Compelling foreign residents to attend examinations?

IE CA 3 Holdings Ltd. (Re), 2023 BCSC 2120
Can the court compel foreign residents to attend examinations under oath in a bankruptcy without the need for letters of request?

Overview: In this case, the trustee in bankruptcy sought to compel certain current and former directors and officers of the debtor companies to attend examinations under oath. The directors and officers argued that the court could not compel them to attend for examinations in Canada, since they were foreign residents, and that it would be sufficient for the trustee to examine a director and co-CEO of the parent company who was also a former director of both of the debtors who had agreed to be examined on certain conditions. The court disagreed and ordered four of the proposed examinees to attend without the need for letters of request to the foreign courts. The court found that the proposed examinees had attorned to the jurisdiction of the court by making substantive arguments on the matter, and also in their capacity as directors and officers of the parent company, which had already been found to have engaged in a series of fraudulent conveyances with the debtors.

PricewaterhouseCoopers Inc. (“PWC” or the “Trustee”), in its capacity as trustee in bankruptcy of the Debtors, sought an order to compel six individuals to attend for an examination under oath pursuant to s. 163(1) of the Bankruptcy and Insolvency Act respecting the Debtors and their dealings or property. The proposed examinees, all of whom resided outside Canada, were presently or had been directors or officers of the Debtors or their Australian parent company. The Trustee wished to examine them about a variety of matters, including transactions that took place between the Debtors and their affiliates prior to the date of the Debtors’ assignment into bankruptcy.

One of the proposed examinees, William Roberts, who was a director and co-CEO of the parent company and a former director of both of the Debtors, had agreed to be examined by the Trustee on certain conditions. The parent company, the Debtors and the proposed examinees otherwise opposed the application on the basis that: 

1. the Court lacked the jurisdiction to compel the proposed examinees, as foreign residents, to submit to the proposed examinations; and

2. the proposed examinations, except for that of William Roberts, would be unnecessary and abusive, particularly because he could answer whatever questions the Trustee may have.

PWC, then acting as receiver, had assigned the Debtors into bankruptcy on June 27, 2023. The Receivership Order was made on the application of the Debtors’ only secured creditor. The Debtors, between them, owed the secured creditor more than US $100 million. The Court previously granted the creditor’s application for a declaration that the Debtors and their parent company had engaged in a series of fraudulent conveyances prior to the receivership.

On June 13, 2023, the Court granted an application by PWC, then acting as receiver, seeking to expand its powers to permit it to assign the Debtors into bankruptcy. PWC sought that order so that it could exercise the additional powers of a trustee in bankruptcy, including the power to conduct examinations under s. 163 and, if necessary, to take advantage of the remedies available under Part IV of the BIA.

The Trustee argued that the Court may order the proposed examinees to submit to the proposed examinations either directly or, alternatively, indirectly, by requiring the parent company to make them available for that purpose. Three of the proposed examinees were former directors of the Debtors, making them persons who were expressly subject to examination under s. 163. Further, s. 163 contains no language restricting the persons who may be examined according to their place of residence, nor can such a restriction reasonably be implied, given the “reality of global business” that Canadian companies will often have directors and officers who reside in other places. Finally, the Trustee argued that even if the Court lacked the requisite jurisdiction to order the proposed examinees to attend the examinations, the proposed examinees had attorned to the jurisdiction through the response that they filed to this application.

The proposed examinees argued that the only proper way for the Trustee to obtain their testimony would be by way of letters of request directed to the foreign courts having jurisdiction over them. The Court could not acquire a jurisdiction it did not have by directing the order at the parent company. The parent company was not a “person” who could properly be ordered to be examined under s. 163. In their submission, the word “person” in that context could only mean an “individual”.

Section 163 is broadly worded. There is no geographical limitation placed on the classes of persons who may be examined. Moreover, the provision empowers the Trustee to examine such persons “without an order.” An order will therefore only become necessary if a proposed examinee refuses to comply. Ordinarily, non-resident examinees who refuse to comply can only be compelled to do so by means of letters of request directed to the foreign courts having jurisdiction over them. There are, however, exceptions to the need for letters of request.

First, the court will acquire the requisite in personam jurisdiction over non-resident examinees who have attorned to the court’s jurisdiction, such as by advancing substantive arguments on the merits of the dispute before the court. By seeking to have the application resolved, even if only in part, on the basis that the Trustee had acted unreasonably in refusing to examine only William Roberts in the first instance, the proposed examinees had, albeit “begrudgingly”, attorned to the Court’s jurisdiction.

Second, the proposed examinees were directors and officers of the parent company, a foreign corporation that had, without question, already attorned to the Court’s jurisdiction. This bankruptcy action was closely related to, and indeed, arose directly out of the receivership proceeding. The parent company could not properly seek to advance its interests in this litigation before the Court while refusing to make its directors and officers available for examination as the law requires. The Court could, therefore, to the extent required, also invoke its in personam jurisdiction over the parent company by ordering it to make the proposed examinees available for examinations. The source of the Court’s jurisdiction to make the order sought lies in its inherent jurisdiction to control its own process.

The Court may, where appropriate, properly set limits on the number and length of s. 163 examinations, to ensure that they do not become abusive. Here, the Court was satisfied that the matters raised by the Trustee were worthy of further investigation by it, including by way of one or more examinations under s. 163. However, the Trustee had not demonstrated that all six of the proposed examinees fell within at least one of the categories of examinable persons listed in s. 163. Accordingly, the Court’s order was limited to relief sought against only four of the six proposed examinees.

Judge: Justice Milman

Counsel: Mary Buttery, KC and Emily Paplawski of Osler for PWC as Trustee

Kieran Siddall and Candace Formosa of Norton Rose Fulbright for the Debtors

Tom Curry and Bonnie Greenaway of Lenczner Slaght for Daniel Roberts, William Roberts, Michael Alfred, David Bartholomew, Belinda Nucifora and Chris Guzowski

Chris Burr and Claire Hildebrand of Blakes for NYDIG ABL LLC