Simon's Megalomaniacal Legal Resources

Statutory Interpretation - "Equity Interest/Claim"

. 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 appeal, here from an earlier appeal which reversed "the Trustee’s decision disallowing [the respondent employee's] profit-sharing claim"."

Here the court considers the statutory interpretation of 'equity interest' and 'equity claim' in this BIA context:

[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.]