Research in Bijuralism: Bankruptcy and Insolvency Act

Albert Bohémier*

Table of Contents

INTRODUCTION

This study will examine the major difficulties created by the application of the provisions of the Bankruptcy and Insolvency Act within the context of Quebec civil law. The objective is to promote interaction that contributes to the highest possible level of bijural harmony. Obviously, this objective will never be fully realized unless the Bankruptcy and Insolvency Act is redrafted in its entirety. Federal law draws its inspiration directly from the common law model and makes use of concepts and mechanisms proper to common law, but not always in harmony with a civil law system. In brief, the task is to improve this situation, while remaining aware of the limitations inherent in such efforts. Indeed, Quebec jurists frequently find themselves somewhat at a loss when confronted with certain common law institutions; even the courts occasionally admit to being in a quandary. It would seem that the major drawback of this situation is that Quebec courts are occasionally relegated to a rather passive role. As will become apparent from the various topics examined in this study, Quebec courts have always, to some degree, been at the mercy of developments in the English courts and in the common law provinces. Quebec courts have rarely taken the initiative in modernizing common law concepts. This is doubtless due to a sense of caution, since boldly experimenting with essentially unfamiliar concepts could be seen as bordering on recklessness.

In view of the limited nature of this study, it concentrates on the features that, I believe to be responsible for the major difficulties. They fall into two categories.

The first category involves the application of concepts proper to common law within a civil law context. Without drawing up an exhaustive list, we can take as examples the concepts of settlement and trust, applications of the latter being found in various parts of the Bankruptcy and Insolvency Act. In such cases, the interpreter may consider two possible solutions. On the one hand he may decide that the common law concept referred to in the Bankruptcy and Insolvency Act is inapplicable in Quebec, since the law of that province contains no similar or equivalent institution.

This solution appears indefensible. It unduly restricts the express wishes of Parliament. For this reason, it would be preferable to consider that the federal provision will be implemented as soon as a situation of fact encompasses the elements necessary to its application. This is the attitude adopted by Quebec courts. For example, "settlement" is a concept quite foreign to civil law, but when a gift made in Quebec corresponds to the common law concept of settlement, such gift becomes subject to federal law.

The second major difficulty derives from the formulation or translation of certain parts of the Bankruptcy and Insolvency Act which have caused problems since the coming into force of the new Quebec Civil Code. Section 2 of the federal legislation defines a secured creditor as one who, among other things, holds a "privilege" on property. But this concept no longer exists in the Civil Code of Québec (C.C.Q.); it has been replaced by the concept of "prior claim". The Bankruptcy and Insolvency Act regulates the assignment of book debts, including "assignment by way of security and other charges". In the new Civil Code, this situation is characterized as a hypothec on claims.

I have employed various strategies to counteract these difficulties when suggesting the direction that certain reforms might take. In some cases I have suggested a "common law provision" that would avoid the application of certain rules in Quebec. In other cases, I have opted for a "Quebec clause", which would allow for smoother integration of an enactment into a civil law context. Finally, in other situations, the best solution would appear to be the elimination of certain expressions used in federal legislation, with the hope that the Civil Code might then be easier to apply.

This study will deal with the following issues: (A) the settlement of property ; (B) trusts, fiduciary obligations and the fiduciary relationship; (C) the capacity and functions of a trustee in bankruptcy; and (D) various issues of a more technical nature.

A. SETTLEMENT OF PROPERTY[1]

According to section 91 of the Bankruptcy and Insolvency Act (hereinafter "B.I.A."), any settlement of property in the year preceding bankruptcy is void against the trustee in bankruptcy.[2]

If the settlement is made more than one but less than five years prior to the bankruptcy, the trustee in bankruptcy may avoid the transaction by establishing that the debtor was insolvent at the time or became so because of the settlement or because the settlor's interest in the property did not cease upon settlement.

If the bankrupt makes a simple gift prior to bankruptcy, the trustee in bankruptcy may avoid the gift by using ius commune remedies.[3] Generally, the trustee will be required to demonstrate that the gift was made to defraud the creditors, or that the debtor was insolvent.

If the gift is in the form of a settlement, however, the legislation makes things easier for the trustee.[4] According to section 91 B.I.A., a settlement of property in the year prior to the bankruptcy will be considered void[5] regardless of the settlor's financial situation.[6]

If the settlement was made during the five years prior to bank­ruptcy, the onus is on the trustee in bankruptcy to demonstrate that the debtor was insolvent at the time of settlement. On the other hand, the trustee can also merely show that, despite the settlement, the settlor's interest in the property transferred did not pass to the beneficiary at the time the settlement was made. Parliament's intent is to provide the trustee with an argument against future dispositions of property at the time the settlor is declared bankrupt.[7]

The following will attempt to define settlement of property and examine how this concept has been applied by Quebec courts.

1. Definition of "settlement"

The concept of "settlement" comes from English law and first appeared in Canadian bankruptcy law in 1919. The Re Bozanich case was the first opportunity for the higher courts to specify a meaning for this concept.[8]

According to the Supreme Court, in the absence of any specific definition in Canadian law, the concept should be defined in accordance with English case law.[9] The settlement of property is considered an unfettered or gratuitous action by which a settlor procures an advantage to another person, directly or indirectly through a trustee, and where the settlor explicitly or implicitly intends the person benefiting from the said advantage to keep the donated property in its original form or in a form that can be traced.[10] The essential characteristics of a settlement of property are:

  1. The action is gratuitous and effected for no, or purely nominal, consideration.
  2. The action is effected by the settlor with a specific intent.
  3. The action implies that the beneficiary will enjoy posses­sion and benefit of the property.

The characteristic which distinguishes a settlement under the Bankruptcy Act and its predecessors from an unfettered gift, or gratuitous conveyance of property is the intent with which the disposition was made. Where the donor intends the property, whether conveyed as a gift or otherwise, to be kept for the benefit of the donee in its original form or in a form that can be traced, the disposition constitutes a settlement.[11]

For example, the gift, by a settlor to his spouse or a family member, of a necklace,[12] car,[13] furniture,[14] or interest in an immoveable,[15] can be deemed to constitute a settlement of property. However, the remittal of a sum of money to a donee, money that he can dispose of at will, would not be considered a settlement.

