E. The Role of the Bankruptcy Court

• Author: Roderick J. Wood
• Profession: Faculty of Law. University of Alberta
• Pages: 237-238

Page 237

It is common to speak of the bankruptcy court as if it were a separately constituted court. This usage is misleading. There is no separate bankruptcy court. Instead, the BIA confers jurisdiction on the superior court in each province.¹⁵¹When the BIA makes reference to a court, this means a court having jurisdiction in bankruptcy.¹⁵²The procedure is governed by the rules and procedures set out in the General Rules¹⁵³ as well as the various prescribed forms. A bankruptcy registrar can also perform a number of judicial functions.¹⁵⁴

The bankruptcy court will often become involved when disputes arise as to legal rights of the bankrupt, of creditors, or of other third parties. A contest may arise over whether the debtor or a third party owns a particular asset. The trustee may seek to impeach pre-bankruptcy transactions or to subordinate security interests¹⁵⁵in personal property that were not properly perfected. A dispute may also arise as to whether a person has a provable claim in bankruptcy. All of these matters are properly brought before a bankruptcy court.

Although the Canadian bankruptcy system is based upon a creditor control model rather than a judicial control model, the BIA provides that aggrieved parties have recourse to the courts in appropriate cases. The court on application of the trustee may give directions to the trustee concerning the administration of the bankrupt estate.¹⁵⁶This gives the trustee the ability to seek the direction of the court if the trustee is

Page 238

uncertain about the proper procedure to follow. A bankrupt, creditor, or an aggrieved party is also given the right to have a decision of a trustee reviewed by the court, and the court may confirm, reverse, or modify the act or decision.¹⁵⁷These provisions are not intended to override the ordinary rules of governance that apply to the administration of the bankrupt estate. An application to court does not permit the court to substitute its own business judgment for that of the trustee or the inspectors.¹⁵⁸A trustee is not entitled to use an application for directions as a means of overturning the decision of the inspectors unless it is shown that they were not acting in good faith and in the interests of the creditors.¹⁵⁹Similarly, a bankrupt, creditor, or other person will not be able to obtain a variation of a decision of the trustee unless there is a lack of authority, bad faith, or unreasonableness in the conduct of the trustee or inspectors.¹⁶...