Reference Re Companies' Creditors Arrangement Act

Last updated
Reference Re Companies' Creditors Arrangement Act
Supreme court of Canada in summer.jpg
Hearing: 27–29 March 1934
Judgment: 6 June 1934
Full case nameIn the Matter of a Reference Concerning the Constitutional Validity of the Companies’ Creditors Arrangement Act
Citations 1934 CanLII 72 (SCC), [1934] SCR 659
Prior historyREFERENCE to the Supreme Court of Canada for hearing and consideration pursuant to the authority of s. 55 of the Supreme Court Act (R.S.C., 1927, c. 35)
RulingThe Companies’ Creditors Arrangement Act is intra vires of the Parliament of Canada. The matters dealt with come within the domain of “bankruptcy and insolvency” within the meaning of s. 91 (21) of the B.N.A. Act.
Court membership
Chief Justice: Lyman Duff
Puisne Justices: Thibaudeau Rinfret, John Henderson Lamont, Lawrence Arthur Dumoulin Cannon, Oswald Smith Crocket, Frank Joseph Hughes
Reasons given
MajorityDuff CJ, joined by Rinfret, Crocket and Hughes JJ
ConcurrenceCannon J, joined by Lamont J

Reference Re Companies' Creditors Arrangement Act [1] is a decision of the Supreme Court of Canada on the constitutionality of the Companies' Creditors Arrangement Act as part of the bankruptcy and insolvency jurisdiction of the Parliament of Canada.

Contents

Background

At the onset of the Great Depression, the Parliament of Canada passed the Companies' Creditors Arrangement Act, 1933 [2] ("CCAA") in order to provide an alternative procedure other than liquidation that could be used by insolvent companies. Charles Cahan, Secretary of State of Canada, said at the bill's first reading, it was necessary “because of the prevailing commercial and industrial depression.” [3]

The provinces of Quebec and Ontario disputed the constitutionality of the Act, as they believed it intruded into provincial jurisdiction with respect to property and civil rights. Accordingly, the federal government posed the following reference question to the Supreme Court of Canada:

Is The Companies’ Creditors Arrangement Act, 1933, 23-24 Geo. V, chapter 36, ultra vires of the Parliament of Canada, either in whole or in part, and, if so, in what particular or particulars, or to what extent?

At the Supreme Court of Canada

The Court unanimously ruled that the Act was intra vires the Parliament of Canada, as it dealt with matters falling within "bankruptcy and insolvency" under s. 91(21) of the British North America Act, 1867 .

Majority ruling by Duff CJ

Legislation in respect of compositions and arrangements is a natural and ordinary component of a system of bankruptcy and insolvency law, and provisions similar to the CCAA had already been passed before and after Confederation. However, the provisions of the Bankruptcy Act, 1919 [4] apply only when an assignment or receiving order has been issued, and the Winding-Up Act applies only in the case of a company which is in course of being wound up. The CCAA, on the other hand, creates powers which can be exercised in case, and only in case, of insolvency.

Therefore, the Act enables arrangements to be made with respect to an insolvent company, under judicial authority which, otherwise, might not be valid prior to the initiation of proceedings in bankruptcy. As Lord Cave stated in Royal Bank of Canada v. Larue, [5] “the exclusive legislative authority to deal with all matters within the domain of bankruptcy and insolvency is vested in Parliament.”

Concurring ruling by Cannon J

Before and since Confederation, arrangements with the creditors have always been of the very essence of any system of bankruptcy or insolvency legislation. Under current Canadian law and under the British Bankruptcy Act 1914, where a person is subject to bankruptcy proceedings, and if no composition or scheme of arrangement is approved, he will be declared bankrupt, and his property becomes divisible among his creditors and vests in a trustee.

While CCAA proceedings are not bankruptcy proceedings, they are insolvency proceedings. As such, they are intended to prevent a declaration of bankruptcy, where it would be in the best interest of the creditors. Such an intent has been expressed in Canadian law since the pre-Confederation Insolvent Act of 1864. [6] Cushing v. Dupuy and Royal Bank of Canada v Larue were stated as authority under which Parliament could pass the Act.