In recent years, the concept of settlement has been invoked primarily to counter debtors attempting to make their property exempt from seizure by taking out life insurance policies or annuity contracts and designating their spouses or children as beneficiaries. Under provincial legislation,[16] such designations are generally considered to render the insurance policies and annuity contracts exempt from seizure. This practice was an attempt by the debtor to property from passing to and vesting in trustee, since property that is exempt from seizure is excluded from the bankrupt's patrimony.[17]

The courts have consistently held such designation to be a settlement within the meaning of section 91 of the Bankruptcy and Insolvency Act. This means that the trustee could contest the designation and subsequently have the life insurance policy or the annuity contract declared liable to seizure.[18]

This line of cases was recently set aside, in part at least, by a decision of the Supreme Court.[19] It was thought that sections 67(1) and 91 B.I.A. should be reconciled. Even though the designation of a beneficiary constitutes a settlement of property and is therefore void against the trustee under section 91, the property remains exempt from seizure. Therefore, it is under provincial legislation, through actions for a declaration that such transfers or assignments are void, that the latter may be challenged in cases of fraud.[20]

In recent years, some courts have broadened the traditional meaning of settlement and given it a more contemporary content. For example, the idea was advanced that a settlement of property could exist even where no benefit accrued to a third party beneficiary. The settlement would exist simply because the debtor had decreased the assets to be divided amongst his creditors[21] by using seizable property to acquire unseizable property; in other words, the settlor was making a settlement for his own benefit.[22]

As an extension of this concept, it was argued that the application of subsection 2 of section 91 B.I.A. could be circumvented if it was established that a settlor had acted in good faith.[23]

These new trends are not easy to follow. In our view, a settlement, within the meaning of section 91 B.I.A., requires the transfer of some sort of benefit from settlor to beneficiary:

Section 91 [...] and its predecessors were necessary to permit the trustee in bankruptcy to seek to set aside those transactions where property was transferred or conveyed to another for the benefit of the transferee. If the bankrupt still owns the property, one need not attack it as a settlement.[24]

Similarly, in view of the wording of section 91(2) B.I.A., it is difficult to see how the good or bad faith of the settlor is relevant.[25]

Finally, the courts have continued to assume, as was required by the Supreme Court in Bozanich, that the intention of the settlor with regard to the use to be made by the beneficiary of the donated property is an essential element when determining whether there is a settlement.[26]

Even in common law provinces, the concept of settlement and its application have given rise to various controversies. In Royal Bank v. Oliver, Baynton J. admirably summed up the situation:

The term "settlement" is no longer defined in the Act as it was when Re Bozanich, supra, was decided. The nature, characteristics and definition of a settlement must be gleaned from common law. Unfortunately there is no clear definition and several kinds of transactions have been held to be "settlements". The classic example of a settlement is the gratuitous transfer of property by the settlor to be held by or for the benefit of the donee in its original form or a form that can be traced: The Annotated Bankruptcy and Insolvency Act 1991, L.W. Houlden and C.H. Morawetz (Toronto:Carswell, 1991) pp. 137-145; Cohen v. Mahlin, 7 C.B.R. 655, [1926] 3 W.W.R. 34,[1926] 3 D.L.R. 942 (Alta. T.D.) at pp. 666-667 [C.B.R.], reversed on other grounds, 8 C.B.R. 23, [1927] 1 W.W.R. 162, 22 Alta. L.R. 487, [1927] 1 D.L.R. 577 (C.A.); Re Cyr (1982), 45 C.B.R. (N.S.) 195 (Alta. Q.B.); Re Bozanich, supra. But the definition of a settlement is not restricted to this type of transaction. It has been extended to include an outright gift to a spouse: Antonation v. Rolfe (1978), 29C.B.R. (N.S.) 46, (sub nom. Antonation v. Antonation) 13 A.R. 1 (C.A.). It has within the last decade been extended even further to include a transaction by which the settlor settles property on himself: Klassen, supra; Camgoz, supra; Alberta Treasury Branches v. Guimond (1987), 70 C.B.R (N.S.) 125, 53 Alta. L.R. (2d) 39, 27 C.C.L.I. 90, (sub nom. Re Guimond (Bankrupt)) 83 A.R. 392 (Q.B.); Wilson v. Doane Raymond Ltd. (1988), 69 C.B.R. (N.S.) 156, 60 Alta. L.R. (2d) 264, [1988] 5 W.W.R.572, 51 D.L.R. (4th) 632, (sub nom. Re Wilson (Bankrupt)) 88 A.R. 205(C.A.).[27]

In 1992, doubtless to clarify the situation, Parliament amended the Bankruptcy and Insolvency Act to include a new definition of settlement of property in section 2:

["settlement" "disposition"] "settlement" includes a contract, covenant, transfer, gift and designation of a beneficiary in an insurance contract, to the extent that the contract, covenant, transfer, gift or designation is gratuitous or made for merely nominal consideration.

The impact of the new definition may not be as beneficial as hoped. Indeed, this definition, though describing the possible terms and conditions of a settlement, does not specify its essential ingredients.

Nowhere does the definition indicate whether the intention of the settlor as to enjoyment by the donee is a determining element. It is difficult to believe that, simply by remaining silent on this issue, Parliament intended to sweep aside judicial interpretation that has existed for over a hundred years. Moreover, if the new definition were applied literally, a gift made in good faith by a solvent debtor in the year prior to his bankruptcy would become null and void. It is difficult to believe that such was Parliament's intention.

This is why, in spite of the new definition in section 2, the courts will probably continue to take their cue from earlier decided cases, ambiguous though they may often be.[28]

2. Application of the concept in Quebec

I have not systematically examined every Quebec decision on this issue, but have focused on the leading and binding decisions.

Although the expression "settlement of property" is not to be found in the legal language of Quebec civil law[29] and although the meaning of this term is difficult to ascertain,[30] Quebec courts were finally left with no choice but to draw directly on English cases or cases from the common law provinces in applying the notion of settlement.[31] Any other approach would have placed undue restrictions on Parliament's intention.

Thus, for example, the concept of settlement was invoked to void the transfer of rights respecting immovables[32] and movables,[33] without valuable consideration. Likewise, in keeping with the judicial practice of other provinces, in recent years this concept has been used in Quebec to challenge designations of beneficiaries in life insurance policies or annuity contracts.[34]

The only practical and real drawback to inserting the concept of settlement into a civil law framework has been the repeated necessity to indicate that it can only be invoked with respect to gratuitous actions and can not be argued in challenging a preferential payment, the constitution of a suretyship or any other act by onerous title,[35] or with respect to the execution of a gift issuing from a marriage contract.[36]

3. De lege ferenda

Settlement is an institution unknown to civil law. What can be done then to achieve bijuralism, without excessively impairing legislative uniformity in bankruptcy and insolvency? If settlement is considered an essential institution in bankruptcy, complementing the various other common law remedies, the choice is then rather limited.

