An Ontario Court recently confirmed that an execution creditor does not have priority over the unsecured creditors of a debtor upon the insolvency of the debtor even if the judgment creditor is then holding funds of the debtor which it has garnisheed.
In February 2008, the Superior Court of Justice – Ontario granted Cotton Ginny Inc., CG Operations Limited ("H/O"), CG Operations I Limited and CG Operations II Limited, protection under the Companies’ Creditors Arrangement Act.
In June 2008, the debtors sought approval of an amended plan of compromise or arrangement. Effigi Inc., as a judgment creditor, simultaneously sought an order declaring that no person had priority or was entitled to the approximately $2.1 million that Effigi had garnisheed from H/O, such order having the effect of granting Effigi preferred treatment over all other unsecured creditors of H/O. The granting of the order would require the Court to ignore one of the fundamental tenets of insolvency law - that all unsecured creditors rank equally.
The Court refused to grant Effigi its requested order, with the result that Effigi as judgment creditor ranked equally with the other unsecured creditors.