In its June 11, 2014 decision in Iona Contractors Ltd.
(Re), 2014 ABQB 347 ("Iona Contractors"), the
Court of Queen's Bench of Alberta (the "Alberta QB")
held that the trust created by section 22 of the Builders' Lien
Act (Alberta) is not effective in the bankruptcy of a would-be
trustee debtor. This result is consistent with, but reached
completely independently of, the recent Ontario Superior Court of
Justice (Commercial List) decision in Royal Bank of Canada v.
Atlas Block Co. Limited, 2014 ONSC 3062 ("Atlas
Block") which held, among other things, that a trust
claim pursuant to section 8 of the Construction Lien Act (Ontario)
(the "CLA") does not survive bankruptcy unless it also
bears all the marks of a valid common law trust.
Where the Atlas Block decision had to address a broad
range of issues and left some readers wanting more explanation of
how Justice Penny overcame what was regarded as the long-standing
legal principle that CLA trusts survive in bankruptcy, the Iona
Contracting decision thankfully provides a more fulsome
discussion of the issue. In particular, Iona Contracting
deals head-on with the 1962 decision of the Supreme Court of Canada
(the "SCC") in John M.M. Troup Ltd. v. Royal
Bank,  S.C.R. 487 ("Troup"), which
seems to have formed the underpinning of the legal analysis that
statutory construction trusts do survive in bankruptcy. Justice
Eidsvik of the Alberta QB held that Troup was effectively
overruled because it had been considered in the SCC's decision
in Husky Oil Operations Ltd. v. Minister of National
Revenue  3 S.C.R. 453 ("Husky Oil"),
yet was at odds with an application, to statutory construction
trusts, of the principles laid out in Husky Oil and in the
SCC's earlier decision in British Columbia v. Henfrey
Samson Belair Ltd.,  2 S.C.R. 24.
With the same conclusion being reached in parallel by separate
courts in Iona Contractors and Atlas Block, it
seems safe to conclude that the legal landscape has now shifted for
the construction and lending industries.
The Financial Services Group at Aird & Berlis LLP has a
great deal of experience both in advising lenders on potential
construction and other priorities issues and in addressing
priorities issues that arise in insolvency and restructuring.
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.
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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.
The Court of Queen's Bench of Alberta authorized a disposition of a debtor's assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings.
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