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Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)

Act current to 2022-11-28 and last amended on 2022-09-01. Previous Versions

PART IVProperty of the Bankrupt (continued)

Preferences and Transfers at Undervalue (continued)

Marginal note:Protected transactions

  •  (1) No payment, contract, dealing or transaction to, by or with a bankrupt made between the date of the initial bankruptcy event and the date of the bankruptcy is valid, except the following, which are valid if made in good faith, subject to the provisions of this Act with respect to the effect of bankruptcy on an execution, attachment or other process against property, and subject to the provisions of this Act respecting preferences and transfers at undervalue:

    • (a) a payment by the bankrupt to any of the bankrupt’s creditors;

    • (b) a payment or delivery to the bankrupt;

    • (c) a transfer by the bankrupt for adequate valuable consideration; and

    • (d) a contract, dealing or transaction, including any giving of security, by or with the bankrupt for adequate valuable consideration.

  • Definition of adequate valuable consideration

    (2) The expression adequate valuable consideration in paragraph (1)(c) means a consideration of fair and reasonable money value with relation to that of the property assigned or transferred, and in paragraph (1)(d) means a consideration of fair and reasonable money value with relation to the known or reasonably to be anticipated benefits of the contract, dealing or transaction.

  • Marginal note:Law of set-off or compensation

    (3) The law of set-off or compensation applies to all claims made against the estate of the bankrupt and also to all actions instituted by the trustee for the recovery of debts due to the bankrupt in the same manner and to the same extent as if the bankrupt were plaintiff or defendant, as the case may be, except in so far as any claim for set-off or compensation is affected by the provisions of this Act respecting frauds or fraudulent preferences.

  • R.S., 1985, c. B-3, s. 97
  • 1992, c. 27, s. 41
  • 1997, c. 12, s. 80
  • 2004, c. 25, s. 58
  • 2005, c. 47, s. 74

Marginal note:Recovering proceeds if transferred

  •  (1) If a person has acquired property of a bankrupt under a transaction that is void or voidable and set aside or, in the Province of Quebec, null or annullable and set aside, and has sold, disposed of, realized or collected the property or any part of it, the money or other proceeds, whether further disposed of or not, shall be deemed the property of the trustee.

  • Marginal note:Trustee may recover

    (2) The trustee may recover the property or the value thereof or the money or proceeds therefrom from the person who acquired it from the bankrupt or from any other person to whom he may have resold, transferred or paid over the proceeds of the property as fully and effectually as the trustee could have recovered the property if it had not been so sold, disposed of, realized or collected.

  • Marginal note:Operation of section

    (3) Notwithstanding subsection (1), where any person to whom the property has been sold or disposed of has paid or given therefor in good faith adequate valuable consideration, he is not subject to the operation of this section but the trustee’s recourse shall be solely against the person entering into the transaction with the bankrupt for recovery of the consideration so paid or given or the value thereof.

  • Marginal note:Trustee subrogated

    (4) Where the consideration payable for or on any sale or resale of the property or any part thereof remains unsatisfied, the trustee is subrogated to the rights of the vendor to compel payment or satisfaction.

  • R.S., 1985, c. B-3, s. 98
  • 2004, c. 25, s. 59(E)

Marginal note:General assignments of book debts ineffective

  •  (1) If a person engaged in any trade or business makes an assignment of their existing or future book debts, or any class or part of those debts, and subsequently becomes bankrupt, the assignment of book debts is void as against, or, in the Province of Quebec, may not be set up against, the trustee with respect to any book debts that have not been paid at the date of the bankruptcy.

  • Marginal note:Foregoing provisions not to apply in some cases

    (2) Subsection (1) does not apply to an assignment of book debts that is registered under any statute of any province providing for the registration of assignments of book debts if the assignment is valid in accordance with the laws of the province.

  • Marginal note:Other cases

    (3) Nothing in subsection (1) renders void or, in the Province of Quebec, null any assignment of book debts due at the date of the assignment from specified debtors, or of debts growing due under specified contracts, or any assignment of book debts included in a transfer of a business made in good faith and for adequate valuable consideration.

  • Definition of assignment

    (4) For the purposes of this section, assignment includes assignment by way of security, hypothec and other charges on book debts.

  • 2005, c. 47, s. 75

Marginal note:Dealings with undischarged bankrupt

  •  (1) All transactions by a bankrupt with any person dealing with the bankrupt in good faith and for value in respect of property acquired by the bankrupt after the bankruptcy, if completed before any intervention by the trustee, are valid against the trustee, and any estate, or interest or right, in the property that by virtue of this Act is vested in the trustee shall determine and pass in any manner and to any extent that may be required for giving effect to any such transaction.

