Bill C-12: Clause by Clause Analysis—Clauses 51-60

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005


Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA) Clauses of Bill C-12 Sections
Federal Claims 51 s.149
Evidence Available to Courts at Discharge Hearing 52 s.172(2)
Meaning of "Personal Income Tax Debt" 53 s.172.1
Debts not Released by Order of Discharge 54 s.178(1)(e)
Review by Parliament 55 s.216
Application for Consolidation Order 56 s.219(1)
Application of Part X 57 s.242
Secured Creditors and Receivers 58 s.243
Forms of Cooperation 59 s.275(3)
Public Policy Exception 60 s.284(2)

Bill Clause No. 51
Section No. BIA s.149
Topic: Federal Claims

Proposed Wording

149.(3) Despite subsection (2), a claim may be filed for an amount payable under the following Acts or provisions within the time limit referred to in subsection (2) — or within three months after the return of income or other evidence of the facts on which the claim is based, is filed or comes to the attention of the Minister of National Revenue or, in the case of an amount payable under legislation referred to in paragraph (c), the minister in that province responsible for the legislation:

  • (a) the Income Tax Act;
  • (b) any provision of the Canada Pension Plan or Employment Insurance Act that refers to the Income Tax Act and provides for the collection of a contribution as defined in the Canada Pension Plan or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts;
  • (c) any provincial legislation that has a purpose similar to the Income Tax Act, or that refers to that Act, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, if the sum
    • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
    • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection;
  • (d) the Excise Tax Act;
  • (e) the Excise Act, 2001;
  • (f) the Customs Act; and
  • (g) the Air Travellers Security Charge Act.

(4) Unless the trustee retains sufficient funds to provide for payment of any claims that may be filed under legislation referred to in subsection (3), no dividend is to be declared until the expiry of three months after the trustee has filed all returns that the trustee is required to file.

Rationale

The amendment merges subsections as the provisions were repetitive due to a drafting error in Chapter 47.

Subsection (4) is amended to correct cross-referencing.

Present Law

Bankruptcy and Insolvency Act:

149.(3) Notwithstanding subsection (2), a claim may be filed for an amount payable under the Income Tax Act within the time limit referred to in subsection (a) or within three months from the time the return of income or other evidence of the facts on which the claim is based, is filed or comes to the attention of the Minister of National Revenue.

As enacted by Chapter 47, Clause 92(2):

(4) Despite subsection (2), a claim may be filed for an amount payable under the following provisions within the time limit referred to in subsection (2), or within three months after the time the return of income or other evidence of the facts on which the claim is based, is filed or comes to the attention of the Minister of National Revenue or, in the case of an amount payable under a provision referred to in paragraph (c), the minister in that province responsible for the provision:

  • (a) subsection 224(1.2) of the Income Tax Act;
  • (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts;
  • (c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, if the sum
    • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
    • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection;
  • (d) subsection 82(1.1) of the Excise Tax Act;
  • (e) subsection 284(1.1) of the Excise Act, 2001;
  • (f) subsections 97.22(1) and (5) of the Customs Act; and
  • (g) subsection 72(1.1) of the Air Travellers Security Charge Act.

(5) Unless the trustee retains sufficient funds to provide for payment of any claims that may be filed under a provision referred to in any of paragraphs (4)(a) to (g), no dividend shall be declared until the expiry of three months after the trustee has filed all returns that the trustee is required to file.


Bill Clause No. 52
Section No. BIA s.172(2)
Topic: Evidence Available to Courts at Discharge Hearing

Proposed Wording

172.(2) The court shall, on proof of any of the facts referred to in section 173, which proof may be given orally under oath, by affidavit or otherwise,

Rationale

Subsection (2) was amended by Chapter 47 to state that evidence supporting an opposition to discharge may be given to the court by way of affidavit or by way of oral evidence. The objective was to permit parties, if they chose to oppose the discharge of the bankrupt but did not want to attend the hearing in person, to submit their evidence by way of affidavit. Although the intention was to expand the means by which evidence could be submitted, a concern was raised that the amendment may have instead restricted the means by which evidence could be submitted to only those listed in the subsection. Therefore, the subsection is amended to clarify that the evidence may be submitted orally or by affidavit, but that this list is not exhaustive. As such, for example, trustees will continue to be able to submit evidence by way of their Report on Discharge as set out in s.170(5).

