appeal.

Wiebe v Weinrich Contracting Ltd
(Alberta)

Does a supervising judge in a CCAA proceeding have the jurisdiction and authority to retroactively expand the scope of the initial stay of proceedings regarding third-party claims?

The Court of Appeal of Alberta allowed the appeal on November 9, 2020, holding that while a court may have the jurisdiction to expand the scope of an initial stay retroactively, procedural fairness considerations overrode the necessity to perform this analysis, and the impugned paragraphs of the vesting order were struck. Specifically, in this case, the appellants were not provided with a reasonable opportunity to respond to the impugned provisions included in the approval and vesting order.

Following the issuance of the above-noted order of the Court of Appeal of Alberta, the scope of the initial stay was reconsidered by the case management judge, who issued an order that arguably retroactively expanded the scope of the initial stay regarding certain third-party claims.

Leave to appeal this decision was granted by the Court of Appeal of Alberta on July 2, 2021.

On May 11, 2022, the Court of Appeal of Alberta dismissed the appeal. It held that the interpretation by the case management judge was reasonable. Accordingly, an appellate intervention was not warranted, as decisions of CCAA supervising judges are entitled to considerable deference.