Executive Summary: Key Legal and Evidentiary Issues

• The appeal concerned whether a $400,000 payment made to a supplier shortly before bankruptcy constituted a voidable preference under section 95 of the BIA.

• The lower court erred by finding the payment was made to preserve a customer relationship without assessing if the business plan had a reasonable basis.

• Evidence of pressure from the creditor was deemed admissible to contextualize intent but not to justify the transaction itself.

• The presumption of intent to prefer under section 95(2) can only be rebutted where the business continuation plan would reasonably benefit all creditors.

• Specialty's plan lacked objective viability, as its sole customer terminated the relationship shortly after the payment.

• The Court of Appeal held that the payment was void and must be repaid, reinforcing the principle of creditor equality in insolvency.

Factual background and procedural history

In RPG Receivables Purchase Group Inc. v. American Pacific Corporation, 2025 ONCA 371, the Ontario Court of Appeal considered an appeal brought by RPG Receivables, a creditor and assignee of the bankruptcy trustee’s claim, against American Pacific Corporation (AmPac), a chemical supplier. The case arose from a $400,000 payment made by Specialty Chemical Industries Inc. (Specialty) to AmPac in June 2018, just weeks before Specialty filed for bankruptcy. The payment was made to clear overdue invoices so AmPac would continue supplying chemicals to Specialty, which had one major customer: Autoliv ASP Inc.

Specialty was already deeply insolvent at the time, owing millions to other creditors, and had only about $35,000 left after making the payment to AmPac. Nonetheless, the bankruptcy judge dismissed the trustee’s claim to void the payment under section 95 of the Bankruptcy and Insolvency Act (BIA), ruling that Specialty's intent was to maintain its relationship with Autoliv and continue operations, not to prefer AmPac.

Issues on appeal and analysis

The appeal raised two central legal issues. First, whether the trial judge improperly relied on inadmissible evidence of creditor pressure in assessing the debtor’s intent under section 95(2) of the BIA. Second, whether Specialty’s intent to stay in business was legally sufficient to rebut the presumption of intent to prefer, absent a reasonable business plan likely to benefit all creditors.

Justice Zarnett, writing for a unanimous Court of Appeal, held that the trial judge did not err in admitting evidence from AmPac’s vice-president about the commercial context, including pressure to pay. While pressure itself cannot justify a preferential transaction, such evidence may be considered to understand the debtor's full circumstances.

However, the court accepted the appellant’s second argument: the trial judge erred in law by accepting an objectively unreasonable business continuation plan as a basis to rebut the statutory presumption of preference. Specialty’s attempt to stay afloat by paying AmPac was based on a hope of preserving its relationship with Autoliv. But this hope was unsupported by any evidence that the plan was commercially viable. In fact, Autoliv cut ties with Specialty shortly after the payment and entered into a direct relationship with AmPac. Specialty's revenue margins were too small to justify the $400,000 outlay, and there was no evidence the business could realistically recover.

Court’s conclusion and outcome

The Court of Appeal emphasized that the anti-preference provisions of the BIA are designed to uphold creditor equality and prevent insolvent debtors from selectively paying creditors before bankruptcy. While a debtor's intent to continue in business may rebut the presumption of preference, it must be supported by a reasonable and objectively viable plan that would benefit all creditors. Specialty’s plan failed this test.

Accordingly, the court allowed the appeal, set aside the lower court’s decision, and declared the $400,000 payment void as a preference. AmPac was ordered to repay the amount to the appellant. The court also awarded $50,000 in costs to RPG Receivables.

This decision provides authoritative appellate guidance on how courts should apply section 95 of the BIA and clarifies the standard for rebutting presumptive preferential intent through business continuation plans.