If You Win, You Lose: Strategic Considerations in Bet-the-farm Securities Litigation

• Author: Orestes Pasparakis and Ilana Schrager
• Pages: 253-256

253

IF YOU WIN, YOU LOSE: STRATEGIC

CONSIDERATIONS IN BET-THE-

FARM SECURITIES LITIGATION

Orestes Pasparakis and Ilana Schrager*

This summer, the Canadian insolvency regime underwent substantial

amendment. While most of these changes are of interest only to the insol-

vency bar, one change in particular affects securities litigation. Pursuant to

the new legislative scheme, judgments arising from securities litigation are

now subordinated in a bankruptcy. These creditors are only entitled to be

paid once all other debts have been satisfied.

Put starkly, under the current statutory regime, a successful securities

class action judgment that tips a defendant into insolvency protection will

now rank behind all other creditor claims.

A. THE NEW REGIME

While the jurisprudence in Canada generally did not treat equity claims

favourably in an insolvency,1 under the prior legislation, judgment creditors

ranked parri passu. Generally speaking, creditors holding “equity claims”

had the same rights as any other unsecured creditor.2

Under the Companies’ Creditors Arrangement Act (CCAA),3 “equity

claims” are defined as follows:

“Equity Claim” means a claim that is in respect of an equity interest, includ-

ing a claim for, among others

. . .

* Orestes Pasparakis is a partner in the litigation group at Ogilvy Renault LLP in

Toronto. He has an extensive commercial litigation practice and specializes in

insolvency and restructuring matters. Ilana Schrager recently received her Juris

Doctor degree from the University of Toronto, Faculty of Law. She is currently an

articling student-at-law at Ogilvy Renault LLP in Toronto.

1 See Blue Range Resources Corp. (Re), [2000] A.J. No. 14 (Q.B.).

2 See I. Waxman & Sons Ltd. (Re), [2008] O.J. No. 885 (S.C.J.).

3 R.S.C. 1985, c. C-36 [CCAA]. Identical provisions are found in the Bankruptcy and

Insolvency Act, R.S.C. 1985, c. B-3 [BIA].