Mind The Gap: Court Exercises Inherent Jurisdiction To Prime Secured Interest

• Law Firm: Fasken
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Author: Ms Robyn Gurofsky, Jessica Cameron and Anthony Mersich
• Published date: 28 February 2023

In Golfside Ventures Ltd (Re) (2023 ABKB 86) the Court of King's Bench of Alberta (the "Court") reaffirmed the Court's authority to exercise inherent jurisdiction in proceedings under the Bankruptcy and Insolvency Act (the "BIA") in circumstances where (1) the BIA is silent or has not dealt with a matter exhaustively; and (2) the benefit of granting the relief outweighs the relative prejudice to those affected by it.

The main issue in Golfside related to whether the Court could (and should) grant an Order creating a charge securing payment of the trustee's fees and expenses involved in administering the bankrupt's estate that was in priority to the claims of secured creditors. Pursuant to BIA s. 136(1), payment of the trustee's fees and expenses from the proceeds realized from the property of the bankrupt enjoys priority over most other creditors. However, this priority is subject to the rights of secured creditors. As a result, if the value of the secured creditors' claims exceeds the value of the bankrupt's estate, the trustee may find itself without recourse to recover the costs of its professional fees and expenses.

Golfside examines the interaction between the express provisions of BIA s. 136(1) and the Court's inherent jurisdiction to grant relief where it finds legislative gaps. It also provides useful guidance to insolvency professionals on the factors that the Court will consider when deciding whether to grant relief in bankruptcy proceedings on the basis of its inherent jurisdiction.

Background facts

The debtor, Golfside Ventures Ltd. ("Golfside") entered into a joint venture arrangement with Hustle Holdings Ltd ("Hustle") in 2008 for the development of some parcels of bare-land located near Redwater, Alberta (the "Lands"). Hustle's interest in the joint venture was subsequently transferred to Obcorp Holdings Inc. ("Obcorp"), and the principal of Obcorp, Donald Oborowsky ("Mr. Oberowksy"), took an assignment of a mortgage against the Lands from the town of Redwater relating to obligations owing under the development agreement for the Lands (the "Mortgage").

On February 19, 2019, Golfside made an assignment into bankruptcy and BDO Canada Limited was appointed as Golfside's bankruptcy trustee (the "Trustee"). Golfside's only material asset was the Lands, which had an estimated value of approximately $1.6 million. At the time of the Trustee's appointment, it was aware of three secured creditor claims; namely:

1. the Mortgage, which had a principal...