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No Standing for Equity Holders to Challenge Creditor Claims

In YG Limited Partnership and YSL Residences Inc. (Re), 2023 ONCA 505, the Court of Appeal for Ontario recently upheld a decision of Justice Osborne of the Commercial List that the limited partners of a debtor do not have standing to challenge a claim advanced by a creditor against the debtor in a Bankruptcy and Insolvency Act (“BIA”) proposal process.

This article summarizes the Court of Appeal’s decision, including its determination that general principles of standing (including Rule 13.01(1) of the Rules of Civil Procedure) do not apply to BIA claim appeals and that the applicable BIA provisions (sections 37 and 135 of the BIA) do not give standing to limited partners who have an indirect rather than a direct legal interest even though acceptance of the creditors’ claim would reduce the recovery to the limited partners under the BIA proposal by $1.2 million. The article also goes on to posit that a similar outcome would be likely in a claim appeal in Companies’ Creditors Arrangement Act (“CCAA”) proceedings.


The Partnership and the Proposals

YG Limited Partnership (the “Partnership”) – a member of the Cresford Group – was the beneficial owner of a proposed condominium development at Yonge and Gerrard in Toronto known as Yonge Street Living Residences (the “Project”). The Partnership filed a notice of intention to make a proposal in April 2021.[1] The Partnership put forward an initial proposal which was supported by the proposal trustee, KSV Restructuring Inc. (the “Proposal Trustee”), and the general partner of the Partnership, but opposed by the limited partners. The limited partners were given standing by Justice Dunphy to oppose the proposal at the sanction hearing. Their opposition was successful and the proposal was denied in June 2021.

A second proposal was put forward and approved which transferred the Project to Concord Properties Development Corp. (“Concord”) in return for Concord paying $30.9 million to fund distributions. Under the proposal, the limited partners were entitled to any residual funds after distributions to creditors.

The CBRE Claim and Appeal

CBRE Limited (“CBRE”) filed a claim of approximately $1.2 million for commission related to the sale of the Project to Concord. The Proposal Trustee initially disallowed CBRE’s claim because of insufficient proof. CBRE appealed and filed additional evidence supporting its entitlement to the commission. Based on this additional proof, the Proposal Trustee and the general partner did not oppose the appeal. The limited partners sought to oppose the appeal. If the CBRE’s proof of claim was accepted, the recovery of the limited partners would be reduced by $1.2 million.

Justice Osborne of the Commercial List held that:

  1. the limited partners did not have standing to participate in the appeal of CBRE’s claim under either sections 37 or 135 of the BIA, discussed below, and
  2. in any event, even if the evidence and arguments of the limited partners were considered, CBRE’s appeal should be allowed and its claim accepted.[2]

The limited partners’ appeal of Justice Osborne’s ruling was heard by the Court of Appeal for Ontario and dismissed from the bench on June 30, 2023. The Court of Appeal released its reasons on July 20, 2023.

Relevant Provisions of the BIA

Proofs of Claim in BIA Proceedings

The procedure for reviewing and challenging proofs of claim filed by creditors in BIA proceedings is set out in section 135 of the BIA. It provides that creditors file proofs of claim with the trustee who is required to examine them. The trustee may disallow the claim in whole or in part. The claimant has the ability to appeal the disallowance of their claim to the court within 30 days of receiving notice of the disallowance.

Creditors who have filed a proof of claim are entitled to examine the proofs of claim of other creditors. The debtor or any creditor may challenge a proof of claim filed by another creditor by bringing an application to expunge or reduce the proof of claim if the trustee declines to interfere in the matter.

Appealing a Decision or Act by Trustee

Section 37 of the BIA provides a general mechanism for the debtor, any creditor or any other person aggrieved by any act or decision of the trustee to apply to the court, which may confirm, reverse or modify the act or decision complained of and make any other order it thinks just.

Court of Appeal Decision

General Standing Principles Do Not Apply to Proof of Claim Appeals

The Court of Appeal held that general principles of standing that are applied in the common law and the Rules of Civil Procedure (Ontario) do not apply to BIA claim appeals as the BIA is a complete code governing the bankruptcy process.

The Court of Appeal noted that (i) the process for appealing proof of claim decisions contemplated by section 135(4) of the BIA is between the trustee, the creditor claimant (CBRE) and the debtor (the Partnership), and (ii) the right to challenge a proof of claim in section 135(5) of the BIA is granted to the debtor and other creditors.

In both cases, equity owners that may have an indirect economic interest in the outcome such as the limited partners are not included in the parties that are given standing. The Court of Appeal stated that it was appropriate to limit standing to those parties identified in the BIA as this is consistent with the mission of the BIA to provide summary and expeditious procedures to determine the questions that arise in bankruptcy at minimum cost. The more parties that potentially have standing, the more costly and complex claims appeals may become.

A Direct Interest is Required in Order to be a Person Aggrieved

Section 37 of the BIA provides the statutory mechanism for an interested person not identified in section 135 of the BIA – such as the limited partners – to participate if they are an “person aggrieved”. The Court of Appeal stated that this section is “the legislative provision available to fulfil the function of the common law standing principles the Limited Partners seek to invoke, by providing a statutory mechanism [in a BIA process] for interested persons to participate.”

