Constitutional Aspects and the Judicial and Administrative Structure of the Bankruptcy System

• Author: Stephanie Ben-Ishai; Thomas G. W. Telfer
• Pages: 47-109

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CHAPTER 2

Constitutional Aspects and the Judicial and

Administrative Structure of the Bankruptcy System

I. CONSTITUTIONAL ASPECTS

A. Introduction

Section () of the Constitution Act,  vests “exclusive” power in the federal govern-

ment to enact laws in relation to “bankruptcy and insolvency.” Despite the clarity of those

words, the constitutional jurisprudence interpreting them contains inconsistencies and

contradictions which remain dicult to reconcile in their totality. In large part, this can be

attributed to the fact that conceptions of bankruptcy and insolvency have changed over

time. Modern views are much evolved from nineteenth-century ideas. Over time, the growth

and development of the Canadian economy and the changing function of debt in society

have seen the bankruptcy and insolvency law power applied in new contexts, in pursuit of

new objectives. The history of bankruptcy and insolvency in Canada is very much that of an

“expanding concept,” as described by Roger Tassé. This expansion has beneted from judi-

cial imprimatur, as no federal bankruptcy or insolvency statute has ever been declared ultra

vires. It also represents part of a broader trend toward greater federalism following the Great

Depression and World War II.

The expansion of bankruptcy and insolvency legislation has led to new areas of overlap,

and sometimes conict, most often vis-à-vis the provincial governments’ jurisdiction under

section () “property and civil rights.” Since , the Supreme Court of Canada has con-

sidered ve cases relating to bankruptcy and insolvency law, four of which represented a con-

test between sections () and (). In two instances, this conict was resolved in favour

of the federal power, while in two cases no conict was found to exist. Today, constitutional

discussions are among the hottest topics in the bankruptcy and insolvency eld.

At earlier points in Canada’s history, the lack of a federal bankruptcy law, or the decien-

cies of bankruptcy legislation, prompted the Provinces to enact legislation dealing with over-

indebtedness. One such statute came under constitutional scrutiny in the Ontario (Attorney

General) v Canada (Attorney General) [] case, and was ultimately upheld as valid provin-

cial legislation. In , a similar voluntary debt repayment statute was declared ultra vires,

prompting Parliament to enact essentially the same voluntary debt repayment program as

part of federal bankruptcy law. These two cases — decided just over sixty-ve years apart —

oer contrasting approaches to determining the constitutionality of provincial regimes relat-

ing to overindebtedness. They illustrate one of the unresolved contradictions in the constitu-

tional caselaw on bankruptcy and insolvency.

 Canada, Study Committee on Bankruptcy and Insolvency Legislation, Report of the Study Committee

on Bankruptcy and Insolvency Legislation (Ottawa: Information Canada, ) at  (Chair: Roger Tassé)

[Tassé Report].

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

Part I of this chapter reproduces extracts from some of the leading cases that illustrate the

scope of the federal power and the validity of provincial laws addressing insolvency issues.

The key issues are: ()the meaning of “bankruptcy and insolvency” in section() of the

Constitution; ()restrictions on federal legislation adopted under the bankruptcy and insol-

vency power and on administrative powers delegated under bankruptcy legislation on courts,

trustees, and other ocials; ()circumstances under which the courts will uphold insolvency-

type legislation adopted by the provinces; and () conicts where provincial remedial legis-

lation may encroach on the federal bankruptcy and insolvency authority. The closing section

of this Part considers the inuence of the Superintendent of Bankruptcy as a party in constitu-

tional cases concerning the bankruptcy and insolvency power. The Oce of the Superintend-

ent is discussed further in Part II of this chapter, which provides an overview of the structure

of the bankruptcy system under the Bankruptcy and Insolvency Act, RSC , c B- (BIA).

Ontario (Attorney General) v Canada (Att orney General), [1894] UKPC 13, [1894] AC 189

THE LORD CHANCELLOR: This appeal is presented by the Attorney-General of Ontario

against a decision of the Court of Appeal of that province.

The decision complained of was an answer given to a question referred to that Court

by the Lieutenant-Governor of the province in pursuance of an Order in Council.

The question was as follows:

Had the Legislature of Ontario jurisdiction to enact the th section of the Revised Stat-

utes of Ontario, c. , and entitled “An Act respecting Assignments and Preferences by

Insolvent Persons”?

