Bankruptcy’s prohibition on avoidance transactions is about defining “…the insolvent estate and facilitating its distribution in a way that is fair” (Hamish Anderson, The Framework of Corporate Insolvency Law, Oxford University Press: 2017, 15.59). What is fair has been interpreted differently in different jurisdictions and each’s conception of fairness has ultimately influenced how common law jurisdictions have implemented anti-avoidance measures in bankruptcy law. These anti-avoidance measures derive from broad insolvency law principles which are still reflected in applications of the anti-deprivation rule. The anti-deprivation rule is a rule of public policy whichprevents the taking of assets from the estate upon an entity’s insolvency (Lomas & Ors v JFB Firth Rixson Inc & Ors [2012] EWCA Civ 419). The anti-deprivation rule, although not explicit in statute, is an implicit prohibition which emanates from the long history of the development of common law bankruptcy and insolvency statutes.
My thesis concerns this rule.
In October 2020, in the midst of the coronavirus pandemic, the Supreme Court of Canada [SCC] issued a landmark decision in Chandos Construction Ltd. v. Deloitte Restructuring Inc., 2020 SCC 25 [Chandos], recognizing the anti-deprivation rule. Interestingly, this SCC decision was an overt differentiation from the United Kingdom Supreme Court [UKSC] regarding how and when the rule should apply. Whereas the UKSC takes a purpose-based approach, the SCC has rejected this in favour of an effects-based approach (Chandos, paras. 11, 59). Perhaps the greatest difference in opinion between the Canadian and English approaches lay in the latter’s recognition that the rule should do its best to give effect to contractual terms, even when such terms may otherwise offend an effects-based rule. This effectively creates a large void between the Canadian and English applications of the rule, with the former jurisdiction believing that business purpose is irrelevant when applying the anti-deprivation rule, and the latter seeing business purpose as essential to that analysis.
The reasons for this discrepancy are what my PhD research is attempting to explore. My thesis is inspired by the legal traditions comparative approach, as pioneered by the late Prof. H. Patrick Glenn. Since both jurisdictions developed through unique histories, such developments are of key importance in the discussion of the anti-deprivation rule. To gain a better understanding of this divergence, my research engages in a brief historical assessment of the development of both bankruptcy and anti-avoidance laws in both jurisdictions with a particular emphasis on the impact of federalism in the Canadian context. This will be utilised to illustrate the context within which the systems of both countries developed and how such developments have influenced later applicationsof anti-avoidance principles.
“Comparative studies between commonwealth jurisdictions are of increasing importance within the modern context.”
Alongside this discussion, the thesis explores pertinent anti-deprivation rule cases, most notably, Chandos, the leading Canadian anti-deprivation rule case, and Belmont Park Investments PTY Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc [2011] UKSC 38 [Belmont Park], the leading English case. While also discussing these cases in depth, the thesis will explore differences between the application of the anti-deprivation rule in both the Canadian and English contexts. As previously mentioned, in Canada, the rule largely follows an effects-based analysis while in England it follows a purpose-based one. This distinction is not only theoretical but has an immense practical impact as well.
Comparisons are also made with American law at numerous points throughout the thesis as, although there is no anti-deprivation rule in the former, the historical context that informed the development of United States’ bankruptcy law is similar to that which informed Canadian legal developments. These historical antecedents, my thesis argues, are of fundamental importance in understanding how and why the anti-deprivation rule in Canada has diverged from that of England.
Comparative studies between commonwealth jurisdictions are of increasing importance within the modern context. Comparative corporate insolvency research between Canada and the United Kingdom is perhaps more important now than ever, given the post-Brexit landscape. In order to facilitate greater certainty amongst these two natural trading partners, each must understand the legal system of the other while also understanding points of divergence. Differences in legal standards, as subtle as they may be, need to be understood so that lawyers in each jurisdiction might be better equipped to deal with increasingly globalised files. In this sense, it is my hope that this thesis will be of relevance to the larger discussion, amongst members of the legal profession, regarding the complexities inherent within the inevitable increase in trade relations between the United Kingdom and Canada in the coming years.
*This research blog was written by Matthew Chippin, Barrister and Solicitor | PhD Researcher at the University of Leeds
About BWILC and the PhD Workshop
This research was presented and discussed at the last PhD Workshop on European and International Insolvency law, organised by the Stichting Bob Wessels Insolvency Law Collection (BWILC). Since 2018, BWILC maintains the private insolvency law book collections of Prof. em. Bob Wessels, extended with the collections of the late Prof. Ian Fletcher and the late Gabriel Moss QC, in addition to books that have been kindly donated by scholars and practitioners from around the world. To browse or visit this unique collection, click here.
Since 2019, BWILC organises an annual PhD Workshop for PhD students from Europe and beyond. At this workshop, PhD candidates can present their ideas, but also the challenges and questions they are confronted with in a two-day workshop attended by their peers and senior academics. At the end of the workshop, organised in alternately in Leiden and another city, prizes are awarded for the best presentations.
For information about the next PhD Workshop, click here.