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Vancouver Business Bankruptcy, Insolvency and Restructuring Law Blog

Deemed trust liability

A recent decision of the Federal Court of Appeal, Canada v. Callidus, created a surprising exception to the rule that, in bankruptcy, most government claims are subordinated behind the position of secured creditors.

Under the Excise Tax Act, a debtor's assets are subject to a "deemed trust" or super priority for the amount of any unpaid Goods and Services Taxes and/or Harmonized Sales Taxes (GST/HST). This super priority is defeated if the borrower becomes bankrupt, by virtue of the Bankruptcy and Insolvency Act

Error and estoppel in creditor claims

Clerical errors are an unfortunate fact of business life. When they happen, they are typically reversible, with the appropriate apologies. But when the payout of creditor claims is involved, that may not always be the case.

In Halpape v. Bank of Montreal, the bank made an error as to the payout amount required to clear a judgment registered against the judgment debtor’s land.

Resetting the limitations clock in actions to recover debts

The Supreme Court of British Columbia is the most recent court latest to find that a debtor's email can, in the appropriate circumstances, be sufficient to restart the two-year limitation period in which a creditor can initiate a court action to recover payment of a debt.

Insolvency -- Set-offs vault over court stays

When an insolvent company seeks creditor protection through the courts, all claims against the company are stayed and cannot be pursued. If the company restructures, unsecured creditors will normally see their claims against the debtor sharply reduced and repayment periods extended. If the company is assigned into bankruptcy, unsecured creditors will often receive pennies on the dollar or see their claims go entirely unpaid.

Insolvent Individuals

An individual may become insolvent for a variety of reasons. For many people, it may be a matter of over use of credit cards or other credit facilities. For the individual who owns or operates a business, if the business becomes insolvent, the individual may also find himself or herself to also be insolvent. Regardless of the reasons for insolvency, there are options available for individuals under the Bankruptcy and Insolvency Act (the “BIA”).

An insolvent individual has some of the same options as an insolvent corporation; he or she can file a notice of intention to make a proposal, immediately make a proposal or assign into bankruptcy. In addition, an individual who qualifies may make a consumer proposal. Like a corporation, the insolvent individual may also be forced into bankruptcy by a creditor initiating an application for a bankruptcy order in respect of the individual.

Shareholder rights

Beyond the entitlements set out in shareholder agreements and corporate bylaws, shareholders have certain rights spelled out in the Business Corporations Act of British Columbia (BCA). Under the BCA, shareholders have the right to vote at an annual general meeting on: resolutions governing the activities of the company; the election of members to the board of directors; and, whether to have the company's financial statements audited.

Anyone who is a registered or beneficial owner of shares for at least two years may submit a proposed resolution to be voted upon by shareholders. In the BCA this person is known as a "submitter."

Shareholder disputes: Oppression remedies

When a company's decisions are unfair or prejudicial to certain shareholders, those shareholders may be able to get relief by using the "oppression" remedies available under the British Columbia Business Corporations Act.

To obtain oppression relief, a shareholder (non-shareholders may also seek relief) must start a court action and prove the company has engaged in conduct which is "oppressive or unfairly prejudicial" to the shareholder, and inconsistent with the shareholder's reasonable expectations.

Shifting priorities in insolvency

There are rarely any winners in the insolvency or bankruptcy of a business, but some lose more than others. Normally, secured lenders fair better than unsecured creditors because they can be paid from the sale of the assets of the business, but there can be important exceptions.

Equitable Subordination - Will it find a home in Canada?

When a debtor is insolvent, recovery by a creditor will generally depend on the creditor's ranking. Secured creditors will have priority over preferred creditors who in turn have priority over unsecured creditors. If a claim can be characterized as an equity claim, it could be further subordinated. Notwithstanding these general rules, the Supreme Court of Canada could soon give courts wider discretion to adjust priorities even further in certain situations.

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