Equitable Subordination Redux? Section 183 of the Bankruptcy and Insolvency Act and Respecting the ‘Legislative Will’ of Parliament

Abstract

The Supreme Court of Canada has yet to rule on whether the American doctrine of equitable subordination is part of Canadian law. In Re US Steel, the Ontario Court of Appeal suggested in obiter that section 183 of the Bankruptcy and Insolvency Act (BIA) conferred upon courts the power to equitably subordinate a claim. This article focuses on the specific point of whether section 183 of the BIA provides the court jurisdiction in equity to subordinate a claim and alter the statutory priority scheme. Equitable jurisdiction found in section 183 of the BIA does not represent a broad power to reorder statutory priorities based on notions of fairness and good conscience. The section 183 jurisprudence simply does not support the obiter statement in US Steel. In interpreting section 183, Canadian courts have relied upon traditional doctrines of equity. To allow equitable subordination under section 183 would be an attempt to ignore the legislative will of Parliament and the BIA priority regime. There may be no need to import equitable subordination as there are existing provisions in the BIA which subordinate claims of the type often considered under the American doctrine of equitable subordination. Canadian law also effectively deals with creditor and insider misconduct through the oppression remedy and the new statutory duty of good faith.

Keywords: equitable subordination, Canada, bankruptcy, insolvency

JEL Classification: K29