Simon's Megalomaniacal Legal Resources

Insolvency - BIA - 'Claim Provable in Bankruptcy'

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MORE CASES

Part 2

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. YG Limited Partnership and YSL Residences Inc. (Re) [contingent claim]

In YG Limited Partnership and YSL Residences Inc. (Re) (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from an earlier appeal which reversed "the Trustee’s decision disallowing [the respondent employee's] profit-sharing claim"."

Here the court considers whether an employee's profit-sharing involvency claim is a 'contingent claim', and thus not allowable as a 'claim provable' in bankruptcy [BIA s.2 'claims provable in bankruptcy', s.135 'Admission and Disallowance of Proofs of Claim and Proofs of Security']:

Issue 2: The appeal judge did not err in finding that the profit-share claim is not a contingent claim and that it is not too remote and speculative

(a) Introduction

[65] The Trustee submits that the appeal judge erred in finding that Ms. Athanasoulis’ profit-sharing claim is not a contingent claim and that it is not too remote and speculative. The Trustee points out that, given that the Cresford Group did not ultimately build the YSL project, there were no profits earned on it. Moreover, had any profits been earned, they would have first gone to the limited partners.

[66] I disagree with the Trustee’s position. The appeal judge correctly explained that, once Ms. Athanasoulis’ claim is characterized as a claim for breach of her employment contract, damages are to be assessed from the date of the breach. Her claim is therefore not a contingent claim, but rather a claim for unliquidated damages. Calculating damages may be difficult and may even lead to the conclusion that Ms. Athanasoulis is entitled to no damages, but this does not make her claim for breach of the profit-sharing agreement too remote and speculative as understood in the context of bankruptcy law and contract law.

(b) Relevant legal principles

[67] As noted above, s. 135(1.1) of the BIA requires a trustee to determine whether a contingent claim or unliquidated claim is provable and, if so, to value it.

[68] A contingent claim is a claim that may or may not ripen into a debt, depending on whether future events occur: Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150, at para. 36. If a contingent claim is too remote or speculative, it is not a provable claim and a trustee can disallow it: Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67, [2012] 3 S.C.R. 443, at para. 36.

[69] A contingent claim must be distinguished from an unliquidated claim. An unliquidated claim is a claim whose value cannot be ascertained by mere arithmetic: L.W. Houlden, G.B. Morawetz, and Janis Sarra, Bankruptcy and Insolvency Law of Canada, loose-leaf (2025-Rel 7), 4th ed (Toronto: Thomson Reuters, 2009) at §6:127.

[70] An unliquidated claim that is non-contingent is still subject to considerations of remoteness or speculation. In valuing an unliquidated claim, the trustee must apply the law of damages relevant to that claim. I address the principles applicable to this calculation further below.

(c) Analysis

(i) Ms. Athanasoulis’ claim is not a contingent claim

[71] On appeal, the Trustee renews the arguments made to the appeal judge that Ms. Athanasoulis’ claim is a contingent claim because it depended on the completion of the YSL project and distribution of profits to the limited partners and then to the Cresford Group.

[72] In making the argument that the profit-sharing claim is a contingent claim, the Trustee ignores the appeal judge’s determination that the profit-sharing claim is a claim for damages based on the breach of Ms. Athanasoulis’ employment contract. The claim is therefore not contingent on a future event, namely the construction of the YSL project and earning of profits; rather, the breach occurred in January 2020 when Ms. Athanasoulis accepted the repudiation of her employment agreement. As the appeal judge stated, as in any employment context, damages are generally to be calculated from the date of the breach:

Until there was a breach, the Profit Sharing Agreement would remain in place and any claim for payment under that agreement might reasonably be considered to be contingent upon profits actually being earned (to be calculated based on revenues less expenses, where expenses would include any amounts payable to the LPs). It might have been open to Ms. Athanasoulis not to accept the repudiation of the Profit Sharing Agreement and let it continue even though she was no longer employed by YSL and wait to be paid in the normal course; but she clearly did the opposite, as evidenced by her civil claim for damages for breach of that agreement commenced in 2020.

As a matter of law, the accepted repudiation of the Profit Sharing Agreement converted a future right to receive actual profits if and when earned into a current right to receive damages for breach of contract. Once converted to a damages claim, the “normal course” that Ms. Athanasoulis would be paid once the profits had been earned, usually at the end of the project, no longer applied. Rather, the Profit Share Claim became an unliquidated claim for damages for breach of contract that would presumptively be assessed at the time of repudiation. [Emphasis added.]

