THE CREATION BY THE FEDERAL PARLIAMENT OF SECURITY MECHANISMS IN THE BANKRUPTCY AND INSOLVENCY ACT

Endnotes

  • [1] Subs. 14.06(7) B.I.A.

  • [2] Subs. 47.2(1) B.I.A.

  • [3] Subs. 81.2(1) B.I.A.

  • [4] Examples of French terminology that became outdated include: in the C.C.L.C., "antichrèse" (art. 1967), "nantissement" (art. 1966), "cession de créance en garantie" (art. 1571), "cession générale de créances comptables" (art. 1966), "nantissement forestier" (art. 1979(a)), "nantissement agricole" (art. 1979(a)), "nantissement commercial" (art. 1979(e)), and "privilège" (art. 1983ff.); in the legislative corpus, "cession de biens en stock" (Act respecting bills of lading, receipts and transfers of property in stock, R.S.Q., c. C‑53), "acte de fiducie", "charge flottante", "charge spécifique" (Special Corporate Powers Act, R.S.Q., c. P-16), and "transports en garantie de créances" (Forestry Credit Act, R.S.Q., c. C-78; Act to promote forest credit by private institutions, R.S.Q., C-78.1; Act respecting farm financing, R.S.Q., c. F-1.2). We note that the French expressions "charge spécifique" and "charge flottante" did not appear in the legislation itself but was currently used by the legal community. M. Deschamps, "Les sûretés sur les équipements et les stocks" (1987) 1 C.P. du N. 125 at 146-147.

  • [5] As an illustration, note the definition of "secured creditor" in subsection 2(1) of the B.I.A.:

    "secured creditor" means a person holding a mortgage, hypothec, pledge, charge, lien or privilege on or against the property of the debtor or any part thereof as security for a debt due or accruing due to him from the debtor, or a person whose claim is based on, or secured by, a negotiable instrument held as collateral security and on which the debtor is only indirectly or secondarily liable.

  • [6] Parliament largely based itself on the English Bankruptcy Act of 1914 in drafting the Insolvency Act of 1919. The rewrite of the Canadian legislation in 1949 was, again, carried out under the inspiration of the British model. Traces of that inspiration survive to this day, despite the revisions of 1966, 1992 and 1997. An Act to Consolidate the Law Regulating to Bankruptcy (U.K.), 1914-1916, c. 59; Insolvency Act, S.C. 1919, c. 36; Bankruptcy Act, 1949, S.C. 1949, c. 7; An Act to amend the Bankruptcy Act, S.C. 1966-67, c. 32; An Act to amend the Bankruptcy Act and the Income Tax Act, S.C. 1992, c. 27;An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, S.C. 1997, c. 12. See A. Bohémier, Faillite et insolvabilité, t. 1 (Montreal: Thémis, 1992) at 9-18 [hereinafter Faillite et insolvabilité]; B. Boucher and J.-Y. Fortin, Faillite et insolvabilité — une perspective québécoise de la jurisprudence canadienne (Scarborough: Carswell, 1997) at 2-1, 2-2 [hereinafter Perspective québécoise].

  • [7] Recently, Professor Jacques Deslauriers decribed the "modus vivendi" that Quebec's legal community has developped with respect to the B.I.A.:J. Deslauriers, "Le projet de loi S-22 et l'harmonisation de la Loi sur la faillite avec le Code civil du Québec" (Conference of the Canadian Bar Association, Quebec, 24 October 2000) at 2.

  • [8] The point is often illustrated by a passage from Pigeon J.:

    We are confronted here by a major problem in the interpretation of federal legislation, and, at this juncture, it is proper to stop to consider the difficulty of the task facing our legislative draftsmen. They must not only formulate all legislative provisions in two languages, but also more often than not they must do so in terms of two different legal systems; the civil law of Quebec and the common law of the other provinces. In bankruptcy legislation, which everywhere impinges upon every area of public and private provincial law, the task is particularly difficult. It is therefore not surprising that major problems should be encountered. Moreover, it is a fact which cannot be ignored that the Bankruptcy Act of 1949, like the Bankruptcy Act of 1919, was not only derived almost entirely from English sources but was also poorly served by the authors of the French version.

    Deputy Minister of Revenue (Quebec) v. Rainville, [1980] 1 S.C.R. 35 at 41. Incidently, this statement was recently cited by the justices of the Quebec Court of Appeal in Château d'Amos. Château d'Amos Ltée (syndic de), [1999] R.J.Q. 2612 at 2633 (C.A.) [hereinafter Château d'Amos].

