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Insolvency - BIA - 'Claim Provable in Bankruptcy'. 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).
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[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.
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