2585929 Alberta – Alberta King’s Bench declines to clarify the tax treatment of an RVO

Almost two years previously, the Court granted a reverse vesting order (RVO) pursuant to bankruptcy proposal proceedings that provided that certain liabilities and assets would be transferred to a newly established “Residual Co,” and that the shares of the principal debtor corporation (AMI) would be cancelled for no consideration. The trustee, in order to clarify the tax treatment of the distributable proceeds, now sought a declaration that the RVO should be interpreted as providing that such proceeds were received as proceeds of disposition of the AMI shares.

Johnston J. found that she had the jurisdiction to grant such an interpretation, given that no tax return for the applicable taxation year had yet been filed, let alone any tax dispute having arisen, and that this application related to the interpretation of the RVO. However, she declined to grant the requested interpretation, given the paucity of evidence that the parties intended for the RVO to be interpreted in the manner urged by the trustee, that the Court was now being asked, almost two years after the RVO was issued, to provide the requested declaration to achieve the most tax-advantageous treatment and that it was being asked to read in language that was not argued when the RVO was granted.

Similar reasons also prompted her to reject the bolder request, in the alternative, that the RVO be amended (rather than merely interpreted) to add the requested language.

Neal Armstrong. Summary of 2585929 Alberta Ltd (Re), 2026 ABKB 75 under BIA, s. 187(5).