  • [9] This ambiguity persists despite Parliament's recognition of the complementary relationship between bankruptcy and insolvency matters and property matters. Already, over a century ago, during the debates in the House for the repeal of Canadian bankruptcy legislation, views were expressed that provincial private law would be able to resolve problems arising from the insolvency of debtors. Debates of the House of Commons of the Dominion of Canada, (February 19, 1880) at 76ff. And when, following that repeal and after abandoning its exclusive jurisdiction over bankruptcy and insolvency for nearly forty years, a bill was finally tabled, Minister Hugh Guthrie raised the two obstacles facing Parliament when it exercised its exclusive jurisdiction over bankruptcy add insolvency. They were the fact that Canada has numerous legislative jurisdictions unlike Great Britain where there is only one central legislative power for the entire Kingdom, and the existence of two legal systems—civil law in Quebec and common law in the other provinces. Debates of the House of Commons of Canada, (March 28, 1919) at 968. These complementary ties are consecrated in the very wording of the legislation. See subs. 72(1) B.I.A. The courts have also recognized this complementarity. Beetz J. expressed himself as follows on this topic:

    Insolvency lies at the core of those parts of the common law and of the civil law which relate to such matters as mortgage, pledge, pawning, suretyship and the securing of debts generally which are implicitly or explicitly predicated on the risk of insolvency and which produce their full effect when the risk has been converted into reality […].

    Robinson c. Countrywide Factors Ltd, [1978] 1 S.C.R. 753 at 804. Professors Jacques Auger, Albert Bohémier and Roderick A. Macdonald have similar views: "Clearly, the B.I.A. and the Civil Code are mutually interdependent, and it is accordingly important that they be in complete harmony." J. Auger, A. Bohémier and R. A. Macdonald, "The Treatment of Creditors in the Bankruptcy and Insolvency Act and Security Mechanisms in the Civil Law of Quebec", in Harmonization of Federal Legislation with Quebec Civil Law and Canadian Bijuralism (Ottawa: Justice Canada, 1997) 887 at 892 [hereinafter "The Treatment of Creditors"].

  • [10] Ss. 42(1)(c), 74(2), 95(1), 95(2), 136(1)(e) and 197(6)(a) B.I.A.

  • [11] This is the interim receiver appointed under sections 47 or 47.1 of the B.I.A. The interim receiver will then have to follow the prescribed form in Form 18, entitled "Notice of Application for Taxation of Accounts and Discharge of Interim Receiver". Subs. 47.2(1) B.I.A. See s. 79, Bankruptcy and Insolvency General Rules [hereinafter B.I.G.R.].

  • [12] The English version provides that the charge may be on "any or all of the assets of the debtor" [emphasis added].

  • [13] A function (art. 179 C.C.Q.), property taxes (art. 1205 C.C.Q.), obligations (art. 776 C.C.Q., 1834 C.C.Q.), among others.

  • [14] Art. 2660 C.C.Q.

  • [15] L. Payette, Les sûretés dans le Code civil du Québec (Cowansville, Que.: Yvon Blais, 1994) at 84; M. Bugnet, Oeuvres de Pothier annotées et mises en corrélation avec le Code civil et la législation actuelle, 2th ed., vol. 9 (Paris: Cosse et Marchal, 1861) at 423; G. Baudry-Lacantinerie, Précis de droit civil, vol. 3 (Paris: L. Larose et Forcel, 1884) at 682; P.B. Mignault, Le droit civil canadien, vol. 9 (Montreal: Wilson & Lafleur, 1916) at 83; C. Demers, Traité de droit civil du Québec, vol. 14 (Montreal: Wilson & Lafleur, 1950) at 195.

  • [16] D. Pratte, Priorités et hypothèques (Sherbrooke: Revue de droit, 1995) at 95.

  • [17] J. Deslauriers, Précis du droit des sûretés (Montreal: Wilson & Lafleur, 1990) at 251; P. Ciotola, Droit des sûretés (Montreal: Thémis, 1999) at 197ff.

  • [18] H. Reid, Dictionnaire de droit québécois et canadien (Montreal: Wilson & Lafleur, 1994) at 203 [hereinafter Dictionnaire de droit québécois]; P.-A. Crépeau, Dictionnaire de droit privé et lexiques bilingues, 2ded. (Cowansville, Que.: Yvon Blais, 1991) at 211 [hereinafter Dictionnaire de droit privé].

  • [19] Art. 2661 C.C.Q.

