In a recent decision1, the Ontario Court of Appeal
clarified how payments made shortly before a company's
bankruptcy are to be treated under Canadian bankruptcy law,
particularly when one creditor appears to be favoured over
others.
Background
Specialty Chemical Industries Inc. ("Specialty") was a
company that bought chemicals from suppliers and sold them to its
only customer. In 2018, Specialty was in financial distress. It
owed millions of dollars to various suppliers, including over USD
$400,000 to American Pacific Corporation ("AmPac"), one
of its three main suppliers.
Faced with pressure from AmPac, Specialty paid AmPac USD
$400,000 just over a month before making an assignment into
bankruptcy. This payment enabled Specialty to secure one last
shipment of about $100,000 in product from AmPac to fulfill an
order for Autoliv. But this effort was in vain—Autoliv
terminated its relationship with Specialty shortly thereafter, and
Specialty filed for
