Supreme Court Of Canada Expands Discretion Of The Courts To Allow Pre-post Compensation In 'Rare' Cases

• Published date: 16 December 2021
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Insolvency/Bankruptcy
• Law Firm: Osler, Hoskin & Harcourt LLP
• Author: Ms Sandra Abitan, Julien Morissette, Fabrice Beno't, Ilia Kravtsov and Bradley Sendel (Articling Student)

Introduction

On December 10, 2021, the Supreme Court of Canada (SCC) released its written reasons in Montréal (City) v. Deloitte Restructuring Inc.

In a 6-1 decision, co-written by Chief Justice Wagner and Justice C'té, with Justices Moldaver, Karakatsanis, Rowe and Martin concurring, the SCC upheld both the Court of Appeal of Quebec (QCCA) and Quebec Superior Court's decisions which dismissed the attempt by the City of Montréal (the City) to compensate (set-off)¹ its post-filing debt owed to SM Group (SM) against SM's pre-filing debt owed to the City.

In rendering its decision, the SCC overruled the principle established by the QCCA in Agence du revenu v. Kitco Metals Inc.² (Kitco) which categorically prohibited pre-post compensation and preserved the ability for first instance judges sitting in matters under the Companies' Creditors Arrangement Act (the CCAA) to exercise their broad discretionary powers to allow it in appropriate but rare circumstances.

Background

In the context of the notorious Charbonneau Commission on collusion and corruption in the award and management of public contracts, SM, a consulting engineering firm that had serviced the City over several years, and the Minister of Justice, acting on behalf of the City, entered into a settlement agreement (without admission of guilt) under the Voluntary Reimbursement Program (the VRP), established under the Act to ensure mainly the recovery of amounts improperly paid as a result...