How should ongoing bankruptcy proceedings be handled once debts have been resolved through a subsequent CCAA process? In a recent decision from British Columbia, EncoreFX Inc. (Re), 2023 BCSC 39, the province’s Supreme Court addressed this surprisingly murky question.
A natural tension exists where a company that is subject to insolvency proceedings (such as bankruptcy) is also a party to an arbitration agreement. In such cases, there may be conflicting decisions issued by the arbitrator and the insolvency court, or there may be disagreement about which forum has the authority to hear the dispute. The modern view has tended to be that agreements to arbitrate should be honored, consistent with the principles of party autonomy and freedom of contract. Insolvency procedures, however, favour a centralized judicial process and can override certain pre-insolvency agreements in order to achieve objectives in the best interests of creditors. In a much-anticipated decision, the Supreme Court of Canada (SCC) recently weighed in on these conflicting principles in Peace River Hydro Partners v. Petrowest Corp., and, in doing so, addressed a key intersection of insolvency and arbitration law.