[73] I see no error in the appeal judge’s finding that Ms. Athanasoulis’ profit-sharing claim is not a contingent claim. It is consistent with the treatment of other wrongful dismissal claims in the context of a bankruptcy, including claims based on future events, such as the payment of a bonus or a share of profits: Noble v. Principal Consultants Ltd. (Bankrupt), 2000 ABCA 133, 187 D.L.R. (4th) 80, at para. 41; see also Bankruptcy and Insolvency Law of Canada, at §6:319. The fact that an employer became a bankrupt after the breach does not turn a valid wrongful dismissal claim into a contingent claim.

[74] The Trustee argues that this case is different from other employment cases because Ms. Athanasoulis’ entitlement to share in the profits of the YSL project depended on the project going ahead and being profitable, which did not occur. I disagree. Again, this argument misses the point that the claim arose on the date of the breach. At that point, as found by the arbitrator, Ms. Athanasoulis had an interest in the profit-sharing agreement. The breach of her employment contract means that she lost the opportunity to earn profits under the profit-sharing agreement. Although it may be difficult to quantify this lost opportunity, arguments about quantification do not transform this claim into a contingent claim.

[75] The Trustee relies on this court’s decision in Schnier v. Canada (Attorney General), 2016 ONCA 5, 128 O.R. (3d) 537, to support its argument that the profit-sharing claim is a contingent claim. I agree with the appeal judge that Schnier has no application to the circumstances of this case. In Schnier, this court accepted that an amount claimed by the federal government for outstanding income tax which was under appeal by the bankrupt constituted a non-provable contingent claim because it depended on a determination to be made by a third party, namely the Tax Court, at a later date. Unlike in Schnier, the determination of Ms. Athanasoulis’ profit-sharing claim does not depend on a future decision by a third party. Once her claim is properly viewed as a claim for breach of contract, it is evident that the breach has already occurred, and the only issue remaining is the quantification of damages.

. YG Limited Partnership and YSL Residences Inc. (Re) []

In YG Limited Partnership and YSL Residences Inc. (Re) (Ont CA, 2025) the Ontario Court of Appeal dismissed an insolvency appeal, here from an earlier appeal which reversed "the (SS: insolvency) Trustee’s decision disallowing [the respondent employee's] profit-sharing claim"."

Here the court considers whether an employee's profit-sharing involvency claim is an 'equity claim', and thus not allowable as a 'claim provable' in bankruptcy [BIA s.2 'claims provable in bankruptcy', s.121 'Claims provable']:

Issue 1: The appeal judge did not err in finding that the profit-sharing claim is not an equity claim under the BIA

(a) Introduction

[41] The Trustee submits that the appeal judge erred in finding that Ms. Athanasoulis’ profit-sharing claim is not an equity claim. In making this argument, the Trustee submits that the appeal judge misinterpreted the definitions of “equity claim” and “equity interest” in s. 2 of the BIA, and specifically erred in applying an overly narrow interpretation of these terms; rather, she should have applied a contextual approach to find that Ms. Athanasoulis’ profit-sharing claim is “in substance” an equity claim. The Trustee argues that its proposed approach is consistent with the common law, which was not meant to be altered by the definition of “equity claim” introduced in the BIA in 2009.

[42] I see no error in the appeal judge’s interpretation of the definitions of “equity claim” and “equity interest” in s. 2 of the BIA. Her interpretation is consistent with the wording and intent of the provision.

(b) Relevant provisions of the BIA

[43] Section 121(1) of the BIA deems that provable claims in the context of a bankruptcy consist of:

All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt…. [Emphasis added.]

[44] Section 121(2) of the BIA directs that the determination of whether a contingent or unliquidated claim is a provable claim is to be decided in accordance with s. 135. Section 135(1.1) of the BIA requires a trustee to determine whether a contingent claim or an unliquidated claim is a provable claim and, if it is a provable claim, to value it.