The majority of the Court answered this question in the negative; but one of the judges

who formed the majority only concurred with his brethren because he thought the case

was governed by a previous decision of the same Court; had he considered the matter

res integra he would have decided the other way. The Court was thus equally divided in

opinion.

It is not contested that the enactment, the validity of which is in question, is within the

legislative powers conferred on the provincial legislature by sect.  of the British North

America Act, , which enables that legislature to make laws in relation to property and

civil rights in the province unless it is withdrawn from their legislative competency by the

provisions of the st section of that Act which confers upon the Dominion Parliament the

exclusive power of legislation with reference to bankruptcy and insolvency.

The point to be determined, therefore, is the meaning of those words in sect.  of

the British North America Act, , and whether they render the enactment impeached

ultra vires of the provincial legislature. That enactment is sect.  of the Revised Statutes

of Ontario of , c. , entitled “An Act respec ting Assignment and Preferences by

Insolvent Persons.” The section is as follows:

An assignment for the general benet of creditors under this Act shall take precedence

of all judgments and of all executions not completely executed by payment, subject to the

lien, if any, of an execution creditor for his costs, where there is but one execution in the

sheri’s hands, or to the lien, if any, of the creditor for his costs, who has the rst execu-

tion in the sheri’s hands.

In order to understand the eect of this enactment it is necessary to have recourse

to other sections of the Act to see what is meant by the words “an assignment for the

general benet of creditors under this Act.”

Chapter : Const itutional Aspec ts and the Judicial and Adminis trative Struct ure of the Bankruptc y System 

The rst section enacts that if any person in insolvent circumstances, or knowing

himself to be on the eve of insolvency, voluntarily confesses judgment, or gives a war-

rant of attorney to confess judgment, with intent to defeat or delay his creditors, or to

give any creditor a preference over his other creditors, every such confession or warrant

of attorney shall be void as against the creditors of the party giving it.

The nd section avoids as against the other creditors any gift or assignment of goods

or other property made by a person at a time when he is in insolvent circumstances, or

knows that he is on the eve of insolvency, with intent to defeat, delay, or prejudice his

creditors or give any of them a preference.

Then follows sect. , which is important:

Its st sub-section provides that nothing in the preceding section shall apply to an

assignment made to the sheri of a county in which the debtor resides or carries on

business, or to any assignee resident within the province with the consent of his credit-

ors as thereinafter provided for the purpose of paying, rateably and proportionately, and

without preference or priority all the creditors of the debtor their just debts.

The nd sub-section enacts that every assignment for the general benet of creditors

which is not void under sect.  but is not made to the sheri nor to any other person with

the prescribed consent of the creditors shall be void as against a subsequent assignment

which is in conformity with the Act, and shall be subject in other respects to the provi-

sions of the Act, until and unless a subsequent assignment is executed in accordance

therewith.

The th sub-section states the nature of the consent of the creditors which is requi-

site for assignment in the rst instance to some person other than the sheri.

These are the only sections to which it is necessary to refer in order to explain the

meaning of sect. .

Before discussing the eect of the enactments to which attention has been called, it

will be convenient to glance at the course of legislation in relation to this and cognate

matters both in the province and in the Dominion. The enactment’s of the st and nd

sections of the Act of  are to be found in substance in sects.  and  of the Act of the

Province of Canada passed in  for the better prevention of fraud. There is a proviso to

the latter section which excepts from its operation any assignment made for the purpose

of paying all the creditors of the debtor rateably without preference. These provisions

were repeated in the Revised Statutes of Ontario, , c. . A slight amendment was

made by the Act of , and it was as thus amended that they were re-enacted in .

At the time when the statute of  was passed there was no bankruptcy law in force

in the Province of Canada. In the year  an Act respecting insolvency was enacted. It

applied in Lower Canada to traders only; in Upper Canada to all persons whether trad-

ers or non-traders. It provided that a debtor should be deemed insolvent and his estate

should become subject to compulsory liquidation if he committed certain acts similar to

those which had for a long period been made acts of bankruptcy in this country. Among

these acts were the assignment or the procuring of his property to be seized in execution

with intent to defeat or delay his creditors, and also a general assignment of his property

for the benet of his creditors otherwise than in manner provided by the statute. A per-

son who was unable to meet his engagements might avoid compulsory liquidation by

making an assignment of his estate in the manner provided by that Act; but unless he

made such an assignment within the time limited the liquidation became compulsory.

This Act was in operation at the time when the British North Amer ica Act came into

force.