  • [20] D. Ferland and B. Emery, Précis de procédure civile du Québec, vol. 2 (Cowansville, Que.; Yvon Blais, 1994) at 240, 242 [hereinafter Précis de procédure civile]; Dictionnaire de droit québécois, supra note 18at 86; G. Cornu, Vocabulaire juridique, 4th ed., (Paris: Presses universitaires de France, 1987) at 129-130. M. Filion, Dictionnaire du Code civil du Québec (Saint-Nicolas, Que.: Éditions associations entreprises, 1998) at 79 [hereinafter Dictionnaire du C.C.Q.]; Dictionnaire de droit privé, supra note 18at 84; Town of Anjou v. C.A.C. Realty, [1978] 1 S.C.R. 819 at 826, 827 and 834 [hereinafter Town of Anjou]; Caisse populaire Ste-Famille de Sherbrooke v. Belzile, [1995] R.D.J. 137 at 141 (Que. Sup. Ct.) [hereinafter Belzile]; Caisse populaire de St-Marc-des-Carrières v. Frenette & Frères Ltée, [1985] R.D.J. 341 at 346 (Que. Sup. Ct.) [hereinafter Frenette].

  • [21] For conventional hypothecs, see Breton v. Jacques et Seabord Securities Limited, [1972] R.P. 35 at 36-37 (Que. Sup. Ct.) [hereinafter Breton]. For legal hypothecs, see Belzile, ibid.

  • [22] Town of Anjou, supra note 20 at 826.

  • [23] They are articles 671ff C.C.P., in particular, articles 676 (opposition to secure charges), 677 (opposition to the sale of property subject to a charge) and 704 (with respect to charges which have not been discharged). Incidentally, until recently, the cases did not agree on whether a hypothecary creditor could make an opposition to secure charges. Some claimed that, because it was a charge, a hypothec allowed the holder to make the opposition. Town of Anjou, ibid. (see the opposing views of Pigeon and Beetz JJ. on this); Frenette, supra note 20; Newman v. Archambault, [1972] R.P. 82 (Que. Sup. Ct.) [hereinafter Newman]; Others argued that the sale by judicial authority of an immovable discharged the hypothec but allowed the holder to obtain the proceeds depending on the rank he occupied. Commercial Litho Plate Graining (1970) Ltée v. Imprimerie Cyr Ltée, [1980] S.C. 1123 [hereinafter Litho]; Breton, supra note 21; Royal Bank of Canada v. Sheiner, [1972] S.C. 750; Union des Carrières et Pavages Limitée v. J.C. Bégin, [1956] R.P. 234 (Que. Sup. Ct.). Under the C.C.Q., the latter view seems to prevail. Belzile, supra note 20. The controversy was nevertheless marked by an epistolary confrontation between two legal experts. A. Lavallée, "À qui est ouverte l'opposition à fin de charge?" (1972) 32 R. du B. 24; P. Ferland, "L'opposition à fin de charge et l'hypothèque" (1972) 32 R. du B. 259.

  • [24] Beetz J. states that "the expressions "charges" and "real rights" are certainly broad enough to include hypothecs and privileges in another context. "City of Anjou, ibid. at 834. Bernard Gratton J., of the Quebec Superior Court, seems to adopt Beetz J.'s reasoning when he states that "[translation] it may well be the case that in ordinary usage a hypothec is a charge, but on reading the other relevant articles, 676, 677, 684 and 704 p.c., there is room for interpretation." Litho, ibid. at 1124.See also Cie Montréal Trust v. Roadrunner Jeans MFG Ltd, [1983] S.C. 245 at 249.

  • [25] Fréchette J. of the Superior Court of St-François stated in a recent judgment that "[translation] there can be no doubt that a hypothec is a charge." Belzile, supra note 20 at 141.

  • [26] Art. 2696ff C.C.Q.

  • [27] Pawning (art. 1968 and 1969 C.C.L.C.), commercial pledge (art. 1979 (e) and (k) C.C.L.C.), pledge of agricultural and forest property (art. 1979 (a) and (d) C.C.L.C.), assignment of claims as security (art. 1570 and 1578 C.C.L.C.) and general assignment of book debts (art. 1966 C.C.L.C.).

  • [28] "Droit réel couvrant un immeuble" [real right covering an immovable], A. Rey, Le nouveau Petit Robert (Paris: Dictionnaires Le Robert, 1993) at 347; "droit réel qui grève un immeuble" [real right charging an immovable], Dictionnaire de droit québécois, supra note 18 at 86; "certains droits réels grevant un immeuble" [certain real rights charging an immovable], Vocabulaire juridique, supra note 20 at 130; "droit réel qui grève un (bien) immeuble" [real right that charges an immovable (property)], Dictionnaire du C.C.Q., supra note 20 at 79; "limitation du droit de propriété d'un immeuble, corrélative à un droit réel" [limitation on the ownership right of an immovable, corresponding to a real right], Dictionnaire de droit privé, supra note 18 at 84.

  • [29] Art. 676, 677 C.C.P.

  • [30] Art. 704 C.C.P.