Present Law

As enacted by Chapter 47, Clause 104(2):

172.(2) The court shall, on proof of any of the facts referred to in section 173 given orally under oath or by affidavit,


Bill Clause No. 53
Section No. BIA s.172.1
Topic: Meaning of "Personal Income Tax Debt"

Proposed Wording

(8) For the purpose of this section, "personal income tax debt" means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (b) to (c), by an individual and the amount payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation. It does not include an amount payable by the individual if the individual is or was a director of a corporation and the amount relates to an obligation of the corporation for which the director is liable in their capacity as director.

French version only:

172.1(1) Dans le cas d'un failli qui a une dette fiscale impayée d'un montant de deux cent mille dollars ou plus représentant soixante-quinze pour cent ou plus de la totalité des réclamations non garanties prouvées, l'audition de la demande de libération ne peut se tenir avant l'expiration :

Rationale

This section is designed to ensure that bankrupts with significant personal income tax debt do not abuse the insolvency system by paying their other creditors to the exclusion of the government. Such bankrupts will not receive an automatic discharge and therefore will have to apply to the court for a discharge.

The French version of Chapter 47 included an error in subsection (1), which incorrectly referred to income tax debts in excess of $200,000 "or" representing more than 75 percent of the total claims against the bankrupt. It has been corrected to refer to income tax debts that are in excess of $200,000 "and" that represent more than 75 percent of the total claims. The English version contained the correct drafting.

Subsection (8) is amended to clarify that income tax obligations related to acting as a director of a corporation are not to be included. In those cases, the director may be found liable for debts of the corporation by virtue of their position. The intention of the Chapter 47 reform was to address strategic bankrupts who failed to pay income tax, not to capture those who are deemed to be responsible for taxes owed by a third party.

Present Law

(8) For the purpose of this section, "personal income tax debt" means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (b) to (c), by an individual and the amount that is payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation.

French version only:

172.1(1) Dans le cas d'un failli qui a une dette fiscale impayée d'un montant de deux cent mille dollars ou plus ou qui représente soixante-quinze pour cent ou plus de la totalité des réclamations non garanties prouvées, l'audition de la demande de libération ne peut se tenir avant l'expiration :


Bill Clause No. 54
Section No. BIA s.178(1)(e)
Topic: Debts not Released by Order of Discharge

Proposed Wording

178.(1)(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim;

Rationale

Section 178 lists claims that are not dischargeable in bankruptcy. The section is read into the provisions dealing with proposals.

The amendment is required to ensure that equity claims cannot be pursued post-restructuring. Equity claims are subordinated to other claims, even in proposals, so this amendment will prevent such claims from affecting the ability of a corporation to restructure.

The amendment will not affect corporate bankruptcies as, under the existing provisions of the Act, a bankrupt corporation may not apply for discharge unless all its debts are satisfied in full. Therefore, the survival of debts post-discharge is not an issue.

Present Law

As enacted by Chapter 47, Clause 107:

178.(1)(e) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation;


Bill Clause No. 55
Section No. BIA s.216
Topic: Review by Parliament

Rationale

Section 216 is a statutory review clause. It has served its purpose and is superfluous. A new statutory review clause is added at section 242.

Present Law

Bankruptcy and Insolvency Act:

216.(1) This Act shall, on the expiration of five years after the coming into force of this section, stand referred to such committee of the Senate, of the House of Commons or of both Houses of Parliament as may be designated or established to review the administration and operation of this Act.

(2) The committee shall, within one year after beginning the review or within such further time as the Senate, the House of Commons or both Houses of Parliament, as the case may be, may authorize, submit a report on the review to that House or both Houses, including a statement of any changes to this Act that the committee would recommend.


Bill Clause No. 56
Section No. BIA s.219(1)
Topic: Application for Consolidation Order

Proposed Wording

219.(1) A debtor who resides in a province in respect of which this Part applies may apply to the clerk of the court having jurisdiction where they reside for a consolidation order.