In the decision being appealed, Justice Osborne held that the limited partners were not a “person aggrieved” because they did not have a direct legal interest that was being impacted by the CBRE claim appeal. They only had the indirect economic interest that their potential recovery under the proposal would be reduced. Justice Osborne relied on the following excerpt from Holden & Morawetz, The 2022 Annotated Bankruptcy and Insolvency Act, Thomson Reuters, Toronto, 2022 at p. 102-103:

“the words “any other person is aggrieved” must be broadly interpreted. They do not mean a person who is disappointed of a benefit that he or she might have received if some other order had been made. A “person aggrieved” is a person who has suffered a legal grievance, a person against whom a decision has been pronounced by the trustee that has wrongfully deprived him or her of something, or wrongfully refused him or her something, or wrongfully affected his or her title to something: Re Sidebotham, (1880), 14 Ch.D. 458 at 465; Liu v. Sung, (1989), 72. C.B.R. (N.S.) 224 (BCSC).”

The Court of Appeal held that the determination of whether the limited partners were a person aggrieved was a decision of mixed fact and law and the limited partners had not demonstrated that Justice Osborne committed a palpable and overriding error.

No Failure to Observe Judicial Comity

The Court of Appeal also dismissed the argument of the limited partners that Justice Osborne failed to observe the principles of judicial comity by refusing to grant the limited partners standing when they had been previously been granted standing by Justice Dunphy at the sanction hearing. Justice Dunphy had granted the limited partners standing for one purpose (determining the validity of a proposal that would ground the entire BIA proposal proceeding) which was different than the narrower issue before Justice Osborne (determining the validity of one claim by another creditor).

Standing in CCAA Proof of Claim Appeals?

Overall, the decision establishes that equity owners and other non-creditors with only an indirect economic interest in the outcome of a claim appeal in BIA proceedings do not have standing to participate in that appeal.

It is interesting to consider whether the same principles would apply in proof of claim appeals in proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). The CCAA – in keeping with its skeletal nature – only provides that “the amount of an unsecured claim is the amount… proof of which might be made under the Bankruptcy and Insolvency Act, but if the amount so provable is not admitted by the company, the amount is to be determined by the court on summary application by the company or by the creditor.”[3]

Procedures for the filing, review and appeal of proofs of claim in CCAA proceedings are generally set out in a claims procedure order made by the supervising court which typically provides that an appeal of a claim disallowance may be made either to (i) the court, or (ii) a claims officer mutually appointed by the claimant and the debtor company or appointed by the court.[4] The court or the claims officer would have the ability to control the process for the appeal, including any requests for standing.

On the one hand, courts have repeatedly stated that the CCAA and BIA should be interpreted so that they operate harmoniously.[5] This militates in favour of the BIA standing principles being utilized in CCAA claims appeals as well. On the other hand, the CCAA is intentionally more flexible and hews away from providing codified procedures for things like appeals and standing. A claims officer or court may determine that applying the common law standing principles is more appropriate that the procedure set out in the BIA.

Fortunately for the harmony of the BIA and CCAA regimes, this may be a distinction without a difference. While the Court of Appeal held that the general common law principles of standing do not apply to BIA claims processes and thus it “need not resolve the contours of the common law right to standing”, it did comment that:

  1. it is not clear that a common law “right” of standing exists; and
  2. if such a right exists, the case law suggests that the moving party would have to demonstrate a direct proprietary or economic interest in the outcome of the proceedings in order to be entitled to standing.

Rule 13.01 of the Rules of Civil Procedure sets out the mechanism that is potentially available to third parties to intervene as a party in a proceeding. The third party may be granted leave to intervene where:

  1. they have an interest in the subject matter of the proceeding;
  2. they may be adversely affected by a judgment in the proceeding; or
  3. they have a question of law or fact in common with one of questions in the proceeding.

The court may grant the third party leave to intervene as a party after considering whether the intervention may unduly delay or prejudice the determination of the rights of the parties to the proceeding.

As the Court of Appeal noted, the case law suggests that ordinarily a third party has to demonstrate that their interests may be directly impacted by the proceeding. Intervention based on an indirect relationship is generally only granted in exceptional cases where wider considerations of justice militate in favour of permitting the person to participate as a party.[6] This aligns with the requirement in section 37 of the BIA that that an interested person must have a direct interest in the outcome of a trustee’s decision in order to be an “aggrieved person” that can challenge that decision.

As a result, whether a claims officer or court applies the BIA principles or common law principles in determining whether an interested person should be granted standing in a claims appeal in CCAA proceedings, it seems likely that the interested person will have to demonstrate some direct interest in the appeal, not merely an indirect economic interest such as the one advanced by the limited partners of the Partnership.


[1] The NOI was also filed by YSL Residences Inc., which was the registered owner of the Project as bare trustee for the Partnership.

[2] YG Limited Partnership and YSL Residences Inc., 2022 ONSC 6548.

[3] Companies' Creditors Arrangement Act, RSC 1985, c C-36, s. 20(1)(a)(iii).

[4] See e.g. Claims Procedure Order in CannTrust Holdings Inc., Re dated May 8, 2020 at paras. 30-34; Claims Procedure Order in Just Energy Group Inc., Re dated September 15, 2021 at paras. 39-40.

[5] See e.g. 9354‑9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10 at para. 74; Kitchener Frame Limited (Re), 2012 ONSC 234 at para. 78.

[6] Holmested and Watson: Ontario Civil Procedure, Garry D. Watson, Derek McKay; § 28:8. Intervention As a Party—Rule 13.01.

Equity Holders Creditor Claims Bankruptcy and Insolvency Act Ontario Court of Appeal



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