A recent decision of the Alberta Court of Appeal has confirmed that court ordered restructuring charges granted pursuant to the Companies' Creditors Arrangement Act (CCAA) enjoy a higher priority than amounts owing to Canada Revenue Agency (CRA) for deducted but unremitted source deductions. This outcome is largely viewed as positive for restructuring proceedings, on the basis that restructurings could be hindered or not occur if interim lenders and insolvency professionals did not have the certainty of such restructuring charges being in priority to CRA source deduction claims.
In Canada v Canada North Group Inc.1, the majority of the Alberta Court of Appeal concluded that CRA's statutory deemed trusts in relation to source deductions are properly characterized as security, and not proprietary interests. In reaching this conclusion, the majority provided important clarification on the following issues:
the nature of CRA statutory deemed trusts in CCAA proceedings, which in Canada North arose pursuant to the Income Tax Act (ITA), the Canadian Pension Plan Act (CPPA), and the Employment Insurance Act (EIA and, together with the ITA and the CPPA, the "Fiscal Statutes") as a result of debtor company's failure to remit the source deductions required by these statutes; the rights and entitlements that CRA can assert pursuant to a statutory deemed trust in a CCAA proceeding; and whether a CCAA court possesses the jurisdiction to grant "super-priority" charges that rank in priority to CRA's rights and entitlements derived from statutory deemed trusts. Prior to the release of the Canada North decision, these issues had been the subject of contradictory decisions in Canada, none of which had been at the appellate level.2
Background on Canada North: CRA's Assertion of Statutory Deemed Trusts
The facts of Canada North are relatively straightforward. On July 5, 2017, the Court of Queen's Bench of Alberta granted an initial order in favour of Canada North Group Inc. (CNGI) pursuant to the CCAA (the "Initial Order"). The Initial Order granted certain "super-priority" charges, which secured various forms of obligations in priority to the claims of existing secured creditors. Such charges included a "super-priority" security interest in favour of Business Development Bank of Canada (BDC). The purpose of this super-priority charge was to give BDC security for interim financing it had agreed to provide to CNGI during the restructuring process (otherwise...
