Williams Moving & Storage (B.C.) Ltd. (Re), 2023 BCSC 205

February 22, 2023

What is the test for rectifying a BIA proposal?

Williams Moving & Storage (B.C.) Ltd. applied for the rectification of a bankruptcy proposal sanctioned and approved in accordance with the BIA by order of the Court issued May 19, 2015 (the “May Order”).

In 2019, following an audit by CRA, Williams Moving was reassessed to include additional taxable income of $5,839,375 in 2015, $3,124,046 in 2016, and $313,147 in 2017. As a result of the issues raised by the CRA during the audit, certain alleged “errors” in the final proposal were discovered by Williams Moving and its professional advisors. Williams Moving subsequently filed this application, seeking to correct the “errors” that it claimed were made in the May Order and the final proposal incorporated in it. Williams Moving asserted that the amendments should be made so that the final proposal and the May order were consistent with the “draft proposal” as agreed on by the parties.

There were twelve draft proposals. Some contained the definition of “Unaffected Creditors” that Williams Moving sought in this application, and others did not. Some included the Estate of George Williams in the list of Unaffected Creditors at Schedule “A” of the Proposal, and others did not. The drafts were vetted and reviewed for over a month before the final proposal was presented to the creditors and voted upon.

The premise of Williams Moving’s argument was that the final proposal did not accurately reflect the agreement between the parties. However, the final proposal was voted upon at the meeting of April 15, 2015, and was accepted by a majority vote of the creditors. The Court appreciated that, from the perspective of Williams Moving and the professional advisors, there were “errors”—in the form of adverse tax consequences—that were inadvertent. The final proposal may have failed to reflect the intention of Williams Moving, but the Court held that it could not find that there were “errors” in the final proposal. Consequently, as the May order was based upon the final proposal, there were no “errors” in it either.

Rectification is limited to cases where the agreement between the parties was not correctly recorded in the instrument that became the final expression of their agreement. It does not undo unanticipated effects of that agreement. Therefore, while a court may rectify an instrument that inaccurately records a party’s agreement respecting what was to be done, it may not change the agreement in order to salvage what a party hoped to achieve. A court may not modify an instrument merely because a party has discovered that its operation generates an adverse and unplanned tax liability. Rectification is unavailable where the basis for seeking it is that one or both of the parties wish to amend not the instrument recording their agreement, but the agreement itself.

The test for rectification required that Williams Moving show that there was a prior agreement whose terms were definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument failed to accurately record the agreement; and that the instrument, if rectified as proposed, would carry out the parties’ prior agreement.

In order to get rectification, it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error, wrote them down wrongly. Williams Moving sought rectification of the final proposal to conform to the draft proposal; however, it did not identify which of the 12 draft proposals available represented its intention. There was no prior draft proposal and no prior agreement with the creditors with definite and ascertainable terms. The final proposal was an accurate record of the agreement between the relevant parties.

It was insufficient for Williams Moving to show that it intended the final proposal to read as it asserted it ought to be. It failed to demonstrate that the creditors who voted on the final proposal had the same understanding regarding the alleged “errors” or that they agreed with the terms that Williams Moving now asserted should be in the final proposal. There was no agreement between the debtor and the creditors that was still in effect at the time the instrument was executed. It could not be said that the instrument failed to accurately record the agreement between the parties, nor that the final proposal, if rectified, would carry out the parties’ prior agreement.

The Court held that Williams Moving was attempting to change the final proposal four and one-half years after it was fully approved and performed. It wanted the tax consequences to flow from its “motivations and objections” and sought a tax benefit based solely on how it would have drafted certain portions of the final proposal. The Court declined to order that the final proposal be rectified. Accordingly, Williams Moving’s application was dismissed.

Judge: Justice Gropper

Counsel: K. Cook for the bankrupt; C. Akey and K. Baldwin for the Attorney General of Canada

By Matilda Lici