Understanding Bankruptcy Law Development in Its Social, Political and Economic Contexts
(A Review of ‘Debt and Federalism: Landmark Cases in Canadian Bankruptcy and Insolvency Law, 1894-1937’, by Thomas G. W. Telfer and Virginia Torrie)
By Zhang Zinian (University of Leeds)
It is fascinating to read the wonderful book “Debt and Federalism: Landmark Cases in Canadian Bankruptcy and Insolvency Law, 1894-1937” co-authored by Professors Telfer and Torrie. The book uses four milestone bankruptcy cases to elaborate the Canadian dynamic bankruptcy law development around the early 20th century. This book is meticulously researched, offering the reader a vivid account of how the interaction of political, social and economic forces shaped the Canadian bankruptcy law making some a century ago.
The book has four substantial chapters corresponding to these four significant cases.
Chapter 1 focuses on the Voluntary Assignments Case (1894), in which the Privy Council ruled that the Ontario province was entitled to enact its own local bankruptcy law in the absence of a federal one. On the face of it, this case confirms that the provinces are entitled to enact their regional bankruptcy law, but in essence it may offer a strong indication that producing a bankruptcy law is a special privilege conferred on the federal parliament instead.
Chapter 2 sheds light on Royal Bank of Canada v Larue (1928), which vehemently defended that the principle of equality enshrined in the federal bankruptcy law (in 1919, the Canadian federal parliament promulgated the first permanent national bankruptcy statute) could even trump some securities upheld by provincial laws. This case highlights the uniformity of the fundamental bankruptcy law principle, pari passu, i.e. creditors are paid with the same proportion to their claims, given the insolvency of the debtor.
Chapter 3 moves to the Companies’ Creditor Arrangement Act Reference Case (1934), in which the Supreme Court of Canada adjudicated that it was legitimate for the federal bankruptcy statute, in this case the Companies’ Creditor Arrangement Act, to override some contractual and even property rights treasured by provincial laws, as a result of which this Act was declared to be constitutionally valid.
Finally, Chapter 4 deciphers the Farmers’ Creditors Arrangement Act Reference Case (1937), where the Privy Council reaffirmed that the federal bankruptcy statute, the Farmers’ Creditors Arrangement Act in this occasion, can alter even securities embedded in provincial laws on the grounds that the troubled and bankrupt farmers deserved special protection because of public interest concerns.
Among a galaxy of insights in this book, three themes of this book are worth celebrating here. First, this book offers an intriguing account over the political struggles between the Canadian federal government and the provincial ones on where to draw the boundary between federal bankruptcy law and provincial contractual and property law. This point is also thoughtfully reflected in the title of this book, Debt and Federalism. Federalism by its very nature demands the power separation/division between federal and provincial governments. Under the Canadian constitutional rules, contractual and property rights fall in the domain of provincial legislatures. But the key challenge is that it seems inevitable for the bankruptcy law enacted by the federal parliament to intervene over contractual and property rights regulated by provincial laws. In some cases, contractual or property rights have to be either adjusted or modified because of the insolvency of the debtor. In political terms, there is apparently a clash between federal and provincial powers. Professors Telfer and Torrie’s book offers a detailed analysis over the political battles fought by provincial governments to question the authority of the Canadian federal government.
Second, this book digs into a rich collection of archival materials to untangle how the Canadian bankruptcy law strikes a balance between unsecured and secured creditors. The subtlety of this balancing act is quintessentially presented in Chapter 2 on Royal Bank of Canada v Larue, where the key dispute is whether a judicial lien recognised and protected by the provincial law could be set aside by the federal bankruptcy law. For the purpose of promoting legal uniformity within Canada as a nation, the triumph was ultimately given to the federal government. To a large extent, this is an ongoing struggle over the tension between unsecured and secured creditors, which suggests that this book is highly relevant to today’s bankruptcy law debate.
Third, many would agree that in most cases a nation’s bankruptcy law reform is a response to an economic crisis, but only this book offers a historic and systemic analysis dissecting how the Canadian economic challenges led to the development of the Canadian bankruptcy law in the early 20th century. The Farmers’ Creditors Arrangement Act was made in 1934 precisely to address the economic repercussion of the market crash of staple products in the late 1920s which caused devastating hardship to farmers.
This book is a masterpiece of academic contribution enriching our understanding on the bankruptcy law development in Canada and beyond, since it would be easy to find that the similar struggles are currently taking place almost in every corner of the world.
On balance, I try to find out what can be improved before the second edition of this book is made, but at the moment I am overwhelmed by the quality of the in-depth analysis in this book. If I have any fresh thoughts on suggestion in the near future, I will write them later.