An initial solution could be to define settlement with great precision, indicating all its essential elements. It might also be useful to designate the concept by some other term. This would let the courts distance themselves somewhat from the older English case law, and Quebec courts could then concentrate on the actual wording of the federal legislation.

Another solution would be to use the proposals from the numerous, stillborn draft bills tabled prior to the 1992 reform. For example, the 1984 Bill C-17 on bankruptcy and insolvency, though not defining "settlement" , did define "gift":

"gift" includes a contract, covenant, transfer, settlement and designation of a beneficiary in an insurance contract to the extent that such contract, covenant, transfer, settlement or designation is gratuitous or is made for a merely nominal consideration.[37]

To avoid introducing the concept of "settlement" into Quebec law, the words "settlement or designation" could be replaced, not by a "Quebec clause", but by a "common law clause", stating that in provinces other than Quebec, "gift" would include "settlement" . This would respect the rights of the common law provinces and avoid introducing into Quebec law an unnecessary distinction between the various types of gift.

Finally, a third solution would be to follow English law, which abolished the concept of settlement in the Insolvency Act and replaced it with the concept of transaction at an undervalue.[38]

The creation of a new remedy would eliminate earlier court-generated concepts and solutions. Moreover, I believe that this would not harm the general concepts of civil law.

B. THE FIDUCIE OR TRUST, FIDUCIARY OBLIGATIONS AND THE FIDUCIARY RELATIONSHIP

[Translation] I personally admire the flexible nature of the trust. I sometimes even hope that our legislator will adopt and adapt it. These are nevertheless simply the words one might find in the mouth of a comparativist. The judge has a quite different function. René David, himself a well-informed comparativist, when speaking of trusts and other common law elements, wrote that they were just concepts "that have no power of evocation in our minds".[39]

These concepts are proper to the common law system but create considerable problems of interpretation for the Quebec civil law jurist. They appear in various parts of the Bankruptcy and Insolvency Act.

Section 67, referring to the trustee's right of possession and the rights of the creditors, provides that:

The property of a bankrupt divisible amongst his creditors shall not comprise:

a) property held by the bankrupt in trust[40] for any other person

Section 178(1), which relates to the discharge of the debtor's liabilities, provides that:

An order of discharge does not release the bankrupt from:

…

d) any debt or liability arising out of fraud, embezzlement, misappropriation[41] or defalcation while acting in a fiduciary capacity.

Section 120(6) provides that the court may vary the fee allowed to inspectors "having regard to the nature of the services rendered in relation to the fiduciary obligations of the inspector to the estate."

These three issues will be discussed below.

1. Property of the bankrupt (s. 67 B.I.A.)

Section 67 states that "property of the bankrupt" does not include or comprise property held by the bankrupt in trust for any other person.[42] This is fully justified in a common law context, but its application in Quebec is more questionable and may even have undesirable effects.

In a trust, the trustee holds the legal title on behalf of a third person who has the beneficial ownership of the property.[43] To the extent that the assets or property comprised in the trust[44] can be traced, it is quite proper that they should be excluded from the trustee's bankruptcy.

As far as legal practice in other provinces and in federal legislation is concerned, this provision is fundamental. In Quebec law, however, its relevance is less obvious.

a) Trusts and Quebec law

The Civil Code of Lower Canada recognized a limited form of "trust" in the case of legacies "for charitable . . . purposes" (section 869) or where there is substitution (section 964).[45] Under an 1879 law, incorporated into the Code in 1888, the Quebec legislator allowed for the possibility of setting up a trust by gift or will.[46]The provisions will be found in articles 981a et seq. of the Civil Code of Lower Canada.[47]

Trusts were thus recognized in particular instances only and were restricted in scope. Moreover, as Professor John E. Brierley points out:

[Translation] The Supreme Court of Canada also appears to have admitted that, in order to justify certain solutions, English trust law, which the Court saw as the obvious source of the system, might be invoked as an additional argument, but only insofar as such law is "compatible" with the principles of Quebec civil law.[48]

When the Civil Code was reformed, Quebec's National Assembly instituted a new and broader trust system, as evidenced in articles 1260 et seq. C.C.Q.

The legislator drew on the concept of patrimony by appropriation in order to "civilize" the trust:

[Translation] [I]t is probable that the legislator intended the "trust" , as an institution, to be henceforth autonomous and independent of English law sources.[49]

Article 1261 C.C.Q. states: "The trust patrimony . . . constitutes a patrimony by appropriation, autonomous and distinct from that of the settlor, trustee or beneficiary and in which none of them has any real right." Article 1278 C.C.Q. adds that the trustee has the control and exclusive adminis­tration of the trust patrimony.

These provisions clearly indicate that the provincial legislator intended to avoid any departure from the law of property and wished to integrate the concept of a trust in Quebec law with civil law rather than common law concepts.[50]

According to the Quebec Minister of Justice:

[Translation] The solution adopted by the Code does seem, after examining the various possible solutions, the one that best translates the true nature of the trust. Moreover, being easily integrated into Civil Law, it has the advantage of not changing the relationship between the various parties concerned.[51]

Another advantage is that, in dealing with trusts, it will no longer be necessary to refer to sui generis property rights[52] or fiduciary property rights,[53] as was necessary for the types of trusts referred to in articles 981a et seq. of the Civil Code of Lower Canada.

b) Application of section 67 B.I.A. in a civil law context

In the case of bankruptcy law, the introduction of the new trust concept in the Civil Code may have complicated rather than simplified matters.

1) Section 67(1)(a) B.I.A. and the trust in article 1260 C.C.Q.

Does section 67 B.I.A. apply to this sort of trust? Should it apply? The answer is not obvious. Section 67 refers to property held by the bankrupt under a trust. In other words, even if the trustee has legal title to the trust property, that property will be immune passing to and vesting in from the bankruptcy trustee.

In the new trust defined in the Civil Code, the trustee controls, but does not own the property. The trust constitutes an autonomous patrimony; the property held in trust cannot therefore be included in the bankruptcy of the settlor who constituted the trust, or in that of the trustee, or again in that of the beneficiary. In this respect, section 67(1)(a) B.I.A. hardly applies to the Quebec trust. It is only by the broadest interpretation or by analogy, that section 67 could be understood to apply to a Civil Code trust. Perhaps section 67(1)(d) should be applied in its place. This paragraph provides that the property of a bankrupt in the bankruptcy trustee's hands shall comprise "such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit."[54]

It should be noted, however, that since the trustee acts as the administrator of the property of others, (art. 1278(2)), his function terminates on his or on the beneficiary's becoming bankrupt (art. 1355 C.C.Q.).

