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

AuthorStephanie Ben-Ishai; Thomas G. W. Telfer
Constitutional Aspects and the Judicial and
Administrative Structure of the Bankruptcy System
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].
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
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
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

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