What Comes First: Deemed Trusts or Court-Ordered Super Priority Charges? ABCA Weighs In

On August 29, 2019, the Alberta Court of Appeal released its decision in Canada v. Canada North Group Inc. The majority – Justice P. Rowbotham and Justice F. Schutz – upheld the chambers judge's ruling that the Crown's interest under deemed statutory trust provisions of the Income Tax Act (ITA), Canada Pension Plan (CPP), and Employment Insurance Act (EIA) is not a proprietary interest, but rather, is akin to that of a secured creditor. As such, subsections 11.2, 11.51 and 11.52 of the Companies' Creditors Arrangement Act (CCAA) allow the court to grant priority to charges necessary for restructuring ahead of the Crown's security interest arising out of the statutory deemed trusts under the ITA, CPP and EIA.

This decision affirms that a deemed trust in favour of the Canada Revenue Agency for unremitted source deductions can be primed by court-ordered charges such as a charge securing debtor-in-possession financing granted in a proceeding under the CCAA.

Justice Wakeling provided a lengthy dissent and maintained that the Crown has a claim to a deemed trust created under the ITA that supersedes any claim by those holding priming charges under the CCAA. He further concluded that nothing in the CCAA is inconsistent with this determination, and expressly called Parliament to act if it finds the decision to accord first priority to the Crown in the ITA was unwise and should be reversed.

For further information, please contact:

Kelly Bourassa                       403-260-9697
James Reid                             403-260-9731

or any other member of ourRestructuring & Insolvency group.