Reference re constitutional validity of the Companies Creditors Arrangement Act (Dom.)

proper division amongst shareholders under the guise of profits. So, with regard to the position of the managersmanagers who are invested with powers and responsibilities.

It appears to me that you are strictly within what might

PP properly be called the defining of the constitution of the Companies company when you are making provision for limiting the liability of shareholders in respect of the debts of the company; when you are making co-ordinate provisions for the protection of the assets of the company in the interests of the creditors of the company; when you are providing safeguards against the malfeasance of the managers and, particularly, when, in the interests of persons dealing with the company, you are providing safeguards against the improper or colourable employment by the managers or the shareholders of their powers, in wasting the assets of the company.

It seems to me to follow from all this that s. 110, as we have it before us, is an enactment of a character that brings it within the class of topics that the legislature must be supposed to have contemplated as falling within the subject of " Incorporation of Companies " as used in the

J.-This is a reference by the Governor General in Council submitting for hearing and consideration of this Court the following question:

This Act is designed to apply to insolvent or bankrupt companies; and it is contended on behalf of the Dominion that Parliament could pass this legislation under section 91, par. 21, which gives it paramount jurisdiction to make laws concerning bankruptcy and insolvency.

The provinces represent that in enacting it Parliament disregarded their exclusive jurisdiction under section 92, par. 13, in relation to property and civil rights in the province. The whole argument before us was finally directed to one point: Are the proceedings contemplated by the Act, in pith and substance, bankruptcy or insolvency enactments within the fair and ordinary meaning of these words? One of the features which distinguishes this Act from the Bankruptcy Act now in force is that, under the latter, a composition or arrangement cannot be proceeded with before a receiving order or assignment has been made. Another that under the Bankruptcy Act the secured creditor is dealt with on the footing that he may realize his security or value or surrender the same; it is only in respect of what he claims apart from the security that he is affected by the composition or arrangement. It was pointed out also that similar provisions giving binding effect to this approval by a certain majority of creditors are found in our legislation before and after Confederation.

The Insolvent Act of 1864, 27-28 Vict., ch. sec.

The Insolvent Act of 1869, Canada, 32-33 Vict., ch.

secs. 94 et seq.;

The Insolvent Act of 1875, Canada, 38 Vict., secs.

54 et seq.

As far as Lower Canada is concerned, it may be of interest to note that chapter 87 of the Consolidated Statutes of Lower Canada, 1859, allowed the issue of a capias if the debtor " had refused to compromise or arrange with his creditors, or to make a cession de biens," and provides that the debtor may be discharged if, when the affidavit for capias was made, he had " not refused to compromise or arrange with his creditors."

Moreover, I find that, before and since Confederation, arrangements with the creditors have always been of the very essence of any system of bankruptcy or insolvency legislation. Civil rights and the sanctity of contracts are certainly affected by clause 5 under which a minority of creditors would be bound by the vote of a majority in number representing three-fourths in value of creditors present and voting, either in person or by proxy, if the agreement or compromise to which they agreed be sanctioned by the court. I find that this feature existed long before Confederation and was at that time generally accepted.

Pardessus, Droit Commercial, vol. 3, 6d. 1843, p. 92, no.

1232, says:

Under number 1236, classes or categories having different interests are already recognized by this author, and he adds (No. 1237):

Therefore, the very clause objected to in our Act of 1933 seems to be copied from the law of bankruptcy as -it existed in France in 1843, when this work was published.

Under our system and the English Bankruptcy Act of 1914, bankruptcy legislation deals with the proceedings necessary for the distribution, under judicial authority, of the property of an insolvent person among his creditors. It assumes the commission of an " act of bankruptcy " followed by a petition to the court for a receiving order for the protection of the estate.

The property of the debtor then vests in an official receiver. The debtor must submit a statement of affairs to the official receiver who calls a meeting of the creditors. The debtor is examined; and if no composition or scheme of arrangement is approved, he is adjudged bankrupt; and his property becomes divisible among his creditors and vests in a trustee. Therefore, if the proceedings under this new Act of 1933 are not, strictly speaking, " bankruptcy " proceedings, because they had not for object the sale and division of the assets of the debtor, they may, however, be considered as " insolvency proceedings " with the object of preventing a declaration of bankruptcy and the sale of these assets, if the creditors directly interested for the time being reach the conclusion that an opportune arrangement to avoid such sale would better protect their interest, as a whole or in part. Provisions for the settlement of the liabilities of the insolvent are an essential element of any insolvency legislation and were incorporated in our Insolvent Act of 1864; and such a deed of composition and discharge could be validly made either before, pending or after proceedings upon an assignment, or for the compulsory liquida-