Update! Court Ordered Charges Can Also Prime Crown Claims In BIA Matters

• Published date: 06 November 2023
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Law Firm: McMillan LLP
• Author: Ms Sarah White, Émile Catimel-Marchand and Wa'L Rostom

Recent teachings of the Supreme Court of Canada court in Canada v Canada North Group Inc., 2021 SCC 30 [Canada North] had confirmed that the Companies' Creditors Arrangement Act ('CCAA') courts could grant super-priority charges (e.g. interim financing, administration charge, or directors' and officers' charges) ranking in priority to s. 227(4.1) Income Tax Act ('ITA') deemed trusts in favor of the Crown.

Until now, however, whether this could occur under the Bankruptcy and Insolvency Act ('BIA') was still undetermined but has been confirmed in the decision of Attorney General of Canada c. Richter Advisory Group Inc., 2023 QCCA 1295.

The Superior Court has jurisdiction to grant super priority charges ahead of ITA deemed trusts

The court relied heavily on the Supreme Court of Canada's decision in Canada North. As stated previously, this decision found that within the context of a CCAA proceeding, that a super priority charge can rank ahead of a deemed trust.

The proposal provisions within the BIA appear to serve the same remedial purpose as the CCAA, which is the financial rehabilitation of an insolvent corporate debtor. The court stated further that the CCAA and BIA should be treated in a "harmonious fashion".

The court stated that the 5 judges in Canada North all found that section 11 of the CCAA confers the power on the court to grant an order priming a charge in favour of the interim lender over the deemed trust under the ITA.

Furthermore, the court noted that section 11 of the CCAA grants the court jurisdiction to make an order subordinating a deemed trust. This led to the court discussing the similarities between section 11.2(2) of the CCAA and section 50.6(3) BIA:

11. 11.2 (2) of the CCAA: "The court may order that the security or charge rank in priority over the claim of any secured creditor of the company."
12. 50.6(3) of the BIA: "The court may order that the security or charge rank in priority...