  • [31] Art. 2980 C.C.Q., 592.2, 592.3 C.C.P.

  • [32] They are (1) legal costs and expenses incurred in the common interest, (2) the claim of a vendor who has not been paid, (3) the claim of a retainer, (4) the claims of the State for amounts due under fiscal laws and (5) claims of municipalities for property taxes. Art. 2651 C.C.Q.

  • [33] In this regard, Professor Louis Payette noted that:

    [Translation] [t]he Code does not define a prior claim as a real right as it does in the case of a hypothec. It grants it only some of the attributes of a hypothec; it does not cause any right to follow to flow from it […]. In this context, it must be concluded that a prior claim is a right of preference sui generis that doubtless cannot be characterized as a real right.

    L. Payette, "Des priorités et des hypothèques", in Barreau du Québec and the Chambre des notaires du Québec, La réforme du Code civil, vol. 3 (Quebec: Les Presses de l'Université Laval, 1993) at 66.

  • [34] Château d'Amos Ltée, supra note 8 at 2635.

  • [35] An Act to amend various legislative provisions regarding municipal affairs, S.Q. 1999, c. 90, s. 42, 43. The C.C.Q. now provides that "prior claims of municipalities and school boards for property taxes constitute a real right." Art. 2654.1 C.C.Q.

  • [36] D. A. Dukelow and B. Nuse, The Dictionary of Canadian Law, 2nd ed. (Toronto: Carswell, 1995) at 176; J.R. Nolan, Black's Law Dictionary, 6th ed. (St-Paul, Minn.: West Publishing Co., 1990) at 233.

  • [37] Supra note 4.

  • [38] The expressions "floating charges" and "specific charges" did not appear in the S.C.P.A. but were of common use within the legal community.

  • [39] An Act Respecting the Implementation of the Reform of the Civil Code, L.Q. 1992, c. 57, s. 642ff. The Quebec legislature introduced floating hypothecs in 1994 to allow corporations to enjoy a flexible security over existing and future assets, without delivery. Art. 2715 C.C.Q.

  • [40] Professors Jacques Auger, Albert Bohémier and Roderick A. Macdonald offer a particularly interesting analysis from the perspective of harmonizing the B.I.A. with Quebec civil law. "The Treatment of Creditors", supra note 9 at 951.

  • [41] Art.1263 C.C.Q. The reference is to an "autonomous patrimony by appropriation" and not a "charge".

  • [42] Art. 1592 C.C.Q.

  • [43] Art. 1741 C.C.Q.

  • [44] Art. 2333 C.C.Q.

  • [45] Art. 1177 C.C.Q.

  • [46] Précis de procédure civile, supra note 20 at 239; Caisse populaire Les Hauteurs v. Club récréatif Lac Morency Inc., (january 27, 1993), Saint-Jérôme 700-05-000539-910, J.E. 93-543 (Que. Sup. Ct.). See art. 1120 C.C.Q.

  • [47] Précis de procédure civile, ibid. 239. See art. 1172ff C.C.Q.

  • [48] Caisse populaire Ste-Madeleine v. Les Immeubles Rives du St-Maurice Inc., [1990] RDI 818 (Que. Sup. Ct.).

  • [49] Supra note 20 at 826. This is also what emerges from the words of Fréchette J. of the Superior Court of St-François in a recent judgment where he states that "[translation] where an immovable is charged with a hypothec, the equity in it is affected or decreased, and, in this sense, there can be no doubt that a hypothec is a charge" (emphasis added). Belzile, supra note 20 at 141. See on this, art. 671ff C.C.P. See also Newman, supra note 23.

  • [50] An Act to harmonize public statutes with the Civil Code, S.Q. 1999, c. 40, subs. 39(5) amending the Cultural Property Act, R.S.Q., c. B-4, subs. 20(3).

  • [51] Art. 2725(2) C.C.Q.

  • [52] Art. 2726 C.C.Q.

  • [53] The Code provides that "[a] legal hypothec in favour of persons having taken part in the construction or renovation of an immovable subsists, even if it has not been published, for thirty days after the work has been completed." Art. 2727(1) C.C.Q.

  • [54] Art. 2727(2) C.C.Q.

  • [55] This condition for validity applies to claims of Her Majesty in right of Canada or a province and to "any body under an Act respecting workers' compensation". Subs. 86(1) B.I.A.

  • [56] Subsection 87(1) of the B.I.A. refers to prescribed systems of registration. Section 111 of the B.I.G.R. provides that:

    For the purposes of subsection 87(1) of the Act, a "prescribed system of registration" referred to in that section is a system of registration of securities that is available to Her Majesty in right of Canada or a province and to any other creditor holding a security, and is open to the public for inspection or for the making of searches.