Impact

Many Canadian legal commentators at the time expected that the CCAA, together with 1934's Farmers' Creditors Arrangement Act , [7] would be declared unconstitutional as encroaching upon the provincial power over property and civil rights in relation to the rights of secured creditors, and they were astonished when both were upheld. [8] [lower-alpha 1] The Parliament of Canada would not further extend its reach over secured creditors until 1992's amendments to the Bankruptcy and Insolvency Act . [11]

After being employed in the 1930s, the CCAA did not see significant usage again until the 1980s. The Supreme Court of Canada did not hear any appeals relating to the CCAA until Century Services Inc. v. Canada (Attorney General) in 2010.

Further reading

Torrie, Virginia (2017). Should Paramountcy Protect Secured Creditor Rights? Saskatchewan v Lemare Lake Logging in Historical Context (PDF). The Canadian Confederation: Past, Present, and Future. Université de Montréal. pp. 1–17.

Notes

  1. The FCAA would be held to be constitutional by the SCC, [9] and the Judicial Committee of the Privy Council subsequently agreed. [10]

Related Research Articles

Canadian federalism involves the current nature and historical development of the federal system in Canada.

The Implied Bill of Rights is a judicial theory in Canadian jurisprudence that recognizes that certain basic principles are underlying the Constitution of Canada.

Pith and substance is a legal doctrine in Canadian constitutional interpretation used to determine under which head of power a given piece of legislation falls. The doctrine is primarily used when a law is challenged on the basis that one level of government has encroached upon the exclusive jurisdiction of another level of government.

Canadian constitutional law is the area of Canadian law relating to the interpretation and application of the Constitution of Canada by the courts. All laws of Canada, both provincial and federal, must conform to the Constitution and any laws inconsistent with the Constitution have no force or effect.

<i>Board of Commerce case</i>

Re Board of Commerce Act 1919 and the Combines and Fair Prices Act 1919, commonly known as the Board of Commerce case, is a Canadian constitutional decision of the Judicial Committee of the Privy Council in which the "emergency doctrine" under the federal power of peace, order and good government was first created.

<i>Bankruptcy and Insolvency Act</i>

The Bankruptcy and Insolvency Act is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial proposals, and receiverships in Canada.

The Parliament of Canada has exclusive jurisdiction to regulate matters relating to bankruptcy and insolvency, by virtue of Section 91(2) of the Constitution Act, 1867. It has passed the following statutes as a result:

<span class="mw-page-title-main">Commercial insolvency in Canada</span>

Commercial insolvency in Canada has options and procedures that are distinct from those available in consumer insolvency proceedings. It is governed by the following statutes:

<i>Companies Creditors Arrangement Act</i> Canadian Act of Parliament

The Companies' Creditors Arrangement Act is a statute of the Parliament of Canada that allows insolvent corporations owing their creditors in excess of $5 million to restructure their business and financial affairs.

<i>LUnion St Jacques de Montreal v Bélisle</i> Canadian constitutional law case - 1874

L'Union St. Jacques de Montreal v Bélisle is a Canadian constitutional law decision by the Judicial Committee of the Privy Council. The issue was whether a provincial statute which altered the contractual liabilities of a benevolent organization, reducing its financial obligations to two widows, was within the constitutional authority of the province of Quebec under the British North America Act, 1867.

<i>Sun Indalex Finance, LLC v United Steelworkers</i> Supreme Court of Canada case

Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6, arising from the Ontario courts as Re Indalex Limited, is a decision of the Supreme Court of Canada that deals with the question of priorities of claims in proceedings under the Companies' Creditors Arrangement Act, and how they intersect with the fiduciary duties employers have as administrators of pension plans.

<i>Century Services Inc v Canada (AG)</i> Supreme Court of Canada case

Century Services Inc v Canada (AG) is a decision of the Supreme Court of Canada that describes the interrelationship between the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act in governing Canadian insolvency law, and how other federal statutes are accordingly construed.

