Century Services Inc. v. Canada (Attorney General)

Century Services Inc. v. Canada (Attorney General)
Collection
Supreme Court Judgments
Date
2010-12-16
Neutral citation
2010 SCC 60
Report
[2010] 3 SCR 379
Case number
33239
Judges
McLachlin, Beverley; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise; Rothstein, Marshall; Cromwell, Thomas Albert
On appeal from
British Columbia
Subjects
Bankruptcy and insolvency
Trust
Notes
SCC Case Information: 33239
Decision Content
SUPREME COURT OF CANADA
Citation: Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379
Date: 20101216 Docket: 33239
Between:
Century Services Inc.
Appellant
and
Attorney General of Canada on behalf of
Her Majesty The Queen in Right of Canada
Respondent
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
Reasons for Judgment: (paras. 1 to 89)
Concurring Reasons: (paras. 90 to 113)
Dissenting Reasons: (paras. 114 to 136)
Deschamps J. (McLachlin C.J. and Binnie, LeBel, Charron, Rothstein and Cromwell JJ. concurring)
Fish J.
Abella J.
Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379
Century Services Inc. Appellant
v.
Attorney General of Canada
on behalf of Her Majesty The Queen in Right of Canada Respondent
Indexed as: Century Services Inc. v. Canada (Attorney General)
2010 SCC 60
File No.: 33239.
2010: May 11; 2010: December 16.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
on appeal from the court of appeal for british columbia
Bankruptcy and Insolvency — Priorities — Crown applying on eve of bankruptcy of debtor company to have GST monies held in trust paid to Receiver General of Canada — Whether deemed trust in favour of Crown under Excise Tax Act prevails over provisions of Companies’ Creditors Arrangement Act purporting to nullify deemed trusts in favour of Crown — Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, s. 18.3(1) — Excise Tax Act, R.S.C. 1985, c. E-15, s. 222(3) .
Bankruptcy and insolvency — Procedure — Whether chambers judge had authority to make order partially lifting stay of proceedings to allow debtor company to make assignment in bankruptcy and to stay Crown’s right to enforce GST deemed trust — Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 , s. 11 .
Trusts — Express trusts — GST collected but unremitted to Crown — Judge ordering that GST be held by Monitor in trust account — Whether segregation of Crown’s GST claim in Monitor’s account created an express trust in favour of Crown.
The debtor company commenced proceedings under the Companies’ Creditors Arrangement Act (“CCAA ”), obtaining a stay of proceedings to allow it time to reorganize its financial affairs. One of the debtor company’s outstanding debts at the commencement of the reorganization was an amount of unremitted Goods and Services Tax (“GST”) payable to the Crown. Section 222(3) of the Excise Tax Act (“ETA ”) created a deemed trust over unremitted GST, which operated despite any other enactment of Canada except the Bankruptcy and Insolvency Act (“BIA ”). However, s. 18.3(1) of the CCAA provided that any statutory deemed trusts in favour of the Crown did not operate under the CCAA , subject to certain exceptions, none of which mentioned GST.
Pursuant to an order of the CCAA chambers judge, a payment not exceeding $5 million was approved to the debtor company’s major secured creditor, Century Services. However, the chambers judge also ordered the debtor company to hold back and segregate in the Monitor’s trust account an amount equal to the unremitted GST pending the outcome of the reorganization. On concluding that reorganization was not possible, the debtor company sought leave of the court to partially lift the stay of proceedings so it could make an assignment in bankruptcy under the BIA . The Crown moved for immediate payment of unremitted GST to the Receiver General. The chambers judge denied the Crown’s motion, and allowed the assignment in bankruptcy. The Court of Appeal allowed the appeal on two grounds. First, it reasoned that once reorganization efforts had failed, the chambers judge was bound under the priority scheme provided by the ETA to allow payment of unremitted GST to the Crown and had no discretion under s. 11 of the CCAA to continue the stay against the Crown’s claim. Second, the Court of Appeal concluded that by ordering the GST funds segregated in the Monitor’s trust account, the chambers judge had created an express trust in favour of the Crown.
Held (Abella J. dissenting): The appeal should be allowed.
