Ontario Civil

Bankruptcy and Insolvency

Judge did not have jurisdiction to apply doctrine of equitable subordination

Company was in Companies’ Creditors Arrangement Act (Can.) (“CCAA”) protection. Former employees of company claimed its American parent company ran company into insolvency to further its own interests. Former employees sought to have CCAA judge apply American legal doctrine of “equitable subordination” to subordinate parent company’s claims to former employee’s claims. CCAA judge held that he had no jurisdiction to apply doctrine of equitable subordination. Union appealed. Appeal dismissed. Nowhere in words of, nor did it fall within scheme of statute, which focused on implementation of plan of arrangement or compromise. Words “may make any order it considers appropriate in circumstances” in s. 11 of CCAA must be read as “may in furtherance of purposes of act make any order it considers appropriate in circumstances”. There was no support for concept that phrase “any order” in s. 11 provided at-large equitable jurisdiction to reorder priorities or to grant remedies as between creditors. Section 6(8) of CCAA effectively subordinates “equity claims”, as defined, to claims of all other creditors. “Equitable subordination” is form of equitable relief to subordinate claim of creditor who has engaged in inequitable conduct, such claim was not “equity claim” as defined. There was no “gap” in legislative scheme to be filled by equitable subordination through exercise of discretion, common law, court’s inherent jurisdiction or by equitable principles.

U.S. Steel Canada Inc., Re (Sep. 9, 2016, Ont. C.A., George R. Strathy C.J.O., P. Lauwers J.A., and M.L. Benotto J.A., CA C61331) 270 A.C.W.S. (3d) 471.

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