Debt or Equity? A Puzzle for Canadian Bankruptcy Law

With the increased sophistication of financial markets and financial instruments, the use of hybrid investments has been on the rise in recent decades. This article considers the question of how Canadian courts have drawn the border between debt and equity in the context of bankruptcy proceedings. The basic argument is that Canadian courts should allow the recent reforms to bring about their intended clarity on the border between debt and equity by not departing from the bright line test set out in the legislation. The article compares the pre and post-amendment case law and uses two case studies to illustrate the undue complexity that has been created by layering a contextual analysis on top of the new bright line tests. Simply put, in the context of investment classification decisions for the purposes of bankruptcy proceedings, Canadian courts should limit the scope of their analysis to an inquiry of whether the investment in question falls within the scope of the equity claim definition provided under Canadian bankruptcy legislation. Only then can bankruptcy costs be limited and can we come closer to a model assumed by the Modiglani-Miller Theorem

The Gendered Dimensions of Social Insurance for the Non-Poor in Canada

This article emerges from an exploration of the meanings of consumer bankruptcy in the current context of Canadian society, as well as the role consumer bankruptcy plays in shaping this context. Examining consumer bankruptcy through the lens of gender relations, the claim is made that Canadian consumer bankruptcy legislation, policies, practices, and accompanying discourses are implicated in the causation and perpetuation of the conditions of marginalization and subordination endured by women who experience long-term poverty. These women are affected not only in terms of access to the bankruptcy system, but also by the broader implications of the delivery of consumer bankruptcy services and the accompanying discourses which, functioning as a form of social insurance for the middle-class, reinforce values of individualism. The increasing number of women filing for consumer bankruptcy, documented in the empirical data, is consistent with this claim, as it can be seen that middle-class women are the primary new beneficiaries of consumer bankruptcy in Canada

Bank Bankruptcy in Canada: A Comparative Perspective

During the Great Depression (1930-1933), over 9,000 banks failed in the United States, while not a single bank failed in Canada. In fact, there have been relatively few instances of bank bankruptcy proceedings in Canada from 1867 to present. Approximately eleven bank bankruptcies have been referenced in the case law to date. The first bank bankruptcy appears to be the Bank of Prince Edward Island (1882). Next came the Exchange Bank of Canada (1883), [FN3] followed by the Maritime Bank (1887), the Central Bank of Canada (1887), La Banque Ville Marie (1899), the Farmers Bank of Canada (1910), the Monarch Bank of Canada (1910), Ontario Bank (1910), [FN9] the Sovereign Bank of Canada (1911), the Bank of Vancouver (1916) and the Home Bank of Canada (1923). It would be another four decades before the next bank bankruptcy took place in 1967, when the Bank of Western Canada was wound up. The few Canadian banks that suffered financial difficulties through the Great Depression, World War II and its aftermath were absorbed into larger banks without creating significant difficulties for their creditors or depositors. Two decades later, Northland Bank (1985) was wound up, followed by the Canadian Commercial Bank (1985). The liquidation of both banks took over a decade to complete. Following the bankruptcies of these Western Canadian banks, Justice William Z. Estey led a commission examining the collapse of the Canadian Commercial Bank and Northland Bank (the “Estey Report”). In this 1986 report, the Commission described a set of circumstances involving severe corporate governance failures and a set of improvident lending procedures not unlike the current situation in the United States. Following the Estey Report, a number of changes were made to the regulatory framework for supervising banks in Canada. The most recent Canadian bank bankruptcy was the Bank of Credit and Commerce International in 1991. This article provides an overview of the legal regime for bank bankruptcy in Canada. The Global Bank Insolvency Initiative: Legal, Institutional, and Regulatory Framework to Deal with Insolvent Banks (“GBI”) is used as the framework for locating the Canadian system within an international context. Surprisingly little has been written about bank bankruptcies in North America, with much of the academic focus on developing countries. An obvious explanation for this is that in North America governments do not let banks (or at least major banks) fail. Even if this explanation is accurate, government solutions will often be in the shadow of the formal options for bank failure. Accordingly, an understanding of these options is crucial to comprehending and predicting government action in this regard. An analogy may be drawn to the government bail out of the automobile industry which was set into motion in 2008 and was described as “orderly bankruptcy.

