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Insolvency - BIA - Arbitration. Peace River Hydro Partners v. Petrowest Corp.
In Peace River Hydro Partners v. Petrowest Corp. (SCC, 2022) the Supreme Court of Canada considered the relationship between insolvency and arbitration. The case is essential reading for anyone involved with the two in the same case, especially regarding which proceeding governs (ie. stays) [paras 59-90, 107-110].
. Peace River Hydro Partners v. Petrowest Corp.
In Peace River Hydro Partners v. Petrowest Corp. (SCC, 2022) the Supreme Court of Canada considers the nature of insolvency proceedings, in the course of considering how they interact with arbitration proceedings:[52] Insolvency engages broad public interests. It “affects all of the stakeholders of the insolvent business enterprise”, including creditors, employees, landlords, suppliers, shareholders, and customers (K. P. McElcheran, Commercial Insolvency in Canada (4th ed. 2019), at ¶1.1). In the case of very large companies, an insolvency may even “threaten the existence of whole communities” (¶1.1). Canadian legislation therefore offers stakeholders a wide range of judicial procedures to resolve problems presented by an insolvency (¶¶1.1‑1.12).
[53] This procedural flexibility has allowed Canadian courts to become instrumental in (a) providing a forum for the orderly resolution of the competing rights and objectives of individual stakeholders of insolvent business enterprises, and (b) creating mechanisms for the preservation of the value of the insolvent business or its assets for the benefit of all stakeholders (Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379, at paras. 2 and 22; McElcheran, at ¶¶1.1‑1.14). I elaborate on these two points below.
(a) Single Proceeding Model
[54] The central role of courts in ensuring the equitable and orderly resolution of insolvency disputes is reflected in the “single proceeding model”.
[55] This model favours the enforcement of stakeholder rights through a centralized judicial process. The legislative policy in favour of “single control” is reflected in Canadian bankruptcy, insolvency, and winding‑up legislation (Century Services, at paras. 22‑23). The single proceeding model is intended to mitigate the inefficiency and chaos that would result if each stakeholder in an insolvency initiated a separate claim to enforce its rights. In other words, the single proceeding model protects the clear “public interest in the expeditious, efficient and economical clean‑up of the aftermath of a financial collapse” (Sam Lévy & Associés Inc. v. Azco Mining Inc., 2001 SCC 92, [2001] 3 S.C.R. 978, at para. 27, citing Stewart v. LePage (1916), 1916 CanLII 626 (SCC), 53 S.C.R. 337). This Court has held that s. 183(1) of the BIA confers a “broad scope of authority” on superior courts to deal with most bankruptcy disputes, as “[a]nything less would unnecessarily complicate and undermine the economical and expeditious winding up of the bankrupt’s affairs” (Sam Lévy, at para. 38).
(b) Court‑Ordered Receiverships Under the BIA
[56] Court‑ordered receiverships under s. 243 of the BIA, like the receivership in the present case, are one available tool for enhancing the judicial oversight and flexibility underlying Canadian insolvency law. Section 243(1) of the BIA confers broad authority on a court to appoint a receiver if the court “considers it to be just or convenient to do so”. Under s. 243(1), a court may appoint a receiver to do any of the following, with a view to enhancing and facilitating the preservation and realization of the debtor’s assets for the benefit of all creditors: (a) take possession of all or substantially all of the debtor’s inventory, accounts receivable or other property that was acquired for or used in relation to a business carried on by the debtor; (b) exercise any control that the court considers advisable over that property and over the debtor’s business; or (c) take “any other action that the court considers advisable” (R. J. Wood, Bankruptcy and Insolvency Law (2nd ed. 2015), at pp. 553‑54).
[57] Given the breadth of their powers, court‑appointed receivers are necessarily subject to close judicial oversight. Receivers represent neither a security holder nor the debtor; they are officers of the court whose “sole authority is derived from . . . Court appointment and from the directions given [to them] by the Court” (Ostrander v. Niagara Helicopters Ltd. (1973), 1973 CanLII 467 (ON SC), 1 O.R. (2d) 281 (H.C.), at p. 286). In most cases, including the one at bar, a court order under s. 243 of the BIA gives a receiver wide‑ranging powers.
[58] Despite this flexibility, court‑appointed receivers have a fiduciary duty to act honestly and in the best interests of all interested parties. For example, a receiver is generally not permitted to terminate existing contracts between third parties and the debtor, but must apply to the court to discharge onerous contracts, such as those which would be unduly costly to perform (F. Bennett, Bennett on Receiverships (3rd ed. 2011), at p. 42; Parsons v. Sovereign Bank of Canada, 1912 CanLII 365 (UK JCPC), [1913] A.C. 160 (P.C.), per Viscount Haldane L.C.). This demonstrates the key supervisory role that courts play in receivership proceedings.
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