2) Section 67(1)(a) B.I.A. and certain trusts established by law

Certain provincial laws provide for the establishment of trusts for particular purposes. For example, section 20 of the Act respecting the Ministère du Revenu[55] provides that "[e]very person who deducts, withholds or collects any amount under a fiscal law is deemed to hold it in trust for Her Majesty in right of Quebec."[56]Likewise, the Consumer Protection Act [57] states that "[e]very merchant who receives a sum of money from a consumer before the making of a contract must place that sum in a trust account".

I am not a specialist in such matters. Nevertheless, there is little to suggest that these legislative enactments were intended to create a true trust, within the meaning of the new Civil Code. If this is the case, however, then the above remarks would apply. If there was no such intention, then, regardless of the impact the enactments may have on the civil law, these trusts will be subject to section 67(1)(a) B.I.A. as well as the corresponding "tracing" rule in accordance with English law:

The provinces may define "trust" as they choose for matters within their own legislative competence, but they cannot dictate to Parliament how it should be defined for purposes of the Bankruptcy Act.[58]

3) Section 67(1)(a) B.I.A. and money deposited in a trust account

This legal framework is somewhat unsatisfactory. For example, the Consumer Protection Act obliges a merchant who receives a sum of money as a deposit to place such money in a trust account.[59] The by-law respecting accounting and trust accounts of advocates and the Regulation respecting trust accounting by notaries[60] provide that members of such professions shall deposit money belonging to their clients into trust accounts. In particular, the notaries' regulation states that "neither these funds nor any interest they may generate belong to the notary".[61]

At first blush, these provisions do not appear to create true trusts within the meaning of the new Code. The notaries' regulation states that the money deposited belongs to the clients. The fact that the money is held in a trust account would suggest a mandate. Moreover, it is generally recognized that the use of the term "trust" or "in trust" to designate a bank account does not in itself create a trust.[62]

[Translation] The deposit of money in a trust account in no way modifies the rights of the person who opens the account, or those of the person on whose behalf such sums are being held.[63]

For this reason, as far as notaries are concerned, such money should be considered to be beyond the scope of bankruptcy, since it is the property of the client. With respect to advocates, there is reason to believe that such money may be deemed to be held in trust for the purposes of the application of section 67(1)(a) B.I.A.[64]

4) Section 67(1)(a) B.I.A. and deemed contractual trusts

In certain kinds of contracts, the parties establish fiduciary relationships, either by express stipulation or by creating a legal relationship that allows the existence of a trust to be inferred. For example, an agreement may stipulate that the sums received or obtained by one of the parties shall be held in trust on behalf of the other party to the agreement and must be deposited in a special trust account.[65]

Under the Civil Code of Lower Canada, the courts were extremely reluctant to view such agreements as giving rise to a "trust" .

There is an important principle in Quebec law under which it is understood that property always belongs to someone. Our laws do not recognize the duality of property whereby a fiction is created according to which the legal title belongs to the trustee and the beneficial ownership belongs to the settlor.[66]

For this reason, in such situations, the courts generally considered that such an agreement could not give rise to a trust in Quebec. It was perceived instead as a contract of mandate,[67] or as an innominate contract subject to specific contractual stipulations and the general rules applicable to obligations.[68]

In terms of the new Civil Code of Québec, it is difficult to see how such agreements could give rise to a trust within the meaning of arts. 1260 et seq. Of course, an implied trust might be created because that was the wish of the settlor, but it still requires [Translation] "the certainty that the settlor intended to set up a trust and not just something similar."[69] In the agreements in question, I find it difficult to believe that the co-contractors did indeed intend to create a true autono­mous patrimony.[70] Moreover, the trust, as set out in the Civil Code, should, it seems, be of a sufficient duration, unlike the stipulations contained in commercial agreements.

This is where section 67(1)(a) may have an unfortunate impact on Quebec law. As noted, settlements as such do not exist in civil law. Nevertheless, in order to give effect to the will of Parliament, the courts have applied section 91 B.I.A. in cases where the facts had the elements of a settlement of property. The same approach has been adopted, as will be seen, in the application of section 178(1)(d) B.I.A. (see above, the fiduciary relationship).

Consequently, even where an agreement does not constitute a trust for the purposes of the Civil Code, it can nevertheless be argued that it is a trust within the meaning of section 67(1)(a) B.I.A. Such could be the case when an agreement, or even provincial legislation, creates a specific legal relationship that comprises the elements of a trust as it is understood under English law. Should one then not give effect to the will of Parliament?[71]

5) Proposals for reform

Section 67 determines which "property of a bankrupt" is divisible amongst the creditors. The wording itself is not very explicit. It does not clearly state that property in the posses­sion of the bankrupt, but belonging to a third party, is exempt from divestment. Moreover, as indicated earlier, it might well be concluded that the trust provisions of 67(1)(a) do not cover the kind of trust that is defined in the new Civil Code, but probably do apply to certain legal relationships that, while not trusts within the meaning of the Civil Code, do have elements of a trust within the meaning of the common law.

Furthermore, Quebec statutes on occasion expressly provide for the creation of trusts that appear to be closer to the English style of trust than to the Quebec trust.

It is for these reasons that, should it be necessary to amend section 67 B.I.A., the term "trust" or, in French, fiducie should be retained, but it would be advisable to add other provisions to clarify the law in this area.

As a suggestion, section 67 B.I.A. could read:

The property of a bankrupt ... shall not comprise

  • a) property held by the bankrupt in his capacity as fiduciary or trustee[72] on behalf of any other person, or property transferred into a trust within the meaning of the Civil Code;[73]
  • b) property belonging to a third party that is in the possession of the bankrupt or that the bankrupt holds in his capacity as mandatary[74] or as administrator of the property of others.

2. Fiduciary obligations

This expression is found in section 120(6) B.I.A. with reference to inspectors of the estate of the bankrupt.[75] It is generally acknowledged that the inspectors have a fiduciary obligation towards the creditors:

Inspectors stands in a fiduciary relation to the general body of creditors and should perform their duties impartially and in the interests of the creditors who appoint them.[76]

In Quebec, there has been no substantial discussion of the nature of the obligations resting on the inspectors. There have been a number of decisions in which inspectors have been held to be mandataries for the creditors.[77] I have criticized this approach elsewhere as being far from satisfactory. Inspectors do not perform legal acts and their essential role is to supervise the administration of the trustee in bank­ruptcy in the interests of the creditors.[78]

Regardless of the character of inspectors' functions, Quebec courts, along with those of the other provinces, agree when it comes to judicial review of their acts. The courts will not intervene to revoke or vary a decision of the inspectors (section 119(2) B.I.A.) unless the latter have acted in an irregular manner, illegally, in bad faith or contrary to their fiduciary obligations, i.e. without having the general interests of the creditors at heart.[79] Naturally, these cases were decided on the basis of the fiduciary obligations of the inspectors.

The disadvantage of the current situation, if there is one, resides therefore in the fact that the inspectors' functions can be analysed only through reference to concepts derived from the common law.

To eliminate this constraint, one might consider amending section 120(6) to refer to "the fiduciary obligations of the inspector and the obligations assumed by the inspector as a mandatary of the creditors". We have already discussed why this solution does not appear appropriate. I consider it preferable to strike out the words "fiduciary obligations" in section 120(6) and to require that the inspectors act in good faith and in the general interests of the creditors.

In the common law provinces, such an amendment would probably be of no great consequence. By applying general common law concepts, courts having common law jurisdiction would doubtless reach the same conclusions with regard to the inspectors' fiduciary obligations, despite the apparent silence of the law on this subject. As far as Quebec courts are concerned, it is often enough to stress the need for good faith and the need to protect the general interests of the creditors, to ensure that proper control is exercised over the actions of inspectors. These two concepts could make it unnecessary to refer back to common law legal concepts. Moreover, if the words "fiduciary obligations" are struck out, it would be easier to apply civil law as supplementary law.

3. Release from debts and the fiduciary relationship (s. 178(1)(d) B.I.A.)

Section 178(1)(d) of the Bankruptcy and Insolvency Act provides that:

An order of discharge does not release the bankrupt from

. . .

d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity.

The Bankruptcy Act of 1919 read differently. It was copied from English law, and section 147 (1919 R.S.C. c.11, s.147) provided that the bankrupt would not be discharged "from any debt or liability incurred by means of any fraud or fraudulent breach of trust to which he was a party". The current provision was drafted on the occasion of the 1949 reform and the change was based directly on American law. Yet, strange as this may seem, there has been hardly any acknowledgment of U.S. case law as a source of interpretation.[80] This is rather unfortunate, since U.S. courts regularly interpret the provision restrictively so as to favour the discharge of bankrupts:

The qualification that the debtor be acting in a fiduciary capacity has consistently, since its appearance in the Act of 1841, been limited in its application to what may be described as technical or express trusts.[81]

Furthermore, under U.S. law, it has always been considered necessary to establish that the debtor has committed manifestly fraudulent acts or acts in which the fraudulent intention was obvious.[82]

In the following pages we will consider the interpretation of section 178(1)(d) B.I.A. in the common law provinces and in Quebec, and some proposals for reform will conclude the discussion.

a) Interpretation in common law provinces

Generally, section 178(1)(d) has been interpreted in a fairly liberal manner. No distinction has been drawn between the debtor who acts in a fiduciary capacity and the debtor who acts as a trustee.According to decided cases, the phrase "in a fiduciary capacity" is applicable to all the acts mentioned in section 178(1)(d).[83] Moreover, it is generally considered that the provision becomes applicable as soon as a fiduciary relationship exists in law, fact or contract.[84]

To determine the meaning of "embezzlement, misappropriation or defalcation" in section 178(1)(d), specific reference has been made to dictionaries to demonstrate that these terms are more or less synonymous. In Turner v. Midland Doherty Ltd.,[85] Black's Law Dictionary provided a definition of "defalcation":

The act of a defaulter; act of embezzling ; failure to meet an obligation ; misappropriation of trust funds or money held in any fiduciary capacity ; failure to propertly account of such funds.[86]

It was in this manner that the tendency developed to consider that misappropriation or defalcation came into existence the moment that the person acting in a fiduciary capacity failed to meet his obligations, in particular, the obligation of accountability, without the necessary commission of an intentionally dishonest action.[87]

For evidence of a fiduciary relationship, the courts have relied on English law. In Halsbury's Laws of England,[88] a fiduciary relationship is defined as follows:

Apart from the creation of trusts of specific property, the position held by a person may itself involve confidence so as to impress him with a fiduciary character and when he obtains possession of money or other property in this character, he holds it as a trustee.

The main characteristic of a fiduciary relationship is the fact that one party has trusted another with the management of certain property. This relationship exists whether the fiduciary relationship is formal and explicit or informal and simply based on the fact that "one man trusts and relies on another".[89]

Basically, this is the view embraced by the Supreme Court of Canada:

The following common features provide a rough and ready guide to whether or not a fiduciary obligation should be imposed on a new relationship: (1) the fiduciary has scope for the exercise of some discretion or power; (2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and (3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.[90]

In the following cases, it was decided that there existed a fiduciary relationship which could prevent the debtor at fault from being discharged of his debt.

A son who is responsible for managing his father's farm and who receives the proceeds from the sale of certain products acts in a fiduciary capacity.[91] The same is true of a receiver who holds and administers property.[92] A debtor who sells property in his possession that he had assigned to his creditor as security, holds the sums obtained from such sale as a trustee.[93] A husband who receives money from his spouse in order to manage it for their joint benefit is acting as a trustee.[94] The same is true of a lawyer who uses his client's money that is deposited in a trust account,[95] a broker who uses his client's account for his own benefit,[96] a contractor who allows himself to be divested of the truck that was to be used by the driver with whom he had concluded a contract.­[97] A fiduciary relationship also exists for a person who receives money for which he is accountable in certain circumstances.[98] A business associate who is mandated by a third party to produce goods, and to withdraw and account for the income generated is also in a fiduciary relationship.[99]

On the other hand, except in special circumstances, no fiduciary relationship exists between the partners of a partnership,[100] or between a customer and his bank.[101]

As can be seen, in English law, the situations that give rise to a fiduciary relationship have not been precisely identified. Apart from those circumstances generally recognized to create such a relationship, each situation requires specific analysis using certain basic criteria.[102]

b) Application of section 178(1)(d) in Quebec

The concept of "fiduciary relationship" or "fiduciary capacity" is generally unknown in Quebec civil law. Here again, in order to give effect to the federal legislation, the Quebec courts have interpreted the paragraph on the basis of English law and the case law of other provinces:

[Translation] In our opinion, where a federal statute refers to a legal concept that does not exist as such in Quebec law, we should seek an analogy that will allow reference to an equivalent situation of fact. This will permit the consistent interpretation, throughout Canada, of the provisions of all federal statutes, not only those of the Bankruptcy Act.[103]

