Property

AuthorStephanie Ben-Ishai; Thomas G. W. Telfer
Pages129-151

CHAPTER 4
Property
Section  of the Bankruptcy and Insolvency Act, RSC , c B- (BIA) provides that upon
bankruptcy, the bankrupt immediately loses all capacity to deal with or dispose of its prop-
erty, which vests in the trustee and forms the bankruptcy estate, “subject to the rights of
secured creditors.” Part I of this chapter discusses the meaning of “property” under the Act
and the various types of exempt property that is, types of property that do not form part
of the bankruptcy estate. Part II discusses the rights of secured creditors with respect to the
property of the bankrupt. Lastly, Part III examines set-o, a rule which permits parties with
reciprocal obligations to “net out” their positions.
I. WHAT CONSTITUTES THE BANKRUPTCY ESTATE?
A. Denition of “Propert y”
Section  of the Act denes property as follows:
property means any type of property, whether situated in Canada or elsewhere, and
includes money, goods, things in action, land and every description of property, whether
real or personal, legal or equitable, as well as obligations, easements and every descrip-
tion of estate, interest and prot, present or future, vested or contingent, in, arising out
of or incident to property.
In general, courts have interpreted this denition broadly. In Saulnier v Royal Bank of Canada,
 SCC  (Saulnier), the Supreme Court of Canada held (at paras –) that a commer-
cial shing licence was property of the bankruptcy estate, even though () the federal min-
ister of sheries had “absolute discretion” over granting, transferring, and terminating the
licence, and () a simple licence typically would not be considered property at common law.
In reaching this decision, the Supreme Court stated that the denition of “property” under
the Act must be interpreted broadly with regard to the overall purpose of the Act:
[] In determining the scope of the denition of “property” in a statutory context, it
isnecessary to have regard to the overall purpose of the BIA, which is to regulate the
orderly administration of the bankrupt’s aairs, keeping a balance between the rights
of creditors and the desirability of giving the bankrupt aclean break: Husky Oil Oper-
ations Ltd v Minister of National Revenue, []  S.C.R. , at para. . The exemption
of designated property from distribution among creditors under s. () is to allow the
bankrupt to continue a living pending discharge and, when discharged, to make a fresh
start. Those exemptions do not, it seems to me, bear much similarity to the proposed
 BANKRUPTCY AND INSOLVENCY LAW IN CANADA: CASES, MATERIALS, AND PROBLEMS
“exempting” of a valuable asset such as a commercial shing licence. If Saulnier had
“sold” his licences prior to discharge the cash proceeds would, it seems, be after-acquired
property that would be divided amongst his creditors under s. ()(c) of the BIA.
Although the shing licence alone would not be considered property under the Act, the
licence coupled with the licence holder’s proprietary interest in the sh caught met the
denition:
[] The shery is a public resource. The shing licence permits the holder to partici-
pate for a limited time in its exploitation. The sh, once caught, become the property
of the holder. Accordingly, the shing licence is more than a “mere licence” to do that
which is otherwise illegal. It is a licence coupled with a proprietary interest in the harvest
from the shing eort contingent, of course, on rst catching it.
In these regards, it is important to emphasize that the mere fact that the shing licence had
commercial value did not make the licence “property” within the meaning of the Act:
[] The criticism of [the commercial realities] approach is that many things that have
commercial value do not constitute property, while the value of some property may be
minimal. There is no necessary connection between proprietary status and commercial
value. See generally T. G. W. Telfer, “Statutory Licences and the Search for Property: the
End of the Imbroglio?” (),  Can. Bus. L.J., at p. . I agree with the Court of
Appeal that “commercial realities” cannot legitimate wishful thinking about the notion
of “property” in the BIA and the PPSA, although commercial realities provide an appro-
priate context in which to interpret the statutory provisions. The BIA and the PPSA are,
after all, largely commercial statutes which should be interpreted in a way best suited to
enable them to accomplish their respective commercial purposes.
The Supreme Court further stated (in para ) that the denition of property in section  was
“very wide” and that “Parliament unambiguously signalled an intention to sweep up a variety
of assets of the bankrupt not normally considered property at common law.” Accordingly, it
was appropriate to treat the shing licence as property that vested in the trustee upon the
licence holder’s bankruptcy:
[] I prefer to look at the substance of what was conferred, namely a licence to partici-
pate in the shery coupled with a proprietary interest in the sh caught according to
its terms and subject to the Minister’s regulation. As noted earlier, the BIA is intended
to fulll certain objectives in the event of a bankruptcy which require, in general, that
non-exempt assets be made available to creditors. The s.  denition of property should
be construed accordingly to include a s. () shing licence.
[] It is true that the proprietary interest in the sh is contingent on the sh rst
being caught, but the existence of that contingency is contemplated in the BIA den-
ition and is no more fatal to the proprietary status for BIA purposes than is the case
with the equivalent contingency arising under a prot à prendre, which is undeniably a
property interest.
[] Counsel for the Attorney General of Canada was greatly concerned that a hold-
ing that the shing licence is property in the hands of the holder even for limited statu-
tory purposes might be raised in future litigation to fetter the Minister’s discretion, but
I do not think this concern is well founded. The licence is a creature of the regulatory
system. Section () of the Fisheries Act speaks of the Minister’s “absolute discretion.
The Minister gives and the Minister (when acting properly within his jurisdiction under

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