Rationale

Part X of the BIA sets out the provisions of the Orderly Payment of Debts ("OPD") program that operates in some provinces. The amendment ensures that the language of this section reflects the changes made to s.242, which provides the explicit authority for provinces to "opt-out" of operating the OPD program.

The amendment changes the language from "is in force" to "applies", denoting that the province may determine whether or not the Part applies to it.

Present Law

Bankruptcy and Insolvency Act:

219.(1) A debtor who resides in a province in which this Part is in force may apply to the clerk of the court having jurisdiction where he resides for a consolidation order.


Bill Clause No. 57
Section No. BIA s.242
Topic: Application of Part X

Proposed Wording

242.(1) The Governor in Council shall, at the request of the lieutenant governor in council of a province, declare, by order, that this Part applies or ceases to apply, as the case may be, in respect of the province.

(2) Subject to an order being made under subsection (1) declaring that this Part ceases to apply in respect of a province, if this Part is in force in the province immediately before that subsection comes into force, this Part applies in respect of the province.

Rationale

Part X of the BIA sets out the provisions of the Orderly Payment of Debts ("OPD") program that operates in some provinces. This amendment ensures that the legislation provides explicit authority for provinces to "opt-out" of operating the OPD program. The existing legislation provides for the coming into force of the provisions of the OPD program but does not indicate that a province may opt to windup its program.

The amendment to subsection (1) makes it clear that the Governor in Council may issue an order declaring that this Part of the BIA applies or ceases to apply in respect of a province.

Subsection (2) is added to clarify that Part X continues to apply in those provinces where it was in force before the section came into force. The intention is to allow provinces to continue with their programs without requiring them to re-obtain a Governor in Council order.

Present Law

Bankruptcy and Insolvency Act:

242. This Part shall come into force in the Province of Ontario, Quebec, New Brunswick or Newfoundland and Labrador or in Yukon only on the issue, at the request of the lieutenant governor in council of that province or the Commissioner of Yukon, of a proclamation by the Governor in Council declaring it to be in force in that province or territory.


Bill Clause No. 58
Section No. BIA s.243
Topic: Secured Creditors and Receivers

Proposed Wording

243.(1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so:

  • (a) take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt;
  • (b) exercise any control that the court considers advisable over that property and over the insolvent person's or bankrupt's business; or
  • (c) take any other action that the court considers advisable.

(1.1) In the case of an insolvent person in respect of whose property a notice is to be sent under subsection 244(1), the court may not appoint a receiver under subsection (1) before the expiry of 10 days after the day on which the secured creditor sends the notice unless

  • (a) the insolvent person consents to an earlier enforcement under subsection 244(2); or
  • (b) the court considers it appropriate to appoint a receiver before then.

(2) Subject to subsections (3) and (4), in this Part, "receiver" means a person who

  • (a) is appointed under subsection (1); or
  • (b) is appointed to take or takes possession or control — of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt — under
    • (i) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
    • (ii) a court order made under another Act of Parliament, or an Act of a legislature of a province, that provides for or authorizes the appointment of a receiver or receiver-manager.

(3) For the purposes of subsection 248(2), the definition "receiver" in subsection (2) is to be read without reference to paragraph (a) or subparagraph (b)(ii).

(4) Only a trustee may be appointed under subsection (1) or under an agreement or order referred to in paragraph (2)(b).

(5) The application is to be filed in a court having jurisdiction in the judicial district of the locality of the debtor.

(6) If a receiver is appointed under subsection (1), the court may make any order respecting the payment of fees and disbursements of the receiver that it considers proper, including one that gives the receiver a charge, ranking ahead of any or all of the secured creditors, over all or part of the property of the insolvent person or bankrupt in respect of the receiver's claim for fees or disbursements, but the court may not make the order unless it is satisfied that the secured creditors who would be materially affected by the order were given reasonable notice and an opportunity to make representations.

(7) In subsection (6), "disbursements" does not include payments made in the operation of a business of the insolvent person or bankrupt.