Consumer Protection Issues and Non-Banks: A Comparative Analysis

The same millennials who spend all their money on avocado toast might not be looking to traditional banks to obtain mortgages or invest their limited funds because they don\u27t have the requisite credit scores or resources to save money. This generation has also seen too many movies about Wall Street disasters and may have decided they don\u27t want to give Leonardo DiCaprio money to buy wolves. They\u27ve been working any number of jobs that don\u27t offer pensions or benefits; they often live paycheck to paycheck; and the prospect of borrowing money from or depositing money at a mainstream bank when they need to eat lunch today or pay rent right now seems impossible. Non-bank financial institutions fill a big gap for millennials and others without a long and consistent credit history and confidence in capital markets. However, as will be shown in this article, non-bank financial institutions conduct business in Canada with far less oversight relative to their bank counterparts as a result of sweeping and loosely-worded regulation. An ineffective regulatory system leaves the door open to egregious violations slipping through the cracks without prompting formal inquiries into misconduct

A Team Production Theory of Canadian Corporate Law

This article suggests that the response to the most recent Supreme Court of Canada decision concerning corporate governance, Peoples, and the Canadian corporate governance debate, as currently engaged, are operating on the false underlying assumption that the principle-agent, shareholder primacy model accurately describes Canadian corporate law\u27s treatment of public corporations. The article applies the Team Production theory developed by American corporate law scholars, Margaret Blair and Lynn Stout, to argue that the Canadian corporate legal understanding of public corporations that are not controlled by a single shareholder or group of shareholders reflects a director primacy norm rather than a shareholder primacy norm. Canadian corporate law provides that directors of such public corporations with widely-held share ownership and voting rights are free from direct control of any corporate stakeholders. Rent allocation among Canadian corporate stakeholders depends on extra-legal advantages. A potential departing point for Canadian corporate law, the oppression remedy, continues to develop to deal with such extra-legal advantages rooted primarily in unequal power relations among corporate stakeholders. However, in its current application and predicted future application, the oppression remedy does not provide any given stakeholder group with an ability to dominate the boards of public corporations and obviate the director primacy norm. The article suggests that because the director primacy norm accurately describes Canadian corporate law, further consideration needs to be given to corporate law\u27s relative relevance in dictating how Canadian corporations currently operate. For example, do directors of Canadian corporations really think of themselves as mediating hierarchs and corporations as teams? More importantly, can directors of Canadian corporations play a mediating hierarch role given the current composition of corporate boards? The responses to these questions will help inform further inquiry into whether the director primacy norm is the ideal norm for Canadian corporate law

A Team Production Theory of Canadian Corporate Law

The article applies the Team Production Theory developed by American corporate law scholars, Margaret Blair and Lynn Stout, to argue that Canadian corporate law\u27s understanding of public corporations that are not controlled by a single shareholder or group of shareholders reflects a director primacy norm rather than a shareholder primacy norm. Canadian corporate law provides that directors of such public corporations with widely-held share ownership and voting rights are free from direct control by any corporate stakeholders. A potential departing point for Canadian corporate law, the oppression remedy, continues to develop to deal with extra-legal advantages rooted primarily in unequal power relations among corporate stakeholders. However, in its current and predicted future applications, the oppression remedy does not provide any given stakeholder group with an ability to dominate the boards of public corporations and obviate the director primacy norm. The article suggests that because the director primacy norm accurately describes Canadian corporate law, further consideration needs to be given to corporate law\u27s relative relevance in dictating how Canadian corporations currently operate

Technically the King Can Do Wrong in Reorganizing Insolvent Corporations: Evidence from Canada

Taken together the international move from liquidation to reorganization-based bankruptcy regimes and the international move to abolish Crown priority in bankruptcy provide Canada with an opportunity to rethink Crown priority in bankruptcy. This paper makes the case that abolishing Crown priority in bankruptcy in Canada is optimal given a revaluation of traditional normative claims surrounding Crown priority in the context of a bankruptcy system that favours reorganization when possible. While this paper focuses on Canada, it engages in a normative assessment that may be useful for possible reforms to Crown priority in the United States and in other jurisdictions that, like Canada, have been influenced, not only by the English model, but also by the American bankruptcy and reorganization system