Bill C-12: Clause by Clause Analysis — Clauses 31-40

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005


Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA) Clauses of Bill C-12 Sections
Eligible Financial Contracts 31 s.66.34(7), (8) and (9)
RRSP Exemption and Bankrupt's Income Tax Return 32 s.67(1)(b) to (c)
Surplus Income 33 s.68
Stay of Proceedings 34 s.69(1)
Stay of Proceedings 35 s.69.1(1)
Stay of Proceedings 36 s.69.3(1)
Stays of Regulatory Bodies 37 s.69.6
Unpaid Wages in Bankruptcy 38 s.81.3
Unpaid Wages in Receiverships 38 s.81.4
Unpaid Amounts in Prescribed Pension Plans in Receiverships 39 s.81.6
Assignment of Agreements 40 s.84.1
Ipso Facto Clauses 40 s.84.2

Bill Clause No. 31
Section No. BIA s.66.34(7), (8) and (9)
Topic: Eligible Financial Contracts

Rationale

The amendment proposed by Clause 31 has already been implemented by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Assent on June 22, 2007.

Present Law

As enacted by Chapter 29 (An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007), Clause 94:

(7) Subsection (1) does not apply in respect of an eligible financial contract.

(8) Despite section 69.2, the following actions are permitted in respect of an eligible financial contract that is entered into before the filing of a consumer proposal and is terminated on or after that filing, but only in accordance with the provisions of that contract:

  • (a) the netting or setting off or compensation of obligations between the consumer debtor and the other parties to the eligible financial contract; and
  • (b) any dealing with financial collateral including
    • (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
    • (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the consumer debtor to another party to the eligible financial contract, that other party is deemed, for the purposes of subsection 69.2(1), to be a creditor of the consumer debtor with a claim provable in bankruptcy in respect of those net termination values.


Bill Clause No. 32
Section No. BIA s.67(1)(b) to (c)
Topic: RRSP Exemption and Bankrupt's Income Tax Return

Proposed Wording

67.(1) Property of bankrupt — The property of a bankrupt divisible among his creditors shall not comprise … ]

(b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides;

(b.1) goods and services tax credit payments that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b);

(b.2) prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b); or

(b.3) without restricting the generality of paragraph (b), property in a Registered Retirement Savings Plan or a Registered Retirement Income Fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy,

[but it shall comprise]

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion that

  • (i) is not subject to the operation of this Act, or
  • (ii) in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on Her Majesty under the Family Orders and Agreements Enforcement Assistance Act, is garnishable money that is payable to the bankrupt and is to be paid under the garnishee summons; and

Rationale

The French version of Chapter 47 was amended to correct three inadvertent divergences: paragraph (b) is amended by adding the concept of "or any prescribed plan"; paragraph (b.1) is amended to clarify that the goods and service tax credit payments do not include those that are not property referred to in paragraphs (a) and (b); and (b.2) is amended to change the conjunction "et" to "ou" (in the English version, the provision is "(a) or (b)", not "(a) and (b)").

Paragraph (b.3) is amended to correct that the subject plans include those prescribed by regulation. The amendment is necessary to make the paragraph consistent with paragraph (b.1). Chapter 47 inadvertently failed to include the concept.

Paragraph (c) is amended to clarify that, in circumstances where the bankrupt is subject to a garnishment under the Family Orders and Agreements Enforcement Assistance Act, the garnishment continues to be enforceable against the bankrupt's income tax refund, in spite of the change made in Chapter 47 that dictated that the income tax refund owing to the bankrupt in respect of the calendar year of the bankruptcy (or fiscal year, if appropriate) shall be treated as property divisible amongst the creditors.

