Canada: Comments on the Supreme Court of Canada’s Landmark Insolvency Decision in Ted LeRoy Trucking

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Ontario Court of Appeal had considered this issue and concluded that the ETA, which had been enacted later in time, "repealed" the prior-enacted CCAA provision nullifying the GST priority.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.

In association with
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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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