  • [57] The dates are: the date a petition is filed against the debtor, the date the debtor makes an assignment, the date the debtor files a notice of intention and the date on which a proposal is filed. Par. 87(1)(a), (b), (c) and (d) B.I.A.

  • [58] Prior to the review of 1992, the Crown ranked last among preferred creditors. Paragraph 136(1)(j) of the B.I.A. still bears the marks of that time. Section 137 of the B.I.G.R. however limits the application of this section to claims arising prior to November 30, 1992. Since then, the fundamental principle introduced by subsection 86(1) of the B.I.A. is that the Crown's claims must be considered as unsecured claims. The registration of security devices granted to the Crown by statute is not only a matter of validity but forms an exception to the general rule and allows the Crown to benefit from secured creditor status. Perspective québécoise, supra note 6 at 2‑674;D. St-Onge, "Les priorités de la Couronne : rendra-t-on moins à César?" in Développements récents en droit de la faillite (1992) (Cowansville, Que.: Yvon Blais, 1992) 15 at 24.

  • [59] The Environment Quality Act provides that the Minister [i.e. the Minister of Environment] may take all such measures as he may indicate to clean, collect or contain contaminants that are or that are likely to be emitted, deposited, discharged or ejected into the environment, where he considers such measures necessary to avert or diminish the risk of damage to public or private property, human beings, wildlife, vegetation or the general environment. R.S.Q., c. Q-2, s. 115.1.

  • [60] The Minister may claim the direct and indirect costs related to such measures, in the same manner as any debt owing to the Government, from any person or municipality who had custody of or control over the contaminants and from any person or municipality responsible for the emission, deposit, discharge or issuance of the contaminants, as the case may be, whether or not the latter has been prosecuted for infringement of this Act. Liability is joint and several where there are several debtors involved. Where the Minister has exercised his powers under the first paragraph of section 115.1, the judge may order the offender to pay back the direct and indirect costs related to the measures taken. Ibid. subs. 109.1.1.(2), 115.1.

  • [61] This is the situation that would prevail in common law. It would be by virtue of this interest in land that the Crown could undertake remedial work. J. Marin and A. Ilchenko, "Amendments to the Bankruptcy and Insolvency Act—Bill C-5 Environmental Liabilities of Trustees and Receivers" (1997) 14:2 Nat. Insol. Rev. 18 at 42 [hereinafter "Environmental Liabilities"].

  • [62] See the Land Titles Act, R.S.O. 1990, c. L-5; Registry Act, R.S.O. 1990, c. R-20.

  • [63] In Quebec, property belongs to persons or to the State. Art. 915 C.C.Q.

  • [64] The exceptional nature of this security has been described by Me André Prévost. A. Prévost, "Le régime particulier des paragraphes 14.06(2) à (8) de la Loi sur la faillite et l'insolvabilité applicable à l'environnement," in Service de la formation permanente, Barreau du Québec, Développements récents en droit de l'environnement (Cowansville, Que.: Yvon Blais, 1998) 1 at 22 [hereinafter "Le régime particulier"].

  • [65] Subss. 47.2(1) and 81.2(1) B.I.A. Obviously, the registration obligation imposed on the Crown does not apply here.

  • [66] The Supreme Court of Canada has had an opportunity—on five occasions—to rule on the distinctiveness of subsection 136(1) of the B.I.A. by comparison to provincial private law. It has identified the following principles:

    • The provinces may neither create priorities among the creditors nor modify the distribution scheme in bankruptcy matters provided for in subsection 136(1) of the B.I.A.;
    • Although a provincial statute may validly modify the order of priority in a context other than bankruptcy, as soon as there is a bankruptcy, it is subsection 136(1) of the B.I.A. that determines the status and the order of priority of the claims expressly referred to therein;
    • If the provinces could create their own order of priority or modify the one established by virtue of the B.I.A., the effect would be to encourage the establishment, in a bankruptcy context, of a scheme of distribution that differed from one province to the next, which is unacceptable;
    • In a bankruptcy context, when expressions such as "secured creditor" are defined in the B.I.A., they must be interpreted according to the definition assigned to them by Parliament and not that provided for by provincial legislatures. The provinces cannot modify the way these expressions are defined for the purposes of the B.I.A.;
    • To determine the relationship between a provincial statute and the B.I.A., the form of the provincially created right must not prevail over the substance. The provinces do not have a right to do indirectly what they are prohibited from doing directly; and
    • In order for the provincial statute to be inapplicable, it is not necessary for the province to have intended to encroach on exclusive federal jurisdiction over bankruptcy and to be in conflict with the B.I.A. It is enough that the provincial statute has that effect.

