Bankruptcy and Insolvency as an Expanding Field: A Historical Analysis of Reference Re Debt Adjustment Act, 1937 (Alta.)

Abstract

The drought of the early 1920s and the economic collapse of the 1930s caused unprecedented problems for farmers in Alberta. Low prices and poor markets caused farmers to become overindebted. Parliament’s response to the situation was the Farmers’ Creditors Arrangement Act, 1934 (FCAA), which was intended to create an alternative mechanism to bankruptcy through which farmers could negotiate debt compromises with their creditors. Parliament viewed the situation as a temporary issue, and the FCAA reflected this assumption. In contrast, the prairie provinces sought long-term debt adjustment legislation for farmers and other debtors affected by the Great Depression. In Alberta, two reformist social movements created new legislation to alleviate the debt burden in the province. The United Farmers of Alberta created the first Debt Adjustment Act (DAA) in 1923 to address the issue, which was then modified and expanded in the later 1930s by the new Social Credit government. However, in its attempt to create a robust debt adjustment scheme, the Social Credit government created a regime which overstepped the bounds of provincial jurisdiction. In 1941, Alberta’s DAA was referred to the Supreme Court of Canada where it was decided that the DAA was ultra vires the province as legislation on bankruptcy and insolvency, an area reserved exclusively for the federal government. The decision was upheld by the Privy Council in 1943. This article outlines the historical context of the DAA, the basis for its invalidity, and argues that the impact of the reference decision was the affirmation of a broad construction of the federal bankruptcy and insolvency power.