Specialized Insolvency Regimes

• Author: Roderick J. Wood
• Pages: 582-597

582

CHA PTER 21

SPECIALIZED

INSOLVENC Y REGIMES

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.

A. THE

WINDING-UP AND

RESTRUCTURING ACT

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.