Per McLachlin C.J. and Binnie, LeBel, Deschamps, Charron, Rothstein and Cromwell JJ.: The apparent conflict between s. 222(3) of the ETA and s. 18.3(1) of the CCAA can be resolved through an interpretation that properly recognizes the history of the CCAA , its function amidst the body of insolvency legislation enacted by Parliament and the principles for interpreting the CCAA that have been recognized in the jurisprudence. The history of the CCAA distinguishes it from the BIA because although these statutes share the same remedial purpose of avoiding the social and economic costs of liquidating a debtor’s assets, the CCAA offers more flexibility and greater judicial discretion than the rules-based mechanism under the BIA , making the former more responsive to complex reorganizations. Because the CCAA is silent on what happens if reorganization fails, the BIA scheme of liquidation and distribution necessarily provides the backdrop against which creditors assess their priority in the event of bankruptcy. The contemporary thrust of legislative reform has been towards harmonizing aspects of insolvency law common to the CCAA and the BIA, and one of its important features has been a cutback in Crown priorities. Accordingly, the CCAA and the BIA both contain provisions nullifying statutory deemed trusts in favour of the Crown, and both contain explicit exceptions exempting source deductions deemed trusts from this general rule. Meanwhile, both Acts are harmonious in treating other Crown claims as unsecured. No such clear and express language exists in those Acts carving out an exception for GST claims.
When faced with the apparent conflict between s. 222(3) of the ETA and s. 18.3(1) of the CCAA , courts have been inclined to follow Ottawa Senators Hockey Club Corp. (Re) and resolve the conflict in favour of the ETA . Ottawa Senators should not be followed. Rather, the CCAA provides the rule. Section 222(3) of the ETA evinces no explicit intention of Parliament to repeal CCAA s. 18.3 . Where Parliament has sought to protect certain Crown claims through statutory deemed trusts and intended that these deemed trusts continue in insolvency, it has legislated so expressly and elaborately. Meanwhile, there is no express statutory basis for concluding that GST claims enjoy a preferred treatment under the CCAA or the BIA . The internal logic of the CCAA appears to subject a GST deemed trust to the waiver by Parliament of its priority. A strange asymmetry would result if differing treatments of GST deemed trusts under the CCAA and the BIA were found to exist, as this would encourage statute shopping, undermine the CCAA ’s remedial purpose and invite the very social ills that the statute was enacted to avert. The later in time enactment of the more general s. 222(3) of the ETA does not require application of the doctrine of implied repeal to the earlier and more specific s. 18.3(1) of the CCAA in the circumstances of this case. In any event, recent amendments to the CCAA in 2005 resulted in s. 18.3 of the Act being renumbered and reformulated, making it the later in time provision. This confirms that Parliament’s intent with respect to GST deemed trusts is to be found in the CCAA . The conflict between the ETA and the CCAA is more apparent than real.
The exercise of judicial discretion has allowed the CCAA to adapt and evolve to meet contemporary business and social needs. As reorganizations become increasingly complex, CCAA courts have been called upon to innovate. In determining their jurisdiction to sanction measures in a CCAA proceeding, courts should first interpret the provisions of the CCAA before turning to their inherent or equitable jurisdiction. Noteworthy in this regard is the expansive interpretation the language of the CCAA is capable of supporting. The general language of the CCAA should not be read as being restricted by the availability of more specific orders. The requirements of appropriateness, good faith and due diligence are baseline considerations that a court should always bear in mind when exercising CCAA authority. The question is whether the order will usefully further efforts to avoid the social and economic losses resulting from liquidation of an insolvent company, which extends to both the purpose of the order and the means it employs. Here, the chambers judge’s order staying the Crown’s GST claim was in furtherance of the CCAA ’s objectives because it blunted the impulse of creditors to interfere in an orderly liquidation and fostered a harmonious transition from the CCAA to the BIA , meeting the objective of a single proceeding that is common to both statutes. The transition from the CCAA to the BIA may require the partial lifting of a stay of proceedings under the CCAA to allow commencement of BIA proceedings, but no gap exists between the two statutes because they operate in tandem and creditors in both cases look to the BIA scheme of distribution to foreshadow how they will fare if the reorganization is unsuccessful. The breadth of the court’s discretion under the CCAA is sufficient to construct a bridge to liquidation under the BIA . Hence, the chambers judge’s order was authorized.
No express trust was created by the chambers judge’s order in this case because there is no certainty of object inferrable from his order. Creation of an express trust requires certainty of intention, subject matter and object. At the time the chambers judge accepted the proposal to segregate the monies in the Monitor’s trust account there was no certainty that the Crown would be the beneficiary, or object, of the trust because exactly who might take the money in the final result was in doubt. In any event, no dispute over the money would even arise under the interpretation of s. 18.3(1) of the CCAA established above, because the Crown’s deemed trust priority over GST claims would be lost under the CCAA and the Crown would rank as an unsecured creditor for this amount.
