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39 St. Louis U. L.J. 793 (1994-1995)
Preferences and Priorities in Insolvency Law: Is There a Solution

handle is hein.journals/stlulj39 and id is 805 raw text is: PREFERENCES AND PRIORITIES IN INSOLVENCY LAW: IS THERE A SOLUTION? JACOB S. ZIEGEL* I. INTRODUCTION THERE is probably no more intractable or controversial question in modem insolvency law than the distribution of an insolvent's assets among its creditors. The issue arises anew every time there is major bankruptcy or serious economic recession, such as the one from which many industrialized countries have only recently emerged. At such times, creditors complain bitterly about how shabbily the bankruptcy system treats them. It might be different if we could take at face value the dogma of the equality of all creditors still announced in many insolvency textbooks and some bankruptcy codes. This is the idea expressed so elegantly in the pre- 1991 Quebec Civil Code when it states that a debtor's property is the 'common pledge' of his creditors.' The reality is very different, and has been for a long time, perhaps even from the very beginning. The ranking of creditors is more likely to follow the division appearing in the Canadian Bankruptcy and Insolvency Act2 (hereinafter BIA). The BIA ranks creditors as being secured creditors, preferred creditors, ordinary creditors and deferred creditors. So, much more realistically, section 141 of the Canadian Act provides that Subject to this Act, all claims shall be paid rateably. Even this list of creditors is seriously incomplete because it ignores the status of property held on trust by the debtor, or deemed to be held on trust by him.3 It also ignores the all-important concept of property,4 for it is only the debtor's property that * Professor of Law Emeritus, University of Toronto. This is the modestly revised version of a paper delivered by the author at the Seventh Biennial Conference of the International Academy of Commercial and Consumer Law held at the Saint Louis University School of Law from August 28-31, 1994. 1. Civil Code of Lower Canada, Stat. Prov. Com. 1865, c. 41 as am., art. 1981, now superseded by the Civil Code of Quebec, Stat. Que. 1991, c. 64 (effective Jan. 1, 1994), art. 2644. See also J.E.C. BRIERLEY & R.A. MACDONALD, QUEBEC CIVIL LAW: AN INTRODUCTION TO QUEBEC PRIVATE LAW § 678 (1993). 2. R.S.C. ch. B-3 (1985), amended by ch. 27, 1992 S.C. 3. Id. at § 67. 4. This concept is defined comprehensively in § 2 of the Act.

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