Case information

Bankruptcy and insolvency — Trustees — Preferences — Preferences presumed — Company making payments to major supplier slightly more than month before assigning itself into bankruptcy — Trustee bringing motion for order declaring payment void for giving supplier preference over other unpaid creditors — Bankruptcy judge dismissing motion — Court of Appeal allowing appeal and ordering supplier repay amount — Whether Court of Appeal erred in overturning bankruptcy judge’s finding that presumption of preference was rebutted — Whether Court of Appeal erred in substituting its own finding of fact regarding rebuttal of statutory presumption to prefer — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 95.

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

The equitable treatment of creditors is one of the goals of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). In furtherance of that purpose the BIA permits a trustee in bankruptcy, in defined circumstances, to treat a pre-bankruptcy transaction that advantaged one creditor over others as void.

Specialty Chemical Industries Inc. (“Specialty”) made payments totaling USD $400,000 to one of its major suppliers, the applicant American Pacific Corporation (“AmPac”), slightly more than a month before Specialty assigned itself into bankruptcy. Specialty was insolvent when it made the payments and the effect of the payments was to give AmPac a preference over other unpaid creditors.

Specialty made a voluntary assignment into bankruptcy on July 25, 2018. A. Farber & Partners Inc. was appointed trustee in bankruptcy.

Specialty’s trustee in bankruptcy was unsuccessful in its claim to recover the amount of the payments from AmPac at the Ontario Superior Court of Justice. In the bankruptcy judge’s view, the presumption that the payments were made with a view to giving AmPac a preference over other creditors was rebutted.

The respondent, RPG Receivables Purchase Group Inc. (“RPG”) acquired the Trustee’s right of action under s. 38 of the BIA to take an appeal. RPG challenged the bankruptcy judge’s conclusion. The Court of Appeal allowed the appeal, set aside the order of the bankruptcy judge, and ordered that the payments were void and must be repaid by AmPac.