• Post category:Articles

British Columbia Court of Appeal Affirms Law for Single Creditor to Obtain Bankruptcy Order

The Recent Case

In the recent case of Solid Holdings Ltd. v. Grant Thornton Limited, 2019 BCCA 231, the British Columbia Court of Appeal (the “BCCA“) affirmed the decision of Solid Holdings Ltd. (Re), 2019 BCSC 126 (the “Judgment“), whereby Grant Thornton Limited (“GT Ltd.“), a single creditor applicant, obtained a bankruptcy order against Solid Holdings Ltd. (“Solid Holdings“).

This decision is significant as it is the first time the BCCA has affirmed the process for a single creditor to obtain a bankruptcy order under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “Act“).

The Facts

Pursuant to a Gold Sale / Purchase Agreement dated February 13, 2017 (the “Agreement“), the Crystal Wealth Enlightened Factoring Strategy (the “Crystal Factoring Fund“) advanced $300,306.00 to Solid Holdings (the “Advance“), to be repaid in accordance with the terms of the Agreement.

On April 26, 2017, two months after the Agreement was executed, Crystal Wealth Management Systems Limited (“Crystal Wealth Limited“)was placed into receivership. GT Ltd. was appointed as receiver and manager of all of the assets, undertakings and properties of Crystal Wealth Limited, including the Crystal Factoring Fund.

On December 27, 2017, Solid Holdings wrote GT Ltd. and provided written notice that it terminating the Agreement (the “Termination Notice“). Prior to the Termination Notice, the most recent notional gold purchase and sale transaction under the Agreement occurred on December 13, 2017, where the Crystal Factoring Fund “Purchased” a total of 232.57 ounces of gold, yielding a total amount of $367,676.20 owing by Solid Holdings to the Crystal Factoring Fund (the “December 13 Transaction“).

By letter dated January 8, 2018, GT Ltd. wrote Solid Holdings and demanded payment for the December 13 Transaction (the “Receiver Demand“). By letter dated April 16, 2018, the Receiver’s counsel wrote Solid Holdings making further demand for payment of the amounts owing under the Agreement (the “Counsel Demand“, together with the Receiver Demand, the “Demands“).

Despite the Demands, Solid Holdings failed to provide payment to GT Ltd. for the December 13 Transaction (the “Debt“).

The Hearing

By Motion filed August 30, 2018 (the “Motion“), GT Ltd. sought an Order that Solid Holdings be adjudged bankrupt (the “Bankruptcy Order“). In the Motion, GT Ltd. alleged that the Debt was outstanding and that Solid Holdings had committed an “act of bankruptcy” within the six months preceding the filing of the Motion by ceasing to meet its liabilities generally as they became due.

On December 14, 2018, the Motion was heard by the Honourable Madam Justice Jackson (the “Trial Judge“).

The Law

The process for obtaining a bankruptcy order is well established in Canada. Pursuant to Section 43(1) of the Act, the applicant creditor must show:

  1. the debts or debt owing to the applicant creditor or creditors amount to $1,000 (the “First Leg of the Test“); and
  2. the debtor has committed an act of bankruptcy within the six months preceding the filing of the application (the “Second Leg of the Test“).

The onus is on the applicant creditor to establish both the First Leg of the Test and the Second Leg of the Test[1], and clear-cut evidence must be put forward.[2] Although the civil “balance of probabilities” standard applies, the evidence must be scrutinized with particular care, and the allegations of fact and the act of bankruptcy must be fully and strictly proven due to the serious consequences that flow from a bankruptcy.[3]

Although Section 43(1) of the Act explicitly states “one or more creditors may file in court an application for a bankruptcy order“, the law with respect to a single creditor filing an application for a single “debt“, as opposed to “debts“, is less established.  

Where there is a single creditor applicant, the Court must “be vigilant to ensure that the process is not being used for “collection” purposes — for instance, to compel payment of a debt where the debtor is solvent, or to prevent the debtor from defending itself against a disputed claim“.[4] For this reason, there is a presumption that a bankruptcy order is unavailable to a single applicant creditor, except under “special circumstances.”[5] Three recognized categories of “special circumstances” are as follows:

  • where repeated demands for payment have been made within the six-month period;
  • where the debt is significantly large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which require that the processes of the Act be set in motion; and
  • prior to the filing of the petition, the debtor has admitted its inability to pay creditors generally without identifying the creditors[6]

(collectively, “Special Circumstances“).

A bankruptcy order will not be made if a debtor can establish it has chosen not to pay a particular debt for a justifiable reason (i.e. there is a bona fide dispute). The role of the Court in hearing a bankruptcy application is not “to determine the validity of the debtor’s dispute, but only whether the dispute is bona fide.” If there is a bona fide dispute regarding the subject debt “the matter must be decided in proceedings in the ordinary courts, rather than in the bankruptcy court“.[7]

If it is shown the debtor has failed to pay the debts owing, either to multiple creditors or to a single creditor where repeated demands have been made, there is a presumption the debtor is not meeting its liabilities generally as they become due.[8] Once this presumption is triggered, the onus shifts to the debtor to prove its ability to pay the subject debt.[9]

In order to satisfy the Court it is able to meet its liabilities generally as they become due, the debtor is required to provide “clear and independent evidence” of that fact, detailing its financial position, such as financial accounts or statements.[10] It is insufficient to put forward “unsupported generalizations” or a “self-serving general averment” of financial health and stability.[11]

The Parties’ Positions

As a single creditor applicant, GT Ltd. relied on the first category of Special Circumstances, namely, that repeated demands for payment of the Debt were made within the six months preceding the filing of the Motion.