[45] An equity claim is not a debt or liability under the BIA, and is therefore not a provable claim: Central Capital Corp. (Re) (1996), 1996 CanLII 1521 (ON CA), 27 O.R. (3d) 494 (C.A.), at p. 532, per Weiler J.A. This principle developed at common law. One rationale for the difference in treatment of debts and equity investments is that “shareholders have unlimited upside potential when purchasing shares. Creditors have no corresponding upside potential”: Re Sino-Forest Corporation, 2012 ONCA 816, 114 O.R. (3d) 304, at para. 30.

[46] In 2009, both the BIA and the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”) were amended to add definitions of “equity claim” and “equity interest”.

[47] Section 2 of the BIA defines an equity claim as follows:

equity claim means a claim that is in respect of an equity interest, including a claim for, among others,

(a) a dividend or similar payment,

(b) a return of capital,

(c) a redemption or retraction obligation,

(d) a monetary loss resulting from the ownership, purchase or sale of an equity interest or from the rescission, or, in Quebec, the annulment, of a purchase or sale of an equity interest, or

(e) contribution or indemnity in respect of a claim referred to in any of paragraphs (a) to (d)

[48] Section 2 of the BIA defines an “equity interest” as “in the case of a corporation other than an income trust, a share in the corporation – or a warrant or option or another right to acquire a share in the corporation – other than one that is derived from a convertible debt” (emphasis added).

(c) Analysis

[49] There is no dispute that the proper interpretation of s. 2 of the BIA is a question of law. The standard of review is correctness. I see no error in the appeal judge’s analysis and conclusion that Ms. Athanasoulis’ profit-sharing claim is not an equity claim.

....

[53] I agree with the appeal judge that the definition of “equity claim” in the BIA is meant to be exhaustive. As she explained:

When a word or phrase is defined with reference to what it “means” that has been held to signal that this definition is intended to be exhaustive, in accordance with well-accepted principles of statutory interpretation.

The definition of “equity claim” in s. 2 goes on to provide, by way of example, a non-exhaustive list of types of equity claims, including a claim for a dividend, return of capital, redemption or retraction, monetary loss resulting from ownership, purchase or sale of an equity interest, or a claim for contribution or indemnity in respect of these types of claims. However, all of these examples are tied to the originally essential component of the definition that it be “a claim that is in effect of an equity interest”, meaning a share (or warrant or option to acquire a share). [Citations omitted.]

[54] This interpretation of “equity claim” is consistent with the principles of statutory interpretation. In Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34, [2012] 2 S.C.R. 231, at para. 42, the Supreme Court explained that where a definition uses the term “means”, the scope of a definition is ordinarily exhaustive: see also R. v. McColman, 2023 SCC 8, 167 O.R. (3d) 559, at para. 38. Even where “means” is followed by “includes”, the enumerated terms can be illustrative rather than expansive.

[55] In this case, s. 2 of the BIA defines an “equity claim” to “mean” a claim “in respect of an equity interest”. “Equity interest” is specifically defined, with respect to a corporation, as “share in the corporation – or a warrant or option or another right to acquire a share in the corporation”. This is an exhaustive list of ownership interests. The use of the word “in respect of” and “including” in the definition of “equity claim” does not expand or modify the meaning of “equity interest”; it simply lists the types of claims that might arise from an equity interest, which are a claim for (a) a dividend or similar payment, (b) a return of capital, (c) a redemption or retraction obligation, (d) a monetary loss resulting from the ownership, purchase or sale of an equity interest, or (e) contribution or indemnity relating to any of (a) to (d). A careful reading of the definitions of “equity claim” and “equity interest” signals that an equity claim is meant to arise from nothing other than an ownership interest in a corporation. This definition may give rise to a wide variety of claims, but the origin of the claim is meant to be limited to an ownership interest.[2]

[56] Contrary to the Trustee’s submissions, the amendments made to the BIA in 2009 leave no room to read in an intention to include what it describes as equity claims “in substance”. The wording of the definitions of “equity claim” and “equity interest” demonstrate an intention to broaden the scope of claims that can be characterized as equity claims but to nevertheless require that such claims originate from an ownership interest.

[57] Prior to 2009, the classification of investments was left to the discretion of the courts. In Canada Deposit Insurance Corp. v. Canadian Commercial Bank, 1992 CanLII 49 (SCC), [1992] 3 S.C.R. 558, at pp. 587-590, the Supreme Court stated that the court should characterize hybrid investments based on their “substance” by performing a contextual analysis akin to a contractual interpretation; the courts were to determine the nature of the claim based on the intention of the parties and the surrounding circumstances. In Re Central Capital Corp., at pp. 524-530, per Weiler J.A., and pp. 536-540, per Laskin J.A., this court expanded on the contextual approach, and considered such things as share purchase agreements, conditions attached to the shares, articles of incorporation, and the treatment of shares in financial statements for the purpose of determining whether the claim at issue was an equity claim.

