The Manitoba Court of Appeal will consider an interesting
insolvency case involving hog feed suppliers who claim of priority
for the cost of feed over Farm Credit Canada and Bank of Montreal,
the hog producer's secured creditors.
In general, the Court found Suppliers may have an unjust
enrichment claim arising from an alleged fraud on the part of
producer, who allegedly ordered feed while preparing for the
Companies Creditors Arrangement Act ("CCAA")
application with no intention of paying for the feed.
Brian Kaliel, QC of our Edmonton office summaries the reasons of
the Court of Appeal Chambers judge, A.D. MacInnes J.A., in granting
leave (permission) for the appeal to go ahead and be determined on
In Re Puratone Corp., Farm Credit Canada
("FCC") and the Bank of Montreal ("BMO")
applied for leave to appeal an Order made on July 8, 2013 by the
Manitoba Court of Queen's Bench in proceedings under the
Companies Creditors Arrangement Act (the
Seventeen farming operators (the "Suppliers") who had
provided feed to a commercial hog conglomerate involving three
corporations - The Puratone Corporation, Pembina Valley Pigs Ltd.
and Niverville Swine Breeders Ltd. (collectively
"Puratone") claimed priority for the cost of the feed
they had supplied over Puratone's secured creditors, being FCC,
BMO and the Manitoba Agricultural Services Corporation.
The initial Order under the CCAA contained a "stay"
provision. The "stay" provision prevented the
commencement of proceedings against Puratone, Puratone's
property, and its directors during the CCAA proceedings.
As a result of the CCAA proceedings, Puratone's assets were
sold to Maple Leaf Foods Inc. The sale was approved by the Court on
November 8, 2012.
A Court Order was then made authorizing the payment of
approximately $17.7 million to BMO, approximately $15.8 million to
FCC, and approximately $1 million to Manitoba Agricultural Services
The Suppliers requested the Court to lift a stay of proceedings
so they could commence proceedings against Puratone and its
directors. The Suppliers also requested that approximately
$900,000.00 be held back from funds otherwise payable to FCC, BMO
and the Manitoba Agricultural Services Corporation.
The Justice of of the Manitoba Court of Queen's Bench
concluded that the Suppliers may have an unjust enrichment claim
arising from an alleged fraud on the part of Puratone, who
allegedly ordered feed while preparing for the CCAA application
with no intention of paying for it.
The CCAA stay was lifted and approximately $900,000.00 was held
back from the interim distribution.
Decision: MacInnes, J.A. granted FCC and BMO leave to appeal [at
MacInness, J.A. reviewed the legal test for granting leave to
appeal in CCAA matters at para. 15, and concluded [at para. 16]
that, as a general rule, leave to appeal decisions given by a Judge
under the CCAA are only granted "sparingly" but in this
case leave was appropriate, following authority from the BC Court
FCC and BMO argued, among other things that:
The holdback Order elevated the unproven claims of unsecured
creditors above the proven secured claim of FCC and BMO and
effectively elevated the unsecured claim the status ahead of, or
equal to, their proven claims.
There was no evidence of any legal basis for the holdback
claims before the Queen's Bench Justice.
The case was important for its precedential value, as it now
appeared open for any subordinate or unsecured creditor that had
supplied goods or services prior to CCAA filing to obtain an Order
that funds be held back pending legal action, and that similar
claims could overwhelm CCAA Courts.
There was insufficient evidence to establish the elements of
unjust enrichment relied upon by the Suppliers and that the
juristic reason for any enrichment might be found in the
pre-existing legal rights of BMO and FCC - a point which was never
considered by the Queen's Bench Justice.
MacInnes, J.A. concluded [at para. 45 and 47] that the leave
application raised questions of important practice and questions of
law which were not expressly addressed by the Queen's Bench
This case will be one to watch!
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