Creditors Cheer SCC Decision On GST Debts

Where a supplier has failed to remit GST to the Crown, ETA subsection 222(3) extends a deemed trust over the unremitted GST in favour of the Crown to cover the supplier's property equal in value to the unremitted GST. Moreover, a creditor that receives sale proceeds of property subject to this deemed trust may be liable to pay such proceeds to the Crown. This deemed trust is extinguished on the supplier's bankruptcy (ETA subsection 222(1.1); Century Services Inc. v. Canada (Attorney General), 2010 SCC 60), so the Crown ceases at that time to have priority over other creditors. However, uncertainty remained concerning the continuing liability of a creditor, following the supplier's bankruptcy, to pay to the Crown proceeds that it received from the supplier prior to bankruptcy. This has now been resolved: in Callidus Capital Corp. v. Canada ( 2018 SCC 47), the SCC ruled that the creditor's obligation to pay such proceeds to the Crown also ceases on the supplier's bankruptcy.

In contrast, a majority of the FCA panel ( 2017 FCA 162) had concluded that the creditor's personal liability under subsection 222(3) survived the supplier's bankruptcy. In dissent at the FCA, Pelletier JA rejected the majority's conclusion that the creditor's liability "crystallized" as a personal liability independent of the deemed trust over the unremitted GST. He found instead that this liability was entirely dependent on the amount of unremitted GST subject to the deemed trust, noting that any remittances of GST by the supplier prior to its bankruptcy would have reduced the creditor's liability under subsection 222(3). Since subsection 222(1.1) reduced to nil the amount subject to the deemed trust over unremitted GST, Pelletier JA concluded that the creditor's liability to remit the proceeds was also reduced to nil and extinguished.

The creditor appealed to the SCC with the support of several associations of insolvency professionals. The intervenors characterized the FCA majority's decision as effectively preserving the subsection 222(3) deemed trust after bankruptcy. In addition, the Canadian Bankers' Association submitted that the FCA had created "a general regime of personal liability of...