In the recent decision ATB Financial v Mayfield Investments, 2025 ABKB 61 (Mayfield), the Alberta Court of King’s Bench (the Court) concluded that a forced share sale provision violated the Anti-Deprivation Rule and was thus void and unenforceable. Mayfield is an important decision as it considers the effects-based nature of the anti-deprivation rule (the ADR) and is one of few cases to have applied the ADR, affirmed by the leading case of Chandos Construction Ltd. v Deloitte Restructuring¸ 2020 SCC 25 (Chandos).
The anti-deprivation rule
The ADR is an ancient and rarely applied common law rule. The ADR was considered and affirmed to remain good law in Canada by the Supreme Court of Canada in Chandos. Justice Rowe described the ADR as follows:
the anti-deprivation rule renders void contractual provisions that, upon insolvency, remove value that would otherwise have been available to an insolvent person's creditors from their reach. This test has two parts: first, the relevant clause must be triggered by an event of insolvency or bankruptcy; and second, the effect of the clause must be to remove value from the insolvent's estate. This has been rightly called an effects-based test.1
The effects-based nature of the test, confirmed by Chandos, makes the Canadian ADR more expansive than in other jurisdictions. More particularly, in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2012] 1 AC 383 the United Kingdom Supreme Court held that while the ADR continues to be good law, the test should be “purpose based” and look to the intentions of the parties rather than the effect of the provision in question.
In Chandos, Justice Rowe held that when applying the effects-based rule, courts (and commercial parties) do not need to look to anything other than the trigger for the clause and its effect. Whether the purpose of the clause was to remove value upon insolvency is irrelevant as a matter of current Canadian law.
The decision
In Mayfield, Ernst & Young Inc. was the court appointed receiver (Receiver) over Mayfield Investments (Mayfield). Mayfield’s key assets included 50 per cent of the shares in 1995472 Alberta Ltd (1995). The remaining 50 per cent of the shares were owned by solvent third parties, not in receivership (the Shareholders). The Receiver sought to conduct a sales process for the shares, and in connection with the sales process, the Receiver applied to the Court for a declaration that a specific provision in the unanimous shareholder agreement (USA) for 1995 be rendered void pursuant to the ADR.
The provision in question under the USA allowed for the Shareholders to purchase the Mayfield shares in 1995 in the event that a “withdrawing event” occurred. A “Withdrawing Event”, as defined by the provision, included an instance when a shareholder was petitioned into bankruptcy, insolvency or receivership, or it made an assignment for the benefit of its creditors. Further, upon a “Withdrawing Event”, the Shareholders were entitled to acquire the Mayfield shares at a 25 per cent discount.
At the application, the Receiver argued that the provision contravened the ADR as set out by Chandos. The Receiver argued that the clause was triggered by insolvency (the receivership), and had the effect of removing value from the estate by virtue of the discount share price.
Conversely, the Shareholders argued that the triggering event was not receivership proceedings or Mayfield’s insolvency, but a notice sent by one of Mayfield’s creditors under the USA. This notice could not have been the triggering event as this notice was provided to EY after the receivership had begun.
Justice G.S. Dunlop granted the Receiver’s application, and found the clause void on the basis of the ADR. Among other things, the Court found the effect was plainly to remove value, and held that while there may be non-insolvency events that trigger the clause, the only triggering event in question was the insolvency.
Takeaways
Mayfield is significant as being one of the few cases to apply the ADR, and void a contractual provision, since the Supreme Court revisited ADR in Chandos.
Mayfield also indicates that courts will analyze the application of the ADR by looking at the event that actually triggered the clause in that case, and a clause will not be saved merely because it includes non-insolvency triggering events. Mayfield also removes any lingering thought that the intentions of the parties may be considered, when applying the ADR test from Chandos.
From the perspective of receivers and court-officers, Mayfield is instructive in that it gives receivers an additional tool when arranging a sales process. One issue that arose in Mayfield was whether the clause in question had or could be disclaimed by the receiver. The Court found there was no need to consider a disclaimer, because the clause was void by the ADR. In future cases, the ADR may also be an alternative to a disclaimer.
