CHAPTER 17 Insolvency and Restructuring Proceedings
The recognition of foreign proceedings does not deprive the Canadian court of jurisdiction in the event that there is a fairness or equity issue. As a result, even if a Canadian court recognizes a foreign proceeding, that foreign proceeding must treat Canadian creditors and assets in a manner substantially consistent with Canadian legal standards. Developments and Legislative Amendments DIGITAL ASSETS The collapse in 2022 of unregulated cryptocurrency exchanges, including Celsius Network, Voyager Digital and FTX (and in Canada, Quadriga), has highlighted the difficulty of characterizing digital assets in an insolvency and determining their owners. In the U.S. bankruptcy of Celsius, the court held that cryptocurrency assets became property of the bankrupt estate available to creditors generally and could not be recovered by the customers who deposited them, contrary to the representations that had been made by Celsius to its customers. In Canada, there is comparable uncertainty, although in the Quadriga case the court recognized cryptocurrency as “property” for the purposes of the BIA. If crypto assets were “securities,” the provisions of Part XII of the BIA applying to securities firm bankruptcies might protect the rights of customers to recover their “customer name securities” in priority over other creditors. However, there is no definitive authority, nor any general consensus, regarding the proper legal characterization of such assets in Canada. Although not treating crypto assets themselves as securities, the Canadian Securities Administrators have proceeded to impose new requirements on crypto asset trading platforms (CTPs) operating in Canada, on the basis of
the CTPs trading “crypto contracts.” These requirements include stricter standards of governance, reporting and handling of customer assets. LEGISLATIVE CHANGES In 2019, both the BIA and the CCAA were amended to expressly provide that any interested person in any proceedings under the statute will act in good faith with respect to those proceedings. If the court is satisfied that an interested person fails to act in good faith, on application by any interested person, the court may make any order that it considers appropriate in the circumstances. Legislation introduced in 2022, which is expected to come into force, would amend the BIA and CCAA to provide that perishable fruits and vegetables sold by a supplier to a purchaser, as well as the proceeds of sale of those fruits and vegetables, would be held in trust by the purchaser for the supplier. In the event that the purchaser has not fully paid for the fruits or vegetables and becomes bankrupt or subject to a receivership or applies to the court to sanction a compromise or an arrangement, such amounts would need to be paid. These assets held in trust would not be included in the property of the purchaser for purposes of its insolvency proceedings. This could affect, for example, asset-based financing for manufacturers of food products. The Canadian government has made a significant change, which is currently in the process of being enacted into law, in a provision of the Canadian Criminal Code that places a cap on permissible interest rates. Currently, it is an offence for a lender to enter into an agreement or arrangement to receive, or to actually receive, interest at an effective annual rate exceeding 60%. The amendment will change the maximum rate to 35% APR (annual percentage rate). While this prohibition is intended to protect individuals, not
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