Specialized Insolvency Regimes

AuthorRoderick J. Wood
There are two specialized insolvency regimes that apply to particular
types of debtors or economic sectors. The Winding-up and Re structur-
ing Act is used primar ily in respect of insolvencies of banks, insurance
companies, trust companies, and loan companies. It is sometimes used
to wind-up federal corporations, such as t he liquidation of the assets of
the Christi an Brothers of Ireland in Canada as a re sult of the claims of
boys who suffered abuse at the Mount Cashel Orphanage in Newfound-
land. There is also a speci al insolvency regime that governs rai lway
companie s.
Unfortunately, the use of specialized i nsolvency regimes in these
sectors has produced a creeping statutory obsolescence.1 While the
general insolvency regimes are frequently amended in order to create
an eff‌icient and modernized insolvency system, these amendments are
usually not introduced into the specialized insolvency regimes.2 The
1 One need only exa mine the def‌inition of “trad ing company” in the Winding-
up and Restru cturing Act, RSC 1985, c W-11, s 2(1) [WURA], to be nostalgi-
cally tra nsported back to an earl ier era of “apothecaries, auctione ers, bankers,
brokers, brickm akers, builders, carp enters, carriers, c attle or sheep salesmen,
coach proprietors, dyer s, fullers, keepers of inn s, taverns, hotels, saloon s or
coffee houses, li me burners, livery stable ke epers, market gardeners, mi llers,
miners, packer s, printers, quarr ymen, sharebrokers, ship-o wners, shipwrights,
stockbrokers, stock-jobbers, victuallers, warehousemen, wharf‌ingers . . . .”
2 There have been two e xceptions to this tendency. Provi sions found in other
insolvency st atutes that limit the applic ation of the legislation to airc raft objects
and to eligible f‌in ancial contracts have a lso been added to the WURA.
Specialized Insolvency Regimes 583
differences between the general insolvency regimes and the special-
ized regimes grow progressively greater, and the specialized reg imes
fall into mounting disrepair. Indeed, the provisions relating to railway
insolvencies seem more appropriately included in a museum of railway
antiquities than in the statute books.
In addition to these two speci alized insolvency regimes, the ar-
rangement provisions of the Canada Business Corporations Act3 are in-
creasingly used to re structure insolvent corporations in ca ses where
an arrangement alters the r ights of holders of corporate securities and
does not involve a compromise of the claims of the trade cred itors.
1) Historical Origins
The repeal of the Canadia n insolvency statutes4 in 1880 meant that
there was no longer an expedient method available to liquidate insol-
vent companies. In 1882, at the behest of boards of trade of the larger
cities, a new winding-up statute was enacted.5 The new statutory re-
gime that governed the liquidation of a company was modelled on the
English system of company liquidation. It was vast ly different from
the federal bankr uptcy regime that was subsequently enacted i n 1919.
Whereas the property of a ban krupt vests in the trustee in bankruptcy,
the ownership of the asset s of the insolvent company does not vest in
the liquidator under the windi ng-up statute. Instead, the control and
management of the company is taken from the directors and given to
the liquidator.
Despite the enactment of this legislation, a bifurcated insolvency
system — in which a bankruptcy statute governs personal i nsolvency
of individuals and a sepa rate liquidation statute governs corporate in-
solvencies — did not evolve in Canada. From its inception, the bank-
ruptcy regime was avai lable to both individual s and corporations. This
meant that a choice had to be made as to which of the insolvency re-
gimes would be employed in respect of the liquidation of an insolvent
company. This was changed in 1966, when the bankruptcy legi slation
was amended to provide that bankruptcy proceedings took precedence
3 RSC 1985, c C-44, s 192 [CBCA].
4 See Chapter 2, Sec tion A(2).
5 Insolvent Banks, Insurance Comp anies and Trading Corporations Act, 45 Vict, c 23.

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