This is the approach Quebec courts have had to take. It has not been possible to complete a systematic compilation of judicial decisions, but on this point they are not overly abundant. For example, Quebec courts have held that an advocate or a notary who appropriated money held in a trust account for a client was acting in a fiduciary capacity and could not be discharged from that debt.[104] The same would hold for a person who held goods on consignment and was accountable to the real owner for the proceeds of their sale.[105] The same is also true of a liquidator who withdraws money from a succession for his own personal benefit,[106] or a curator who appropriates the property of the person under his care.[107] In a recent case, it was even held that a purchaser of goods on installment could be considered a trustee for those goods under section 178(1)(d) B.I.A. if he resold the goods without the seller's authorization as required under the terms of the initial contract.[108] The Court of Appeal did not venture an opinion regarding the insurance agent who received premiums payable to the insurance company from his client and was supposed to hold the money in a trust account.[109]

Quebec courts do recognize the existence of a fiduciary relationship where the constituent elements of this relationship or elements similar thereto are present. It would be difficult to do otherwise, as effect must be given to the will of Parliament. Moreover, there must be some sort of functional relation between sections 67(1)(a) and 178(1)(d) of the B.I.A. Property held in trust by the bankrupt must be returned to the beneficiary of the trust. If the property is traceable, the beneficiary merely needs to file a proof of claim. If not (for example, the bankrupt has commingled his personal property with that of the trust) the beneficiary will lose his rights. It would seem normal under such circumstances that a bankrupt whose dishonest or fraudulent actions have prejudiced the beneficiary of the trust should be denied release from the debt thus incurred.

c) Proposals for reform

As has been shown, the term "trust" is occasionally used by the Quebec legislator and, in such cases, a fiduciary relationship is inevitably created. If only for this reason, the expression "in a fiduciary capacity" should continue to be applied in Quebec.

Where assets must be deposited in a trust account, the situation is less clear. As the law now stands, there is a tendency to consider that there is a contract of mandate or an innominate contract accompanied by a fiduciary relationship. Finally, wherever one party has entrusted another with the management of property , the courts have tended to assume the existence of a fiduciary relationship. This is somewhat similar to the concept of "administration of the property of others" in article 1299 C.C.Q.: "Any person who is charged with the administration of property or a patrimony that is not his own assumes the office of administrator of the property of others." As such he must act with prudence and diligence (art. 1309 C.C.Q.) and render account to the beneficiary (art. 1363 C.C.Q.). The following are deemed to be administrators of the property of others: a curator (art. 281 C.C.Q.), a tutor (art. 286 C.C.Q.), a trustee (art. 1278 (2) C.C.Q.), a manager of a divided co-ownership syndicate (art. 1085(2) C.C.Q.), a manager of another person's business (art. 1482),[110] and a liquidator of a legal person (art. 360 C.C.Q.) or of a succession (art. 802 C.C.Q.). The following are not administrators of the property of others within the meaning of article 1299 C.C.Q: administrators of companies or corporations and mandataries.[111]

Section 178(1)(d) could thus be amended to read as follows:

An order of discharge does not release the bankrupt from

. . .

d) any debt or liability arising out of fraud . . . while acting in a fiduciary capacity, or as a trustee or an administrator of the property of others.[112]

There is nothing revolutionary in this proposal. Readers may recall former section 2 of the Criminal Code in which a trustee is defined, inter alia, as "any person who is, by the law of the province of Quebec, an administrateur or fidéicommissaire; and "trust" includes whatever is by that law an administration or fidéicommis".[113]

However, given the novel character of the concept of an administrator of the property of others, it would be advisable to pursue the analysis to ensure that such an amendment will not overshoot the objective. Care should be taken to ensure that it does not have an unintended impact on the common law provinces.

C. CAPACITY AND FUNCTIONS OF A TRUSTEE IN BANKRUPTCY

Through the bankruptcy process, a trustee in bankruptcy acquires the property of the bankrupt and must then manage and liquidate the property in the interests of the creditors. This section deals with the nature of the trustee in bankruptcy's rights and goes on to inquire whether reforms should be introduced in this area.

1. Nature of the rights of a trustee in bankruptcy

The question of the nature of a trustee in bankruptcy's capacity and functions has not been dealt with in any depth by either legal writers or the courts. Apparently, this is because the Bankruptcy and Insolvency Act, and its predecessor legislation, have always regulated the rights, powers and obligations of trustees in bankruptcy down to the last detail.

Notwithstanding the above, a trustee in bankruptcy is in some ways a trustee as defined in common law,[114] who holds as a fiduciary the property in his charge[115] and assumes fiduciary obligations towards the body of creditors whose interests he represents. A trustee in bankruptcy has full ownership over the property of the bankrupt, but for specific purposes only:

The trustee takes the bankrupt's property for an absolute estate in law, but for limited purposes only, namely, for the payment of the creditors under that bankruptcy . . . Subject to that he is a trustee to the bankrupt for the surplus.[116]

As soon as the debtor has filed for bankruptcy, and for its duration, the trustee in bankruptcy should be viewed as the owner of the assets in his capacity as the debtor's representative. This arises from the B.I.A., which provides that the debtor's property vests in the trustee (section 71(2)) and that the trustee may be registered as owner of the property of the bankrupt (section 74(2)).

In the application of bankruptcy legislation, it is the specific nature of the rights acquired by the trustee over the property of the bankrupt and the extent of his obligations that are likely to cause problems.

By the simple fact of bankruptcy, the property of the bankrupt passes to and vests in the trustee in bankruptcy.[117] The latter acquires a right of possession over the debtor's property.[118] It is clear that such ownership is not as absolute as that of the owner in article 947 C.C.Q. A trustee in bankruptcy does not have "the right to use, enjoy and dispose fully and freely" of the property that devolves to him. A trustee in bankruptcy is not the owner for his own benefit but for the benefit of the creditors and, to a lessor extent, for the debtor. This is why some jurists consider that a trustee has a right of "fiduciary ownership".

[Translation] The trustee becomes owner of the property assigned to him, not on his own behalf but as a fiduciary, and the purposes of the Bankruptcy Act are the conditions attached to this right of ownership, that is to say, the right to liquidate the property for the benefit of the creditors.[119]

The concept of fiduciary ownership does not fully correspond to general civil law concepts. From a civil law viewpoint, a trustee in bankruptcy is a legal mandatary vested with the power to administer and dispose of property over which he has acquired control. From this point of view a trustee is closer to a liquidator within the meaning of the federal legislation on the winding-up of insolvent companies.[120] In French law, since the 1985 reform, the syndic or trustee has been assigned the role of "creditors' representative" and acts as a "mandatary-liquidator".[121] A trustee in bankruptcy is in fact a legal mandatary or representative, responsible for administering the property of others.[122] It should be noted that there are those who claim that a trustee in bankruptcy is an administrator of the property of others within the meaning of the Civil Code.[123] This position seems hardly defensible. While a trustee must act in the interests of others, he is himself the owner of the property whose management he takes over.

