Bankruptcy: Commencement and Consequences

• Author: Stephanie Ben-Ishai; Thomas G. W. Telfer
• Pages: 113-128

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CHAPTER 3

Bankruptcy: Commencement and Consequences

Bankruptcy proceedings can be initiated in three ways: () voluntarily by the debtor; ()

involuntarily by application of one or more of the debtor’s creditors; and () through a deemed

assignment. Each of these processes is discussed below in parts I, II, and III, respectively.

Section  of the Bankruptcy and Insolvency Act, RSC , c B- (BIA) provides that upon

a bankruptcy order being made or an assignment being led, all of the bankrupt’s property

“immediately pass[es] to and vest[s] in the trustee named in the bankruptcy order or assign-

ment.” This is discussed later in Part IV.

I. VOLUNTARY BANKRUPTCY: ASSIGNMENT BY A DEBTOR

A. Who May Make an Assignment?

Section () provides that “an insolvent person or, if deceased, the executor or administra-

tor of their estate or the liquidator of the succession, with the leave of the court” may make

an assignment of “all of the insolvent person’s property for the general benet of the insol-

vent person’s creditors.”

Section  denes a “person” as including the following entities:

• partnerships;

• unincorporated associations;

• corporations;

• cooperative societies or organizations;

• the successors of a partnership, association, corporation, society or an organization;

and

• the heirs, executors, liquidators of the succession, administrators or other legal rep-

resentatives of a person.

In addition, section  denes an “insolvent person” as a person who is not bankrupt and

who resides, carries on business, or has property in Canada, whose liabilities to creditors

provable as claims amount to ,, and:

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) who has ceased paying his current obligations in the ordinary course of business as

they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation, sucient, or, if disposed

of at a fairly conducted sale under legal process, would not be sucient to enable

payment of all his obligations, due and accruing due.

 BANKRUPTCY AND INSOLVENCY LAW IN CANADA: CASES, MATERIALS, AND PROBLEMS

B. Filing Requirements and Appointment of Trustee

Section () provides that the assignment must be accompanied by a sworn statement

listing the debtor’s property along with the names and addresses of all creditors and the

amounts of their respective claims. According to section (), the assignment and the

sworn statement must be delivered to the ocial receiver in the debtor’s locality. Section 

denes the “locality of the debtor” as the principal place where the debtor has: (a) resided,

or (b) carried on business during the year immediately preceding the initial bankruptcy

event, or, where neither (a) nor (b) apply, where the greater portion of the debtor’s property

is situated. The date of the “initial bankruptcy event,” under section , is dened as follows:

date of the initial bankruptcy event, in respect of a person, means the earliest of the day on

which any one of the following is made, led or commenced, as the case may be:

(a) an assignment by or in respect of the person,

(b) a prop osal by or in respect of the person,

(c) a notice of intention by the person,

(d) the rst application for a bankrupt cy order against the person, in any case

(i) referred t o in paragraph .()(a) or (a) or subsection (), or

(ii) in which a notice of intention to make a proposal has been led under section

. or a proposal has been led under section  in respect of the person and the

person les an assignment before the court has approved the proposal,

(e) the application in respect of which a bankruptc y order is made, in the case of an

application other than one referred to in paragraph (d), or

(f) proceedings under the Companies’ Creditors Arrangement Act;

Section () provides that the ocial receiver “shall refuse” to le the assignment unless

it is in the prescribed form and accompanied by the sworn statement required by section

(). However, the ocial receiver is required to accept an assignment if all of the ling

requirements are met.

Section () provides that if the ocial receiver les the assignment, he shall appoint

a licensed trustee selected “by reference to the wishes of the most interested creditors if

ascertainable at the time.” Section () states that if the ocial receiver is unable to nd

a trustee willing to act, they must cancel the assignment after giving the bankrupt ve days’

notice. The following excerpt from Bad Boy Mobile Homes Ltd (Re) (),  DLR (d) 

(BCSC), demonstrates that the eective date and time of the assignment is the time that the

ocial receiver actually les it:

In my opinion the words “the making of . . . an assignment for the benet of creditors”

x a point in time with reference to which conicting claims to property are to be deter-

mined under s.  of The Bills of Sale Act. It would, in my view, be unreasonable to

conclude that the Legislature intended that that point in time be determined by the bare

execution of a document of assignment, an act which, in itself, has no legal eect. The

narrow construction for which counsel for the trustee contends could give rise to absurd

situations. Counsel for C.A.C. gave me this example. A person executes an assignment

 See also Ferme CGR enr, senc (Syndic de),  QCCS  at para , a’d  QCCA : “Selon le

paragraphe () de LA LOI, le SÉQUESTRE OFFICIEL ne peut refuser la production d’une cession de

biens que si elle n’est pas présentée dans la forme prescrite au paragraphe () de LA LOI.”