Any provincial law that is operationally inconsistent with the federal bankruptcy scheme, or that frustrates its rehabilitative purpose, is of no force and effect.

The facts reveal this case entails two merged cases where the initial dispute was similar wherein in both cases, a driver was imposed with an extraordinary debt under his province which was declared and discharged in bankruptcy. Still, the province denies renewing his driver’s license until the driver has paid all his debt to that province even when he is proved to be bankrupt. The ETR may notify the registrar who can refuse the renewal of driving licence until the debt is paid off with related fees as well as interests.

Now both these drivers approached the Court with a challenge to the authority of their respective provinces to do so under section 178 (2) of the Bankruptcy and Insolvency Act (BIA), which states that in instances of bankruptcy, the debtor is relieved of all the debts. Therefore, after hearing both these cases, the Supreme Court decided that the provincial legislation is constitutionally inoperative as the provincial legislation is clearly in conflict with the federal laws of BIA.

Further, the Court decided that the concerned provincial legislations had frustrated one of the main purposes of the Bankruptcy and Insolvency Act via financial rehabilitation. The provincial legislations overlooked that the person went bankrupt while paying the debts in stringently following the state laws. This according to the Court resulted in hurting the intention and good conscience of the federal law and hence frustrated it.

Apparently, the appeal was dismissed and it was held that section 22(4) of the 407 Act (Highway Act) is constitutionally inoperative to the extent was used to force a provable claim of discharge under section 178(2) of the Bankruptcy and Insolvency Act. It was further held that, as the creditor is provided under section 22(4) with an administrative enforcement scheme, the ETR is not permitted to exhaust this scheme complementing with section 178(2). Therefore, both laws cannot be operated without a clear conflict hence making it inoperative.

Consequently, section 22(4) of the Highway Act was found to be null and void and was ruled to consist of no force or effect. On the other hand, while dealing with these issues, the Court when asked to decide on future of the federal Excellency, it considered it appropriate to defer it for some future day.