Volume 42 | Number 3 Summer 2007
Page 2 of 6
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I. Introduction
The preference provisions in the Canadian Bankruptcy and Insolvency Act1 (BIA) have been virtually unchanged since the legislation was enacted in 1919,2 and many of their features derive from the nineteenth century and earlier English law. There have been various reform proposals over the years, but until now they have come to nothing. Most recently, in 2003 a Senate Committee recommended amendments “to ensure consistent and simplified rules for challenging fraudulent preferences,” but without explaining what was wrong with the current laws and how they should be changed.3 Recently enacted amendments aim to put the Senate Committee’s recommendation into effect, but there is still no clear sense of the underlying objective.4 In any event, there are drafting problems, which will be explained later, and these will have to be fixed if the amendments are to have any impact at all. The drafting problems were at least in part a function of the failure to address policy objectives.
This paper argues that: (1) the current Canadian preference provisions are deficient because: (a) they lack a clear policy foundation, (b) judicial glosses on the statutory text mean that the statute itself is an incomplete statement of the law; and (c) the amount of discretion the provisions give the courts results in inconsistent and unpredictable case outcomes; (2) these problems should be fixed, but meaningful reform is impossible unless we first decide what we want the preference laws to achieve;5 and (3) Canada’s lawmakers should address the policy choices before proceeding further with the current reform initiative.
Part II surveys the evolution of preference law in common law countries and the competing policy objectives. Part III provides an overview of the current Canadian provisions and critically analyzes them with reference to the policy objectives identified in Part II. Part IV describes the most recent reform initiative and critically analyzes it with reference to the policy objectives identified in Part II. Part V concludes.