The Ontario Court of Appeal has granted leave to appeal on the question of whether the Bank of Montreal could use a credit bid to purchase an asset that did not attach to its security – specifically, a potential cause of action against itself – at an auction sale.
“This is a matter of importance beyond this appeal to bankruptcy proceedings more generally,” the appeal court said in Avida 2015 Inc. (Re), 2026 ONCA 426.
Avida 2015 Inc. owed the Bank of Montreal – its senior secured creditor and the respondent in this case – more than $6 million. The appellant, a director and officer of Avida, guaranteed $4 million of Avida’s indebtedness.
Under a general security agreement between the bank and Avida, the bank privately appointed MSI Spergel Inc. as a receiver. On Feb. 23, 2024, the court approved the appointment.
On Mar. 6, 2024, upon the bank’s application, the court issued a bankruptcy order over Avida and appointed Spergel as trustee.
On Nov. 22, 2024, the appellant asked the trustee to bring proceedings against the bank for breaches of contract and fiduciary duty, as well as other causes of action. The trustee refused.
The appellant wanted to pursue the action against the bank in his own name. The bank sought to purchase the possible cause of action against itself at an auction via a credit bid.
The appellant argued that the general security agreement did not cover his claim against the bank. As the claim was not part of the bank’s security, the appellant asserted that the bank should bid cash rather than credit and would have no priority over any sale proceeds.
On Sept. 22, 2025, Justice Jana Steele of the Ontario Superior Court of Justice allowed the trustee to commence the auction sale process. The motion judge found that the appellant’s cause of action was an asset that:
- could be sold in bankruptcy proceedings
- could be sold to the bank, which could credit-bid up to the face value of its secured debt
- the appellant could bid on
Though alleging that he could appeal as of right under s. 193 of the Bankruptcy and Insolvency Act, 1985, the appellant requested leave to appeal if necessary.
Leave to appeal granted
Seeing no appeal as of right here, the Court of Appeal for Ontario found leave to appeal necessary under s. 193(e) of the Bankruptcy and Insolvency Act.
Next, the appeal court considered this an appropriate case to grant leave, as it met the test in Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282.
The appeal court acknowledged that credit bidding was well-established. However, the appeal court determined that a creditor’s entitlement to a credit bid to acquire an asset that did not attach to its security was not well-settled.
The appeal court deemed the proposed appeal meritorious on its face. The bank confirmed that hearing the appeal would not harm it.
Lastly, the appeal court reserved the issue of costs.