The Supreme Court Of Canada Confirmed Today The Paramountcy Of The Bankruptcy And Insolvency Act Over License Denial Regimes

The Supreme Court of Canada ("SCC") released today its much awaited decision in 407 ETR,1 in which it upheld the decision of the Ontario Court of Appeal, and ruled that Section 22(4) of the Highway 407 Act is constitutionally inoperative to the extent that it is used to enforce a provable claim that has been discharged pursuant to section 178(2) of the Bankruptcy and Insolvency Act.

License denial regimes and their interaction with the Bankruptcy and Insolvency Act ("BIA") have been the subject of a long-lasting debate in Canadian jurisprudence, with decisions falling on both sides of the fence. Today, the SCC released 407 ETR, discussed below, and the companion case of Alberta v. Moloney,2 two decisions providing welcome clarification of the state of the law.

In 407 ETR the SCC ruled, by a majority of seven and with two concurring in the result, in favour of the Superintendent of Bankruptcy (the "Superintendent").

The majority found an operational conflict between the enforcement scheme of section 22 of the Highway 407 Act ("407 Act") and section 178(2) of the BIA. Gascon J., writing for the majority, said that the toll debts collected by 407 ETR Concession Company Limited ("ETR") constitute a claim provable in bankruptcy and that pursuant to section 178(2) of the BIA, creditors cease to be able to enforce their provable claims upon the bankrupt's discharge. The majority held that it is impossible for ETR to use the administrative enforcement scheme of section 22(4) of the 407 Act while also complying with s. 178(2) of the BIA.

The majority also held that compliance could not be achieved by the debtor's paying the released debt or by foregoing his right to a vehicle permit, saying that this would be a situation of compliance with one law, and renunciation of the operation of the other, by one of the actors involved.

The majority and minority agreed that the operation of section 22(4) of the 407 Act also frustrates Parliament's purpose of providing discharged bankrupts with the ability to financially rehabilitate themselves, which purpose underlies section 178(2) of the BIA. The majority said that it is the intent of this section that "the debtor will no longer be encumbered by the burden of pre-bankruptcy indebtedness."3 Section 22(4) of the 407 Act frustrates this purpose by allowing ETR to continue burdening a discharged bankrupt.

Accordingly, the SCC dismissed ETR's appeal.

Background

Highway 407, one of Toronto's arterial roads, is a...