  • Marginal note:Receipt of money by banker

    (2) For the purposes of this section, the receipt of any money, security or negotiable instrument from or by the order or direction of a bankrupt by his banker and any payment and any delivery of any security or negotiable instrument made to or by the order or direction of a bankrupt by his banker shall be deemed to be a transaction by the bankrupt with his banker dealing with him for value.

  • R.S., 1985, c. B-3, s. 99
  • 2004, c. 25, s. 60

 [Repealed, 2005, c. 47, s. 76]

Marginal note:Inquiry into dividends, redemption of shares or compensation

  •  (1) When a corporation that is bankrupt has paid a dividend, other than a stock dividend, redeemed or purchased for cancellation any of the shares of the capital stock of the corporation or has paid termination pay, severance pay or incentive benefits or other benefits to a director, an officer or any person who manages or supervises the management of business and affairs of the corporation within the period beginning on the day that is one year before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, the court may, on the application of the trustee, inquire into the transaction to ascertain whether it occurred at a time when the corporation was insolvent or whether it rendered the corporation insolvent.

  • Marginal note:Judgment against directors

    (2) If a transaction referred to in subsection (1) has occurred, the court may give judgment to the trustee against the directors of the corporation, jointly and severally, or solidarily, in the amount of the dividend or redemption or purchase price, with interest on the amount, that has not been paid to the corporation if the court finds that

    • (a) the transaction occurred at a time when the corporation was insolvent or the transaction rendered the corporation insolvent; and

    • (b) the directors did not have reasonable grounds to believe that the transaction was occurring at a time when the corporation was not insolvent or the transaction would not render the corporation insolvent.

  • Marginal note:Judgment against directors — compensation

    (2.01) If a transaction referred to in subsection (1) has occurred, the court may give judgment to the trustee against the directors of the corporation, jointly and severally, or solidarily, in the amount of the termination pay, severance pay or incentive benefits or other benefits, with interest on the amount, that has not been paid to the corporation if the court finds that

    • (a) the payment

      • (i) occurred at a time when the corporation was insolvent or rendered the corporation insolvent,

      • (ii) was conspicuously over the fair market value of the consideration received by the corporation, and

      • (iii) was made outside the ordinary course of business; and

    • (b) the directors did not have reasonable grounds to believe that the payment

      • (i) occurred at a time when the corporation was not insolvent or would not render the corporation insolvent,

      • (ii) was not conspicuously over the fair market value of the consideration received by the corporation, and

      • (iii) was made in the ordinary course of business.

  • Marginal note:Criteria

    (2.1) In making a determination under paragraph (2)(b) or (2.01)(b), the court shall consider whether the directors acted as prudent and diligent persons would have acted in the same circumstances and whether the directors in good faith relied on

    • (a) financial or other statements of the corporation represented to them by officers of the corporation or the auditor of the corporation, as the case may be, or by written reports of the auditor to fairly reflect the financial condition of the corporation; or

    • (b) a report relating to the corporation’s affairs prepared pursuant to a contract with the corporation by a lawyer, notary, accountant, engineer, appraiser or other person whose profession gave credibility to the statements made in the report.

  • Marginal note:Judgment against shareholders

    (2.2) Where a transaction referred to in subsection (1) has occurred and the court makes a finding referred to in paragraph (2)(a), the court may give judgment to the trustee against a shareholder who is related to one or more directors or to the corporation or who is a director not liable by reason of paragraph (2)(b) or subsection (3), in the amount of the dividend or redemption or purchase price referred to in subsection (1) and the interest thereon, that was received by the shareholder and not repaid to the corporation.

  • Marginal note:Directors exonerated by law

    (3) A judgment pursuant to subsection (2) shall not be entered against or be binding on a director who had, in accordance with any applicable law governing the operation of the corporation, protested against the payment of the dividend or the redemption or purchase for cancellation of the shares of the capital stock of the corporation and had thereby exonerated himself or herself under that law from any liability therefor.

  • Marginal note:Directors exonerated by law — compensation

    (3.1) A judgment under subsection (2.01) shall not be entered against or be binding on a director who had, in accordance with any applicable law governing the operation of the corporation, protested against the payment of termination pay, severance pay or incentive benefits or other benefits and had exonerated himself or herself under that law from any resulting liability.

  • Marginal note:Directors’ right to recover

    (4) Nothing in this section shall be construed to affect any right, under any applicable law governing the operation of the corporation, of the directors to recover from a shareholder the whole or any part of any dividend, or any redemption or purchase price, made or paid to the shareholder when the corporation was insolvent or that rendered the corporation insolvent.

