In the 2012 decision of SWP Industries Inc., Re,
Justice McLellan of the Court of Queen's Bench of New Brunswick
(the "Court") declined to lift the stay of proceedings
one week in advance of its expiry, despite the assertion of
material prejudice advanced by Bank of Nova Scotia
On September 20, 2012, SWP Industries Inc. ("SWP")
filed a Notice of Intention to Make a Proposal under the
Bankruptcy and Insolvency Act (the "BIA"), which
gave rise to an automatic stay of proceedings in favour of SWP
until Monday, October 22, 2012. BNS was a major secured creditor of
SWP and applied to the Court under section 69.4 of the BIA to lift
the stay of proceedings on October 15, 2012, one week in advance of
its expiry. Section 69.4 allows a creditor that is affected by a
stay of proceedings to apply to court to lift the stay if the
creditor is likely to be materially prejudiced by the continued
operation of the stay. The test to be met is an objective one which
requires the applying creditor to advance quantitative evidence of
the prejudice it will suffer if the stay is not lifted. Subsection
50.4(11)(a) of the BIA also allows the court, on the application of
a trustee in bankruptcy, an interim receiver or a creditor, to lift
the stay early if the court is satisfied that the insolvent person
has not acted in good faith and with due diligence.
In this case, SWP was found not to have fully disclosed its
financial position to BNS – certain financial statements were
not provided and SWP opened operating accounts at other banks.
Despite that fact, Justice McLellan adjourned BNS's application
to lift the stay in order to provide time to SWP to satisfy its
disclosure obligations to BNS. The Court, therefore, put the onus
on SWP to make full disclosure to BNS and to file a proposal to its
creditors by the adjournment date – which was the date on
which the stay of proceedings was originally set to expire. The
adjournment was therefore tantamount to a refusal to lift the stay
of proceedings in advance of its maturity. In reaching this
decision, Justice McLellan placed emphasis on the decision of the
Court of Appeal for Ontario in Ma, Re, which held that
lifting an automatic stay of proceedings is far from a routine
The result illustrates the Court's hesitation to exercise
its discretion to lift a stay of proceedings early, even in the
face of a creditor, like BNS, whose ability to prove material
prejudice quantitatively and objectively is hindered by the
debtor's own omissions. This result confirms that judges will
seek a balance between the interests of the debtor and of the
creditors generally, and provide the debtor with the opportunity to
furnish evidence upon which the Court can make a proper
determination of objective quantitative prejudice.
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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