In the recent decision of Century Services Inc. v. Canada
(Attorney General), 2010 SCC 60, the Supreme Court of Canada
has, for the first time, interpreted key provisions of the
Companies' Creditors Arrangement Act
The judgment of the Court, which was pronounced December 16,
2010, overrules appellate authority from Ontario and British
Columbia that previously conferred a priority for unremitted GST on
the Crown in CCAA proceedings, and endorses the broad discretionary
power of a CCAA court.
The debtor in the case owed the Crown approximately $300,000 in
GST that had been collected from third parties but not yet remitted
to the Crown. When it became apparent that an attempted
restructuring under the CCAA was doomed to fail and the debtor
sought leave to assign itself into bankruptcy under the
Bankruptcy and Insolvency Act ("BIA"), the Crown
sought to lift the CCAA stay of proceedings so it could collect the
GST proceeds. Under the BIA, the Crown would lose the priority it
argued was recognized under the CCAA, and rank as an unsecured
creditor for unremitted GST.
The chambers judge dismissed the Crown's application to lift
the stay on the reasoning that the priority scheme under the BIA
should ultimately govern the distribution of the debtor's
assets. The British Columbia Court of Appeal disagreed, and held
that the chambers judge was precluded from staying the Crown's
enforcement of its GST priority. In so doing, the Court adopted the
reasoning in a line of cases culminating in Ottawa
Senators, which held that the statutory deemed trust for GST
created under the Excise Tax Act remains enforceable
during a CCAA reorganization despite language in the CCAA that
The Supreme Court of Canada, in a majority decision of seven
justices, allowed the appeal of the secured creditor, who was next
in line for the funds in question.
The Court engaged in a historical review of the CCAA and noted
its remedial purpose. It held that allowing the Crown access to the
GST funds in a CCAA, while recognizing that the Crown lost priority
in a bankruptcy, would encourage statute shopping by secured
creditors and skew the incentives against reorganizing under the
CCAA, which would undermine the CCAA's objectives. The Court
concluded that the British Columbia Court of Appeal, and other
appellate courts before it, had erred in concluding that the
statutory deemed trust trumped the CCAA. In the result, it held
that the Crown does not enjoy a priority for unremitted GST under
The Supreme Court of Canada also provided guidance on the
discretionary powers of a court supervising a CCAA reorganization.
The Supreme Court noted the broad authority conferred on a court
under the CCAA, and went on to hold that the requirements of
appropriateness, good faith and due diligence are baseline
considerations that a court should always bear in mind when
exercising CCAA authority. In determining what orders should be
made in the course of a CCAA restructuring, the key question for
the court is whether the order sought will usefully further efforts
to achieve the remedial purpose of the CCAA, which is to avoid the
social and economic losses resulting from liquidation of an
Applying those guiding principles to the chambers judge's
order, the Court held that the chambers judge did not err, as his
order to stay the effect of the Crown's enforcement of the GST
claim was in furtherance of the CCAA objectives. The order ensured
that creditors would not be disadvantaged by an attempted
reorganization under the CCAA.
Fraser Milner Casgrain LLP was counsel to the successful
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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