  • Marginal note:Onus of proof — directors

    (5) For the purposes of subsection (2), the onus of proving

    • (a) that the corporation was not insolvent at the time the transaction occurred and that the transaction did not render the corporation insolvent, or

    • (b) that the directors had reasonable grounds to believe that the transaction was occurring at a time when the corporation was not insolvent or that the transaction would not render the corporation insolvent

    lies on the directors.

  • Marginal note:Onus of proof — directors

    (5.1) For the purposes of subsection (2.01), a director has the onus of proving any of the following:

    • (a) that the payment

      • (i) occurred at a time when the corporation was not insolvent or did not render the corporation insolvent,

      • (ii) was not conspicuously over the fair market value of the consideration received by the corporation, or

      • (iii) was made in the ordinary course of business; or

    • (b) that the director had reasonable grounds to believe that the payment

      • (i) occurred at a time when the corporation was not insolvent or would not render the corporation insolvent,

      • (ii) was not conspicuously over the fair market value of the consideration received by the corporation, or

      • (iii) was made in the ordinary course of business.

  • Marginal note:Onus of proof — shareholder

    (6) For the purposes of subsection (2.2), the onus of proving that the corporation was not insolvent at the time the transaction occurred and that the transaction did not render the corporation insolvent lies on the shareholder.

Marginal note:Application of sections 95 to 101

  •  (1) Sections 95 to 101 apply, with any modifications that the circumstances require, to a proposal made under Division I of Part III unless the proposal provides otherwise.

  • Marginal note:Interpretation

    (2) For the purposes of subsection (1), a reference in sections 95 to 101

    • (a) to “date of the bankruptcy” is to be read as a reference to “day on which a notice of intention is filed” or, if a notice of intention is not filed, as a reference to “day on which a proposal is filed”; and

    • (b) to “bankrupt”, “insolvent person” or “debtor” is to be read as a reference to “debtor in respect of whom the proposal is filed”.

  • Marginal note:Application of sections 95 to 101 if proposal annulled

    (3) If the proposal is annulled by the court under subsection 63(1) or as a result of a bankruptcy order or assignment, sections 95 to 101 apply as though the debtor became bankrupt on the date of the initial bankruptcy event.

  • 1992, c. 27, s. 42
  • 2007, c. 36, s. 44

 [Repealed, 2007, c. 36, s. 44]

PART VAdministration of Estates

Meetings of Creditors

Marginal note:First meeting of creditors

  •  (1) Subject to subsection (1.1), it is the duty of the trustee to inquire as to the names and addresses of the creditors of a bankrupt and, within five days after the date of the trustee’s appointment, to send in the prescribed manner to the bankrupt, to every known creditor and to the Superintendent a notice in the prescribed form of the bankruptcy and of the first meeting of creditors, to be held within the twenty-one day period following the day of the trustee’s appointment, at the office of the official receiver in the locality of the bankrupt, but the official receiver may, when the official receiver deems it expedient, authorize the meeting to be held at the office of any other official receiver or at such other place as the official receiver may fix.

  • Marginal note:Extension of days

    (1.1) The official receiver in the locality of the bankrupt may extend the period during which the first meeting of creditors must be held

    • (a) by ten days, or

    • (b) where the official receiver is satisfied that special circumstances exist, by up to thirty days,

    where the official receiver is satisfied that the extension will not be detrimental to the creditors and is in the general interests of the administration of the estate.

  • Marginal note:Documents to accompany notice

    (2) The trustee shall include with the notice referred to in subsection (1) a list of the creditors with claims amounting to twenty-five dollars or more and the amounts of their claims together with a proof of claim and proxy in the prescribed form but no name shall be inserted in the proxy before it is so sent.

  • Marginal note:Information and notice

    (3) In the case of the bankruptcy of an individual, the trustee shall set out in the notice, in the prescribed form, information concerning the financial situation of the bankrupt and the obligation of the bankrupt, if any, to make payments required under section 68 to the estate of the bankrupt.

  • Marginal note:Publication in local paper by trustee

    (4) A notice in the prescribed form shall, as soon as possible after the bankruptcy and not later than five days before the first meeting of creditors, be published in a local newspaper by the trustee.

  • Marginal note:Purpose of meeting

    (5) The purpose of the first meeting of creditors shall be to consider the affairs of the bankrupt, to affirm the appointment of the trustee or substitute another in place thereof, to appoint inspectors and to give such directions to the trustee as the creditors may see fit with reference to the administration of the estate.

  • R.S., 1985, c. B-3, s. 102
  • 1992, c. 1, s. 20, c. 27, s. 43
  • 1997, c. 12, s. 84
  • 2005, c. 47, s. 77
 
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