|
Civil Litigation - Vesting Orders. Skymark Finance Corporation v. Mahal Venture Capital Inc.
In Skymark Finance Corporation v. Mahal Venture Capital Inc. (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal, here relating to "the issue of who, as between the vendor and the purchaser, is liable for the payment of outstanding municipal taxes in the context of a sale by a receiver of assets in respect of which an approval and vesting order was granted".
Here the court considered the coming into being of an insolvency 'claim provable in bankruptcy', and it's relation to the function of vesting orders:[34] It is a fundamental principle of insolvency law that a claim may be said to exist or have arisen even though the quantum of the claim has not yet been determined: Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605, at paras. 26-27; Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, loose-leaf (2025-Rel. 2), 4th ed. (Toronto: Thomson Reuters, 2009), at §6:106. This principle is reflected in the BIA itself, which expressly provides that a debt or liability is deemed to be a provable claim if the obligation giving rise to the claim has been incurred, even though the quantum of the claim is unknown as of the date of the bankruptcy.[2] The BIA sets out a process for a trustee in bankruptcy to determine whether a “contingent or unliquidated claim” is a provable claim.[3]
[35] This principle was the basis for the court’s holding in Heritage Property [SS: Credit Union Central of Ontario Limited v. Heritage Property Holdings Inc. (Ont CA, 2008)] that liability for a tax reassessment existed as of the closing even though the relevant tax bills had not yet been issued and thus the quantum of the liability was at that time unknown. As Moldaver J.A. (as he then was) explained at para. 27:Those taxes are properly characterized as a future claim for realty taxes that existed at the time of closing but remained to be quantified. As such, it cannot be said to be “contingent” because liability for the increased taxes to the date of closing had crystallized prior to the date of closing.[4] ....
[41] In short, the motion judge erred in finding that liability for the Omit Tax Claim arose only when the relevant tax bills were issued on November 25, 2022, rather than on January 1 of the relevant taxation years. Accordingly, the liability arose prior to the Closing Date and was not assumed by the Purchaser, in accordance with s. 2.2 of the APA.
[42] Not only is this result consistent with Heritage Property, but it also reflects the significance and purpose of approval and vesting orders in the context of insolvency proceedings. As Pepall J.A. emphasized in Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508, 70 C.B.R. (6th) 181, at para. 73, the purpose of a receivership is to enhance and facilitate the preservation of a debtor’s assets for the benefit of creditors. Approval and vesting orders play a critical role in that context by serving as a “vital legal bridge” that facilitates a receiver giving good and undisputed title to a purchaser. This is the “holy grail” sought by purchasers in insolvency proceedings and facilitates the maximization of proceeds in realization of the debtor’s assets: Third Eye, at paras. 80-81.
[43] These purposes would be undermined if purchasers who acquire assets pursuant to court-approved vesting orders were to later find themselves subject to claims that arose prior to closing but had not yet been quantified or liquidated. Faced with such uncertainty, a purchaser would discount the purchase price to make provision for the as-yet-unquantified risk: Grant Thornton, at para. 51. Indeed, in this case the lender that provided financing for the transaction indicated that it would not have proceeded with the financing if it was aware that the Omit Tax Claim was a continued liability as against the Purchaser and the purchased assets. . KingSett Mortgage Corporation v. 30 Roe Investments Corp.
In KingSett Mortgage Corporation v. 30 Roe Investments Corp. (Ont CA, 2023) the Court of Appeal, in the course of mucky and tumultuous bankruptcy appeal litigation (here, a successful motion to quash by the receiver), illustrated some bankruptcy real estate vesting procedures:[26] The Approval Orders follow the form of standard Commercial List approval and vesting orders: they approve the sale transactions; authorize the Receiver to execute the sale agreements “with such minor amendments as the Receiver may deem necessary” and to “execute such additional documents as may be necessary or desirable for the completion” of the transactions; and provide that upon the delivery of a Receiver’s Certificate all of the debtor’s right, title, and interest in the purchased units shall vest absolutely in the purchaser free and clear from all security interests. The Approval Orders make no provision for the distribution of the sale proceeds. Pursuant to para. 12 of the initial Receivership Order, the Receiver must deposit those funds into an account and hold the monies “to be paid in accordance with the terms of this Order or any further Order of this Court.” . Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc.
In Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc. (Ont CA, 2019) the Court of Appeal discusses the nature of vesting orders:[33] This brings me to the CJA. In Ontario, the power to grant a vesting order is conferred by s. 100 of the CJA which states that:A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed. [34] The roots of s. 100 and vesting orders more generally, can be traced to the courts of equity. Vesting orders originated as a means to enforce an order of the Court of Chancery which was a court of equity. In 1857, An Act for further increasing the efficiency and simplifying the proceedings of the Court of Chancery, c. 1857, c. 56, s. VIII was enacted. It provided that where the court had power to order the execution of a deed or conveyance of a property, it now also had the power to make a vesting order for such property.[5] In other words, it is a power to vest property from one party to another in order to implement the order of the court. As explained by this court in Chippewas of Sarnia Band v. Canada (Attorney General) (2000), 2000 CanLII 16991 (ON CA), 51 O.R. (3d) 641 (C.A.), at para. 281, leave to appeal refused, [2001] S.C.C.A. No. 63, the court’s statutory power to make a vesting order supplemented its contempt power by allowing the court to effect a change of title in circumstances where the parties had been directed to deal with property in a certain manner but had failed to do so. Vesting orders are equitable in origin and discretionary in nature: Chippewas, at para. 281.
[35] Blair J.A. elaborated on the nature of vesting orders in Re Regal Constellation Hotel Ltd. (2004), 2004 CanLII 206 (ON CA), 71 O.R. (3d) 355 (C.A.), at para. 33:A vesting order, then, had a dual character. It is on the one hand a court order (“allowing the court to effect the change of title directly”), and on the other hand a conveyance of title (vesting “an interest in real or personal property” in the party entitled thereto under the order). [36] Frequently vesting orders would arise in the context of real property, family law and wills and estates. Trick v. Trick (2006), 2006 CanLII 22926 (ON CA), 81 O.R. (3d) 241 (C.A.), leave to appeal refused, [2006] S.C.C.A. No. 388, involved a family law dispute over the enforcement of support orders made under the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.). The motion judge in Trick had vested 100 per cent of the appellant’s private pension in the respondent in order to enforce a support order. In granting the vesting order, the motion judge relied in part on s. 100 of the CJA. On appeal, the appellant argued that the vesting order contravened s. 66(4) of the Pension Benefits Act, R.S.O. 1990, c. P. 8 which permitted execution against a pension benefit to enforce a support order only up to a maximum of 50 per cent of the benefit. This court allowed the appeal and held that a vesting order under s. 100 of the CJA could not be granted where to do so would contravene a specific provision of the Pension Benefits Act: at para. 16. Lang J.A. stated at para. 16 that even if a vesting order was available in equity, that relief should be refused where it would conflict with the specific provisions of the Pension Benefits Act. In obiter, she observed that s. 100 of the CJA “does not provide a free standing right to property simply because the court considers that result equitable”: at para. 19.
[37] The motion judge in the case under appeal rejected the applicability of Trick stating, at para. 37:That case [Trick] i[s] not the same as this case. In that case, there was no right to order the CPP and OAS benefits to be paid to the wife. In this case, the BIA and the Courts of Justice Act give the Court that jurisdiction to order the property to be sold and on what terms. Under the receivership in this case, Third Eye is entitled to be the purchaser of the assets pursuant to the bid process authorized by the Court. [38] It is unclear whether the motion judge was concluding that either statute provided jurisdiction or that together they did so.
[39] Based on the obiter in Trick, absent an independent basis for jurisdiction, the CJA could not be the sole basis on which to grant a vesting order. There had to be some other root for jurisdiction in addition to or in place of the CJA.
[40] In their article “Vesting Orders Part 1”, Bish and Cassey write at p. 49:Section 100 of the CJA is silent as to any transfer being on a free and clear basis. There appears to be very little written on this subject, but, presumably, the power would flow from the court being a court of equity and from the very practical notion that it, pursuant to its equitable powers, can issue a vesting order transferring assets and should, correspondingly, have the power to set the terms of such transfer so long as such terms accord with the principles of equity. [Emphasis in original.] [41] This would suggest that provided there is a basis on which to grant an order vesting property in a purchaser, there is a power to vest out interests on a free and clear basis so long as the terms of the order are appropriate and accord with the principles of equity.
[42] This leads me to consider whether jurisdiction exists under s. 243 of the BIA both to sell assets and to set the terms of the sale including the granting of a vesting order.
|
