Canada: Top Insolvency Cases And Highlights From 2017 – Part 2

We previously published Part 1 of our survey of interesting and important developments in Canadian insolvency and restructuring matters in 2017. This post is the second and final part – with an additional seven highlights and cases. You can also find a printable version containing the complete "Top Insolvency Cases and Highlights from 2017" bulletin on our website.

1. CCAA Representation Orders can Benefit a Range of Stakeholders

In January 2017, the Quebec Court of Appeal considered the scope of representation orders in CCAA proceedings. The Court of Appeal in Groupe Hexagone heard an application for leave to appeal the order appointing representatives for a group of about 140 unpaid subcontractors. The fees of the representatives and their counsel were to be paid by the debtors and secured by a charge against the debtors' assets. The petitioners did not dispute the application of the Canwest Publishing Inc. factors for granting a representation order but argued that this group of subcontractors did not meet the test since there was no evidence of vulnerability or limited resources, among other things.

The Court of Appeal dismissed the application for leave, observing that vulnerability could not be reduced to impecuniosity and that CCAA representation orders are not limited to "widows and orphans" but can in fact benefit stakeholders in a range of circumstances. The Court further held that it was not inappropriate to consider that subcontractors' claims are vulnerable on the basis of the cost of individual participation, as opposed to the financial circumstances of each, and that vulnerability is only one of a series of factors to be weighed. This decision emphasizes that the appointment of a representative in a CCAA proceeding is a discretionary decision, which can be used to ensure effective participation of various stakeholders (beyond employees and retirees) where appropriate.

2. Redwater Appeal heard by the Supreme Court of Canada

In April 2017, the Alberta Court of Appeal upheld the lower court ruling in Redwater Energy Corporation (Re) ("Redwater" and summarized here). Later in the year, leave to appeal to the SCC was granted. The appeal was heard on February 15, 2018 and judgment was reserved. The Redwater decision is important for insolvency cases in the oil and gas industry in Alberta as it considered whether the bankruptcy trustee of an oil and gas company could disclaim the company's interest in "orphan" wells while selling valuable wells to maximize recovery to creditors – a step opposed to by the provincial energy regulator. The Court of Appeal confirmed that a court officer appointed under federal legislation may pick and choose the realizable property in an estate in order to maximize the recovery available for creditors without undue interference from a provincial regulator. This continues to be a very significant issue in insolvency cases in the oil patch and we await a final determination by the country's highest court with interest.

3. Right to Set Off or Compensation Between Pre- and Post-Filing Claims

2017 also saw the Arrangement relatif à Métaux Kitco inc. ("Kitco") decision from the Quebec Court of Appeal, which found that set off (or "compensation" in Quebec) was not allowed between post-filing claims and pre-filing debts in a CCAA proceeding. While it has been widely accepted that pre-filing claims cannot be set-off against post-filing claims in a bankruptcy, the Ontario Court had held in the 2003 Air Canada (Re) decision that there was no loss of mutuality and legal set-off could be asserted between pre- and post-filing debts in a CCAA proceeding (although the court did stay enforcement of such rights in that case). A similar result was reached in British Columbia in North American Tungsten Corporation Ltd. (Re) (where leave to appeal was denied) in 2015.

The Court in Kitco did not follow Air Canada. It referred to a 2003 Ontario Court of Appeal decision, Jones (Re), in the BIA proposal context as well to literature that was critical of the Air Canada decision for, among other things, creating an incentive for a creditor to procure goods or services from the debtor company post-filing and to withhold payment in order to recover pre-filing debt. Given the differing case law in Ontario and British Columbia, criticisms of the Air Canada case in the literature and moves to align bankruptcy and CCAA proceedings, where possible, it will be interesting to see how Kitco will be interpreted in future cases on this issue even outside of Quebec.

4. Repeal of Bulk Sales Act and Potential for Further Legislative Reform in Ontario

As discussed in our Canadian M&A Perspectives Blog, Ontario's Bulk Sales Act, originally enacted to protect unpaid trade creditors from "bulk sales", was repealed in March, 2017. The act became less relevant as other supplier rights developed, including PPSA security, oppression remedies and 30 day goods under the BIA. Repeal of the act was recommended by a business law advisory panel to support greater market certainty and confidence in market transactions. The panel also recommended the repeal of the Assignments and Preferences Act and the Fraudulent Conveyances Act in Ontario, to be replaced by the Uniform Law Conference of Canada's Reviewable Transactions Act, for the same reasons and to support consistency with the BIA. It will be interesting to see whether those acts are also repealed although we do not expect that to occur this year.

