In 2018, several insolvency cases were litigated that will be of interest to commercial lenders in restructuring and insolvency proceedings. This article summarizes the core issues of importance to lenders in each of these cases. Status updates on the cases reported in our 2017 roundup of key developments in Canadian insolvency case law are included at the end of this article.

PRIORITY OF HST DEEMED TRUSTS

Canada v. Toronto-Dominion Bank

In this case, the Federal Court (FC) considered liability of secured creditors outside a bankruptcy when payment is received from a debtor with HST/GST liability. The FC found that the Excise Tax Act (Canada) (ETA) imposes an obligation on secured creditors to repay money received out of proceeds of sale subject to a deemed trust for unremitted HST/GST (i.e., federal/provincial sales tax).

In reaching its decision, the FC raised the possibility that this obligation may not extend to unsecured creditors, as the wording of the ETA gives the Canada Revenue Agency (CRA) priority over secured interests only, but chose not to decide this issue. The defence of bona fide purchaser for value was not available to the secured creditor because the amendments to the ETA requiring HST/GST liabilities to be paid in priority to secured creditors are based on the premise that a secured creditor cannot invoke the bona fide purchaser for value defence. If this defence were available, secured creditors would almost always be able to defeat the deemed trust.

Download >> 2018 Developments in Canadian Insolvency, Case Law: What Lenders Need to Know

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© 2018 Blake, Cassels & Graydon LLP.

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.