The Uncertain State of Preferences Under Canadian Bankruptcy Law

As of September 18, 2009, certain amendments to the Bankruptcy and Insolvency Act, including amendments to the provisions regarding preferences and transfers at undervalue, came into force. In particular, section 95(1)(b) of the Act provides that transfers in favour of non-arm's length creditors within 12 months of an initial bankruptcy event which have the effect of giving a preference, are void against the Trustee in bankruptcy. Contrary to the prior legislation, there is no express requirement to consider the intent of the parties. There is no rebuttable presumption. This article considers the courts' application of these provisions, which have the potential to work injustice if literally applied. Published in the Journal of the Insolvency Institute of Canada by Carswell.