Rationale

Section 243 sets out the rules related to the appointment of a receiver. Chapter 47 created the ability to appoint a receiver under the Act. This differs from current practice, in which receivers are appointed under provincial law. The new BIA receiver will be entitled to act across the country, increasing efficiency by removing the need to have a receiver appointed in each jurisdiction in which the debtor's assets are located. Creditors will still be entitled to have a provincially appointed receiver act on their behalf under the Act.

Subsection (1) is amended to provide grounds for the court to consider when appointing a receiver. Chapter 47 was silent, leaving it open to judicial discretion, which could lead to different standards depending on the province or territory. The subsection is further amended by providing specific powers that may be exercised by the court-appointed receiver.

Subsection (1.1) mandates that a notice of an intention to enforce security (a section 244 notice) must be provided before a receiver may be appointed. The intention of the section 244 notice is to provide the debtor with an opportunity to repay the liability that underlies the security being enforced. The waiting period is not necessary where the debtor consents or the court determines that it is appropriate to appoint a receiver.

Subsection (2) is amended to clarify that a receiver under the BIA includes one appointed under this Act or another Act. Chapter 47 inadvertently limited receivers to those appointed under the Act.

Subsection (3) is amended to correct cross-referencing.

Subsection (5) is added to clarify that an application for the appointment of a receiver must be made in the locality of the debtor. The existing legislation is silent on where the application may be made. Accordingly, the application is often brought in a location that is more convenient for the creditor who is making the application, which may not have any connection with the place in which the debtor's business is located or where other creditors are located. This can have the effect of preventing smaller creditors from participating in the process because of the prohibitive cost of hiring legal counsel in a distant jurisdiction.

Subsections (6) and (7) provide a court the ability to grant to receivers a priority charge over the assets of the debtor similar to the charge available to interim receivers pursuant to section 47.2.

Present Law

As enacted by Chapter 47, Clause 115(1):

243.(1) On the application of a secured creditor, the court may appoint a person to act as a receiver to take possession or control of all or substantially all of the inventory, the accounts receivable or the other property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

(2) Subject to subsections (3) and (4), in this Part, "receiver" means a person who has been appointed to take, or has taken, possession or control, under

  • (a) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
  • (b) a court order made under subsection (1) that provides for or authorizes the appointment of a receiver or receiver-manager, of all or substantially all of
  • (c) the inventory,
  • (d) the accounts receivable, or
  • (e) the other property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

Bankruptcy and Insolvency Act:

(3) For the purposes of subsection 248(2), the definition "receiver" in subsection (2) shall be read without reference to paragraph (b) thereof.

As enacted by Chapter 47, Clause 115(2):

(4) Only a trustee may be appointed under subsection (1) or under an agreement or order referred to in paragraph (2)(a) or (b).


Bill Clause No. 59
Section No. BIA s.275(3)
Topic: Forms of Cooperation

Proposed Wording

275.(3) For the purpose of this section, cooperation may be provided by any appropriate means, including

  • (a) the appointment of a person to act at the direction of the court;
  • (b) the communication of information by any means considered appropriate by the court;
  • (c) the coordination of the administration and supervision of the debtor's assets and affairs;
  • (d) the approval or implementation by courts of agreements concerning the coordination of proceedings; and
  • (e) the coordination of concurrent proceedings regarding the same debtor.

Rationale

Chapter 47 amended the Act by including the principles of the United Nations Commission on International Trade Law's Model Law on Insolvency. In cross-border insolvency situations, Canadian courts often cooperate with foreign courts. The amendment clarifies that Canadian courts should continue that practice by listing, from the Model Law, the forms of cooperation that courts should consider.

Present Law

None.


Bill Clause No. 60
Section No. BIA s.284(2)
Topic: Public Policy Exception

Proposed Wording

284.(2) Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy.

Rationale

Chapter 47 amended the Act by including the principles of the United Nations Commission on International Trade Law's Model Law on Insolvency. The amendment clarifies that courts should consider Canadian public policy when determining whether it would be appropriate to cooperate with a foreign court. Public policy is broader than strictly in "compliance with the laws of Canada." The Model Law uses the concept of public policy, not legal compliance, when setting out the requirements on courts to cooperate.

Present Law

As enacted by Chapter 47, Clause 122:

284.(2) Nothing in this Part requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

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