Present Law

As enacted by Chapter 47, Clause 57:

67.(1)(b) any property, other than property in a Registered Retirement Savings Plan or a Registered Retirement Income Fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides,

(b.1) goods and services tax credit payments that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b),

(b.2) prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b),

(b.3) subject to any prescribed conditions and limitations, property in a Registered Retirement Savings Plan or a Registered Retirement Income Fund, as those expressions are defined in the Income Tax Act, other than property contributed to any such plan or fund in the 12 months, or in any longer period that the court may specify, before the date of bankruptcy,

[…]

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before his or her discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion of any such refund that is not subject to the operation of this Act, and


Bill Clause No. 33
Section No. BIA s.68
Topic: Surplus Income

68.(2) "total income"

(a) includes, despite paragraph s.67(1)(b) and (b.3), a bankrupt's revenues of whatever nature or from whatever source that are earned or received by the bankrupt between the date of the bankruptcy and the date of the bankrupt's discharge, including those received as damages for wrongful dismissal, received as a pay equity settlement or received under an Act of Parliament, or of the legislature of a province, that relates to workers' compensation; but

"surplus income" means the portion of a bankrupt individual's total income that exceeds that which is necessary to enable the bankrupt individual to maintain a reasonable standard of living, having regard to the applicable standards established under subsection (1).

[…]

(7) On a creditor's request made within 30 days after the day on which the trustee informed the creditor of the amount fixed under subsection (4) or (5.1), the trustee shall, within five days after the day on which the 30-day period ends, send to the official receiver a request, in the prescribed form, that the matter of the amount that the bankrupt is required to pay be determined by mediation and send a copy of the request to the bankrupt and the creditor.

[…]

(14) For the purposes of section 38, an application referred to in subsection (10) is deemed to be a proceeding for the benefit of the estate.

(15) For the purpose of this section, a requirement that a bankrupt pay an amount to the estate is enforceable against the bankrupt's total income.

(16) If an opposition to the automatic discharge of a bankrupt individual who is required to pay an amount to the estate is filed, the bankrupt's obligation under this section ceases on the day on which the bankrupt would have been automatically discharged had the opposition not been filed, but nothing in this subsection precludes the court from determining that the bankrupt is required to pay to the estate an amount that the court considers appropriate.

French version only:

(4) Il avise, de la manière prescrite, le séquestre officiel et les créanciers qui en font la demande de sa conclusion et, s'il conclut que le failli a un revenu excédentaire, il fixe, conformément aux normes applicables, la somme que celui-ci doit verser à l'actif de la faillite et prend les mesures indiquées pour qu'il s'exécute. [French version only]

Rationale

In subsection (2), the definition of "total income" is amended to clarify that "total income" includes revenue "earned" during the bankruptcy period, not just received. The clarification will ensure that strategic bankrupts are not able to defeat the system by delaying receipt of revenue until after their discharge. In addition, Chapter 47 inadvertently created a cross-reference to paragraph (b.1), whereas the intended cross-reference was to paragraph (b.3). A correction is made to fix the error.

The definition of "surplus income" is amended to clarify that it applies to "bankrupt individuals" rather than "individual bankrupts." The clarification is intended to address concerns that an argument could be made that "individual bankrupt" includes a bankrupt who is not an individual.

Subsection (4) of the French version is amended to clarify that the request for information is in regard to the determination made by the trustee. Reference to "de sa conclusion" is therefore added in the French version.

Subsection (7) of the English version is amended by introducing the concept of the "day on which" an event occurred. This clarifies the timing aspect that is important within this subsection.

Subsection (14) was inadvertently repealed by Chapter 47. It is re-enacted.

Subsection (15) is amended to clarify that surplus income payments may be enforced against income from exempt property. Chapter 47 could have been interpreted to mean that surplus income requirements could be enforced against the exempt property itself, which was not intended.

Present Law

As enacted by Chapter 47, Clause 58:

68.(2) "surplus income" means the portion of the total income of an individual bankrupt that exceeds that which is necessary to enable the bankrupt to maintain a reasonable standard of living, having regard to the applicable standards established under subsection (1).

