On March 26, 2026, the Supreme Court of Canada granted leave to appeal in American Pacific Corporation v. RPG Receivables Purchase Group Inc., 2026 CanLII 25730 (SCC), File No. 41937 with costs in the cause and without reasons. The appeal arises from the Ontario Court of Appeal’s decision in RPG Receivables Purchase Group Inc. v. American Pacific Corporation, 2025 ONCA 371, which addressed the application of the preference provisions under section 95 of the Bankruptcy and Insolvency Act. The case raises an important and recurring issue in insolvency law: when an insolvent debtor pays one creditor shortly before bankruptcy to keep the business operating, when does that payment remain a permissible business-continuation step, and when does it constitute a reviewable preference?
At the centre of the dispute was a $400,000 USD payment made by Specialty Chemical Industries to its supplier, American Pacific Corporation, known as AmPac. The payment was made only weeks before Specialty assigned itself into bankruptcy. Specialty was significantly insolvent – by approximately $11 million USD – and depended on AmPac to supply product for an order for its sole customer, Autoliv. Specialty’s payment had an immediate commercial rationale: preserve supply, complete one more order, and avoid an abrupt shutdown. The bankruptcy judge, Justice Peter J. Cavanagh, accepted that explanation. Applying subsection 95(2) of the Bankruptcy and Insolvency Act, Cavanagh J. found that Specialty had rebutted the statutory presumption of preferential intent, even though Specialty relied on evidence that it was under pressure from AmPac to make the payment. The payment was not made with the dominant intention of preferring AmPac over other creditors, but rather with the intention of continuing operations.
The Ontario Court of Appeal reversed. Writing for a unanimous panel, Zarnett J.A. identified two points of importance. First, in clarifying subsection 95(2)’s rebuttable presumption of a preference to an arm’s length creditor regarding the admissibility of evidence of creditor pressure, the Court held that evidence of creditor pressure is not automatically inadmissible in a preference analysis. While subsection 95(2) prevents a debtor from justifying a payment solely on the basis that the creditor exerted pressure on the debtor, the court can still consider that pressure as part of the overall circumstances in assessing the debtor’s actual intention.
Second, the Court held that an intention to continue operating will not, by itself, rebut the presumption of preferential intent. The debtor must have had an objectively reasonable basis to believe that the payment implemented a plan to realize proceeds that would exceed the payment, continuing operations that would benefit all creditors. A generalized hope of avoiding business collapse is insufficient. On the facts, the Court concluded that paying $400,000 USD to secure approximately $100,000 USD in product, while the company was already approximately $11 million USD underwater, did not provide such a reasonable basis.
The Supreme Court appeal promises to clarify how business-continuation intent relates to preferential intent under section 95. Will the SCC further clarify the Ontario Court of Appeal’s “objectively reasonable basis” approach for the existing preference framework with a “business continuation plan”? How should courts assess payments made in the shadow of insolvency to suppliers or other counterparties whose continued cooperation or pressure for payment might be essential to attempts at business survival? Overall, what will the evidentiary and legal boundaries be between a distressed debtor’s attempt to stay alive and an impermissible preference of one creditor over others? Stay tuned for a follow-up comment and hopefully, some answers.
For U.S. market participants involved in Canadian bankruptcy or restructuring efforts, this appeal is worth watching because the SCC may clarify how Canadian courts distinguish a legitimate business-continuation payment from a preference that improperly improves one creditor’s position. Although the case arises under section 95 of the BIA, the Supreme Court’s treatment of the Ontario Court of Appeal’s “objectively reasonable basis” test may become an important reference point in cross-border insolvency disputes involving U.S. participants.