    Rainville, supra note 8; Deloitte Haskins and Sells Ltd. v. Workers' Compensation Board, [1985] 1 S.C.R. 785, Business Development Bank of Canada v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061, British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24 and Husky Oil Operations v. M.N.R., [1995] 3 S.C.R. 453.

  • [67] S. 122-124 B.I.A., Form 31 intitled "Proof of Claim".

  • [68] Provided that the remedies of secured creditors are not suspended by the effects of sections 69ff B.I.A. L.W. Houlden and G.B. Morawetz, The 2000 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 1999) at 498 [hereinafter The 2000 Annotated B.I.A.].

  • [69] Me André Prévost describes this kind of security as a "super-privilege". "Le régime particulier", supra note 64 at 21.

  • [70] Subsection 14.06(8) of the B.I.A. provides that:

    […] a claim against a debtor in a bankruptcy or proposal for the costs of remedying any environmental condition or environmental damage affecting real property of the debtor shall be a provable claim, whether the condition arose or the damage occurred before or after the date of the filing of the proposal or the date of the bankruptcy.

  • [71] This leads Me André Prévost to remark that some financial institutions could be expected to take additional security to forestall such a possibility. "Le régime particulier", supra note 64 at 23.

  • [72] Ibid.

  • [73] The C.C.L.C. recognized judicial hypothecs. Précis de Droit des sûretés, supra note 17 at 265 ff. See article 2034 C.C.L.C. The C.C.Q. now recognizes legal hypothecs for claims under a judgment. Art. 2724(4) C.C.Q. The comparison ends there, however, since these securities are not recognized by Parliament in a bankruptcy context. Subsection 70(1) of the B.I.A. provides that:

    [e]very receiving order and every assignment made in pursuance of this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, judgments operating as hypothecs, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or his agent, and except the rights of a secured creditor.

    From this it follows that a legal hypothec published in the register for the publication of rights in order to secure a claim under a judgement is without effect in a bankruptcy context since it would then constitute a process of execution likely to distort equal footing among creditors. Faillite et insolvabilité, supra note 6 at 43. See also Larue v. Royal Bank of Canada, [1926] S.C.R. 218 aff'd [1928] A.C. 187 (P.C.). The "judicial" security granted an interim receiver for his fees and expenses is thus an exception.

  • [74] The English version conveys a nuance lacking in the French version. The English version specifies that this security ranks "ahead of any or allsecured creditors" (emphasis added). The French version simply provides that this security has "préséance sur les réclamations de toutcréancier garanti" (emphasis added). By comparison, the claim of the trustee in bankruptcy for his fees is collocated after the claims of the secured creditors. See par. 136(1)(a) B.I.A. In the case of a proposal, it is the responsibility of the trustee in bankruptcy to come to an agreement with the author of the proposal and the creditors to ensure that his fees will be paid and his expenses reimbursed. Infra note 77 at 144.

  • [75] Ibid. This was a case where the debtor had made a general assignment of all accounts to the CIBC. The bank also held claims under a general security agreement.

  • [76] The creditors may file a notice of objection under section 80 of the B.I.G.R.

  • [77] A judgment of the Ontario Court of Justice a few years ago recognized that security and the top-ranking preference it conferred on the interim receiver, that is, it came even ahead of the secured claims. In that case, Chadwick J. had appointed an interim receiver but had decided to postpone the decision whether to grant the interim receiver top ranking security, as the Act provides. One of the secured creditors, the CIBC, however, claimed that the determination of the security should have taken place at the time of the hearing for the appointment of an interim receiver and that the court could not recognize a posteriori the existence of that security. Section 47.2 of the B.I.A. provides that:

    [w]here an appointment of an interim receiver is made under section 47 or 47.1, the court may make such an order respecting the payment of fees and disbursments of the interim receiver as it considers proper, including an order giving the interim receiver a charge […] (emphasis added).

    Chadwick J. dismissed the claim of the bank and stated that subsection 47.2(1) of the B.I.A. should not be interpreted too narrowly. The judge added that he had appointed the interim receiver, that the latter had carried out his obligations in accordance with the order, that for that reason he should be compensated for his services and should rank ahead of secured creditors. Re N.T.W. Management, [1994] 29 C.B.R. (3th) 139 at 142-143 (Ont. Bktcy).

  • [78] These creditors may avail themselves of that security only if all the following conditions are met:

    • the farmer delivered the product within the fifteen day period preceding the day on which the purchaser became bankrupt or a receiver was appointed to administer the property of the bankrupt, and
    • as of the day on which the purchaser became bankrupt or a receiver was appointed, the farmer had not been fully paid for the products, and
    • the farmer files a proof of claim in respect of the unpaid amount with the trustee or receiver within thirty days after the bankruptcy of the purchaser or the appointment of a receiver to administer the bankrupt's property, and
    • the claim must be in the prescribed form (Form 31) (this is the general claim form).
  • [79] Subs. 81.2(4) B.I.A. See The 2000 Annotated B.I.A., supra note 68 at 355.

