Case information

Bankruptcy and insolvency — Trustees — Trustee postponing proof of claim based on restitution of prestations ordered by Court of Appeal in conjunction with prior decision annulling two contracts for violating public order — Trustee’s decision appealed — Whether contract that is annulled and deemed never to have existed under art. 1422 of Civil Code of Québec can continue to exist as juridical fact for purposes of enforcement of claim for restitution of prestations — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 4, 137(1) and 140.1 — Civil Code of Québec, art. 1422.

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The applicant, Ville de Montréal (“City”), appealed the decision made by the respondent, Arthur Blumer & Associates Inc. in continuation of suit for Litwin Boyadjian Inc., acting as the trustee in bankruptcy of the Public Bike System Company (“Company”), to postpone the City’s proof of claim as an unsecured creditor in the Company’s bankruptcy. In 2011, the City had granted the Company a loan that was secured by a hypothec. In 2014, the Company filed a notice of intention under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA), and voluntarily surrendered its hypothecated property to the City. The trustee then went to court to obtain a declaration that the two contracts (loan and hypothec) were null because they were contrary to the Municipal Aid Prohibition Act, CQLR, c. I-15. In April 2017, the Superior Court ruled in the trustee’s favour and declared that the two contracts were absolutely null and were therefore deemed never to have existed. That decision was affirmed by the Court of Appeal, which ordered the restitution of prestations and declared that [TRANSLATION] “the City is a creditor for the balance owed on the date of taking in payment, $31,746,575, and may submit a claim to the trustee in bankruptcy” (see Syndic du Système de bicyclette public, société de vélo en libre service, 2017 QCCS 1442, affirmed on appeal in Ville de Montréal v. Litwin Boyadjian inc. (syndic de Société de vélo en libre service), 2019 QCCA 794, application for leave to appeal to the Supreme Court dismissed on February 2, 2020, in file No. 38759). In February 2020, the City filed a proof of claim as an unsecured creditor on the basis of the Court of Appeal’s 2019 decision, which created a legal obligation of restitution. The trustee concluded that the proof of claim should be postponed because the two contracts underlying the legal obligation were improper transactions between related persons within the meaning of s. 137(1) of the BIA and, in the alternative, because they constituted equity contributions under s. 140.1 of the BIA. The Superior Court granted in part the City’s motion and set aside in part the trustee’s notice of postponement. The Court of Appeal allowed the appeal.