Grant Thornton Alger Inc. (Estates formerly accepted under the responsibility of Alger &
Associates Inc.), in its Capacity as Trustee of Piikani Energy Corporation (respondent/applicant)
v. 607385 Alberta Ltd. and Dale McMullen (appellants/respondents) and Stephanie Ho Lem (not
a party to the appeal/respondent)
Piikani Nation (not a party to the appeal/applicant) v. Piikani Energy Corporation (not a party to
the appeal/respondent)
Piikani Nation and Chief Reg Crow Shoe (not a party to the appeal/plaintiff) v. Piikani
Investment Corporation (not a party to the appeal/defendant)
(1201-0072-AC; 1201-0073-AC; 2013 ABCA 293)
Indexed As: Piikani Energy Corp. (Bankrupt), Re
Alberta Court of Appeal
Slatter, Rowbotham and Veldhuis, JJ.A.
August 29, 2013.
Summary:
A bankruptcy trustee applied to set aside pre-bankruptcy payments made by a corporate
bankrupt to two individuals, L and M, as being fraudulent preferences (Bankruptcy and
Insolvency Act (BIA), s. 95). L was pre-paid for consulting services. M's payment was severance
related. When the payments were made, L and M were officers and directors of the bankrupt. L
and M argued that they were dealing with the bankrupt at arm's length and, therefore, the trustee
had only three months to pursue the fraudulent preference claim (BIA, s. 95(1)(a)).
The Alberta Court of Queen's Bench, in a decision reported (2012), 537 A.R. 211, held
that for purposes of the BIA, L and M were not at arm's length to the bankrupt. Accordingly the
trustee's application was appropriately brought within the 12 month time period in s. 95(1)(b) of
the BIA. L (i.e., her consulting business) & M appealed.
The Alberta Court of Appeal allowed the appeal, set aside the judgments against the
appellants and dismissed the trustee's application.
Bankruptcy - Topic 7211
Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes
a non-arm's length transaction - The Alberta Court of Appeal discussed the significance
of the distinction between arm's length and non-arm's length creditors (Bankruptcy and
Insolvency Act, s. 95 (as amended in 2009)) - The court stated that "... whether a
transaction is at arm's length determines how much of the period before bankruptcy is
under scrutiny. An arm's length transaction is reviewable if it occurred within three
months before the initial bankruptcy event, while a non-arm's length transaction is
reviewable within a year before that event ... the amendments eliminate the question of
intent for preferences between non-arm's length parties. Before 2009, the fact that an
insolvent person's transaction led to a preference in fact gave rise to a presumption that
the insolvent person intended that result. But the presumption of intent was rebuttable
under section 95(2). In the case of arm's length parties, it still is. However, since the 2009
amendments, intent is no longer a legally-required component of a preference between
non-arm's length parties. If a preference arises in fact between non-arm's length parties, it
is simply void as against the trustee" - See paragraphs 14 to 17.
Bankruptcy - Topic 7211
Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes
a non-arm's length transaction - The Alberta Court of Appeal discussed whether directors
were presumed to be non-arm's length with the corporation they served for purposes of
the Bankruptcy and Insolvency Act - The court concluded that the fact that a creditor was
a director of a company was not in itself a conclusive indicator that he was not acting at
arm's length - The court stated that if Parliament had intended to establish such a
presumption, it could easily have done so - See paragraphs 31 to 36.
Bankruptcy - Topic 7211
Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes
a non-arm's length transaction - A bankruptcy trustee applied to set aside pre-bankruptcy
payments made by a corporate bankrupt to two directors, L and M, as being fraudulent
preferences (Bankruptcy and Insolvency Act (BIA), s. 95) - L was pre-paid for consulting
services - M's payment was severance related - L and M argued that they were dealing
with the bankrupt at arm's length and the payments, having occurred more than three
months before the bankruptcy, were not reviewable (BIA, s. 95(1)(a)) - A chambers judge
held that for purposes of the BIA, L and M were not at arm's length to the bankrupt Accordingly the trustee's application was appropriately brought within the 12 month time
period in s. 95(1)(b) of the BIA - L and M appealed - The Alberta Court of Appeal
allowed the appeal - The chambers judge erred in concluding that the concept of
"insiders" was relevant, that the jurisprudence under the Income Tax Act was irrelevant,
and that a director could never be at arm's length to a corporation, regardless of the nature
of the transaction - The chambers judge erred in concluding that L and M were non-arm's
length with the bankrupt - Rather, both were at arm's length at the time of the payments to
them - The payments, being within three months of the bankruptcy, were not reviewable See paragraphs 37 to 43.
Bankruptcy - Topic 7211
Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes
a non-arm's length transaction - [See Bankruptcy - Topic 7211.1].
Bankruptcy - Topic 7211.1
Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes
an arm's length transaction - The Alberta Court of Appeal discussed the meaning of
"arm's length" for purposes of the Bankruptcy and Insolvency Act (BIA) - The court
noted that the term "arm's length" was not defined in the BIA - The court held that the
jurisprudence under the Income Tax Act (ITA) provided appropriate principles for
determining whether two parties dealt at arm's length - The court also stated that "...
defining 'arm's length' consistently regardless of whether it appears in the BIA or ITA
accords with the view that courts may consider the legislature's 'statute book' in giving
meaning to a term. This approach relies on the logical assumption that Parliament knows
what other statutes say when it passes an enactment, and perhaps even more so when it
amends a statute (i.e. the BIA) to incorporate a term that has been defined in the courts in
another context (i.e. the ITA). This approach also minimizes the potential for unnecessary
conflicts in interpretation" - See paragraphs 20 to 30.