"total income" for the purposes of the definition "surplus income"

(a) includes, despite paragraphs.67(1)(b) and (b.1), all of a bankrupt's revenues from whatever nature or source that are received by the bankrupt between the date of the bankruptcy and the date of the bankrupt's discharge, including any amounts received as damages for wrongful dismissal, as a pay equity settlement or under any Act of Parliament or Act of the legislature of a province that relates to workers' or workmen's compensation; but

[…]

(7) On a creditor's request made within 30 days after the trustee has informed the creditor of the amount fixed under subsection (4) or (5.1), the trustee shall, within five days after the 30-day period, send to the official receiver a request, in the prescribed form, that the matter of the amount that the bankrupt is required to pay be determined by mediation and send a copy of the request to the bankrupt and the creditor.

[…]

(14) For the purpose of this section, a requirement that a bankrupt pay an amount to the estate of the bankrupt is enforceable against all the bankrupt's property, including property referred to in paragraphs.67(1)(b) and (b.1).

(15) If an opposition to the automatic discharge of an individual bankrupt who is required to pay an amount to the estate of the bankrupt is filed, the bankrupt's obligation under this section ceases on the day on which the bankrupt would have been automatically discharged had the opposition not been filed, but nothing in this subsection precludes the court from determining that the bankrupt is required to pay an amount that the court considers appropriate to the estate of the bankrupt.

French version only:

(4) Lorsqu'il prend cette décision, le syndic :

(a) s'il conclut que le failli a un revenu excédentaire, fixe, conformément aux normes applicables, la somme que celui-ci doit verser à l'actif de la faillite, en avise de la manière prescrite le séquestre officiel et les créanciers qui en font la demande et prend les mesures indiquées pour que le failli s'exécute;

(b) dans le cas contraire, en avise de la manière prescrite le séquestre officiel et les créanciers qui en font la demande.


Bill Clause No. 34
Section No. BIA s.69(1)
Topic: Stay of Proceedings

Proposed Wording

69.(1) Subject to subsections (2) and (3) and sections.69.4, 69.5 and 69.6, on the filing of a notice of intention under section 50.4 by an insolvent person,

Rationale

The amendment corrects cross-referencing to reflect the addition of section 69.6.

Present Law

Bankruptcy and Insolvency Act:

69.(1) Subject to subsections (2) and (3) and sections.69.4 and 69.5, on the filing of a notice of intention under section 50.4 by an insolvent person,


Bill Clause No. 35
Section No. BIA s.69.1(1)
Topic: Stay of Proceedings

Proposed Wording

69.1(1) Subject to subsections (2) to (6) and sections.69.4, 69.5 and 69.6, on the filing of a proposal under section 62(1) in respect of an insolvent person,

Rationale

The amendment corrects cross-referencing to reflect the addition of section 69.6.

Present Law

Bankruptcy and Insolvency Act:

69.1(1) Subject to subsections (2) to (6) and sections.69.4 and 69.5, on the filing of a proposal under section 62(1) in respect of an insolvent person,


Bill Clause No. 36
Section No. BIA s.69.3(1)
Topic: Stay of Proceedings

Proposed Wording

69.3(1) Sous réserve des paragraphes (1.1) et (2) et des articles.69.4 et 69.5, à compter de la faillite du débiteur, ses créanciers n'ont aucun recours contre lui ou contre ses biens et ils ne peuvent intenter ou continuer aucune action, mesure d'exécution ou autre procédure en vue du recouvrement de réclamations prouvables en matière de faillite.

Rationale

The French version of the Act is amended to provide consistency in the language used in the BIA. The BIA uses the term "recours" rather than "voie de droit." The amendment is intended to clarify that there is no intended difference.

Present Law

As enacted by Chapter 47, Clause 62(3):

69.3(1) Sous réserve des paragraphes (1.1) et (2) et des articles.69.4 et 69.5, à compter de la faillite d'un débiteur, les créanciers ne peuvent exécuter aucune voie de droit contre le débiteur ou contre ses biens et ne peuvent intenter ou continuer aucune action, mesure d'exécution ou autre procédure en vue du recouvrement de réclamations prouvables en matière de faillite.


Bill Clause No. 37
Section No. BIA s.69.6
Topic: Stays of Regulatory Bodies

Proposed Wording

69.6(1) In this section, "regulatory body" means a person or body that has powers, duties or functions relating to the enforcement or administration of an Act of Parliament or of the legislature of a province and includes a person or body prescribed to be a regulatory body for the purpose of this Act.

(2) Subject to subsection (3), no stay provided by section 69 or 69.1 affects a regulatory body's investigation in respect of an insolvent person or an action, suit or proceeding that is taken in respect of the insolvent person by or before the regulatory body, other than the enforcement of a payment ordered by the regulatory body or the court.

(3) On application by the insolvent person and on notice to the regulatory body and to the persons who are likely to be affected by the order, the court may order that subsection (2) not apply in respect of one or more of the actions, suits or proceedings taken by or before the regulatory body if in the court's opinion

  • (a) a viable proposal could not be made in respect of the insolvent person if that subsection were to apply; and
  • (b) it is not contrary to the public interest that the regulatory body be affected by the stay provided by section 69 or 69.1.

(4) If there is a dispute as to whether a regulatory body is seeking to enforce its rights as a creditor, the court may, on application by the insolvent person and on notice to the regulatory body, make an order declaring both that the regulatory body is seeking to enforce its rights as a creditor and that the enforcement of those rights is stayed.

Rationale

The intention of the reform is to ensure that regulatory bodies, not acting as creditors but exercising powers for the benefit and well-being of all Canadians, should not be restricted by an insolvency situation from properly carrying out their duties. The amendment addresses concerns that the amendment, which was included in Chapter 47 in respect of proposals, is also needed in bankruptcy because the business may continue to operate while the trustee seeks a purchaser.

Subsection (1) defines "regulatory body." Effectively, any body charged with enforcing or administering an Act of Parliament or the legislation of a province would be such a body. In addition, there is the ability to prescribe by regulation other bodies that would obtain the benefits of the section.

Subsection (2) states that the automatic stay of proceedings that is initiated on the filing of a proposal or a notice of intention does not affect an investigation by, or a proceeding by or in front of, a regulatory body. To the extent, however, that the investigation or proceeding orders a payment (e.g. fine, restitution or monetary award), the enforcement of that payment is to be stayed pursuant to the automatic stay provisions of the BIA.

Subsection (3) provides a court with the authority to stay regulatory bodies despite this section if the court is satisfied that such a stay is necessary to complete a viable proposal and if it would not be contrary to the public interest to do so.

Subsection (4) clarifies that if there is a dispute as to whether a regulatory body is acting as a creditor, it is contingent upon the debtor to obtain a court order declaring such and staying the regulatory body. This will provide the debtor with the opportunity to challenge the actions of a regulator where the debtor believes the regulator is seeking to enforce its rights as a creditor while ensuring that a regulatory body is not prevented from carrying out its duties.

Present Law

None.


Bill Clause No. 38
Section No. BIA s.81.3
Topic: Unpaid Wages in Bankruptcy

Proposed Wording

81.3(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a bankrupt for services rendered during the period beginning on the day that is six months before the date of the initial bankruptcy event and ending on the date of the bankruptcy is secured, as of the date of the bankruptcy, to the extent of $2,000 — less any amount paid for those services by the trustee or by a receiver — by security on the bankrupt's current assets on the date of the bankruptcy.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for during the period referred to in that subsection, are deemed to have been earned in that period.

(3) The claim of a travelling salesperson who is owed money by a bankrupt for disbursements properly incurred in and about the bankrupt's business during the period referred to in subsection(1) is secured, as of the date of the bankruptcy, to the extent of $1,000 — less any amount paid for those disbursements by the trustee or by a receiver — by security on the bankrupt's current assets on that date.

(4) A security under this section ranks above every other claim, right, charge or security against the bankrupt's current assets — regardless of when that other claim, right, charge or security arose — except rights under sections.81.1 and 81.2 and amounts referred to in subsection 67(3) that have been deemed to be held in trust.

(5) If the trustee disposes of current assets covered by the security, the trustee is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker in respect of the amounts paid to that person by the trustee.

(6) No officer or director of a bankrupt is entitled to have a claim secured under this section.

(7) A person who, in respect of a transaction, was not dealing at arm's length with the bankrupt is not entitled to have a claim arising from that transaction secured by this section unless, in the opinion of the trustee, having regard to the circumstances — including the remuneration for, the terms and conditions of and the duration, nature and importance of the services rendered — it is reasonable to conclude that they would have entered into a substantially similar transaction if they had been dealing with each other at arm's length.

(8) A claim referred to in this section is proved by delivering to the trustee a proof of claim in the prescribed form.

(9) The following definitions apply in this section.

"compensation" includes vacation pay but does not include termination or severance pay.

"receiver" means a receiver within the meaning of subsection 243(2) or an interim receiver appointed under subsection 46(1), 47(1) or 47.1(1).

Rationale

Section 81.3 creates a super-priority charge for unpaid wages owed upon the bankruptcy of an employer.

Subsection (1) is amended to clarify that the relevant period begins on the initial bankruptcy event rather than the bankruptcy. The clarification is necessary to ensure that a strategic bankrupt does not commence an insolvency proceeding other than a bankruptcy (e.g. a proposal or CCAA initial application) with the intention of maintaining that proceeding only to prevent wage earners from enforcing their rights under this section.

In addition, the subsection clarifies that, if the trustee or a receiver pays the wage earner in respect of a pre-filing wage claim, the super-priority is to be reduced by the amount paid. For example, if the pre-filing wage claim is for $3,000 and a trustee or receiver pays the worker $2,000, the worker is not entitled to a further super-priority charge for the remaining claim. This amendment will provide trustees and receivers with an incentive to pay workers quickly rather than waiting until a distribution under the bankruptcy, which may be months or years later.

Subsection (3) is amended to reflect the amendments in subsection (1) regarding the payment of a claim by a trustee or receiver.

Subsection (6) is added to clarify that officers and directors of the bankrupt are not entitled to the super-priority charge under this section. The amendment is in keeping with the inability of officers and directors to avail themselves of the preferred ranking for wage claims under section 140.

Subsection (7) is added to clarify that non-arm's-length creditors are not entitled to the super-priority charge under this section unless the trustee is satisfied that the claim is reasonable in the circumstances. The amendment is in keeping with the inability of non-non-arm's-length creditors to avail themselves to the preferred ranking for wage claims under section 137.

Subsection (9) is added to provide definitions that will improve the clarity of the provision.

Present Law

As enacted by Chapter 47, Clause 67:

81.3(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a bankrupt for services rendered during the six months immediately before the date of bankruptcy is secured, as of that date, to the extent of $2,000, by security on all the current assets of the bankrupt on that date.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for within the six-month period referred to in that subsection, are deemed to have been earned in those six months.

(3) The claim of a travelling salesperson who is owed money by a bankrupt for disbursements properly incurred in and about the bankrupt's business during the six months immediately before the date of bankruptcy is secured, as of that date, to the extent of $1,000, by security on all the bankrupt's current assets on that date.

(4) A security under this section ranks above every other claim, right, charge or security against the bankrupt's current assets, regardless of when that other claim, right, charge or security arose, except rights under sections.81.1 and 81.2 and amounts referred to in subsection 67(3) that have been deemed to be held in trust.

(5) If the trustee disposes of current assets covered by the security, the trustee is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets, and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker of the amounts paid to that person by the trustee.

(6) For the purpose of this section and section 81.4, "compensation" includes vacation pay but does not include termination or severance pay.

(7) A claim referred to in this section is proved by delivering to the trustee a proof of claim in the prescribed form.


Bill Clause No. 38
Section No. BIA s.81.4
Topic: Unpaid Wages in Receiverships

Proposed Wording

81.4(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a person who is subject to a receivership for services rendered during the six months before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $2,000 — less any amount paid for those services by a receiver or trustee — by security on the person's current assets that are in the possession or under the control of the receiver.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for during the six-month period referred to in that subsection, are deemed to have been earned in those six months.

(3) The claim of a travelling salesperson who is owed money by a person who is subject to a receivership for disbursements properly incurred in and about the person's business during the six months before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $1,000 — less any amount paid for those disbursements by a receiver or trustee — by security on the person's current assets that are in the possession or under the control of the receiver.

(4) A security under this section ranks above every other claim, right, charge or security against the person's current assets — regardless of when that other claim, right, charge or security arose — except rights under sections.81.1 and 81.2.

(5) If the receiver takes possession or in any way disposes of current assets covered by the security, the receiver is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker in respect of the amounts paid to that person by the receiver.

(6) No officer or director of the person who is subject to a receivership is entitled to have a claim secured under this section.

(7) A person who, in respect of a transaction, was not dealing at arm's length with a person who is subject to a receivership is not entitled to have a claim arising from that transaction secured by this section unless, in the opinion of the receiver, having regard to the circumstances — including the remuneration for, the terms and conditions of and the duration, nature and importance of the services rendered — it is reasonable to conclude that they would have entered into a substantially similar transaction if they had been dealing with each other at arm's length.

(8) A claim referred to in this section is proved by delivering to the receiver a proof of claim in the prescribed form.

(9) The following definitions apply in this section.

"compensation" includes vacation pay but does not include termination or severance pay.

"person who is subject to a receivership" means a person any of whose property is in the possession or under the control of a receiver.

"receiver" means a receiver within the meaning of subsection 243(2) or an interim receiver appointed under subsection 46(1), 47(1) or 47.1(1).

Rationale

Section 81.4 creates a super-priority for unpaid wages owed when the employer becomes subject to a receivership.

Subsection (1) clarifies that, if a trustee or the receiver pays the wage earner in respect of a pre-filing wage claim, the super-priority is to be reduced by the amount paid. For example, if the pre-filing wage claim is for $3,000 and a trustee or receiver pays the worker $2,000, the worker is not entitled to a further super-priority charge for the remaining claim. This amendment will provide trustees and receivers with an incentive to pay workers quickly rather than waiting until a distribution under the bankruptcy, which may be months or years later.

Subsection (3) is amended to reflect the amendments in subsection (1) regarding the payment of a claim by a trustee or receiver.

Subsection (6) is added to clarify that officers and directors of the person who is subject to a receivership are not entitled to the super-priority charge under this section. The amendment is in keeping with the inability of officers and directors to avail themselves of the preferred ranking for wage claims in a bankruptcy under section 140.

Subsection (7) is added to clarify that non-non-arm's-length creditors are not entitled to the super-priority charge under this section unless the trustee is satisfied that the claim is reasonable in the circumstances. The amendment is in keeping with the inability of non-non-arm's-length creditors to avail themselves of the preferred ranking for wage claims under section 137.

Subsection (9) is amended to clarify that "receiver" includes an interim receiver. The amendment provides greater consistency within the Act.

Present Law

As enacted by Chapter 47, Clause 67:

81.4(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a person who is subject to a receivership for services rendered during the six months immediately before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $2,000, by security on all the person's current assets that are in the possession or under the control of the receiver.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for within the six-month period referred to in that subsection, are deemed to have been earned in those six months.

(3) The claim of a travelling salesperson who is owed money by a person who is subject to a receivership for disbursements properly incurred in and about the person's business during the six months immediately before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $1,000, by security on all the person's current assets that are in the possession or under the control of the receiver.

(4) A security under this section ranks above every other claim, right, charge or security against the person's current assets, regardless of when that other claim, right, charge or security arose, except rights under sections.81.1 and 81.2.

(5) If the receiver takes possession or in any way disposes of current assets covered by the security, the receiver is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets, and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker of the amounts paid to that person by the receiver.

(6) A claim referred to in this section is proved by delivering to the receiver a proof of claim in the prescribed form.

(7) The following definitions apply in this section.

"person who is subject to a receivership" means a person in respect of whom any property is under the possession or control of a receiver.

"receiver" means a receiver within the meaning of subsection 243(2).


Bill Clause No. 39
Section No. BIA s.81.6
Topic: Unpaid Amounts in Prescribed Pension Plans in Receiverships

"receiver" means a receiver within the meaning of subsection 243(2) or an interim receiver appointed under subsection 46(1), 47(1) or 47.1(1).

"person who is subject to a receivership" means a person any of whose property is in the possession or under the control of a receiver.

Rationale

Section 81.6 creates a super-priority charge in favour of a pension fund for unremitted pension contributions when the sponsoring employer becomes subject to a receivership.

Subsection 81.6(4) is amended to clarify that "receiver" includes an interim receiver. The amendment provides greater consistency within the Act.

Present Law

As enacted by Chapter 47, Clause 67:

"person who is subject to a receivership" means a person in respect of whom any property is under the possession or control of a receiver.

"receiver" means a receiver within the meaning of subsection 243(2).


Bill Clause No. 40
Section No. BIA s.84.1
Topic: Assignment of Agreements

Rationale

The change that was proposed in Clause 40 has already been made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29).

Present Law

As enacted by Chapter 47, Clause 68:

84.1(1) The court may, on application by an insolvent person or a trustee, make an order assigning the rights and obligations of the insolvent person under any agreement to any person, specified by the court, who has agreed to the assignment.

(2) The applicant must give notice of the assignment, in the prescribed manner, to every party to the agreement.

(3) Subsection (1) does not apply in respect of rights and obligations

  • (a) under an eligible financial contract within the meaning of section 65.1(8);
  • (b) under a lease referred to in subsection 65.2(1);
  • (c) under a collective agreement; and
  • (d) that are not assignable by reason of their nature.

(4) In deciding whether to make an assignment, the court must consider, among other things,

  • (a) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
  • (b) whether it would be appropriate to assign the rights and obligations to that person.

(5) The court may not make the assignment if the court is satisfied that the insolvent person is in default under the agreement.


Bill Clause No. 40
Section No. BIA s.84.2
Topic: Ipso Facto Clauses

Rationale

The change that was proposed in Clause 40 has already been made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29).

Present Law

As enacted by Chapter 47, Clause 68 and amended by Chapter 29:

84.2(1) No person may terminate or amend any agreement, including a security agreement, with an individual bankrupt, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with the bankrupt, by reason only of the bankruptcy.

(2) If the agreement referred to in subsection (1) is a lease, the lessor may not terminate or amend the lease by reason only of the bankruptcy or that the bankrupt has not paid rent in respect of any period before the date of bankruptcy.

(3) No public utility may discontinue service to an individual bankrupt by reason only of the bankruptcy or that the bankrupt has not paid for services rendered, or material provided, before the date of bankruptcy.

(4) Nothing in this section is to be construed as

  • (a) prohibiting a person from requiring payments to be made in cash for goods, services, use of leased property or other valuable consideration provided after the date of bankruptcy; or
  • (b) requiring the further advance of money or credit.

(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect.

(6) The court may, on application by a party to an agreement, declare that this section does not apply, or applies only to the extent declared by the court, if the applicant satisfies the court that the operation of this section would likely cause the applicant significant financial hardship.

(7) Subsection (1) does not apply

  • (a) in respect of an eligible financial contract; or
  • (b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for an insolvent person in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

8) Despite section 69.3, the following actions are permitted in respect of an eligible financial contract that is entered into before the time of the bankruptcy, and is terminated on or after that time, but only in accordance with the provisions of that contract:

  • (a) the netting or setting off or compensation of obligations between the individual bankrupt and the other parties to the eligible financial contract; and
  • (b) any dealing with financial collateral including
    • (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
    • (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the individual bankrupt to another party to the eligible financial contract, that other party is deemed, for the purposes of paragraphs.69(1)(a) and 69.1(1)(a), to be a creditor of the individual bankrupt with a claim provable in bankruptcy in respect of those net termination values.