<span class="mw-page-title-main">Section 91 of the Constitution Act, 1867</span> Provision of the Constitution of Canada

Section 91 of the Constitution Act, 1867 is a provision in the Constitution of Canada that sets out the legislative powers of the federal Parliament. The federal powers in section 91 are balanced by the list of provincial legislative powers set out in section 92 of the Constitution Act, 1867. The dynamic tension between these two sets of legislative authority is generally known as the "division of powers". The interplay between the two lists of powers have been the source of much constitutional litigation since the Confederation of Canada in 1867.

<i>Winding-up and Restructuring Act</i>

The Winding-up and Restructuring Act ("WURA") is a statute of the Parliament of Canada that provides for the winding up of certain corporations and the restructuring of financial institutions. It was passed in 1985, and has been amended since. Predecessors of the act date back to 1882.

<span class="mw-page-title-main">Canadian corporate law</span>

Canadian corporate law concerns the operation of corporations in Canada, which can be established under either federal or provincial authority.

<i>Newfoundland and Labrador v AbitibiBowater Inc</i> Supreme Court of Canada case

Newfoundland and Labrador v AbitibiBowater Inc, 2012 SCC 67 is a ruling by the Supreme Court of Canada dealing with whether an obligation incurred under regulatory action constitutes a claim under the Companies' Creditors Arrangement Act, thus becoming subject to a stay of proceedings.

<i>Labour Conventions Reference</i>

Canada (AG) v Ontario (AG)[1937] UKPC 6, [1937] A.C. 326, also known as the Labour Conventions Reference, is a landmark decision of the Judicial Committee of the Privy Council concerning the distinct nature of federal and provincial jurisdiction in Canadian federalism.

Section 92(14) of the Constitution Act, 1867, also known as the administration of justice power, grants the provincial legislatures of Canada the authority to legislate on:

14. The Administration of Justice in the Province, including the Constitution, Maintenance, and Organization of Provincial Courts, both of Civil and of Criminal Jurisdiction, and including Procedure in Civil Matters in those Courts.

<i>Farmers Creditors Arrangement Act</i>

The Farmers' Creditors Arrangement Act, was an Act of the Parliament of Canada that attempted to remedy a wave of insolvencies that occurred among Canadian farmers during the Great Depression. Originally framed to deal with such problems nationwide, it was gradually reduced in scope, and was reenacted in 1943 to apply solely to farmers in the Prairie Provinces.

<i>Reference Re Farmers Creditors Arrangement Act</i>

Reference Re Farmers' Creditors Arrangement Act is a decision of the Judicial Committee of the Privy Council on the constitutionality of the Farmers' Creditors Arrangement Act as part of the bankruptcy and insolvency jurisdiction of the Parliament of Canada.

References

  1. Reference re constitutional validity of the Companies Creditors Arrangement Act (Dom.), 1934 CanLII 72 , [1934] SCR 659(6 June 1934), Supreme Court (Canada)
  2. The Companies’ Creditors Arrangement Act, 1933 , S.C. 1932-33, c. 36
  3. Charles Cahan,  Secretary of State of Canada (20 April 1933). Parliamentary Debates (Hansard) . Canada: House of Commons. col. 4091.
  4. The Bankruptcy Act , S.C. 1919, c. 36
  5. The Attorney General of Quebec and the Royal Bank of Canada v Larue and others [1928] UKPC 1 , [1928] AC 187(19 January 1928)(on appeal from Canada)
  6. The Insolvent Act of 1864 , S.Prov.C. 1864, c. 17
  7. The Farmers' Creditors Arrangement Act, 1934 , S.C. 1934, c. 53
  8. Torrie 2017, p. 5.
  9. Reference Re Farmers' Creditors Arrangement Act , 1936 CanLII 35, [1936] SCR 384(17 June 1936), Supreme Court (Canada)
  10. Attorney General of British Columbia v Attorney General of Canada [1937] UKPC 10 (28 January 1937), Privy Council (on appeal from Canada)
  11. Torrie 2017, p. 6.