Statutes - Topic 2617
Interpretation - Interpretation of words and phrases - Interpretation by context - (incl.
modern rule) - Harmonization of statutes - [See Bankruptcy - Topic 7211.1].
Words and Phrases
Arm's length - The Alberta Court of Appeal discussed the meaning of "arm's length" for
purposes of the Bankruptcy and Insolvency Act - See paragraphs 20 to .
Cases Noticed:
Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C.
1; 2002 SCC 33, refd to. [para. 17].
Panfab Corp., Re, [1971] 2 O.R. 202; 17 D.L.R.(3d) 382 (Ont. S.C.), refd to. [para. 23].
Tremblay, Re (1980), 36 C.B.R.(N.S.) 11 (Que. S.C.), refd to. [para. 24].
Skalbania (Trustee of) v. Wedgewood Village Estates Ltd. (1989), 60 D.L.R.(4th) 43
(B.C.C.A.), refd to. [para. 25].
Minister of National Revenue v. Sheldon's Energy Ltd., [1955] S.C.R. 637, refd to. [para.
25].
R. v. Ulybel Enterprises Ltd., [2001] 2 S.C.R. 867; 275 N.R. 201; 206 Nfld. & P.E.I.R.
304; 618 A.P.R. 304; 2001 SCC 56, refd to. [para. 27].
McLarty v. Minister of National Revenue, [2008] 2 S.C.R. 79; 374 N.R. 311; 2008
CarswellNat 1380; 2008 SCC 26, refd to. [para. 28].
Swiss Bank Corp. v. Minister of National Revenue, [1974] S.C.R. 1144, refd to. [para.
28].
Gestion Yvan Drouin Inc. v. Minister of National Revenue (2000), 12 B.L.R.(3d) 21
(T.C.C.), refd to. [para. 32].
Zamek v. Minister of National Revenue, [2001] 1 C.T.C. 4586 (T.C.C.), refd to. [para.
32].
Del Grande v. Minister of National Revenue (1992), 93 D.T.C. 133 (T.C.C.), refd to.
[para. 33].
Galaxy Sports Inc. (Bankrupt), Re (2004), 200 B.C.A.C. 184; 327 W.A.C. 184; 240
D.L.R.(4th) 301; 20 R.P.R.(4th) 1; 29 B.C.L.R.(4th) 362; 2004 CarswellBC 1112;
1 C.B.R.(5th) 20; 2004 BCCA 284, refd to. [para. 34].
Statutes Noticed:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 4(2), sect. 4(4), sect. 5(5)
[para. 12]; sect. 95(1), sect. 96(2) [para. 13].
Authors and Works Noticed:
Sullivan, Ruth, Sullivan on the Construction of Statutes (5th Ed. 2008), generally [para.
27].
Counsel:
K.L. Fellowes, for the appellant, 607385 Alberta Ltd.;
A.R. Robertson, Q.C., for the appellant, Dale McMullen;
R.J. Gilborn, Q.C., and L. Chan, for the respondents.
This appeal was heard on March 6, 2013, before Slatter, Rowbotham and Veldhuis, JJ.A.,
of the Alberta Court of Appeal. The following memorandum of judgment was delivered by the
court and filed in Calgary, Alberta, on August 29, 2013.
Appeal allowed.
Editor: Elizabeth M.A. Turgeon
Bankruptcy - Topic 7211
Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes
a non-arm's length transaction - The Alberta Court of Appeal discussed the meaning of
"arm's length" for purposes of the Bankruptcy and Insolvency Act (BIA) - The court
noted that the term "arm's length" was not defined in the BIA - The court held that the
jurisprudence under the Income Tax Act (ITA) provided appropriate principles for
determining whether two parties dealt at arm's length - The court also stated that "...
defining 'arm's length' consistently regardless of whether it appears in the BIA or ITA
accords with the view that courts may consider the legislature's 'statute book' in giving
meaning to a term. This approach relies on the logical assumption that Parliament knows
what other statutes say when it passes an enactment, and perhaps even more so when it
amends a statute (i.e. the BIA) to incorporate a term that has been defined in the courts in
another context (i.e. the ITA). This approach also minimizes the potential for unnecessary
conflicts in interpretation" - See paragraphs 20 to 30.
Statutes - Topic 2617
Interpretation - Interpretation of words and phrases - Interpretation by context - (incl.
modern rule) - Harmonization of statutes - The Alberta Court of Appeal discussed the
meaning of "arm's length" for purposes of the Bankruptcy and Insolvency Act (BIA) The court noted that the term "arm's length" was not defined in the BIA - The court held
that the jurisprudence under the Income Tax Act (ITA) provided appropriate principles
for determining whether two parties dealt at arm's length - The court also stated that "...
defining 'arm's length' consistently regardless of whether it appears in the BIA or ITA
accords with the view that courts may consider the legislature's 'statute book' in giving
meaning to a term. This approach relies on the logical assumption that Parliament knows
what other statutes say when it passes an enactment, and perhaps even more so when it
amends a statute (i.e. the BIA) to incorporate a term that has been defined in the courts in
another context (i.e. the ITA). This approach also minimizes the potential for unnecessary
conflicts in interpretation" - See paragraphs 20 to 30.