In Aventura2, a recent decision of the
Ontario Superior Court of Justice (Commercial List) (the
"Court"), the Honourable Justice Penny confirmed that a
bankruptcy trustee does not have the authority, pursuant to section
30(1)(k) of the Bankruptcy and Insolvency Act (the
"BIA"), to disclaim a lease on behalf of a bankrupt
landlord. Rather, a trustee's authority to disclaim a lease is
limited to situations where the bankrupt is the tenant. His Honour
held that, where the bankrupt is the landlord and "[w]here
the tenant is not in breach, neither the landlord, nor his trustee
in bankruptcy, has the power to terminate the
Section 30(1)(k) of the BIA provides a trustee the authority,
with the permission of the inspectors of the bankrupt estate, to
elect "to disclaim or resiliate any lease of, or other
temporary interest or right in, any property of the
bankrupt." At issue in Aventura was whether this
authority extended beyond the trustee of a bankrupt tenant, giving
the trustee of a bankrupt landlord the power to terminate a
In Aventura, the owners of an indoor sports complex
(the "Debtors") ran into financial trouble. A
court-appointed receiver (the "Receiver") was appointed
over the Debtors' property, and the Receiver assigned the
Debtors into bankruptcy and became their bankruptcy trustee (the
"Trustee"). The Debtors' property included the sports
complex and certain leases in relation thereto, including a
five-year lease with Kendal Aquatics Swim Program Ltd. (the
"Tenant") for the pool facility, which lease was set to
expire on December 31, 2015 (the "Lease").
An agreement of purchase and sale was entered into between the
Receiver and an arm's-length party (the "Purchaser")
for the acquisition of the Debtors' property, which agreement
was approved by the Court by way of a standard Approval and Vesting
Order (the "AVO"). Amongst other things, the AVO vested
all the purchased assets in the Purchaser, which purchased assets
included the Lease. After the Court issued the AVO, the Purchaser
claimed that it became aware of additional information causing it
to conclude that the Lease was uneconomic. The Purchaser refused to
close the transaction unless it received a substantial reduction in
purchase price, or the Receiver disclaimed the Lease pursuant to
section 30(1)(k) of the BIA. The Receiver complied with the latter
request, and on the day the sale transaction closed, delivered a
Notice of Termination to the Tenant such that the Tenant was
essentially given 12 days' notice to vacate the premises (the
The Tenant brought a motion under section 37 of the BIA to
reverse the Trustee's decision to disclaim the Lease, which
motion was allowed. In surveying the jurisprudence, His Honour
noted that "[t]he settled authority, since 1960, on this
point has consistently been that the authority granted to a trustee
under 30(1)(k) does not extend to the disclaimer of a lease on
behalf of a landlord, unless such authority is specifically granted
by provincial law."4 As there is no basis in
Ontario under the Commercial Tenancies Act for a landlord
to terminate a lease unilaterally where its tenant is not in
breach, His Honour held that the Trustee had no authority for
having issued the Notice, such that it was void ab initio
and the Lease remained in full force and effect. His Honour also
held that, since the Purchaser received notice of the Lease prior
to entering into the agreement of purchase and sale, the Purchaser
therefore acquired the sports complex subject to the Lease.
While costs were not awarded against the Trustee, the same may
not hold true the next time a bankruptcy trustee purports to
disclaim a lease on behalf of a bankrupt landlord, and trustees
should therefore take note that the powers granted by section
30(1)(k) of the BIA only apply in respect of leases pursuant to
which the bankrupt is a tenant. In Aventura, His Honour
noted that the Purchaser opted to play "hard ball" and
sought to manipulate the powers of the Trustee to its financial
advantage. Therefore, His Honour awarded costs on a substantial
indemnity basis against the Purchaser.
1 Ian Aversa is a partner in the Financial Services Group
and Jeremy Nemers is an associate in the Financial Services Group.
The authors would like to thank Alyssa Gebert, a student-at-law at
Aird & Berlis LLP, for her assistance in preparing this
2 2015 ONSC 5026, 28 C.B.R. (6th) 157 [Aventura].
3 Ibid at para. 27.
4 Ibid at para. 26.
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).