Ontario Court of Appeal Provides Long-Overdue Guidance on Vesting Orders
By Daniel Waldman, Pallett Valo LLP
The Ontario Court of Appeal recently delivered a decision that provides much-needed guidance on both the power and limitations of vesting orders in receivership proceedings.
A “vesting order” is a tool that courts may use to transfer the ownership of land to another entity, without a formal legal conveyance, in circumstances where the court considers it fair and just to do so.
Vesting orders are often sought and obtained in the context of bankruptcy proceedings, particularly when the bankrupt party owns property, but another party also has some entitlement to ownership of that same property.
If the court determines that title should be transferred to the other party with an ownership interest, this can occur by way of a vesting order. On the other hand, if a third party purchases the property, the court can extinguish the ownership rights of any other party by issuing a vesting order.
In the insolvency context, a vesting order is often thought of as a magic wand to convey property, as there is little case law to set out the limits on its use. In Third Eye Capital Corporation v Ressources Dianor Inc./ Dianor Resources Inc., the court of appeal stepped into the breach and confirmed that, although vesting orders can be used to extinguish interests in land, a two-part test has to be applied to determine whether this is appropriate in the circumstances. It was concluded that this power should be exercised if the interest in land is strictly monetary, but not where the interest is substantive and goes to the heart of title.
This decision should be seen as a positive development in the bankruptcy context because, by clarifying what interests can be extinguished by means of a vesting order, it makes encumbered real property assets easier to convey. However, it also places strict limits on vesting orders and provides protection to parties who hold strong beneficial interests in land. You can read the specifics of this case, the vesting order, and the appeal process at pallettvalo.com.
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Pallett Valo LLP is one of Ontario’s Top 10 Regional Law Firms. The firm practices in the areas of business law, commercial litigation, commercial real estate, construction, insolvency and corporate restructuring, employment and labour, and wills, estates, and trusts.
Daniel Waldman is a member of the commercial litigation practice and a member of the Remedies Group. Daniel has a commercial litigation practice with an emphasis on real property litigation, including commercial leasing, commercial real estate, construction law, and debt collection.
Published: Debt Collection, Restructuring & Insolvency Newsletter, No. 12, Spring 2020 l Photo: chiyacat - stock.adobe.com