Under the First Leg of the Test, the parties did not dispute that the Advance had been made or that Solid Holdings had not made payment to the Crystal Factoring Fund or GT Ltd. Solid Holdings argued the Crystal Factoring Fund defaulted in its obligations under the Agreement by failing to make or to complete the “scheduled agreed monthly payments” (i.e. 11 additional payments), causing Solid Holdings to suffer damages and giving rise to a counterclaim.

GT Ltd. described the Agreement as a term loan to Solid Holdings, to be repaid upon maturity in either gold or cash. On the 13th of every month, a “Settlement” and “Purchase” calculation would occur where the loan would “roll” over, without money exchanging hands, based on the then current price of gold. Each monthly “Settlement” and “Purchase” was an academic exercise for making the calculation as to the current value of the indebtedness owing by Solid Holdings to the Crystal Factoring Fund under the Agreement.

The Findings and the Order

On February 1, 2019, the Judgment was released and the Trial Judge granted the Bankruptcy Order.

In relation to the First Leg of the Test,  the Trial Judge dismissed Solid Holdings’ argument it had a bona fide claim against the Crystal Factoring Fund and determined that, based on the words of the Agreement, considered in light of the facts of the case, there was sound and convincing evidence of the Debt from the December 13 Transaction.

With respect to the Second Leg of the Test, the Trial Judge concluded that repeated demands for the Debt were made within the six months preceding the filing of the Motion, which satisfied the requirement for Special Circumstances. As a result, there was a presumption that Solid Holdings was not meeting its liabilities generally as they became due, and the onus shifted to Solid Holdings to prove its liabilities were being paid. Here, not only did Solid Holdings fail to submit clear and independent evidence of its detailed financial stability, the evidence it did put forward, including its assertions about its damaged business model and cancellation of its credit facilities, supported the opposite conclusion.

Based on the evidence, or lack thereof, the Trial Judge concluded that, in the six months preceding the filing of the Motion, Solid Holdings had committed an act of bankruptcy by ceasing to meet its liabilities generally as they became due.

The Appeal

On February 8, 2019, Solid Holdings filed a Notice of Appeal, alleging the Trial Judged errored in her interpretation of the Agreement and her application of the law (the “Appeal“).

The BCCA noted, as is well-established, the interpretation of a contract is treated as a finding of fact, attracting a deferential standard of review, requiring Solid Holdings to demonstrate the Trial Judge made a palpable and overriding error in her interpretation of the Agreement.

By Judgment made June 18, 2019, the BCCA rejected Solid Holdings’ arguments on the Appeal, concluding that the findings of fact underlying the Judgment were open to the Trial Judge on the evidence, the Trial Judge had not misapprehended the evidence in any material respect, and that there was no error in her application of the relevant legal principles to the facts.


If you are a creditor wishing to obtain a bankruptcy order against a debtor, and are having difficulty locating additional creditors, make multiple demands (at least two), and proceed as a single creditor, relying on the first category of Special Circumstances.

Prepared by:

MLT Aikins LLP

Suit 2600, 1066 West Hastings Street

Vancouver, BC V6E 3X1

William E.J. Skelly and Thomas W. Clifford – Counsel for Grant Thornton Limited

[1] 0757376 B.C. Ltd., Re, 2011 BCSC 1268 (B.C. S.C.) at para. 12.

[2] Obie International Inc. v. Aquasure Technologies Inc. (2008), 168 A.C.W.S. (3d) 252 (Ont. S.C.J.) at para. 6.

[3] Ball, Re, 2004 BCCA 647 at para. 5.

[4] Stancroft Trust Ltd. v. Asiamerica Capital Ltd. (1992), 72 B.C.L.R. (2d) 353 (C.A.) at para 12.

[5] Real Time Fibre Supply Ltd., Re, 2007 BCSC 371 at paras. 44-45 [Real Time]

[6] Valente v Fancsy Estate, [2004] OJ No 635, 70 OR (3d) 31, 183 OAC 191, 47 CBR (4th) 317, 129 ACWS (3d) 453, 2004 CarswellOnt 681 at para. 8.

[7] Bearcat Explorations Ltd., Re, 2003 ABCA 365 at para. 15.

[8] Real Time, supra note 5, at paras. 41-44; Servus Credit Union Ltd. v. Smith, 2013 ABQB 151 (Alta. Q.B.) at para. 12.

[9] Hayes (Re), [1979] BCJ No 1447, 34 CBR (NS) 280, 1979 CarswellBC 589 at para. 2.

[10] Chung, Re, 2004 BCSC 1669 at para. 19.

[11] Ibid, citing with approval Moody v. Ashton, [1997] S.J. No. 544 at p. 41 and 484030 Ontario Ltd., Re (1992), 12 C.B.R. (3d) 302 at pp. 313-314.