[58] The 2009 amendments were introduced to remove the uncertainty in this type of analysis: Office of the Superintendent of Bankruptcy, “Bill C-12: Clause-by-Clause Analysis—Clauses 1-10”, online: Office of the Superintendent of Bankruptcy . The 2009 amendments sought to increase creditor protection by broadening and clarifying the types of shareholder claims that would, pursuant to ss. 60(1.7) and 140.1 of the BIA[3], be subordinated to the interests of creditors: see Sino-Forest, at para. 56 (discussing a similar provision, s. 6(8), in the CCAA). This explains why the statutory language in s. 2 of the BIA includes both breadth and specificity. In Sino-Forest, at paras. 39-41, this court noted that the definition of “equity claim” incorporates “two expansive terms”, namely “in respect of” and “including”, which serve to create a broad range of claims that can be characterized as equity claims. At the same time, the restrictive definition of “equity interest”, through the use of the word “means”, signals that the type of interest that can give rise to an equity claim is limited to an ownership interest. This broad meaning of “equity claim” and restrictive meaning of “equity interest” are consistent with the 2009 amendments; they offer wide protection to creditors from the types of claims that can be made by shareholders, while clarifying the type of interest that can give rise to an equity claim.

[59] Contrary to the Trustee’s submissions, this interpretation of “equity claim” and “equity interest” is consistent with this court’s decision in Sino-Forest. That case was decided under the CCAA, which includes the same definitions of “equity claim” and “equity interest” as the BIA. The issue in Sino-Forest was whether the definition of “equity claim” was broad enough to include cross-claims for contribution and indemnity made by auditors and underwriters arising from proposed class actions by shareholders. In that context, this court stated that it was necessary to focus on the substance of the claim rather than the identity of the claimant. However, in deciding that these were equity claims, the court focused on the expansive definition of “equity claim”, which includes claims for “contribution and indemnity” in relation to the types of claims specifically listed in the definition of “equity claim”. The court’s focus in that case was not on the definition of “equity interest”. As the appeal judge explained:

The Proposal Trustee relies on the Ontario Court of Appeal’s decision in Sino-Forest, at para. 44, which states that the term equity should be give an expansive meaning. In that case, the claim by the auditors for contribution and indemnity was derivative of a claim against them by corporate shareholders (equity holders). A claim for contribution and indemnity in respect of a claim for a monetary loss resulting from the ownership, purchase or sale of shares fall squarely within the examples of equity claims expressly provided for in the definition of equity claims under s. 2 of the BIA. In Sino-Forest, the Court’s expanded view was in its recognition that the auditors’ claim grounded in a cause of action for breach of contract did not change its essential character as a claim for contribution and indemnity in respect of shareholder (equity) claims. [Citation omitted.]

[60] The Trustee suggests that Ms. Athanasoulis’ claim is akin to the claims of the auditors and underwriters in Sino-Forest because her entitlement to share in the profits of the YSL project is dependent on the ownership interests of the Cresford Group. I do not see the analogy. Ms. Athanasoulis’ claim is not derivative of a claim asserted by the Cresford Group. Rather, it is a claim asserted against her former employer. As the appeal judge stated:

The fact that the parties chose to tie the quantification of the amounts payable under the Profit Sharing Agreement to YSL’s (and the Cresford Group’s) performance (profits, after deducting, or net of, amounts payable to the [limited partners]) does not transform a contractual obligation or debt to Ms. Athanasoulis into an equity claim within the meaning of the BIA, even if the practical effect of this would have been that payments under the Profit Sharing Agreement in the normal course would be made after payments to the [limited partners].

