On December 16, 2010, the Supreme Court of Canada (SCC) released
its decision in Re Ted Leroy Trucking Ltd. In its
decision, the SCC affirmed the importance of the Companies'
Creditors Arrangement Act (CCAA) as a flexible restructuring
tool, and clarified the source and limits of the Court's
authority during CCAA proceedings. Furthermore, the Court overruled
the judgment of the B.C. Court of Appeal in Re Ted Leroy Trucking
Ltd., and the Ontario Court of Appeal in Re Ottawa Senators
Hockey Club Corp., and concluded that GST deemed trusts are
inoperative in CCAA proceedings.
At issue in Re Ted Leroy Trucking Ltd. was the
Court's discretion to partially lift the stay in a failed CCAA
proceeding to allow the debtor to make an assignment under the
Bankruptcy and Insolvency Act (BIA), while continuing to
stay the Crown's GST deemed trust claim.
In its judgement, the majority first considered whether GST
deemed trusts remain enforceable in CCAA proceedings. Under s. 18.3
(now s. 37) of the CCAA, subject to certain explicit exceptions,
statutory deemed trusts are ineffective under the CCAA. However,
under the deemed trust provisions of the Excise Tax Act,
GST deemed trusts operate despite any enactment of Canada except
the BIA. The majority resolved the apparent conflict between these
two rules in favour of the CCAA, and held that GST deemed trusts
become inoperative upon the commencement of CCAA proceedings.
In its reasons, the majority noted Parliament's movement
away from asserting priority for Crown claims in insolvency law.
While source deductions are clearly and expressly carved out of the
CCAA and the BIA, neither of the insolvency statutes explicitly
addresses GST deemed trusts. Furthermore, the majority emphasized
the importance of harmonization between the CCAA and BIA. Since GST
claims are inoperative under the BIA, allowing them under the CCAA
would encourage statute shopping and create a disincentive for
companies to restructure under the more flexible and responsive
In the course of its reasons, the majority considered the source
and limits of a Court's authority during CCAA proceedings. The
majority found that a Court's jurisdiction to make orders in a
CCAA proceeding primarily arises from the text of the statute.
However, as a secondary source, the Court may rely on its inherent
or equitable jurisdiction. Furthermore, the Court's broad
discretionary jurisdiction under the CCAA must be interpreted in
light of the remedial nature of the CCAA and insolvency legislation
generally. When exercising its authority under the CCAA, a Court
should bear in mind the requirements of appropriateness, good
faith, and due diligence. An order will be appropriate if it will
usefully further efforts to achieve the remedial purpose of the
CCAA, that is, avoiding the social and economic losses resulting
from liquidation of an insolvent company.
In this case, the majority held that the Court had the
discretion to partially lift the stay to allow the debtor to make
an assignment in bankruptcy. In reaching this conclusion, the
majority commented on the relationship between the BIA and the
CCAA. The majority found that the CCAA and BIA should not be
treated as distinct regimes subject to a temporal gap between the
two, but as part of an integrated body of insolvency law. Since the
CCAA is silent about what happens if reorganization under the CCAA
fails, the BIA scheme of liquidation and distribution necessarily
supplies the backdrop for what will happen if a CCAA reorganization
The majority held that the partial lifting of the stay advanced
the underlying purpose of the CCAA by fostering a harmonious
transition between reorganization and liquidation, and further met
the objective of a single collective proceeding that is common to
both statutes. Furthermore, the partial lifting of the stay
prevented creditors from racing to the courthouse in an effort to
obtain priority unavailable under either the CCAA or the BIA.
The SCC's decision in Re Ted Leroy Trucking Ltd. is
important since it clarifies that GST deemed trusts are inoperative
during CCAA proceedings. It also affirms the Court's discretion
to partially lift a CCAA stay to allow a debtor to make an
assignment in bankruptcy while still staying GST deemed trust
claims. However, this decision is most important for its clear
statements about the purposes of the CCAA and the nature of
judicial discretion under the CCAA.
The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).