Doubt As To Secure Creditor Status Resolved

In an important decision in the financial services and insolvency sectors, the Honourable Mr. Justice J.D. Ground of the Ontario Superior Court has restored to secured creditors some certainty as to their status which was removed last year in the controversial decision of the Honourable Mr. Justice Farley, HSBC Bank Canada v. Expressway Concrete Supply Limited. The Expressway Concrete case had cast into doubt the validity, in bankruptcy, of security held against more than one debtor on a joint and several basis. By implication, the decision also called into doubt the validity of security taken upon a guarantee given on the basis that the guarantor would be liable jointly and severally with the debtor as principal surety. Similarly, all security given by partnerships which, by definition, are joint and several liabilities of the partners in Ontario, was called into question. However, in Pike et al. v. Bel-Tronics Company, Mr. Justice Ground has distinguished and doubted the reasoning underlying the Expressway Concrete decision and has restored to lenders holding security from more than one debtor on a joint and several basis the status of “secured creditor” under the Bankruptcy and Insolvency Act.

Counsel for Richter & Partners Inc. in its capacity as Interim Receiver and Receiver of Bel-Tronics Company who raised and dealt with the Expressway Concrete issue were Frederick L. Myers and Monica Creery of Osler, Hoskin & Harcourt LLP. Counsel for the first secured creditor Gordon Brothers Partners was Daniel V. Macdonald of McMillan Binch. Counsel for Segal & Partners Inc., Trustee in Bankruptcy, was Craig Colraine and Mitchell D. Goldberg of Birenbaum, Steinberg, Landau, Savin & Colraine. Counsel for Avnet International Inc., a trade creditor, was Shayne Kukulowicz of Fraser Milner Casgrain.