5. High Test to Impose Constructive Trust for Debtor Misconduct in Bankruptcy

In May 2017, the Pemberton Music Festival was cancelled and the hosts made assignments in bankruptcy. The ticket seller then claimed that the ticket sale proceeds received by the debtors were subject to a constructive trust. The B.C. Court, however, found no basis to impose a constructive trust based on unjust enrichment or to remedy misconduct, highlighting that the test for imposing a constructive trust in a bankruptcy is high since it violates the basic policy of pari passu distribution of assets.

The Court noted the constructive trust to remedy misconduct is only available in bankruptcy proceedings in extraordinary cases where finding otherwise would result in a commercial immorality since it disrupts the usual scheme of distribution of the BIA. The applicants contended there was misconduct by the debtors in authorizing the sale of tickets when they must have known there was substantial uncertainty as to whether the festival would proceed. However, the Court held that the evidence fell short of establishing bad faith or other misconduct on the part of the debtors that would be sufficient to impost a constructive trust.

6. Importance of Vesting Orders for Providing Certainty in CCAA Transactions

2017 also saw another decision in the Wabush Mines proceedings emphasizing the importance of vesting orders to provide certainty in CCAA transactions. In 2016, the Quebec Superior Court had held that a vesting order could provide for the sale of certain properties owned by the debtor free and clear of any unpaid municipal taxes. Leave to appeal to this decision was denied in early 2017. At the end of 2017, the same court again commented on the scope of vesting orders.

The CCAA debtor, Wabush Mines, sold its assets to a buyer pursuant to a sale and vesting order. Prior to the sale, Wabush Mines had been required, pursuant to Quebec legislation, to put in place a pay equity program to determine whether a pay discrepancy existed between jobs traditionally held by men and those traditionally held by women and, if so, to correct it by salary adjustments retroactive to 2001. Wabush Mines did not finish the program prior to the CCAA filing (meaning the liability for salary adjustments was unclear). Following the sale, the Pay Equity Commission ("Commission") sought to re-open the file as against the new owner of the assets. No proof of claim was filed by or in connection with the Commission in the Claims Process and the Commission had not contested the vesting order.

The CCAA court did not explicitly consider whether the claim for retroactive salary adjustments was a "claim" pursuant to the Claims Process Order, although the Monitor argued it was a "claim" and that no proof of claim was filed in respect of those claims prior to the claims bar date. Rather, the Court focused on the very broad language of the vesting order and commented that it is fundamental to the CCAA process that the purchaser be able to buy the debtor's assets without fear of being sued for the debtor's debts and that any uncertainty about this affects the purchase price to the detriment of all creditors (since it is difficult to pay the best price when also being forced to write a "blank cheque" for indeterminate debts of the debtor). The purpose of a vesting order is to eliminate this uncertainty. The Court held that the order vested the assets in the buyer free and clear of all obligations of the seller, including any salary adjustments for the period prior to the purchase. The Court did not comment on whether the buyer was a successor employer (a fact that would have to be determined by the relevant administrative tribunal) but held that the tribunal could determine if the buyer had any obligations with respect to the pay equity program other than obligations for pre-purchase salary adjustments.

7. Nortel Settlement and Distribution

Finally, in January 2017, Nortel's restructuring plan for the Canadian debtors was sanctioned in both Canada and the United States and was implemented in May 2017, more than eight years after it had filed for CCAA protection. According to the Monitor:

  • The Canadian estate received its allocation entitlement of approximately $4.156 billion, expense reimbursement of $35 million and the release of further sale proceeds of approximately $237 million, among other amounts;
  • Distributions began in July 2017 and the initial distribution to unsecured creditors with claims in Canadian dollars was just over 45 cents on the dollar; and
  • As of November 2017, the Canadian estate had distributed approximately $4 billion to over 15,100 unsecured creditors and approximately $63 million of priority payments, among other distributions.

To view original article, please click here.

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

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions