The Bankruptcy and Insolvency Act (BIA; ) is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial proposals, and receiverships in Canada.
It also governs the Office of the Superintendent of Bankruptcy, a federal agency responsible for ensuring that bankruptcies are administered in a fair and orderly manner.
Purpose and scope
The nature of the Act within Canada's legal framework governing insolvency was described by the Supreme Court of Canada in Century Services Inc. v. Canada (Attorney General):
With certain exceptions, the Act covers a wide range of entities:
it covers anyone who has resided or carried on business in Canada it "includes a partnership, an unincorporated association, a corporation, a cooperative society or a cooperative organization, the successors of a partnership, of an association, of a corporation, of a society or of an organization and the heirs, executors, liquidators of the succession, administrators or other legal representatives of a person;" but partners in a partnership may be placed into bankruptcy with that partnership, but that can only occur where the partnership is located in one of the common-law jurisdictions; the Civil Code of Quebec defines partnership property as being a patrimony independent from its partners it does not apply to banks, insurance companies, trust companies or loan companies. The Farm Debt Mediation Act provides that farmers cannot be forced into bankruptcy, but they can make a voluntary assignment. The Companies' Creditors Arrangement Act provides that a court may order a stay of proceedings with respect to specified large debtors, whether or not they have already been initiated.
The Act governs bankruptcy proceedings, which are invoked:
either voluntarily by a person who is insolvent, by a debtor's creditors, where the debtor owes at least $1000 and has committed an act of bankruptcy, or where a proposal under the Act has failed.
The Act also governs receivership proceedings. Receivers may be appointed by a secured creditor under the terms of a general security agreement (where the debtor voluntarily agrees), or by the court where a secured creditor:
is enforcing his security, or is acting under a court order made under any other federal or provincial statute that authorizes the appointment of a receiver or receiver-manager.
Provision is also made for dealing with cross-border insolvencies and the recognition of foreign proceedings.
Relationship with provincial law Several notable cases known as the "bankruptcy quartet", , , and stand for the following propositions about how the Act interacts with provincial legislation:, expanded in
provinces cannot create priorities between creditors or change the scheme of distribution on bankruptcy under s. 136(1) of the Act; while provincial legislation may validly affect priorities in a non-bankruptcy situation, once bankruptcy has occurred section 136(1) of the Act determines the status and priority of the claims specifically dealt with in that section; if the provinces could create their own priorities or affect priorities under the Bankruptcy Act this would invite a different scheme of distribution on bankruptcy from province to province, an unacceptable situation; and the definition of terms such as "secured creditor", if defined under the Bankruptcy Act, must be interpreted in bankruptcy cases as defined by the federal Parliament, not the provincial legislatures. Provinces cannot affect how such terms are defined for purposes of the Act. in determining the relationship between provincial legislation and the Bankruptcy Act, the form of the provincial interest created must not be allowed to triumph over its substance. The provinces are not entitled to do indirectly what they are prohibited from doing directly. there need not be any provincial intention to intrude into the exclusive federal sphere of bankruptcy and to conflict with the order of priorities of the Bankruptcy Act in order to render the provincial law inapplicable. It is sufficient that the effect of provincial legislation is to do so.
However, there are instances where provincial law will continue to apply:
where the insolvent person is one that plainly falls within provincial jurisdiction (such as a municipal institution), a province has authority to compel reorganizations of bodies and debt obligations, upholding where a stay under federal law has been lifted in order to allow proceedings to take place, a province can still impose a moratorium on proceedings that fall under provincial law, upholding
Issues concerning the extent of federal paramountcy continue to come before the Supreme Court of Canada. In the 2015 "paramountcy trilogy," the boundaries were further explored:
An Alberta Act was held neither to disqualify a person from driving a motor vehicle or to suspend the registration of such vehicles, because of an unsatisfied personal injury debt that had been discharged in bankruptcy., upholding An Ontario Act governing the collection of tolls charged by 407 ETR was held not to apply to bar a discharged bankrupt from renewing his license plates upon payment of normal annual fees., upholding However, a Saskatchewan Act that required creditors to serve a notice of intention, engage in mandatory mediation, and prove that the debtor has no reasonable possibility of meeting its obligations or is not making a sincere and reasonable effort to meet its obligations before it can begin an action with respect to farm land was held not to be inconsistent with the BIA, as cooperative federalism dictates that provincial legislative power should not be constrained, absent an actual inconsistency., setting aside
History and development
Consolidation of pre-Confederation legislation
No specific legislation on bankruptcy and insolvency previously existed in New Brunswick and Nova Scotia.
Development of federal legislation
+Significant amendments to Canadian bankruptcy legislation Year Act In force Highlights 1869 An Act respecting Insolvency32 & 33 Vict., S.C. 1869, c.16 1 September 1869 applied only to traders (including unincorporated trading companies and copartnerships)32 & 33 Vict., S.C. 1869, c.16, section 1 allowed voluntary and involuntary bankruptcy 1875 An Act respecting Insolvency38 Vict., S.C. 1875, c.16 1 September 1875 applies only to traders, trading co-partnerships and incorporated trading companies, except for banks and insurance, telegraph and railway companies allowed voluntary and involuntary bankruptcy made official assignees federal cabinet appointees repealed An Act respecting Insolvency (1869) repealed all other Acts, or parts of Acts, in force in the provinces, that are inconsistent with its provisions38 Vict., S.C. 1875, c.16, section 149. 1880 An Act to Repeal the Acts Respecting Insolvency Now in Force in CanadaSC 43 Vic, c I 1 April 1880 subject vacated to the provinces; following this Act and for a period of almost forty years, there was no general Bankruptcy Act at the federal level repealed An Act respecting Insolvency (1875) 1919 The Bankruptcy Act of 19199 & 10 Geo. V, S.C. 1919, c.36 1 July 1920 subject reassumed by the Parliament of Canada covered all individuals, companies and other entities voluntary and involuntary bankruptcy allowed 1923 The Bankruptcy Act Amendment Act, 192313 & 14 Geo. V, S.C. 1923, c.31 trustee to be selected by the estate's creditors (they were previously appointed by the government) creation of the office of Official Receiver, who could appoint a custodian for the estate to administer until a trustee had been appointed 1932 The Bankruptcy Act Amendment Act, 193222 & 23 Geo. V, S.C. 1932, c.39 creation of the Office of the Superintendent of Bankruptcy provision for the licensing of trustees in bankruptcy 1949 The Bankruptcy Act of 1949S.C. 1949 (2ndSess.) c.7 1 July 1950 repealed all prior bankruptcy legislationSee section 173 and schedule of The Bankruptcy Act of 1949, S.C. 1949 (2ndSess.) c.7. introduction of summary administration and debtor proposal procedures clarification of priorities given to various types of debts abolition of the position of custodian increasing control of process by creditors and inspectors 1966 An Act to Amend the Bankruptcy Act14 & 15 Eliz. 2, S.C. 1966-67, c.32 increase of the Superintendent's investigatory powers extension of anti-fraud and creditor protection measures discouraging use of debtor proposals as stalling tactics enabling dissemination of information about bankruptcies, for creditors to be able to assess customers' creditworthiness added a new Part X to the Act concerning consumer arrangements 1992S.C. 1992, c. 27 30 November 1992 the Bankruptcy Act was renamed as the Bankruptcy and Insolvency Act provisions for consumer proposals, mandatory counselling for individual debtors, and commercial reorganizations protection for unpaid suppliers altering the priority given to Crown claims 1997 An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Income Tax ActS.C. 1997, c. 12 | Bill C-5, Assented to 25th April, 1997, 2nd session, 35th Parliament, 45-46 Elizabeth II, 1996-1997. 30 April 1998 provisions on the dischargeability of student loan debt special rules for international and securities firm insolvencies provisions regarding a priority status of claims for spousal and child support provisions for the liability of trustees on environmental damage and claims 2005 An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts (Wage Earner Protection Program Act)S.C. 2005, c. 47 | Bill C-55, Royal Assent November 25, 2005, 1st Session, 38th Parliament, 53-54 Elizabeth II, 2004-2005. 7 July 2008 establishment of the Wage Earner Protection Program protective provisions for unpaid suppliers, collective agreements and eligible financial contracts equity claims cannot be settled until all creditors' claims have been satisfied only licensed trustees may act as receivers2007An 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)S.C. 2007, c. 36 | Bill C-12, Royal Assent December 14, 2007, 2nd session, 39th Parliament, 56 Elizabeth II, 2007.18 September 2009
Bankruptcy process