[61] The Trustee also relies on a number of decisions that it says support its position that equity claims “in substance”, such as Ms. Athanasoulis’ profit-sharing claim, fall within the scope of equity claims under the BIA. However, the cases that post-date the 2009 introduction of the definitions of “equity claim” and “equity interest” in the BIA do not support this position. While it is true that these decisions consider the “substance” of the claim at issue, each of the cases on which the Trustee relies deals with an “equity interest” as that term is specifically defined in the BIA.

a) Re Nelson Financial Group Ltd., 2010 ONSC 6229, 75 B.L.R. (4th) 302: The claims of preferred shareholders in the capital stock of Nelson Financial were equity claims because they were in respect of equity interests, including declared but unpaid dividends and unperformed requests for redemption.

b) Re U.S. Steel Canada Inc., 2016 ONSC 569, 34 C.B.R. (6th) 226, aff’d 2016 ONCA 662, leave to appeal granted but appeal discontinued, [2016] S.C.C.A. No. 480: A capital contribution by a sole shareholder of a company, unaccompanied by a further issue of shares, constituted a payment in respect of a share of the company. The shareholder’s claim for repayment was therefore an equity claim.

c) Re Bul River Mineral Corp., 2014 BCSC 1732, 16 C.B.R. (6th) 173: Shareholder claimants had received a judgment with respect to their claim before the bankruptcy filing. The judgment did not transform the original equity claim into a debt.

d) Re All Canadian Investment Corporation, 2019 BCSC 1488: Redemption notices delivered by preferred shareholders did not transform the shareholders’ equity claim into a debt.

e) 0731431 B.C. Ltd. v. Panorama Parkview Homes Ltd., 2021 BCSC 607, aff’d 2023 BCCA 376: The plaintiffs’ material contributions to the acquisition of property resulted in a beneficial ownership interest, not an equity interest.

f) Avis d’intention de Cryogénique inc., 2021 QCCS 4100, aff’d 2022 QCCA 1387: An amalgamated company became the debtor for the balance of the share sale price for shares sold on the same day as the amalgamation occurred. The amalgamation did not change the nature of the claim, which was an equity claim for the sale of an equity interest.

g) Syndic de Société de vélo en libre service, 2023 QCCA 368, leave to appeal refused, [2023] S.C.C.A. No. 204: Loans from a sole shareholder were, in substance, contributions to capital. The shareholder’s claim for repayment was an equity claim.

[62] In this case, Ms. Athanasoulis’ profit-sharing claim is not based on an equity interest. She did not own shares in any of the Cresford Group companies, nor did she own any units in the limited partnership. Her claim is not based on an ownership interest, but rather, on a term of her employment, under which she was entitled to a share of the profits. This is not an equity interest as defined under the BIA, and accordingly the appeal judge made no error in finding that her profit-sharing claim is not an equity claim.

[63] Finally, the Trustee’s proposed interpretation is result-driven. The circumstances of this case are unusual. Given the terms of the profit-sharing agreement, if Ms. Athanasoulis had not been terminated, she would not have received payments under the profit-sharing agreement until after the limited partners’ investments were repaid. However, the apparent unfairness of Ms. Athanasoulis being paid ahead of the limited partners in the context of the bankruptcy proceedings cannot drive the determination of whether the profit-sharing claim is an equity claim. Bad facts should not make bad law. The court must base its decision on a correct interpretation of the BIA and not on what seems fair in the unique circumstances of this case. In any event, as noted by the appeal judge, the only issue at this stage of the proceedings is whether the profit-sharing claim is a provable claim; the quantification of the claim, which will depend on multiple factors, may nevertheless lead to a conclusion that the claim is worth far less than Ms. Athanasoulis submits, and possibly even $0.

[64] Accordingly, I find that the appeal judge did not err in finding that the profit-sharing claim is not an equity claim under the BIA.

. Piekut v. Canada (National Revenue)

In Piekut v. Canada (National Revenue) (SCC, 2025) the Supreme Court of Canada dismissed an insolvency appeal, here involving "when a bankrupt is released from their government student loan debts under the Bankruptcy and Insolvency Act".

Here the court considers when debts (here for student loans) must be proven in court (or not) before they can be advanced in a claim by a creditor in an insolvency:

D. Does a Student Loan Creditor Have the Burden To Prove Their Claim Before It Can Be Enforced Under Section 178(1)(g) of the BIA?

[113] Finally, the appellant asks this Court to hold that a creditor who relies on s. 178(1)(g) after a court has approved a consumer proposal has the burden to obtain a judicial determination regarding their claim before it can be enforced. The appellant did not raise this issue before the courts below.

....

