Wrestling with paramountcy in restructuring or insolvency

5 minute read
01 November 2015

What do a car crash in Alberta, a delinquent farm mortgage in Saskatchewan and an unpaid highway toll ticket in Ontario have in common?

They all ended up in the Supreme Court of Canada.

The Supreme Court issued reasons for judgment in the following three cases, each of which wrestled with the constitutional concept of paramountcy in the context of a bankruptcy or insolvency: 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy), 2015 SCC 52; Alberta (Attorney General) v. Moloney, 2015 SCC 51; and Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., 2015 SCC 53.


If valid federal legislation and valid provincial legislation "clash", then under the constitutional doctrine of paramountcy the federal legislation prevails. Essentially the tie goes to the Feds.

There is substantial room for debate as to whether a "clash" exists, or the extent or degree of a clash that must exist before provincial legislation is trumped using the paramountcy card.

For example the federal Bankruptcy and Insolvency Act (the "BIA") empowers the Trustee to sell the assets. Under provincial law some assets, cigarettes and liquor for instance, can only be sold with provincially issued permits or licences. Is this a "clash" if the Trustee is able apply for such permits?

The Facts

In this trio of cases, the court had to come to grips with paramountcy in three different circumstances;

  1. In Alberta, Mr. Moloney, while driving his car caused uninsured damage, became indebted to the province and under provincial legislation was not entitled to renew his driver's license until he had dealt with the debt. He went bankrupt and the debt was discharged under the federal BIA. The province would not renew his licence.
  2. In Saskatchewan, a mortgagee moved for the appointment of a receiver under the provisions of the BIA in respect of an insolvent company that owned a farm. Provincial farm protection legislation established a lengthy process of mediation before steps could be taken to enforce a mortgage on a farm, including the appointment of a receiver. Can the farm protection legislation be avoided by using the much quicker BIA receiver process?
  3. In Ontario, Mr. Moore did not pay the toll charges for driving on a provincial highway. Provincial law provided that he could not obtain registration for his vehicles until the debt was paid. Mr. Moore went bankrupt and the debt was discharged under the federal BIA. The province would not register his vehicles.

The Decision

Will Mr. Moloney and Mr. Moore drive again?

Will the farm be saved?

In the result, the farm is saved and Messrs. Moloney and Moore are free to roam the highways of Alberta and Ontario.

The Court held that to determine if there was a sufficient "clash" between the Federal and Provincial legislation to invoke paramountcy one of two circumstances must exist:

  1. there must be an operational conflict, it must be impossible to comply with both statutes, or
  2. if there is not an operational conflict, the Provincial statute must frustrate the purpose of the Federal Statute.

In Moloney and Moore, the Court found an operational conflict. The BIA had discharged both debts and prevented the creditor from trying to collect it. The Provincial statute was aimed at collecting the debt. An operational conflict existed.

In Lemare, the Court concluded that it was possible to comply with both statutes. A secured creditor could proceed first with the provincial farm protection process that involved a 150 day delay, and then apply under the BIA for a receiver. Thus, there was no operational conflict. The Court then considered whether the 150 day delay inherent in the provincial legislation frustrated the purpose of the federal BIA provision that permitted the appointment of a receiver after a ten day notice period. The Court held that the purpose of the BIA provision was not to establish a maximum notice period of 10 days, but to permit the appointment of a receiver who would have national standing. Provincial legislation mandating a longer notice period did not frustrate the purpose of the federal statute of giving national status to the federal receiver. Thus paramountcy was not triggered and the Saskatchewan farm legislation was valid.

The decisions highlight the application of the paramountcy analysis in the context of "potential clashes" between provincial regulation and the federal insolvency laws. In short, the court takes a very restrictive view of when statutes in fact "clash" instead preferring to find a way for compliance with both statutes. Provincial legislation will only yield on the grounds of paramountcy where the provincial regulation is regarded as frustrating the purpose and object of the insolvency statute.

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