  • [80] As section 81.2 of the B.I.A. is worded,this charge ranks above every other claim "notwithstanding any other federal or provincial Act or law".

  • [81] Income Tax Amendments Act, 1997, S.C. 1998, c. 19, subs. 227(4.1). For an in-depth analysis of the deemed trust, see L. L'Heureux, "La fiducie présumée de recouvrement de la Loi de l'impôt sur le revenu" (1999-2000) 21:3 Revue de planification fiscale et successorale 481.

  • [82] The 2000 Annotated B.I.A., supra note 68 at 249. See Royal Bank v. Sparrow Electric Corp., [1997] 1 S.C.R. 411.

  • [83] Subsection 81.2(1) in fine of the B.I.A. provides that:

    If the trustee or receiver, as the case may be, takes possession or in any way disposes of inventory covered by the charge, the trustee or receiver is liable for the claim of the farmer, fisherman or aquaculturist to the extent of the net amount realized on the disposition of that inventory, after deducting the cost of realization, and is subrogated in and to all rights of the farmer, fisherman or aquaculturist to the extent of the amounts paid to them by the trustee or receiver.

  • [84] Art. 1263 C.C.Q.

  • [85] Art. 1756 C.C.Q.

  • [86] Art. 1749 C.C.Q.

  • [87] "The Treatment of Creditors", supra note 9 at p. 931.

  • [88] Art. 2773ff C.C.Q.

  • [89] Art. 2778ff C.C.Q.

  • [90] Art. 2784ff C.C.Q.

  • [91] Art. 2791ff C.C.Q.

  • [92] If the security mechanism giving rise to the hypothecary remedy is collateral to a consumer contract, the period is 30 days. In cases involving immovable and movable property, the time does not start to run until the notice has been registered. Art. 2758(2) C.C.Q.

  • [93] The Parliament defines "secured creditor" by listing a certain number of forms of security that confer on their holders the title of "secured creditor". Among these mechanisms, Parliament expressly provides for the hypothec. Subs. 2(1) of the B.I.A.

  • [94] A secured creditor may, however, always decide to participate in the bankruptcy and file his proof of claim. Faillite et insolvabilité, supra note 6 at 73.

  • [95] The Crown, considered as a secured creditor pursuant to subsection 2(1) of the B.I.A., can realize on its special security outside the proposal under the rules set out in subsection 69.1(2) of the B.I.A. The Crown may also realize on its special security outside the bankruptcy, under the rules set out in subsection 69.3(2) of the B.I.A.

  • [96] The remedies presented in subsection 14.06(7) of the B.I.A. may be enforced when the debtor makes a proposal or becomes a bankrupt without regard to his failure to pay his bills. "Environmental Liabilities", supra note 61 at 42.

  • [97] Art. 2748(2) C.C.Q. Mortgage Act, L.R.O. 1990, c. M-40, Part II. See Ibid.

  • [98] The B.I.A. defines an insolvent person as one:

    • (a) who is for any reason unable to meet his obligations as they generally become due,
    • (b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or
    • (c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due.
  • [99] "Environmental Liabilities", supra note 61 at 42.

  • [100] The 2000 Annotated B.I.A., supra note 68 at 322.

  • [101] These obligations are set out in sections 246 and 247 of the B.I.A. The receiver must, in addition, administer the property "honestly and in good faith" and in a "commercially reasonable manner". He must also make reports describing the exercise of his duties with respect to the property.

  • [102] It states that a:

    • […]"receiver" means a person who has been appointed to take, or has taken, possession or control, pursuant to
    • (a) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
    • (b) an order of a court made under any law that provides for or authorizes the appointment of a receiver or receiver-manager, of all or substantially all of
    • (c) the inventory,
    • (d) the accounts receivable, or
    • (e) the other property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.
  • [103] Since the effect of the obligations imposed on secured creditors under Part XI of the B.I.A. is to limit their freedom to enforce their rights, a narrow interpretation of these provisions would be consistent with the rules of statutory interpretation. See P.-A. Côté, Interprétation des lois, 3th ed. (Montreal: Thémis, 1999) at 594.

  • [104] Farm Credit Corporation v. Corriveau, (1993) 20 C.B.R. (3th) 124 (Sask. Q.B.).