From this point of view, a trustee in bankruptcy is more like an owner responsible for the management of a patrimony by appropriation within the meaning of the Civil Code. The assets of the bankruptcy, while not forming an autonomous patrimony, do make up a mass that is assigned to a particular purpose. This mass, which no longer belongs to the bankrupt, is not, however, part of the trustee's patrimony or of that of the creditors.

The question of the trustee's obligations has seldom been raised. According to common law jurisdictions, a trustee in bankruptcy assumes fiduciary obligations.[124] In Quebec, the question arises whether the liability of the trustee should be analysed in terms of these obligations or in terms of the general rules laid down in the Civil Code. As far as I am aware, there has been no specific study of the subject. However, in a case before the Supreme Court of Canada,[125] De Grandpré J. held that a trustee in bankruptcy who had neglected to insure the property of the bankruptcy could be held liable, both under section 24 B.I.A. and, it would seem, under the general principles of the Civil Code. In this case, it was determined that the trustee was at fault and had not acted as a good administrator.[126] It may be concluded that absent other indications in the federal legislation, the civil law will apply.[127]

The real questions concerning the function of a trustee in bankruptcy surface when the trustee claims rights as an "extension of the person of the debtor"[128] or initiates an action in annulment, inopposability or some other form, as the representative of the creditors. What is the role of a trustee in bankruptcy in such situations?[129]

In common law provinces, and in Quebec too, for that matter, a trustee in bankruptcy is generally viewed as the debtor's representative and, in certain cases, as the creditors' representative.[130]

When the trustee is appointed he assumes responsibility in two areas:

  • a) he becomes the debtor's representative; and
  • b) he becomes the representative of all the ordinary creditors, to the extent that he can even act on their behalf against the debtor.[131]

The difficulty lies in deciding when a trustee in bankruptcy is acting in one capacity rather than the other. One example will suffice to illustrate this: a spouse causes a declaration of family residence to be registered against the immovable belonging to the other spouse, who subsequently files for bank­ruptcy. Under Quebec law, the trustee in bankruptcy is considered free to sell the property. This can be justified only if the trustee is considered to be the creditors' representative. If it is argued, however, that the trustee stands in the shoes of the debtor, he must, as the debtor would have had to do, obtain the consent of the spouse or the court in order to dispose of the property (arts. 399 and 404 C.C.Q.).

This is a difficulty that arises not from the interaction of federal law and the Civil Code, but from the silence of federal legislation in this regard. The federal legislation could perform a service if it made explicit the capacity in which a trustee in bankruptcy acts when exercising certain rights or powers. This matter does not, however, come within the scope of this study.

2. Appropriateness of reform

As indicated earlier, for all intents and purposes, there have been few judicial decisions on the capacity and functions of trustees in bankruptcy. The Bankruptcy and Insolvency Act regulates the rights, powers and duties of the trustee in a very precise fashion. In certain respects, the Act could well be amended, particularly in relation to the role of the trustee as the debtor's and the creditors' representative. Depending on the changes made, however, difficulties could be created with respect to the interaction between federal legislation and the Civil Code. However, this goes beyond the scope of this discussion.

Nevertheless, from a conceptual point of view, the kind of ownership that devolves to a trustee in bankruptcy through the process of divestment-this right of fiduciary ownership that is limited in time and in purpose-does not harmonize particularly well with the concepts of the Civil Code.

A number of analogies could be made between the trustee's right of possession and certain patrimonies by appropriation, but they are not completely satisfactory. According to the Civil Code (art. 1256 C.C.Q.), a foundation is intended for the "durable fulfillment of a socially beneficial purpose", while a trust (art. 1260 C.C.Q.) constitutes an autonomous patrimony with no owner.

One could question whether the transfer of property from a debtor to a trustee in bankruptcy following a divestment is absolutely essential to the effective operation of bankruptcy legislation. When a company is liquidated, there is no such transfer; the liquidator simply acquires the power to administer and dispose of the property of the company under liquidation. Such mechanisms are in greater harmony with Civil Code concepts. Before contemplating such a change, however, some caution is warranted. There was probably a good reason why the British Parliament established one set of rules for bankruptcy and another for liquidation. This differentiation has had major consequences for private international bankruptcy law.[132] There may have been other reasons, but I am not aware of them.

Finally, it may be useful to recall that the concept of "fiduciary ownership" or "sui generis ownership" fitted in quite well with the legal institution of the trust as laid down in the Civil Code of Lower Canada.[133]

Moreover, although the issue is of little practical interest, it might be appropriate to establish general but explicit rules concerning the responsibilities of a trustee in bankruptcy. The legislation could provide, for example, that the trustee must act in the exercise of his functions with integrity, in good faith and in the best interests of the creditors; that he must also act with the care, diligence and skill that would be expected of a reasonable person in similar circumstances. This type of rule-which can be found in the federal legislation on business corporations and in the Civil Code of Quebec-could be as easily integrated into a common law system as it can be in a civil law system.

D. ISSUES OF A MORE TECHNICAL NATURE

This heading groups together several topics considered to be of a more secondary nature. Because of limited time and restrictions inherent in the mandate, I have not been able to study the following matters in as much depth as I would have wished.

1. Trustee in bankruptcy as receiver

According to section 16(4) B.I.A., "in relation to and for the purpose of acquiring or retaining possession of the property of the bankrupt, [the trustee] is in the same position as if he were a receiver of the property appointed by the court".

There are very few cases that deal with this provision.[134] Certainly, the concept of receivership has no civil law equivalent. In the Civil Code (art. 2305 C.C.Q.), the term "sequestration" is used and defined as "the deposit by which persons place property over which they are in dispute in the hands of another person of their choice." A receiver, i.e. the person charged with the "sequestration" is known to Quebec civil law as a "sequestrator" (art. 2307 C.C.Q.). The Code of Civil Procedure, however, recognizes the right of the courts to appoint a receiver or sequestrator for a property and the sequestrator is bound by all the obligations deriving from conventional sequestration (arts. 742 and 745 C.C.P.). According to article 2308 C.C.Q., the sequestrator may not, in principle, "perform any other acts than acts of simple administration". It would seem, therefore, that the powers vested in the trustee under section 16(4) B.I.A. are somewhat different from those of a sequestrator under civil law. Consequently, it might be useful, within the Act, to define the powers that one wishes to confer on the trustee.

