Ontario Civil

Bankruptcy and Insolvency

Monetary loss suffered by shareholder did not diminish assets available to creditors

Shareholders commenced class action against corporation, auditors and others. Shareholders alleged: corporation misrepresented assets and financial situation; and auditors and underwriters failed to detect misrepresentations. Shareholders sought damages of $9.2 billion. Corporation obtained protection under Companies’ Creditors Arrangement Act (Can.). As yet uncertified class actions were stayed. Supervising judge granted claims procedure order in May 2012. Auditors and underwriters filed individual proofs of claims against corporation for contribution and indemnity for any amounts order to pay under class actions. Corporation applied for order auditors’ and underwriters’ claims were equity claims under Act. Supervising judge’s July 2012 decision granted order. Auditors and underwriters appealed. Appeal denied. Claims for contribution and indemnity are equity claims under s. 2(1)(e) of Act. Parliament’s intention that monetary loss suffered by shareholder did not diminish assets available to general creditors. “Equity claim” was not confined by definition or definition of “claim” to claims advanced by holder of equity interest. Parliament could have but did not limit claims for contribution or indemnity to those made by shareholders. Logic of s. 2(1)(a) to (e) supported notion that s. 2(1)(e) referred to claims for contribution or indemnity by others than shareholders. Definition of equity claim in Act sufficiently clear to alter pre-existing common law. If shareholder sued auditors and underwriters for loss, and defendants claimed contribution or indemnity against debtor, assets available to general creditors would be diminished.

Sino-Forest Corp., Re (Nov. 23, 2012, Ont. C.A., S.T. Goudge J.A., Alexandra Hoy J.A., and S.E. Pepall J.A., File No. CA C56115, C56118, C56125) Decision at 218 A.C.W.S. (3d) 489 was affirmed.  225 A.C.W.S. (3d) 601.

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