“An appeal”, explained one of my law school professors as he stretched out his arms, “is like taking off in a plane. Unless you understand the rules of physics, you won’t get the plane off the ground, no matter what grade of jet fuel is in the tank.”
While I can’t remember which professor shared this analogy to my law school class, it always springs (or flies) to mind whenever I am dealing with appeals under the Bankruptcy and Insolvency Act (Canada) (“BIA”). Appeals in the insolvency arena, although procedurally governed by provincial rules of civil procedure, become a little more complicated when dealing with the appeal provisions contained in the BIA. That means that when appealing an order granted under the BIA, the first thing you need to figure out is whether you have an automatic right of appeal or if you need to seek leave to appeal.
Section 193 of the BIA sets out four categories in which there is an automatic right of appeal from an order or decision of a judge under the BIA: (a) the order involves future rights; (b) the order is likely to affect other cases of a similar nature in bankruptcy proceedings; (c) the property involved in the appeal exceeds $10,000 in value; or (d) the appeal concerns the grant or refusal of a discharge if the aggregate claims exceed $500. If your case does not fit into any of these four categories, you will first have to obtain leave to appeal from a judge of the Court of Appeal.
In assessing whether the order in question fits into one of these four categories, a common assumption - at least at first blush - is that the third category [s. 193(c)] applies as it deals with “property in excess of $10,000”. As commercial insolvencies commonly involve property with more than $10,000 in value, it is easy to see how one could gravitate toward this assumption.
But alas – an appeal launched on this premise could run into some problems if it is not carefully considered. The reason? Judicial interpretation of this subsection has restricted the instances in which this section is triggered. As an expansive read of this subsection could render its gatekeeping function virtually meaningless, courts have narrowly construed this provision. As a result, this subsection of the BIA is restricted to cases in which the issues in the appeal directly involve property in excess of $10,000 in value. As an example, in Business Development Bank of Canada v. Pine Tree Resorts, Blair J.A. of the Ontario Court of Appeal held that, although the value of the property at stake in the underlying receivership application exceeded $10,000, there was no appeal as of right in respect to the order of the application judge appointing the receiver. The court held that as the focus of the appeal was on the appointment of the receiver, this did not properly bring the appeal within s. 193(c).
Interestingly, the question of whether s. 193(c) applies or not in the context of an appeal was the subject of three recent appeals before the Ontario Court of Appeal. Although the appeals led to different results, they offer some interesting insights into how this subsection has been judicially interpreted.
The first case, Crate Marine Sales Limited (Re), centred on whether a court-appointed receiver was responsible to pay occupation rent. In the motion below, the receiver had taken possession of the debtor’s boat storage operations at a marina located on Lake Simcoe. The owner and landlord of the property sought a declaration that the receiver occupied the marina for a specified period and sought an order that the receiver pay occupation rent of over $300,000. Justice Penny concluded that the receiver did not occupy the premises and, therefore, dismissed the motion.
Not unexpectedly, the owner of the property appealed Justice Penny’s order. In response, the debtor’s senior secured creditor brought a chambers motion on the issue of whether the owner required leave to appeal the order under s. 193(e) of the BIA. The owner took the position that it had an automatic right of appeal, relying upon subsection 193(c) of the BIA on the basis that the value of the property involved in the appeal exceeded $10,000.
In considering this threshold question, Hourigan J. A. referred to the prior case law that established the parameters for the proper interpretation of subsection 193(c). In that regard, Hourigan J. A. set out two principles to be considered:
- Given the broad nature of the stay of proceedings imposed by s. 195 of the BIA, the right of appeal without leave under subsection 193(c) must be clearly applicable. In other words, the subsection must be narrowly construed; and
- The appeal must directly involve property exceeding $10,000 in value.
In applying these principles to the facts in Crate Marine, Hourigan J.A. concluded that, as the appeal concerned whether the receiver was liable for the occupation rent (which had been determined by the motions judge to be $319,000, less utility costs), the question of the Receiver’s liability in the appeal directly related to property with a value in excess of $10,000. Therefore, as the subject of the appeal met the parameters of s. 193(c), the motion was dismissed and Justice Hourigan ordered that no leave was required and that the appeal could proceed accordingly.
Only a few weeks later, Hourigan J.A. considered the issue yet again, this time in the context of an appeal heard by a panel of the Ontario Court of Appeal in Enroute Imports Inc. Here, the issue of leave was raised in response to an appeal of an order approving a proposal under the BIA. In the underlying motion, the motions judge approved the proposal based on the fact that a large majority of creditors had voted in favour of the proposal and it was supported by the proposal trustee. In approving the proposal, the motions judge rejected a request by the objecting creditors to adjourn the approval motion to allow them to conduct further cross-examination of the debtor.
