Company Attribution in Insolvency: Current Developments in Aquino and Golden Oaks | Blake, Cassels & Graydon LLP

Introduction

The Supreme Courtroom of Canada (SCC) has granted go away to enchantment the selections of Ernst & Younger Inc. v. Aquino (Aquino) and Golden Oaks Enterprises Inc. v. Scott (Golden Oaks), which each tackle the company attribution doctrine within the insolvency context. Typically, the company attribution doctrine imputes the actions, intent and/or information of a company’s “directing thoughts” to the respective company. Key variations between how Aquino and Golden Oaks apply the company attribution doctrine and preliminary intervenor arguments are mentioned in our earlier Blakes Bulletin: Company Attribution in Insolvency: Key Variations Between Aquino and Golden Oaks.

Since publishing our newest bulletin, the Insolvency Institute of Canada (IIC), a number one non-profit trade affiliation selling thought management within the business insolvency apply, and the Lawyer Common for Ontario (AGO) have filed facta containing their views to the SCC in respect of the company attribution doctrine. The IIC has moreover filed go away to intervene movement supplies with respect to a discrete set-off difficulty in reference to part 97(3) of the Chapter and Insolvency Act (BIA), with such go away just lately granted by the SCC. This bulletin summarizes the IIC and AGO’s intervenor facta on the company attribution doctrine, in addition to the IIC’s extra factum with respect to a set-off difficulty in reference to part 97(3) of the BIA.

IIC and AGO Factum Arguments

The IIC confirms in its factum that it intervenes in Aquino to (1) make clear that the company attribution check created in Canadian Dredge & Dock Co. v. The Queen (Dredge) was not meant to be all-encompassing, and (2) suggest that the SCC affirm the provision of exceptions to the “identification doctrine.”

The IIC submits that Dredge is the main authority on the identification doctrine in Canadian frequent legislation. The company identification doctrine applies the place the motion taken by the directing thoughts of a company (i) was inside the discipline of operation assigned to the related particular person, (ii) was not completely in fraud of the company, and (iii) was by design or end result for the advantage of the corporate. If the check is happy, the actions, intent and information of the directing thoughts may be attributed to the company. The doctrine, nonetheless, acknowledges policy-driven “defenses,” in any other case known as exceptions. In Deloitte & Touche v. Livent Inc. (Livent), the SCC constructed on the reasoning in Dredge relating to exceptions to the applying of the doctrine, by refraining from making use of the company attribution doctrine.

At difficulty in Liventamongst different issues, was whether or not the auditor was negligent in mild of fraud dedicated by Livent Inc.’s principals. The auditor defended itself within the proceedings on the premise that, amongst different grounds, the fraud carried out by the principals must be attributed to Livent Inc. in order to stop Livent Inc. from recovering damages in opposition to the auditor. The SCC kept away from making use of the company attribution doctrine on this circumstance as a result of context and function of the statutory audit at difficulty (primarily to detect wrongdoing) and decided that it was not within the public curiosity to use the doctrine. Dredge and Livent collectively verify that exceptions to the strict software of the identification doctrine exist based mostly on the related context wherein the company attribution doctrine arises and the aim of making use of such doctrine.

The IIC recommends in its factum that the context and function of a particular statutory provision at difficulty ought to information the company attribution evaluation. It submits that the parliamentary function for enacting a particular statutory provision shouldn’t be displaced to attain broader coverage goals. An exception to the identification doctrine would solely be warranted if the applying of the company attribution doctrine wouldn’t result in the core goal of the availability at difficulty, which in sure circumstances could also be creditor restoration, however not in all circumstances. To additional illustrate its level, the IIC distinguishes between the needs of part 96 (creditor restoration) and sections 71 and 30(1)(d) of the BIA (collectively, to advance claims as a successor to the debtor) to indicate that the company attribution evaluation is a case-specific method. In sum, the aim of a provision wants to tell any company attribution evaluation, which shouldn’t merely end result within the related court docket catering to broader public coverage considerations and approving “no matter end result most maximizes creditor restoration.”

The AGO factum supplies comparable steering, albeit via a broader scope. The AGO views the appeals of Aquino and Golden Oaks as a chance for the SCC to make clear the applying of the company attribution doctrine to novel statutory contexts extra broadly as a substitute of limiting its ruling to the insolvency context. Within the occasion that the related laws at difficulty doesn’t comprise provisions to permit for company attribution, the AGO advocates for the same method to the IIC in that the company attribution doctrine should be utilized in a way delicate to and in furtherance of the “textual content, context, and function of the related statutory provision.” Each the AGO and IIC emphasize that their submissions to the SCC is in line with the UK’s jurisprudence on company attribution.

IIC Set-Off Arguments

The IIC obtained go away to intervene in Golden Oaks on August 16, 2023 in respect of the Ontario Courtroom of Attraction’s (ONCA) ruling that urged permissible set-off pursuant to part 97(3) of the BIA must be “confined inside slender limits” to stop a creditor from attaining a better precedence rating to a common physique of collectors (insofar as that creditor would obtain full restoration for the set-off quantity). The IIC’s factum on this matter posits that the ONCA’s ruling erroneously privileges one professional equitable consideration (avoiding one creditor being most popular vis-a-vis different collectors) over one other (stopping a creditor with each a debt to and a declare in opposition to a bankrupt as of the date of the related chapter from paying the debt whereas solely recovering a small fraction of its declare in opposition to the bankrupt), and doesn’t observe the specific wording in part 97(3) that set-off applies “in the identical method and to the identical extent as if” the set-off had been occurring outdoors of the insolvency regime. The IIC accordingly advocates that the SCC ought to merely observe the legislative path supplied for in part 97(3) of the BIA and its personal precedent resolution, Husky Oil Operations Ltd. v. Minister of Nationwide Incomethat “the occasion claiming set-off has Parliament’s blessing for the ‘reordering’ of his precedence in chapter by advantage of the operation of the legislation of set-off.”

Conclusion

The IIC and AGO facta shed additional mild on the arguments every intervenor will make earlier than the SCC relating to company attribution and set-off, as relevant. The SCC’s resolution on every difficulty will undoubtably present for a big influence on the insolvency regime as soon as rendered.