[117] I would, however, reject the appellant’s submission on the merits. As the Quebec Court of Appeal held in N.P., s. 178(1)(g) operates in relation to student loan debts as a matter of law (para. 53, citing St-Pierre v. Québec (Ministère de l’Éducation), 2001 CanLII 39853 (QC CS), [2002] R.J.Q. 205 (Sup. Ct.), and Fontaine v. Québec (Ministère de l’Éducation, du Loisir et du Sport), 2009 QCCS 1482). Section 178(1) is clear that “[a]n order of discharge does not release the bankrupt from” student loan debts or liabilities until the bankrupt has ceased to be a full- or part-time student for seven years from the date of bankruptcy. Student loan claims are easily established without the need for a separate judicial determination. Beyond filing a proof of claim, a student loan creditor need not take other steps to protect their claim.

[118] The appellant’s reliance on this Court’s decision in Montréal (City) v. Deloitte Restructuring Inc., 2021 SCC 53, [2021] 3 S.C.R. 736, is misplaced. That case involved a creditor’s burden to prove debts relating to property or services obtained by false pretences or fraudulent misrepresentation under s. 19(2)(d) of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, which was analogous in every respect to s. 178(1)(e) of the BIA (paras. 24 and 25; see also Poonian, at para. 67). Contested allegations of fraud are often complex and inherently factual and thus require a separate judicial determination. Student loan debts, by contrast, arise under legislation, are easily established, and do not raise the same problems of proof.

[119] This conclusion is confirmed by public guidance issued by the Office of the Superintendent of Bankruptcy, which states that separate court orders are not required with regard to student loan debts under s. 178(1)(g), even though they may be needed for other debts under s. 178:

... if it had been less than seven years since the bankrupt ceased to be a full- or part-time student at the time the bankruptcy was filed, then the student loan debt falls within paragraph 178(1)(g) of the BIA and is, therefore, an undischargeable debt that will not be released by an order of discharge. No further court order is needed with regard to these debts. Similarly, orders obtained prior to bankruptcy that conclusively bring a debt within section 178 do not require a further court order after the trustee’s discharge.

For all other debts that are alleged to fall under section 178 of the BIA, a court ruling is the only conclusive way to confirm that this is the case and the onus is on the creditor to prove that its claim falls within subsection 178(1) of the BIA. [Emphasis added.]

(Recovering a Section 178 Debt, July 23, 2010 (online))

[120] In addition, here, the appellant acknowledged her student loan debts and led evidence on the amounts owing in her consumer proposal and application for release.

[121] I would therefore reject the appellant’s argument that a student loan creditor must obtain a judicial determination regarding their claim before it can be enforced under s. 178(1)(g) of the BIA.

. 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.

. Bilodeau v. Her Majesty The Queen in the Right of Ontario

In Bilodeau v. Her Majesty The Queen in the Right of Ontario (Div Ct, 2022) the Divisional Court considered the nature of a 'claim provable in bankruptcy' under the BIA (and the CCAA), in the context of an environmental duty:

[71] In Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67, [2012] 3 S.C.R. 443 the Supreme Court of Canada established a three part test for determining whether a regulatory order is a “provable claim”. Specifically,

(a) First, there must be a debt, a liability or an obligation to a creditor.

(b) Second, the debt or obligation must have been incurred before the debtor becomes bankrupt.

(c) Third, it must be possible to attach a monetary value to the debt, liability or obligation.

[72] In 2019 the Supreme Court expanded upon the above test in Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150 (also known as the Redwater case).

....

[74] In Redwater the Supreme Court expanded upon the third part of the AbitibiBowater test by recognizing that there are situations where an environmental duty “will ripen into a financial liability owed to a regulator”. In those situations, if the regulator is found to be a creditor, its claim against the bankrupt may be a “provable claim” even if the order itself does not include a monetary amount. As put by the Supreme Court at para. 140:

What a court must determine is whether there are sufficient facts indicating the existence of an environmental duty that will ripen into a financial liability owed to a regulator. In determining whether a non-monetary regulatory obligation of a bankrupt is too remote or too speculative to be included in the bankruptcy proceeding, the court must apply the general rules that apply to future or contingent claims. It must be sufficiently certain that the contingency will come to pass – in other words, that the regulator will enforce the obligation by performing the environmental work and seeking reimbursement.