Taking issue with this outcome, the objecting creditors appealed the approval order. In their appeal, the appellants took the position that as the value of the proposal exceeded $10,000, they had an automatic right of appeal under s. 193(c) of the BIA. In response, the proposal debtor pointed out that, although the appellants challenged the correctness of the approval order and the court’s rejection of their request for procedural relief, the value of the proposal was not at issue in the appeal. The Ontario Court of Appeal agreed with the debtor in concluding that, as the crux of the appeal did not squarely involve property, the appellants did not met the requirements of s. 193(c). Ultimately, the Court of Appeal held that the appellants did not satisfy the test for leave articulated in s. 193(e) (which will have to be the topic of another article) and dismissed the appeal.
This brings us to the third decision in our trio of s. 193(c) cases. This time, Brown J. A. expanded the analysis further in his decision in 2403177 Ontario Inc. v. Bending Lake iron Group Limited. This case arises from an appeal by the debtor of a sale approval and vesting order granted by a motions judge in a receivership proceeding. The sale arose as a result of a court approved sales process with respect to an undeveloped iron ore mine site. At the motion to approve the sale, the debtor opposed the motion and sought to postpone the sale of the property. The motion judge approved the sale agreement and granted an approval and vesting order.
The debtor filed a notice of appeal seeking to set aside the approval and vesting order. The receiver moved for a declaration that the debtor required leave to appeal rather than having an automatic right to appeal.
The debtor submitted that the vesting order fell within ss. 193 (a), (b) and (c) of the BIA and, therefore, it had an appeal as of right. After concluding that the approval order did not fall within ss. 193 (a) and (b) of the BIA, Brown J.A. turned his focus to s. 193(c). While the sale price significantly exceeded the $10,000.00 threshold, the receiver submitted that the approval order formed part of the procedural methods available to a receiver to dispose of a debtor’s assets and, therefore it did not fall within s. 193(c).
In considering this subsection, Brown J. A. commented that the fact that an appellant could seek leave to appeal under s. 193(e) where the appeal did not fall within the categories defined by ss. 193(a) to (d) signaled the need for appeal courts to control bankruptcy proceedings in order to promote the efficient and expeditious resolution of bankruptcy proceedings. The question is whether this objective was fostered by a broad and generous interpretation of the appeal rights under the BIA or one that is conducted within the context of the demands of “real time litigation”.
To that end, his view was that two contextual factors inform any application of s. 193(c):
- As bankruptcy legislation did not originally include s. 193(e), this prompted courts to give the categories of appeal a wide and liberal interpretation in order to avoid closing the door on meritorious appeals. The later inclusion of s. 193(e) in the BIA removes the need for such a broad, interpretive approach;
- Canada’s other major insolvency statute, the Companies’ Creditors Arrangement Act (CCAA), contains an across the board requirement to obtain leave to appeal from any order made under the CCAA. The fact that the BIA includes automatic right of appeal provisions in ss. 193(a) to (d) created disharmony between the two insolvency regimes. As there was no principled basis to distinguish between the treatment of the sale by a receiver or a trustee under the BIA from a sale by a debtor in CCAA proceedings, Brown J. A. endorsed the need for legislative harmonization of appeal rights in insolvencies.
From these contextual factors, he concluded that an expansive application of s. 193(c) was inconsistent with the needs of modern, “real time” insolvency litigation. With this in mind, he applied three principles arising from the jurisprudence to his interpretation of the application of s. 193(c): s. 193(c) does not apply to: (i) orders that are procedural in nature; (ii) orders that do not bring into play the value of the debtor’s property; or (iii) orders that do not result in a loss.
In examining the nature of the sale approval order, he concluded that as the grounds of appeal were procedural in nature, as the appeal did not bring into play the value of the debtor’s property and as the order did not determine the entitlement of any party to the sale proceeds (so there was no gain or loss by virtue of the order), he concluded that the approval and vesting order did not fall within s. 193(c) of the BIA. On this basis, he granted the receiver’s motion and ordered that the debtor required leave to appeal the approval and vesting order.
In the end, this trio of cases nicely illustrate the importance of giving careful consideration at the outset to the true nature of your appeal. In two of the cases, the appellants wrongly proceeded on the basis that they had an automatic right of appeal and, ultimately, the Court of Appeal found otherwise. Consideration of s. 193(c) and the surrounding case law as to whether it applies (and the other categories in s. 193) can be instrumental to determining what steps need to be taken to advance an appeal. To add to that, Justice Brown's emphasis in Bending Lake on real time insolvency litigation and the need for harmonization between the CCAA and the BIA may mean that you need to expend a little more jet fuel in getting your appeal ready for take-off.