2015 QCCA 293, 2015 QCCA 293

Industries Cover inc. (Syndic des) 2015 QCCA 293 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-025007-154 (500-11-047250-143) DATE: Le 13 février 2015 THE HONOURABLE MARK SCHRAGER, J.A. IN THE MATTER OF THE BANKRUPTCY OF INDUSTRIES COVER INC. GUARDIAN INDUSTRIES CANADA CORP. GUARDIAN INDUSTRIES CORP. APPLICANTS – Respondents v. GESTION J&N BOUDREAULT INC. RESPONDENT – Petitioner and OFFICE OF THE SUPERINTENDENT OF BANKRUPTCY CANADA Impleaded party and PRICEWATERHOUSECOOPERS INC.

Trustee and JELD-WEN DU CANADA LTÉE Intervenor JUDGMENT [ 1 ] I am seized with Applicant’s [1] motion entitled a motion “to lift a provisional execution order (Art. 550 C.C.P. )”. [ 2 ] Applicant has filed an inscription in appeal dated January 23, 2015, by which it appeals the judgment of January 13, 2015 of the Superior Court, District of Montreal (the honourable Michel A. Pinsonnault).

The judgment contains a number of conclusions though the main thrust is to annul the bankruptcy of Industries Cover Inc. (“Cover”) and to declare that Cover is deemed never to have been in bankruptcy despite its voluntary assignment in bankruptcy filed August 25, 2014. Also of significance for the purposes of the motion before me is paragraph 566 wherein the judge: “… ORDERS the provisional execution of the present judgment notwithstanding appeal”. [ 3 ] The Applicant is the majority shareholder of Cover controlling 75% of the shares.

The voluntary assignment in bankruptcy was authorized by a vote of Cover’s board of directors. Applicant’s two nominees voted for the resolution while the third member representing the other 25% of the capital stock and the founder of Cover, voted against. [ 4 ] The filing of the assignment was followed within days by the motion to annul the bankruptcy upon which Justice Pinsonnault adjudicated. As well, within days, a safeguard order was issued by Justice Riordan, effectively staying the effects of the bankruptcy until adjudication of the motion to annul.

Justice Riordan ordered inter alia as follows: SUSPEND toutes les procédures de faillite dans le présent dossier jusqu’au jugement final sur la demande d’annulation de la cession d’Industries Cover inc. du 25 août 2014; DÉSIGNE Raymond Chabot inc., André Champagne syndic, à

titre d’observateur nommé par la Cour; PERMET à Industries Cover inc. de continuer à exploiter son entreprise normalement, sous la surveillance du syndic-intimé et de l’observateur; INTERDIT à Industries Cover inc. et à ses dirigeants de conclure toute opération hors du cours normal des affaires; ORDONNE au syndic-intimé et à l’observateur de ne poser aucun geste de quelque nature que ce soit à l’égard des biens d’Industries Cover inc., à l’exception des actes de surveillance énumérés ci-après, jusqu’au jugement final sur la demande d’annulation de la cession

d’Industries Cover inc. du 25 août 2014 : (...) [ 5 ] The balance of Justice Riordan’s order deals with various reports to be prepared and communicated by the proposed trustee and the observer. [ 6 ] The extensive judgment of Justice Pinsonnault, with regard to the motion to annul, in essence, decided that Cover was not an insolvent person within the meaning of the Bankruptcy and Insolvency Act (“ B.I.A. ”) [2] and that the majority shareholder sought to place Cover into bankruptcy, abusively, that is with the ulterior motive of avoiding certain multimillion dollar obligations towards the minority shareholder under the shareholders agreement. [ 7 ] Accordingly, Justice Pinsonnault exercised his power to annul the bankruptcy pursuant to

Section 181 B.I.A.

The reason given for the order of provisional execution appears in paragraph 476 of the judgment: [476] The conduct of Guardian [“Applicant”] and of Guardian Canada [“Applicant’s parent company”] following the institution of the present Motion to Annul leaves the Court with no doubt that it is in the interest of justice that such an order be made in the present case. (…) (Emphasis added by the undersigned) [ 8 ] Though not explicitly, Justice Pinsonnault was obviously referring to paragraph 477 and following of his judgment, under the heading “The conduct of Guardian and of Guardian Industries Canada following the stay order pronounced by Justice Riordan”. [ 9 ] The safeguard pronounced by Justice Riordan as indicated above, suspended the proceedings and allowed Cover to continue to operate in the ordinary course of its business.

As Justice Pinsonnault states, the safeguard order prevented in effect the trustee from having seizin of the assets – i.e. the universal assignment of the debtor’s property. [ 10 ] The motion before me refers to

Article 550 C.C.P. as my authority and jurisdiction to suspend the provisional execution notwithstanding appeal ordered by the judge. The judgment of first instance is an exercise by the Superior Court of its jurisdiction under the B.I.A. whose provisions should be given first consideration. However,

section 3 of the Bankruptcy and Insolvency General Rule s [3] (“ Rules ”) provides that: 3. In cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdiction, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules. 3. Dans les cas non prévus par la Loi ou les présentes règles, les tribunaux appliquent, dans les limites de leur compétence respective, leur procédure ordinaire dans la mesure où elle est compatible avec la Loi et les présentes règles. [ 11 ] The applicable provisions of the B.I.A. are

Section 182 as indicated by Applicant as well as

Section 195 dealing with stays of proceedings on appeal. 182.

