Federal Security Interests Research Study and Report 2000

APPENDIX H

Summary of legislative and regulatory provisions relating to bankruptcy issues arising in the context of federal security interests

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 2, 14.06(7), 30(1), etc.

Section 14.06(7) gives the federal and provincial Crown a "super priority" against the debtor in a bankruptcy for costs of remedying any environmental condition or environmental damage affecting real property of the debtor.; The Crown priority operates as a charge on the real property and ranks above any other claim, right or charge against the property.

Section 30(1) gives the Trustee in Bankruptcy broad powers to run the bankrupt's financial affairs.; This power includes the right to give security on property of the bankrupt.

Section 47 gives the Court the power to appoint a trustee as interim receiver of all or any part of the debtor's property that is subject to the security to which a s. 244 notice relates.; Section 47 is designed to ensure that the debtor does not dissipate its assets during the 10 day freeze in which secured creditors are prevented from realizing on their security.

Section 67(2) provides that, notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as held in trust for Her Majesty unless it would be so regarded in the absence of that statutory provision.

Section 69 provides that upon the filing of a notice of intention or of a proposal unsecured creditors are stayed from taking enforcement measures against the debtor.

Section 87 provides that a staututory lien whose sole purpose is to secure a claim of the Crown is only valid in relation to a bankruptcy if it is registered.

Section 244(1) provides that secured creditors intending to enforce a security on all or substantially all of the inventory, the accounts receivable or the other property of an insolvent person that was acquired for, or is used in relation to, a business carried on by the insolvent person shall send to that insolvent person, in the prescribed form and manner, notice of that intention.

Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-35, s. 2 and 11.8(8)

Section 11.8(8) is similar to s. 14.06(7) of the Bankruptcy and Insolvency Act.; It gives the federal and provincial Crown a charge against the real property of debtor companies for costs of remedying environmental damage affecting the real property of the debtor company.; The Crown charge has priority over any other charges on the affected real property.

Winding-Up and Restructuring Act, R.S.C. 1985, c. W-11, s. 78-84

Sections 78-84 provide a process for dealing with secured claims where a business is being wound up.; Section 78 provides that where a creditor holds security on the estate of a company, the creditor shall make a claim in which it specifies the nature and amount of the security.; Pursuant to s. 79 the liquidator may then either consent to the retention of the security by the creditor or may require the creditor an assignment and delivery of the security.; If the latter, the value of the security is to be paid by the liquidator out of the estate as soon as the liquidator has realized the security.

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