Limitations Of Section 69.3 Of The Bankruptcy And Insolvency Act

Section 69.3(1) of the Bankruptcy and Insolvency Act (BIA) imposes an automatic stay of proceedings upon bankruptcy. The provision prevents creditors from commencing or continuing proceedings to recover a claim provable in bankruptcy. However, the scope of that stay is often overstated and does not apply to all claims indiscriminately.

Section 69.3(1) Test

The reach of section 69.3(1) is expressly limited by the statutory definition of a “claim provable in bankruptcy” found in section 121 of the BIA. Courts have consistently held that three requirements must be met for a claim to be provable in bankruptcy:

1. There must be a debt, liability, or obligation owed to a creditor;
2. The debt, liability, or obligation must have been incurred before the date of bankruptcy; and
3. The claim must be capable of monetary valuation.

If any one of these elements is missing, the claim falls outside the bankruptcy regime–and outside the section 69.3 stay. Significantly, section 69.3 does not provide a debtor with immunity from post‑bankruptcy wrongdoing, nor does it prevent a court from exercising its equitable jurisdiction to restrain harmful conduct.

Examples of Section 69.3 Inapplicability

In Global Royalties Limited v David Brook, 2015 ONSC 6277 (Global Royalties), the defendant was an undischarged bankrupt who engaged in post‑bankruptcy conduct that harmed the plaintiff’s business. The court held that neither the injunctive relief nor post‑bankruptcy damages were barred by section 69.3 because the claims arose after the bankruptcy and therefore were not provable in bankruptcy.

The reasoning in Global Royalties underscores a fundamental principle: bankruptcy law is designed to address past liabilities, not to license future misconduct. Where a debtor engages in new, wrongful acts after the date of bankruptcy, the protections of the BIA may not apply. If claims do not meet the definition of a “claim provable in bankruptcy,” there is no automatic stay under section 69.3. The result is straightforward but significant: the court retains full jurisdiction to hear the matters and adjudicate the underlying dispute on its merits.

Conclusion

Bankruptcy is not a safe harbour for post‑bankruptcy misconduct. Where claims arise after the date of bankruptcy and seek relief that is not provable in bankruptcy, section 69.3 of the BIA does not apply.

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.