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COMPANIES’ CREDITORS ARRANGEMENT ACT (CCAA) matters - Compromises and arrangements - Claims - Priority - Crown claims

Wednesday, July 28, 2021 @ 1:43 PM  


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Appeal by the Crown from the dismissal of its appeal by the Court of Appeal of Alberta from the dismissal of its motion to vary an Initial Order. The respondent Canada North Group and six related corporations initiated restructuring proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). They requested the creation of three priming charges that included an administration charge in favour of counsel, a monitor and a chief restructuring officer, a financing charge in favour of an interim lender, and a directors’ charge protecting their directors and officers against liabilities incurred after the commencement of the proceedings. The respondents’ debt included unremitted employee source deductions and GST. The CCAA judge made an Initial Order that the priming charges were to rank in priority to all other security interests and were not to be limited or impaired in any way by the provisions of any federal or provincial statutes. The Crown applied to vary the Initial Order on the basis that the priming charges should not take priority over the deemed trust created by s. 227(4.1) of the Income Tax Act (“ITA”) for unremitted source deductions. The motion judge dismissed the Crown’s motion on the basis that the security interest created by s. 227(4.1) of the ITA could be subordinated to court-ordered super-priority charges. The majority of the Court of Appeal agreed.

HELD: Appeal dismissed. The priming charges prevailed over the Crown’s deemed trust. Section 227(4.1) of the ITA did not create a proprietary or ownership interest in the debtor’s property as the Crown’s claim did not attach to any specific asset. It also did not create a security interest that had statutory priority over all other security interests, including super-priority charges. The interest created by s. 227(4.1) was inadequate to prevent the exercise of a supervising judge’s discretion to order super-priority charges under s. 11 of the CCAA. A court-ordered super-priority charge under the CCAA was not a security interest within the meaning of s. 224(1.3) of the ITA. There was no conflict between s. 227(4.1) of the ITA and the Initial Order or between the ITA and s. 11 of the CCAA. Giving super priority to priming charges in favour of the professionals who provided assistance in CCAA restructuring was required to derive the most value for the stakeholders. For a monitor and financiers to put themselves at risk to restructure and develop assets, only to subsequently discover that a deemed trust superseded all claims would be unfair and not make commercial sense. Concurring and dissenting reasons were provided.

Canada v. Canada North Group Inc., [2021] S.C.J. No. 30, Supreme Court of Canada, R. Wagner C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, S. Côté, R. Brown, M. Rowe, S.L. Martin and N. Kasirer JJ., July 28, 2021. Digest No. TLD-July262021011-SCC