I believe that it would be sufficient to add a provision to the Bankruptcy and Insolvency Act which would simply recognize that the trustee is entitled to take possession of the bankrupt's property.

2. The jurisdiction of the courts at law and in equity

According to section 183(1) B.I.A., courts dealing with bankruptcy matters have jurisdiction at law and in equity. The possession of this dual jurisdiction has its origins in English legal history.[135] This attribution of jurisdiction has been criticized as unnecessary and prone to improper use by Quebec courts.

This creates an unnecessary complexity. The Superior Courts of the Common Law provinces, which already have jurisdiction in law and in equity by virtue of the Judicature Acts, are given a jurisdiction that they already have.[136] The Superior Court of Quebec, which has Civil Law jurisdiction, is given anunnecessary jurisdiction at "law and in equity". In the Common Law provinces, where there is a conflict between a legal and equitable rule, the equitable rule prevails. It may be argued that, in the province of Quebec, the Superior Court of that province can be faced with a Civil Law rule, a Common Law rule and an equitable rule. In case of conflict, there could be a substantial doubt as towhich rule prevails. On the other hand, there is the risk that the word "equity" could be interpreted in the province of Quebec in its ordinary meaning, that is to say, as giving to the judge the power to decide according to the general principles of justice as perceived by him.[137]

In Bill C-17, on bankruptcy and insolvency, jurisdiction over bankruptcy was given to the courts, without further detail. The advantage of this solution may be that it avoids introducing concepts of equity into Quebec law that are alien to the Civil Code. This, of course, would not prevent Quebec courts from basing themselves on English case law or decisions from common law provinces, whether in matters involving law or equity, in interpreting the Bankruptcy and Insolvency Act. However, where the application of the bankruptcy legislation and the unfolding of its procedure requires reference to concepts or rules that derive from other laws (see, in particular, section 72(1) B.I.A.), courts in Quebec should refrain from making use of concepts of equity.[138]

As to the above-noted reservations regarding the discretionary power that might be assumed by Quebec judges, this would no longer appear to be a matter of concern. Although in the past, the courts in Quebec exhibited a tendency towards less rigour when exercising such jurisdiction in equity, recent decisions evince a more restrained approach:[139]

[Translation] Although some judgments have used this provision [section 183] in making decisions based on standards of fairness and good conscience, I am of the opinion that the term "equity" in section 183 refers to the concept of "equity" in English law as opposed to "fairness and good conscience".[140]

Finally, to be cautious or simply to clarify matters, it might be advisable to retain the English word "equity" , italicized, in the French version of section 183 B.I.A. This was done in earlier bankruptcy legislation.[141]

3. Powers of a trustee in bankruptcy

According to section 67(1)(d) B.I.A., the "property of a bankrupt" includes "such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit".

In common law, the term "property" does not normally include the "powers" that a person may exercise in respect of certain property. However, this inclusion is the purpose of this provision, which more specifically refers to the power of designating the beneficiary of a trust and the exercise of voting rights attached to company shares.[142]

As far as I am aware, there has seldom been judicial reference to this provision in Quebec. However, the concept of "power" has been used from time to time, when a trustee wished to exercise the right to redeem a life insurance policy.[143]

It should be pointed out that, in Quebec law, the "powers" that a person may exercise in or over or in respect of certain property are often considered to be rights that attach to the "property of the bankrupt" according to sections 2 and 67 B.I.A. Moreover, although the Civil Code does make occasional use of the word "pouvoir" (power) (see, for example, article 1310 C.C.Q.), "faculté" (also translated by "power" ) is more common.

In conclusion, although "powers" is rarely used in Quebec, through ignorance, by oversight or simply because it is not considered necessary, its application does not create any major problems. Moreover, the new chapters of the Civil Code on trusts and the administration of the property of others may encourage jurists to have more frequent recourse to this concept.[144]

4. Payment of accelerated rent (s. 136(1)(f) B.I.A.)

According to section 136(1)(f) B.I.A., a landlord has a preferential claim for arrears of rent for a period of three months and for " accelerated rent . . . if entitled thereto under the lease ".

The expression " accelerated rent " in the English text is inappropriately rendered in the French text as "loyer perçu par anticipation". "Accelerated" rent presupposes the existence of a clause in the lease that allows the landlord to claim accelerated payment of a number of months' rental, because of the premature expiry of the lease following the bankruptcy of the lessee.[145] However, "loyer perçu par anticipation" (advance payment of rent) refers to rent already received by the lessor to shield him against the danger of future default by his lessees. The intent of 136(1)(f) B.I.A. was certainly not to attach any sort of preferential status to a claim that had already been satisfied by the lessee.

To avoid confusion, it would be preferable to refer to "loyer payable par accélération".[146]

In Quebec, commercial leases rarely contain such provisions. Accelerated rent is not a concept recognized in the Civil Code. However, I believe that there is nothing to prevent such a clause from being included in a commercial lease to provide the benefit of the priority status accorded in section 136(1)(f) B.I.A.[147]

In fact, the closest thing in Quebec to the concept of accelerated rent is the penalty clause setting the amount of damages owed to the lessor should the lease end before its term is up. One might wonder whether the legislation should be amended along these lines in order to standardize the lessor's treatment in backruptcy situations.[148]

5. Assignment of book debts

According to section 94 B.I.A., a general assignment of book debts is not void against a trustee in bankruptcy, provid­ing it was registered pursuant to the applicable provincial laws.

Section 94(4) provides that, for the purpose of this section, "assignment" includes assignment by way of security and other charges on book debts.

Although it may not appear essential, it would be useful to provide that assignment includes assignment by way of security, hypothecs and other book debt charges. This is similar to an earlier recommendation contained in a document prepared by Department of Justice's Civil Code Section.

CONCLUSION

This study has concentrated on drawing attention to those concepts and procedures in the B.I.A. that pose the greatest problems in terms of harmonizing and integrating the federal legislation with civil law concepts and procedures. This is essentially an exploratory analysis, and some matters would certainly warrant further reflection. The list of issues raised in this study is in no way intended to be exhaustive.

Nevertheless, I am convinced that the enactment of appropriate solutions with regard to the matters discussed will greatly improve the current situation. As pointed out at the beginning of this study, it will never be possible to achieve a perfect degree of harmonization and integration between federal legislation and the Civil Code of Québec. What can be achieved is a degree of harmonization, which essentially depends on the legislator's desire to succeed and the efforts devoted to achieving this objective.