Canada: Comments On The Supreme Court Of Canada's Landmark Insolvency Decision In Ted LeRoy Trucking

Last Updated: May 23 2011
Article by Kevin P. McElcheran and Heather L. Meredith

Most Read Contributor in Canada, September 2018

The Supreme Court of Canada decision in Century Services Inc. v. Canada (Attorney General), which arose from the restructuring proceedings of Ted LeRoy Trucking Ltd. and was released on December 6, 2010, is a landmark decision in Canadian insolvency law.

Not only did the Supreme Court overrule the Ontario Court of Appeal decision in Ottawa Senators on the issue of Crown priorities but also, for the first time, the Supreme Court considered and explained (i) the interpretative approach courts should employ when applying the Companies' Creditors Arrangement Act (CCAA), the legislation of choice for large corporate restructurings; and (ii) the interaction among Canada's multiple insolvency-related statutes, particularly when the debtor's attempt to restructure fails.

In Ted LeRoy, the debtor had commenced proceedings under the CCAA. Among its outstanding debts was a debt for GST that had been collected by the company, but not remitted. The Excise Tax Act (ETA) creates a trust for unremitted GST, which, according to the ETA, ranks in priority over all security interests. The ETA states that it takes precedence over any other enactment of Canada or a province other than the Bankruptcy and Insolvency Act (BIA). While the ETA only provides an exception for the BIA, both the BIA and the CCAA contain provisions nullifying deemed trusts in favour of the Crown. Accordingly, the BIA and ETA accord with each other: the ETA explicitly respects the BIA provision nullifying the deemed trust for unremitted GST. However, the ETA and the CCAA were in apparent discord, with each purporting to nullify the other.

In a case arising out of the CCAA proceedings of the Ottawa Senators hockey club, the Ontario Court of Appeal had considered this issue and concluded that the ETA, which had been enacted later in time, "repealed" the prior-enacted CCAA provision nullifying the GST priority. This created an inconsistency of treatment of GST between a BIA proceeding (reorganization or liquidation), in which the ETA deemed trust would be nullified, and a CCAA reorganization, in which the trust would remain enforceable.

The issue arose again in Ted LeRoy. In that case, assets of the debtor's business were sold in the CCAA proceedings, giving rise to proceeds. When reorganization under the CCAA failed, the debtor sought leave to make an assignment under the BIA. In response, the Crown sought to have a portion of the sale proceeds paid to it before any assignment under the BIA was made. The Crown argued that it would be prejudiced if the debtor became bankrupt before the amounts were paid because it would lose priority for its deemed trust under the BIA. The supervising judge dismissed the Crown's motion and continued the CCAA stay preventing enforcement of the Crown's claim pending the bankruptcy. The Crown appealed.

The Crown's appeal was allowed by the British Columbia Court of Appeal, which found that since the ETA deemed trust had priority under the CCAA (following Ottawa Senators), the CCAA court should not stay enforcement of the Crown's claim once restructuring was no longer a possibility. In essence, the court found that the only legitimate purpose of the CCAA stay was to facilitate reorganization, and once that was no longer possible, the Crown's rights under the ETA should not be stayed.

The Supreme Court of Canada allowed the appeal. In dealing with the statutory interpretation issue, the Supreme Court explicitly overturned the Ottawa Senators case, holding that the Ontario Court of Appeal had misinterpreted the CCAA by misapplying the principle of "deemed repeal." The majority decision found that, when one properly considers the history of the CCAA and Canada's insolvency regime as a whole, the ETA deemed trust for GST should be viewed as nullified under both the BIA and the CCAA.

In an insightful review of Canada's multi-statute insolvency regime, the Supreme Court notes that the BIA provides a codified regime for both reorganization and liquidation while the CCAA (which provides a more flexible court-directed restructuring regime for larger companies) provides only for reorganization. However, while the CCAA does not have its own liquidation provisions, the court held that "the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will happen if a CCAA reorganization is ultimately unsuccessful."

In its review of the history of Canada's insolvency regime, the Supreme Court notes the policy benefits and legislative wisdom of permitting the reorganization provisions of the BIA and CCAA to exist in parallel. The CCAA was enacted in 1933 to provide a creative, court-supervised process for companies to be reorganized to avoid the social and economic costs of mass liquidations. When the BIA was enacted in 1992 (replacing the former Bankruptcy Act), it included broader provisions for reorganizing insolvent debtors. Some commentators then speculated that the BIA's new reorganization mechanism would supplant the CCAA. However, the court notes that such conjecture was "out of step with reality" and "overlooked the renewed vitality the CCAA enjoyed." In particular, the flexible CCAA process — in which life is given to the "skeletal" CCAA by the exercise of judicial discretion — was seen as a great benefit to complex reorganizations when compared to the more rigid, codified scheme in the BIA. Thus, even after the BIA was enacted in 1992, the CCAA continued to be used, particularly for complex corporate reorganizations.

In keeping with the similar purpose, but different methods, of the BIA and CCAA restructuring mechanisms, the Supreme Court overruled Ottawa Senators and the "strange asymmetry" it had created in the treatment of GST deemed trusts. The court was critical that such asymmetry could give creditors incentive to favour the BIA and "deprive companies of the option to restructure under the more flexible and responsive CCAA regime, which has been the statute of choice for complex reorganizations."

The profound implications of the Supreme Court's approach to interpreting the CCAA are illuminated in the balance of its judgment. As liquidation under the BIA is the backdrop of both CCAA and BIA restructuring proceedings, the Supreme Court agreed with the trial judge that no "gap" should exist between the end of a failed CCAA reorganization and the start of liquidation under the BIA that would allow enforcement of interests at the conclusion of the CCAA that would be lost in bankruptcy. Rather, the Supreme Court explained that the two statutes form part of "an integrated body of insolvency law" and, while the CCAA does not explicitly provide for an automatic transition to the liquidation provisions of the BIA, "the breadth of the court's discretion under the Act is sufficient to construct a bridge [from a failed CCAA reorganization] to liquidation under the BIA."

While this decision arose in the context of a specific priority dispute between secured creditors and the Crown with respect to the Crown's claim for GST, the Supreme Court took this opportunity to correct deeply held but erroneous views about the relationship among Canada's insolvency statutes and how they should be interpreted. The Supreme Court rejected the notion that the BIA and CCAA are distinct regimes, and instead held that the two are part of an integrated whole. As a result, the Supreme Court empowered CCAA Courts to facilitate a smooth transition from a failed CCAA restructuring to liquidation proceedings under the BIA. This approach promotes restructuring under the regime most appropriate for each debtor company, and puts to rest technical arguments suggesting parties could obtain some advantage at the end of a failed CCAA restructuring that would not be available had the debtor employed the BIA restructuring regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions