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LIENS - Moneys subject to statutory trust

Tuesday, May 05, 2020 @ 9:19 AM  

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Appeal by unpaid contractors from a decision of a motion judge rejecting the appellants’ trust claim in condominium units sold during insolvency proceedings. The appellants supplied work and material to a condominium building. The developer became insolvent. It owned unsold condominium units in the project that were sold during the insolvency proceedings. At the time of the Companies’ Creditors Arrangement Act (CCAA) filing, the appellants were owed $3,864,428 for work they supplied to the condominium project. Because of the sale, the appellants claimed that a trust arose over the proceeds to the extent of the amounts owing to them, which would give them an effective priority for these amounts. The motion judge found that a s. 9(1) trust under the Construction Lien Act could not arise on these facts because the sale proceeds were not received by the owners of the premises, but rather a CCAA Monitor and on the basis of this court’s decision in Veltri ruling that the prerequisites of a ss. 7 or 9 trust were not met where a Monitor ultimately received the proceeds of sale to be held for creditors.

HELD: Appeal allowed. The trust created by s. 9(1) could be effective in a CCAA sales process. There was no conflict between the language or purpose of the Bankruptcy and Insolvency Act which excluded property held in trust from the definition of property of the bankrupt and s. 8(1) of the Construction Lien Act which created the kind of trust the bankruptcy law contemplated, such that paramountcy would render the provincial trust inoperative. The Bankruptcy and Insolvency Act and CCAA were both part of Parliament’s scheme for the regulation of insolvency, and to the extent possible, they should be interpreted to afford analogous entitlements to creditors. In this case, nothing displaced the operation of the s. 9(1) trust over the proceeds to the extent of the amounts owed to the appellants. The facts in Veltri differed from the present case. Veltri did not stand for the proposition that the substantial involvement of the CCAA Monitor in the sales process prevented a s. 9(1) trust from arising. The sales of the units that took place were sales by the owner. The sale by the owner was of the owner’s interest, notwithstanding that it occurred in an insolvency process. The value of the consideration received on the sale was attributable to the sale of premises to which the improvement was made. Neither the Bankruptcy and Insolvency Act proposal proceedings nor the CCAA proceeding ended the existence of the developer or vested their property in the Monitor. The control the Monitor had over the process did not detract from the conclusion that the owner sold its interest and received consideration in excess of expenses and mortgage debt.

Urbancorp Cumberland 2 GP Inc. (Re), [2020] O.J. No. 1082, Ontario Court of Appeal, S.E. Pepall, P.D. Lauwers, K.M. van Rensburg, B. Zarnett and J.A. Thorburn JJ.A., March 11, 2020. Digest No. TLD-May42020003