  • [105] It should be remembered that giving in payment, in the context of security on property, is a concept that was abandoned by the National Assembly with the reform of the Civil Code. However, no cases in Quebec have questioned the application of this definition of "receiver" in Quebec. Therefore, it is not possible to determine how a Quebec court would react if it had to deal with the application of subsection 243(2) of the B.I.A. Although it can always be argued that a broad and liberal interpretation of these provisions should be preferred by a Quebec court, we believe that the narrow interpretation taken in Farm Credit Corporation should be favoured.

  • [106] Article 2748 of the C.C.Q. provides that:

    In addition to their personal right of action and the provisional measures provided in the Code of Civil Procedure, creditors have only the hypothecary rights provided in this chapter for the enforcement and realization of their security.

    See A. Riendeau, "L'insolvabiliti et l'exicution des garanties" (Conference of the faculty of law of University McGill, Montreal, 29‑30 March 1996) at 27. It should be noted that the situation could be completely different for some creditors whose security is granted them under an Act of Parliament. For example, a creditor with a bank guarantee may take possession of the property of his debtor outside the cases provided for by subsection 427(3) of the Bank Act without court authorization. Atomic Slipper Co. v. National Bank of Canada, [1991] 1 S.C.R. 1059 at 1080 and 1081. See Bank Act, 1991 S.C. c. 46. See also Droit des sûretés, supra note 17 at 372ff.

  • [107] Art. 2280ff C.C.Q.

  • [108] Art. 1299ff C.C.Q.

  • [109] The authorization to take possession of the debtor's property in the event of his default had to be expressly provided for in the trust deed. L. Lévesque, L'acte de fiducie, coll. Minerve (Cowansville, Que.: Yvon Blais, 1991) at 28ff. The taking of possession did not transfer the ownership, which remained in the debtor's hands. Laliberté v. Larue, [1931] S.C.R. 7. An interesting detail: it was confirmed that a trustee under a trust deed could act directly without having to appoint a "receiver". Y. Caron, "De l'action réciproque du droit civil et de common law dans le droit des compagnies de la province de Québec" in J.S. Ziegel, Studies in Canadian Company Law (Toronto: Butterworths, 1967) at 141. See also Droit des sûretés, supra note 17 at 251ff.

  • [110] It could be added that the Quebec legislature governs the administration and liquidation of the property of an insolvent debtor by a hypothecary creditor under the rules pertaining to the administration of the property of others. However, as noted by Me Riendeau, Quebec's rules for the administration of the property of others are in a number of respects "[Translation] similar, indeed redundant" to those imposed on the "receiver" under Part XI of the B.I.A. Accordingly, the objective sought by Parliament in introducing Part XI of the B.I.A. would be achieved in any case. "L'insolvabiliti et l'exicution des garanties", supra note 106 at 31.

  • [111] For example, creditors with a bank guarantee. Bank Act, supra note 106, s. 427. One can consider, with respect to banks, the application of the provisions of the C.C.Q. regarding the administration of the property of others. Since banks hold a sui generis right of ownership over the property of their debtors, could it still be said that, after taking possession of this property, banks administer the property of others? On this topic, see M. Cantin Cumyn, L'administrateur du bien d'autrui (Cowansville, Que.: Yvon Blais, 2000) at 112.

  • [112] Unlike the rest of Part XI of the B.I.A. which deals with the receiver, subsection 244(1) of the B.I.A. refers in particular to secured creditors. It provides that:

    • [a] secured creditor who intends to enforce a security on all or substantially all of
    • (a) the inventory,
    • (b) the accounts receivable, or
    • (c) the other property of an insolvent person that was acquired for, or is used in relation to, a business carried on by the insolvent person shall send to that insolvent person, in the prescribed form and manner, a notice of that intention.

    Section 124 of the B.I.G.R. provides that:

    [t]he notice of intention to enforce a security that a secured creditor is required to send to an insolvent person pursuant to subsection 244(1) of the Act must be in prescribed form and must be sent in the manner provided for in the security agreement or, in the absence of any provision in the security agreement, must be served, or sent by registered mail or courier.

    Notice of intention to enforce a security must be in the form prescribed by Form 86 entitled "Notice of Intention to Enforce a Security".

  • [113] Subs. 244(2) of the B.I.A. It should be remembered that the ten days' notice is a minimum notice period. It is not added to the notices of exercise of hypothecary rights provided for in C.C.Q. (20 and 30 days for movables, 60 days for immovables). Filing such a notice would be sufficient under subsection 244(2) of the B.I.A. Société générale (Canada) v. 2967-6804 Québec Inc., [1994] R.J.Q. 1684 (Que. Sup. Ct.);"L'insolvabiliti et l'exicution des garanties," supra note 106 at 4ff.

  • [114] Art. 2767(1) C.C.Q.

  • [115] "L'insolvabiliti et l'exicution des garanties," supra note 106.

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