The Companies' Creditors Arrangement Act Reference Case, 1934

Abstract

In 1933, Parliament enacted the corporate restructuring statute which has become Canada’s premier reorganization regime for large companies: The Companies’ Creditors Arrangement Act (“CCAA”). Initially, the CCAA provoked controversy among the commercial bar because it bound secured claims, subjecting provincial property rights to federal bankruptcy and insolvency law for the first time. To resolve uncertainty about the validity of the new Act, the Bennett Government referred a constitutional question to the Supreme Court of Canada, which upheld the CCAA as a valid bankruptcy and insolvency statute. This historical study brings to light the fact that the property rights issue – despite being the most powerful argument against the validity of the CCAA – was not made by the litigants, nor addressed in the Supreme Court of Canada’s decision. It argues that the CCAA reference was a landmark case because it affirmed the ability of bankruptcy and insolvency law to qualify property rights and in so doing construed this federal head of power in relation to the debtor’s financial condition. This dramatically expanded the scope of the federal bankruptcy and insolvency law power at the expense of provincial jurisdiction. It also facilitated the addition of secured creditor remedies such as restructuring and receivership to bankruptcy and insolvency statutes.