Receiver has discretion to avoid arbitration agreement that preceded insolvency: Ont. CA – Law Times

Kathryn Esaw

Aug 29, 2022

In its recent decision in Mundo Media Ltd. (Re), the Ontario Court of Appeal refused leave to appeal from a Superior Court ruling that a receiver was not bound by an arbitration agreement signed in 2017, two years before Mundo was placed in receivership. Contracts between Mundo and SPay, a U.S.-based company, had included clauses requiring disputes between the two companies to be resolved by arbitration in New York. The decision upholds the motion judge’s ruling that Ontario’s “single proceeding” model for insolvency proceedings rendered those clauses inoperative.

Kathryn Esaw, a partner in Osler’s Insolvency and Restructuring group, applauds the Court’s conclusion.

“Restructuring practitioners see insolvency matters as most effectively resolved in one proceeding, and the decision confirms the sanctity of the ‘single proceeding’ model,” she says.

“The result is that there will be less cost in litigating restructuring-related matters, where it’s a good thing to preserve as many of the assets as you can.”

Citing jurisprudence from the Supreme Court of Canada, the Court also found that SPay did not qualify as a stranger to the insolvency proceeding, as “the outcome of its proposed set-off will determine both the amount of Mundo’s single biggest account receivable and the size of the bankrupt’s estate, thereby affecting all creditors.”

Though the “stranger to the proceeding” argument was not convincing in this instance, Kathryn notes that the opportunity to pursue it in other cases remains.

“The court was very careful to confine its analysis to the specific facts of this case, and I don’t believe that the decision indicates that contractual terms won’t be respected.”

You can read Julius Melnitzer’s full article, “Receiver has discretion to avoid arbitration agreement that preceded insolvency: Ont. CA,” at the Law Times website.