Insurance Law

March 4, 2024

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Even Judicial Discretion Has its Limits

On January 25, 2024, in the Liquidation de Groupe Dessau inc., the Superior Court of Québec rejected a settlement approval request in the context of the voluntary liquidation of several entities of the Dessau-Verreault-LVM Group (“Dessau“). This judgment addresses the limits of the discretionary powers of the court in voluntary liquidation matters.

Overview of the proceedings

In this case, Dessau was undergoing voluntary liquidation under the supervision of the Superior Court. Meanwhile, Beneva Insurance Company Inc., Beneva Inc., and Beneva Real Estate Inc. (“Beneva“) filed a lawsuit against various professionals and subcontractors (“Civil Defendants“), as well as against two (2) Dessau entities, claiming over $7 million for damages caused by various defects affecting a property owned by them (“Civil Action“).

Due to the voluntary liquidation process, a notice of suspension of proceedings was filed by Dessau’s liquidator in the Civil Action. Beneva then filed a motion to lift this suspension.

Beneva and Dessau’s liquidator subsequently reached a settlement in which Beneva waived the adjudication of its motion to lift the suspension of the Civil Action in exchange for Dessau paying $250,000 (“Settlement“).

The liquidator filed a request for approval of the Settlement within the framework of Dessau’s liquidation (“Approval Request“). In this procedure, the liquidator impleaded the Civil Defendants and specifically asked the Superior Court to order and declare the following:

  • The Settlement will have no effect on the Civil Action, except to reduce Beneva’s claim by $250,000;
  • No discharge and/or release is granted by Beneva;
  • The liability of the Civil Defendants will not be limited regarding any claim that Beneva may have against them in the Civil Action;
  • Permanent and definitive suspension of the Civil Action against Dessau;
  • The Civil Defendants are forever prohibited from making a claim against Dessau.

The Civil Defendants contested the approval request, claiming that the court, in overseeing Dessau’s liquidation, cannot infringe upon their rights to invoke the effect of discharge under Article 1690 of the Civil Code of Québec (C.c.Q.) or prevent them from seeking Dessau’s forced intervention in the Civil Action.

The Superior Court sided with the defendants for the reasons outlined below and refused to approve the Settlement.

Analysis

The Superior Court rejected the Approval Request for two main reasons:

  1. Lack of discretion: the court has no explicit or implicit power to issue the declarations and orders sought by Dessau’s liquidator;
  1. Exercise of discretion: even if the court had such discretionary power, it would not exercise it in this instance.

Regarding the first point, the Court concluded that granting the request would potentially reduce Dessau’s obligations and prejudice the rights of the Civil Defendants in the Civil Action. It stated that, in the context of voluntary liquidation, the court does not have the power to issue such orders under the Business Corporations Act (Quebec) (“BCAQ“). The court’s role in voluntary liquidation is limited to facilitating the process leading to the liquidator’s final account or distribution proposal, not to release Dessau from its obligations.

Regarding the second point, the Court stated that even if it had the power to issue such orders, it would still not approve the Approval Request. It mentioned that it is not in a position to assess Dessau’s fair share of responsibility in the Civil Action. To do so, the principles outlined in Article 1478 of the C.c.Q. would need to be applied, which falls under the assessment of evidence on the merits of the Civil Action. Since the Court has no evidence to establish Dessau’s potential responsibility in the Civil Action, it concluded that it cannot assess whether the amount paid by the liquidator in the Settlement represents Dessau’s fair share of responsibility in the Civil Action. Thus, the Court stated that it would have refused to exercise its discretionary power to approve the Approval Request if such power had been given to it under the BCAQ.

Conclusion

This judgment serves as a reminder that the court’s discretionary powers in approving settlement agreements are not unlimited in the context of voluntary liquidation. The Court will not automatically approve any settlement agreement that the liquidator may conclude with a creditor of the entity subject to the voluntary liquidation process, especially if it prejudices the rights of third parties.

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