SCC Grants Leave To Appeal Priority Of CCAA Charges Over Federal Source Deduction Deemed Trusts

On March 26, 2020, leave to appeal the decision of the Alberta Court of Appeal (the "Alberta CA") in Canada v. Canada North Group Inc.1 ("Canada North Group") was granted by the Supreme Court of Canada (the "SCC").2 No reasons were given.

The Federal Crown sought leave to appeal the Alberta CA majority decision that sections 11.2, 11.51 and 11.52 of the Companies' Creditors Arrangement Act ("CCAA")3 gave a court the discretion to grant charges in respect of claims for debtor-in-possession financing, directors' indemnification and professional fees (collectively, the "Priming Charges"), in priority to the statutory deemed trusts for unremitted source deductions created by the Income Tax Act4 (the "ITA"), the Canada Pension Plan5 (the "CPP") and the Employment Insurance Act6 (the "EIA" and, together with the ITA and the CPP, the "Fiscal Statutes") in favour of the Crown (collectively, the "Federal Deemed Trusts").7

The above-cited charging provisions of the CCAA each state that a court may order that the charges "rank in priority over the claim of any secured creditor of the company." Following the reasoning of the SCC in Royal Bank of Canada v. Sparrow Electric Corp.8 and First Vancouver Finance v. M.N.R.,9 the Alberta CA held that the Federal Deemed Trusts were, in essence, security interests and not true trusts creating proprietary interests. On this point, the Alberta CA sided with the earlier decision of the Alberta Court of Queen's Bench in Temple City Housing Inc. (Companies' Creditors Arrangement Act)10 and rejected the opposite conclusion of the Nova Scotia Supreme Court in Re Rosedale Farms Limited, Hassett Holdings Inc, Resurgam Resources.11 The Alberta CA also noted that the definition of "security interest" in the ITA itself, which is cross-referenced in the CPP and the EIA, includes any interest arising out of a "deemed or actual trust."12

The Alberta CA rejected the Crown's argument that allowing CCAA charges to prime the Federal Deemed Trusts would defeat the purpose of the Fiscal Statutes. The presumption of statutory coherence dictated a harmonious interpretation of the CCAA and the Fiscal Statutes, allowing the objectives of both to be achieved. The Priming Charges allowed the CCAA companies to continue to operate their business, thereby raising sufficient funds to satisfy both the Priming Charges and the Crown's claims. In contrast, if the Crown's position was to prevail, it would have a chilling effect on commercial...