An Historical Account of the Orderly Payment of Debts Act Reference: Limiting Provincial Efforts to Protect Insolvent Debtors
September 21, 2022
By Professor Thomas Telfer (Western Law) and Virginia Torrie (University of Manitoba)
In a new article, Dr. Thomas G.W. Telfer and Dr. Virginia Torrie provide an historical account of Alberta’s Orderly Payment of Debts Act and analyze the importance of the consequent reference case which ruled upon the constitutional validity of the Act. This article is forthcoming in (2023) 46:2 Dalhousie Law Journal.
Alberta has a long history of enacting legislation designed to protect financially troubled debtors. As we discussed in a recent article, Alberta enacted debt adjustment legislation in the 1920s and 1930s which empowered a Debt Adjustment Board to compel creditors to accept settlements with debtors. After that legislation was ruled ultra vires by the Privy Council in 1943, the province enacted The Debtors’ Assistance Act which established a Debtors’ Assistance Board that was tasked to work with debtors and creditors towards the voluntary settlement of debts. Due to an increase in the number of applications, the Board ran into administrative difficulties in the 1950s, which led Alberta to enact The Orderly Payment of Debts Act [OPDA]. Throughout the early-to-mid 1900s, Manitoba and Saskatchewan enacted similar legislation which aimed to assist insolvent debtors. The main difficulty the prairie provinces faced was keeping the legislation within the confines of provincial jurisdiction under section 92 of the British North America Act, 1867, as some of these provincial schemes were struck down as unconstitutional for trenching upon the federal bankruptcy and insolvency power. This was the outcome in a trilogy of cases in the mid-twentieth century, of which Reference re Validity of Orderly Payment of Debts Act, 1959 (Alberta) [OPDA Reference SCC] was the last.
Alberta passed the OPDA in 1959 for the purpose of aiding debtors who could not meet their debt obligations as they matured. The Act, which originated from and was similar to Manitoba’s Orderly Payment of Debts Act, allowed debtors to seek a consolidation order for judgments of $1,000 or less. Creditors with judgments greater than $1,000 could agree to register under the consolidation order, otherwise the Act would not apply to them. In April 1959, Alberta referred the constitutionality of the OPDA to the appellate division of the Supreme Court of Alberta, where the Court rendered a decision which declared the statute ultra vires. On appeal, the Supreme Court of Canada upheld the ruling of the lower Court, finding that the legislation encroached upon federal jurisdiction over bankruptcy and insolvency. Following the OPDA Reference SCC, Manitoba and Alberta requested that the federal government amend the Bankruptcy Act to create an orderly payment of debts regime for the provinces. That amendment came in 1966, when Parliament added Part X to the Bankruptcy Act, creating a federal orderly payment of debts scheme that could be adopted by each province. Part X mirrored the provisions of Alberta’s OPDA and issued as a consequence of the Court’s ultra vires declaration in the OPDA Reference SCC.
Our article provides a historical backdrop for the enactment of the OPDA and offers analysis and commentary on both Court decisions. We argue that the OPDA Reference is significant because it represents a high-water mark for the expansion of the federal bankruptcy and insolvency power and a curtailment of provincial ability to assist insolvent debtors. It is the capstone in a trilogy of high court cases, all of which invalidated provincial legislation for encroaching upon bankruptcy and insolvency, an exclusive area of federal jurisdiction. The OPDA Reference is also important for the Court’s decision to ignore Lord Herschell’s cardinal obiter dictum in the Voluntary Assignments Case. The decision in OPDA Reference placed the constitutional power to resolve overindebtedness squarely in the hands of Parliament, a result that conflicted with the earlier Voluntary Assignments Case. This represented a crucial turning point toward a more modern view of bankruptcy and insolvency law. We submit that the OPDA Reference is a landmark ruling for the Courts’ broad interpretation of the federal bankruptcy power, and the impact the decision has on the expansion of the federal Bankruptcy Act with the addition of Part X in 1966. The OPDA Referencethus joins a collection of earlier landmark cases which we discussed in a recent book on bankruptcy and federalism.
This article also appears on the Marcel A. Desautels Centre website.
