In a proceeding under the Companies' Creditors
Arrangement Act ("CCAA"), a judge has discretionary
powers to, among other things, order debtor companies into
bankruptcy and thereby resolve priority disputes. What should be
the standard of review of such discretionary decisions?
Historically, the standard has been high.
In its August 7, 2015 decision in Grant Forest
Products Inc. v. The Toronto-Dominion Bank, the Ontario
Court of Appeal held that "appellate intervention is justified
only if the CCAA judge erred in principle or exercised his or her
discretion unreasonably". In doing so, the Court distinguished
and questioned the correctness of what the Superintendent of
Financial Services (the "Superintendent") submitted was
conflicting precedent from the Alberta Court of Appeal.
The Background Facts
This CCAA proceeding began when a related group of companies
applied for relief from their creditors. The first lien lenders
recovered all of the debts owed to them due to the companies
selling all of their assets. However, there were not sufficient
remaining assets to pay out the second lien lenders in full, while
also meeting obligations owed to pension claimants.
After all the assets were sold, the CCAA judge ordered the
remaining debtor companies into bankruptcy and, in so doing,
resolved the priority dispute between the pension claimants and the
second lien holder in favour of the second lien holder. The
Superintendent appealed that order.
The Standard of Review
Justice Gillese, on behalf of a unanimous Court, addressed the
standard of review issue as follows:
 The Superintendent submits that
the standard of review of a decision made under the CCAA is
correctness with respect to errors of law, and palpable and
overriding error with respect to the exercise of discretion or
findings of fact. As authority for this submission, the
Superintendent relies on Resurgence Asset Management LLC v.
Canadian Airlines Corporation, 2000 ABCA 149, 261 A.R. 120, at
 I would not accept this
submission for two reasons.
 First, in articulating this
standard of review, Resurgence purported to follow UTI
Energy Corp. v. Fracmaster Ltd., 1999 ABCA 178, 244 A.R. 93.
However, UTI does not set out the standard of review in
the terms expressed by Resurgence. At para. 3 of
UTI, the Alberta Court of Appeal states that discretionary
decisions made under the CCAA "are owed considerable
deference" and appellate courts should intervene only if the
CCAA judge "acted unreasonably, erred in principle, or made a
 Second, the applicable standard
of review has been established by two decisions of this court:
Re Air Canada (2003), 66 O.R. (3d) 257 and Re Ivaco
Inc. (2006), 83 O.R. (3d) 108. In Air Canada, at
para. 25, this court states that deference is owed to discretionary
decisions of the CCAA judge. In Ivaco, at para. 71, this
court reiterated that point and added that appellate intervention
is justified only if the CCAA judge erred in principle or exercised
his or her discretion unreasonably.
 The decision to lift the stay
and order the Remaining Applicants into bankruptcy was a
discretionary decision: Ivaco, at para. 70. Therefore, the
question becomes, did the CCAA judge err in principle or exercise
his discretion unreasonably in so doing?
The Court went on to dismiss the Superintendent's
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).