(1) An order of discharge or annulment shall be dated on the day on which it is made, but it shall not be issued or delivered until the expiration of the time allowed for an appeal, and, if an appeal is entered, not until the appeal has been finally disposed of. 182 .

(1) L’ordonnance de libération ou d’annulation porte la date à laquelle elle est rendue, mais ne peut être émise ou délivrée avant l’expiration du délai accordé pour un appel ni, si appel est interjeté, avant que l’appel ait été finalement jugé. 195.

Except to the extent that an order or judgment appealed from is subject to provisional execution notwithstanding any appeal therefrom, all proceedings under an order or judgment appealed from shall be stayed until the appeal is disposed of, but the Court of Appeal or a judge thereof may vary or cancel the stay or the order for provisional execution if it appears that the appeal is not being prosecuted diligently, or for such other reason as the Court of Appeal or a judge thereof may deem proper. 195.

Sauf dans la mesure où le jugement dont il est interjeté appel est sujet à exécution provisoire malgré l’appel, toutes les procédures exercées en vertu d’une ordonnance ou d’un jugement dont il est appelé sont suspendues jusqu’à ce qu’il soit disposé de l’appel; mais la Cour d’appel, ou un juge de ce tribunal, peut modifier ou annuler la suspension ou l’ordonnance d’exécution provisoire s’il apparaît que l’appel n’est pas poursuivi avec diligence, ou pour toute autre raison qui peut être jugée convenable. [ 12 ]

Section 182 appears to have been given no consideration by Justice Pinsonnault. He should have allowed a ten day hiatus. However, I do not think that this is determinant. The combined effect of Sections 181 , 182 and 195 B.I.A. is that a judgment annulling a bankruptcy will be stayed, prior to becoming effective, by the filing of an appeal within the ten day delay (under Rule 31 ). However, nothing in the B.I.A. suggests that a judge has no power or jurisdiction to order that the annulment of a bankruptcy apply with provisional

execution. I see nothing in the B.I.A. which would preclude the application, in the circumstances, of

Article 547 C.C.P ., through the segway of Rule 3. [ 13 ] In such regard, I disagree with the argument put forward by Applicant that

Section 195 B.I.A. read with

Section 182 does not allow the judge to order provisional execution of his judgment annulling an assignment. [ 14 ] Applicant relies on A.G. Canada v. Moss [4] a decision of a chambers judge of the Manitoba Court of Appeal which tells us that the judgment annulling the bankruptcy would have no effect until the disposition of the appeal as provided in

Section 182 . However, in A.G. Canada v. Moss , the judgment annulling the assignment was not subject to an order of provisional execution. The case therefore is not helpful as to whether it was open to Justice Pinsonnault to order provisional execution or whether

Section 182 B.I.A. precluded him from doing so. [ 15 ] In re 9071-2852 Québec inc., [5] the Superior Court ordered provisional execution of a judgment annulling a bankruptcy. Reference was made to the analysis of Mongeon, j.c.s., in re Lacroix [6] where he applied provisional execution under

Section 195 B.I.A. to receiving orders. The judgment in the 9071-2852 Québec inc. case was confirmed by this Court but without reasons. [7] [ 16 ] Accordingly, there is no authoritative case shown to me which considers that, the effect of

Section 182 B.I.A. is to limit a judge’s discretion to order provisional execution (as recognized in

Section 195 B.I.A. ), where a bankruptcy is annulled. [ 17 ] There is a presumption in matters of statutory

interpretation of coherence as between the body of legislation enacted by a legislature and internally within statutes. [8] Statutory provisions are meant to work together in a rational internally consistent manner. Accordingly, it is proper to approach the question before me with a view to interpreting Sections 182 and 195 B.I.A. in a manner that there be no conflict between their contents. [ 18 ] I see no reason on reading the two sections that the discretion recognized in

Section 195 B.I.A. to order provisional execution would be limited by

Section 182 B.I.A. The latter speaks to the situation where provisional execution has not been ordered.

Section 182 did not limit as a matter of law, Justice Pinsonnault’s power to order provisional execution in this case. Rule 3 provides in effect that the discretion to order provisional execution found in

Article 547 C.C.P. applies, provided there is nothing inconsistent in the B.I.A. or the Bankruptcy Rules . I see no such inconsistency in

Section 182 B.I.A. or otherwise. [ 19 ] Houlden and Morawetz’s editors do not identify any conflict between Sections 182 and 195 B.I.A . [9] although the matter is not specifically discussed. [ 20 ] It is noteworthy that prior to the 1992 amendment [10]

Section 195 B.I.A. read as follows: Where a judge has granted leave to appeal, all proceedings under the order or judgment appealed from shall be stayed until the appeal is disposed of, but the Court of Appeal or a judge thereof may cancel and determine the stay if it appears that the appeal is not being prosecuted diligently, or for such other reasons as it may deem proper. [ 21 ] The current drafting of

Section 195 B.I.A. and specifically the reference to “provisional execution” appears to have been inserted to accommodate the procedure in civil matters in Quebec and specifically

Article 547 C.C.P. and following. Provisional execution as reflected in

Article 547 C.C.P. is particular to Quebec. [11] Had the words « except to the extent that an order of provisional execution notwithstanding any appeal therefrom » not been included then the power of a Quebec Superior Court judge to order provisional execution under

Article 547 C.C.P. (and Rule 3) would have been eliminated. [12] Given Parliament’s evident intention to preserve the power to order provisional execution it strains the interplay of Sections 182 and 195 B.I.A . to interpret

Section 182 as eliminating that power. Accordingly, in my opinion

Section 182 did not affect Justice Pinsonnault’s jurisdiction to order provisional execution of his judgment annulling the bankruptcy of Cover. [ 22 ] My jurisdiction to vary or suspend that order of provisional execution is found in

Section 195 B.I.A. which in these circumstances affords me discretion to intervene as I “may deem proper”. [ 23 ] However, Rule 3, in my view permits me to seek inspiration from the case law developed under 550 C.C.P. , to determine what is “proper”.

The test to suspend execution of an order for provisional execution is threefold: 1) An apparent weakness in the judgment in the lower Court; 2) A serious or irreparable prejudice caused by the provisional execution; 3) The balance of inconvenience favouring the party seeking the suspension of the provisional execution. [13] [ 24 ] As a general rule, a judge of the Court of Appeal should be hesitant to intervene into the exercise of discretion by the judge of first instance. [14] [ 25 ] In my view, the judgment of Justice Pinsonnault on the issue of the annulment of the bankruptcy as well as the decision to order provisional execution does not suffer from apparent weakness.

Given his conclusion that the voluntary assignment was the outcome of a strategy by the majority shareholder to avoid obligations and that Cover was not insolvent, the annulment of the bankruptcy followed. Given his finding that the conduct of Applicant in the proceedings was improper, the exercise of his discretion to order provisional execution under

Article 547 (

j) C.C.P. does not suffer from an apparent weakness. [ 26 ] Nor I am convinced that the order of provisional execution causes prejudice to the Applicant. The order of Riordan, J., as mentioned above effectively stays the effects of the bankruptcy of Cover until final judgment on the motion to annul. Thus, the status quo going into the hearing before Justice Pinsonnault was that the bankruptcy had no practical effect at least on Cover’s day-to-day operations. The trustee was not in possession of assets.

In practical terms, nothing has changed as a result of Justice Pinsonnault’s judgment so that I fail to see serious prejudice caused by the order of provisional execution with respect to the annulment of the

bankruptcy. In effect, the practical situation is virtually the same for the Applicant with the possible exception of the observer named by Justice Riordan. Moreover, interfering with the day to day business operations of Cover while proceedings are pending causes prejudice to Cover which could well be irreparable and render the bankruptcy, a fait accompli .

This is the apparent rationale behind the Riordan, J., safeguard order and such rationale remains relevant. [ 27 ] Applicant argues that Cover has no bank financing and is better off being subject to the B.I.A. pending appeal so that interim financing may be approved by the Superior Court as was the case pending the judgment appealed from. If this is the case, then it is a prejudice of Cover and the two shareholders in this appeal are both equally affected.

Counsel also pointed to administrative problems with the day-to-day operations but I do not see a prejudice suffered by Applicant that would cause me to intervene (even if there were a weakness in the judgment). [ 28 ] The establishment of the date of the bankruptcy is often determinative of the trustee’s recourses but I do not see on the basis of the material before me that this is a significant issue.

If Applicant succeeds in overturning Justice Pinsonnault’s judgment, the date of bankruptcy will remain as of the original date of filing of the assignment. [ 29 ] In terms of the balance of convenience, if the interest of any stakeholder including Applicant and the other parties before me is in need of protection based on new facts, there are remedies available to protect those interests. This is particularly the case for Applicant who controls two-thirds of the equity of Cover. [ 30 ] In

summary, I find no apparent weakness in the judgment of Pinsonnault, J., granting provisional execution nor any serious prejudice for Applicant in the particular circumstances of this case. [ 31 ] FOR ALL THE FOREGOING REASONS, THE UNDERSIGNED: [ 32 ] DISMISSES Applicant’s motion to “lift a provisional execution order”, with costs against Applicant Guardian Industries Canada Corp. and Applicant Guardian Industries Corp., jointly. MARK SCHRAGER, J.A. Mtre Yves Robillard Miller Thomson SENCRL / LLP For Guardian Industries Canada Corp. and Guardian Industries Corp.

Mtre Suzanne Gagné Mtre Mihnea Bantoiu Létourneau & Gagné Mtre William Noonan Gestion Hickson Noonan inc. For Gestion J&N Boudreault inc. Mtre Cécile Deforges BCF s.e.n.c.r.l. For the trustee Mtre Mark Bantey Mtre Steven Nguyen Gowling Lafleur Henderson s.e.n.c.r.l. For Jeld-Wen du Canada ltée Date of hearing: February 10, 2015