Per Fish J.: The GST monies collected by the debtor are not subject to a deemed trust or priority in favour of the Crown. In recent years, Parliament has given detailed consideration to the Canadian insolvency scheme but has declined to amend the provisions at issue in this case, a deliberate exercise of legislative discretion. On the other hand, in upholding deemed trusts created by the ETA notwithstanding insolvency proceedings, courts have been unduly protective of Crown interests which Parliament itself has chosen to subordinate to competing prioritized claims. In the context of the Canadian insolvency regime, deemed trusts exist only where there is a statutory provision creating the trust and a CCAA or BIA provision explicitly confirming its effective operation. The Income Tax Act , the Canada Pension Plan and the Employment Insurance Act all contain deemed trust provisions that are strikingly similar to that in s. 222 of the ETA but they are all also confirmed in s. 37 of the CCAA and in s. 67(3) of the BIA in clear and unmistakeable terms. The same is not true of the deemed trust created under the ETA . Although Parliament created a deemed trust in favour of the Crown to hold unremitted GST monies, and although it purports to maintain this trust notwithstanding any contrary federal or provincial legislation, it did not confirm the continued operation of the trust in either the BIA or the CCAA , reflecting Parliament’s intention to allow the deemed trust to lapse with the commencement of insolvency proceedings.
Per Abella J. (dissenting): Section 222(3) of the ETA gives priority during CCAA proceedings to the Crown’s deemed trust in unremitted GST. This provision unequivocally defines its boundaries in the clearest possible terms and excludes only the BIA from its legislative grasp. The language used reflects a clear legislative intention that s. 222(3) would prevail if in conflict with any other law except the BIA . This is borne out by the fact that following the enactment of s. 222(3), amendments to the CCAA were introduced, and despite requests from various constituencies, s. 18.3(1) was not amended to make the priorities in the CCAA consistent with those in the BIA . This indicates a deliberate legislative choice to protect the deemed trust in s. 222(3) from the reach of s. 18.3(1) of the CCAA .
The application of other principles of interpretation reinforces this conclusion. An earlier, specific provision may be overruled by a subsequent general statute if the legislature indicates, through its language, an intention that the general provision prevails. Section 222(3) achieves this through the use of language stating that it prevails despite any law of Canada, of a province, or “any other law” other than the BIA . Section 18.3(1) of the CCAA is thereby rendered inoperative for purposes of s. 222(3). By operation of s. 44 (f) of the Interpretation Act , the transformation of s. 18.3(1) into s. 37(1) after the enactment of s. 222(3) of the ETA has no effect on the interpretive queue, and s. 222(3) of the ETA remains the “later in time” provision. This means that the deemed trust provision in s. 222(3) of the ETA takes precedence over s. 18.3(1) during CCAA proceedings. While s. 11 gives a court discretion to make orders notwithstanding the BIA and the Winding-up Act, that discretion is not liberated from the operation of any other federal statute. Any exercise of discretion is therefore circumscribed by whatever limits are imposed by statutes other than the BIA and the Winding-up Act. That includes the ETA . The chambers judge in this case was, therefore, required to respect the priority regime set out in s. 222(3) of the ETA . Neither s. 18.3(1) nor s. 11 of the CCAA gave him the authority to ignore it. He could not, as a result, deny the Crown’s request for payment of the GST funds during the CCAA proceedings.
Cases Cited
By Deschamps J.
Overruled: Ottawa Senators Hockey Club Corp. (Re) (2005), 73 O.R. (3d) 737; distinguished: Doré v. Verdun (City), [1997] 2 S.C.R. 862; referred to: Reference re Companies’ Creditors Arrangement Act, [1934] S.C.R. 659; Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 2009 SCC 49, [2009] 3 S.C.R. 286; Deputy Minister of Revenue v. Rainville, [1980] 1 S.C.R. 35; Gauntlet Energy Corp., Re, 2003 ABQB 894, 30 Alta. L.R. (4th) 192; Komunik Corp. (Arrangement relatif à), 2009 QCCS 6332 (CanLII), leave to appeal granted, 2010 QCCA 183 (CanLII); Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Solid Resources Ltd., Re (2002), 40 C.B.R. (4th) 219; Metcalfe & Mansfield Alternative Investments II Corp. (Re), 2008 ONCA 587, 92 O.R. (3d) 513; Dylex Ltd., Re (1995), 31 C.B.R. (3d) 106; Elan Corp. v. Comiskey (1990), 41 O.A.C. 282; Chef Ready Foods Ltd. v. Hongkong Bank of Can. (1990), 51 B.C.L.R. (2d) 84; Pacific National Lease Holding Corp., Re (1992), 19 B.C.A.C. 134; Canadian Airlines Corp., Re, 2000 ABQB 442, 84 Alta. L.R. (3d) 9; Air Canada, Re (2003), 42 C.B.R. (4th) 173; Air Canada, Re, 2003 CanLII 49366; Canadian Red Cross Society/Société Canadienne de la Croix Rouge, Re (2000), 19 C.B.R. (4th) 158; Skydome Corp., Re (1998), 16 C.B.R. (4th) 118; United Used Auto & Truck Parts Ltd., Re, 2000 BCCA 146, 135 B.C.A.C. 96, aff’g (1999), 12 C.B.R. (4th) 144; Skeena Cellulose Inc., Re, 2003 BCCA 344, 13 B.C.L.R. (4th) 236; Stelco Inc. (Re) (2005), 75 O.R. (3d) 5; Philip’s Manufacturing Ltd., Re (1992), 9 C.B.R. (3d) 25; Ivaco Inc. (Re) (2006), 83 O.R. (3d) 108.
By Fish J.
Referred to: Ottawa Senators Hockey Club Corp. (Re) (2005), 73 O.R. (3d) 737.
By Abella J. (dissenting)
Ottawa Senators Hockey Club Corp. (Re) (2005), 73 O.R. (3d) 737; Tele‑Mobile Co. v. Ontario, 2008 SCC 12, [2008] 1 S.C.R. 305; Doré v. Verdun (City), [1997] 2 S.C.R. 862; Attorney General of Canada v. Public Service Staff Relations Board, [1977] 2 F.C. 663.
Statutes and Regulations Cited
An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts, S.C. 2005, c. 47, ss. 69, 128, 131.
Bankruptcy and Insolvency Act , R.S.C. 1985, c. B‑3 , ss. 67 , 81.1 , 81.2 , 86 [am. 1992, c. 27, s. 39; 1997, c. 12, s. 73; 2000, c. 30, s. 148; 2005, c. 47, s. 69; 2009, c. 33, s. 25].
Canada Pension Plan , R.S.C. 1985, c. C‑8 , s. 23 .
Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C‑36 , ss. 11 [am. 2005, c. 47, s. 128], 11.02 [ad. idem], 11.09 [ad. idem], 11.4 [am. idem], 18.3 [ad. 1997, c. 12, s. 125; rep. 2005, c. 47, s. 131], 18.4 [idem], 20 [am. 2005, c. 47, s. 131], 21 [ad. 1997, c. 12, s. 126; am. 2005, c. 47, s. 131], s. 37 [ad. 2005, c. 47, s. 131].
Companies’ Creditors Arrangement Act, 1933, S.C. 1932‑33, c. 36 [am. 1952‑53, c. 3].
Employment Insurance Act , S.C. 1996, c. 23 , ss. 86(2) , (2.1) .
Excise Tax Act , R.S.C. 1985, c. E‑15 , s. 222 .
Income Tax Act , R.S.C. 1985, c. 1 (5th Supp .), ss. 227(4), (4.1).
Interpretation Act , R.S.C. 1985, c. I‑21 , ss. 2 “enactment”, 44(f).
Winding-up Act, R.S.C. 1985, c. W‑11 .
Authors Cited
Canada. Advisory Committee on Bankruptcy and Insolvency. Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency. Ottawa: Minister of Supply and Services Canada, 1986.
Canada. House of Commons. Minutes of Proceedings and Evidence of the Standing Committee on Consumer and Corporate Affairs and Government Operations, Issue No. 15, 3rd Sess., 34th Parl., October 3, 1991, 15:15.
Canada. Industry Canada. Marketplace Framework Policy Branch. Report on the Operation and Administration of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. Ottawa: Corporate and Insolvency Law Policy Directorate, 2002.
Canada. Senate. Debates of the Senate, vol. 142, 1st Sess., 38th Parl., November 23, 2005, p. 2147.
Canada. Senate. Standing Committee on Banking, Trade and Commerce. Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. Ottawa: Senate of Canada, 2003.
Canada. Study Committee on Bankruptcy and Insolvency Legislation. Bankruptcy and Insolvency: Report of the Study Committee on Bankruptcy and Insolvency Legislation. Ottawa: Information Canada, 1970.
Côté, Pierre-André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000.
Côté, Pierre-André, avec la collaboration de Stéphane Beaulac et Mathieu Devinat. Interprétation des lois, 4e éd. Montréal: Thémis, 2009.
Edwards, Stanley E. “Reorganizations Under the Companies’ Creditors Arrangement Act ” (1947), 25 Can. Bar Rev. 587.
Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals. Joint Task Force on Business Insolvency Law Reform. Report (2002) (online: http://www.cairp.ca/publications/submissions-to-government/law-reform/index.php).
Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals. Legislative Review Task Force (Commercial). Report on the Commercial Provisions of Bill C-55 (2005).
Jackson, Georgina R. and Janis Sarra. “Selecting the Judicial Tool to get the Job Done: An Examination of Statutory Interpretation, Discretionary Power and Inherent Jurisdiction in Insolvency Matters”, in Janis P. Sarra, ed., Annual Review of Insolvency Law 2007. Toronto: Thomson Carswell, 2008, 41.
Jones, Richard B. “The Evolution of Canadian Restructuring: Challenges for the Rule of Law”, in Janis P. Sarra, ed., Annual Review of Insolvency Law 2005. Toronto: Thomson Carswell, 2006, 481.
Lamer, Francis L. Priority of Crown Claims in Insolvency. Toronto: Carswell, 1996 (loose-leaf updated 2010, release 1).
Morgan, Barbara K. “Should the Sovereign be Paid First? A Comparative International Analysis of the Priority for Tax Claims in Bankruptcy” (2000), 74 Am. Bankr. L.J. 461.
Sarra, Janis. Creditor Rights and the Public Interest: Restructuring Insolvent Corporations. Toronto: University of Toronto Press, 2003.
Sarra, Janis P. Rescue! The Companies’ Creditors Arrangement Act . Toronto: Thomson Carswell, 2007.
Sullivan, Ruth. Sullivan on the Construction of Statutes, 5th ed. Markham, Ont.: LexisNexis, 2008.
Waters, Donovan W. M., Mark R. Gillen and Lionel D. Smith, eds. Waters’ Law of Trusts in Canada, 3rd ed. Toronto: Thomson Carswell, 2005.
Wood, Roderick J. Bankruptcy and Insolvency Law. Toronto: Irwin Law, 2009.
APPEAL from a judgment of the British Columbia Court of Appeal (Newbury, Tysoe and Smith JJ.A.), 2009 BCCA 205, 98 B.C.L.R. (4th) 242, 270 B.C.A.C. 167, 454 W.A.C. 167, [2009] 12 W.W.R. 684, [2009] G.S.T.C. 79, [2009] B.C.J. No. 918 (QL), 2009 CarswellBC 1195, reversing a judgment of Brenner C.J.S.C., 2008 BCSC 1805, [2008] G.S.T.C. 221, [2008] B.C.J. No. 2611 (QL), 2008 CarswellBC 2895, dismissing a Crown application for payment of GST monies. Appeal allowed, Abella J. dissenting.
Mary I. A. Buttery, Owen J. James and Matthew J. G. Curtis, for the appellant.
Gordon Bourgard, David Jacyk and Michael J. Lema, for the respondent.
The judgment of McLachlin C.J. and Binnie, LeBel, Deschamps, Charron, Rothstein and Cromwell JJ. was delivered by
[1] Deschamps J. — For the first time this Court is called upon to directly interpret the provisions of the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 (“CCAA ”). In that respect, two questions are raised. The first requires reconciliation of provisions of the CCAA and the Excise Tax Act , R.S.C. 1985, c. E-15 (“ETA ”), which lower courts have held to be in conflict with one another. The second concerns the scope of a court’s discretion when supervising reorganization. The relevant statutory provisions are reproduced in the Appendix. On the first question, having considered the evolution of Crown priorities in the context of insolvency and the wording of the various statutes creating Crown priorities, I conclude that it is the CCAA and not the ETA that provides the rule. On the second question, I conclude that the broad discretionary jurisdiction conferred on the supervising judge must be interpreted having regard to the remedial nature of the CCAA and insolvency legislation generally. Consequently, the court had the discretion to partially lift a stay of proceedings to allow the debtor to make an assignment under the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (“BIA ”). I would allow the appeal.
1. Facts and Decisions of the Courts Below
[2] Ted LeRoy Trucking Ltd. (“LeRoy Trucking”) commenced proceedings under the CCAA in the Supreme Court of British Columbia on December 13, 2007, obtaining a stay of proceedings with a view to reorganizing its financial affairs. LeRoy Trucking sold certain redundant assets as authorized by the order.
[3] Amongst the debts owed by LeRoy Trucking was an amount for Goods and Services Tax (“GST”) collected but unremitted to the Crown. The ETA creates a deemed trust in favour of the Crown for amounts collected in respect of GST. The deemed trust extends to any property or proceeds held by the person collecting GST and any property of that person held by a secured creditor, requiring that property to be paid to the Crown in priority to all security interests. The ETA provides that the deemed trust operates despite any other enactment of Canada except the BIA . However, the CCAA also provides that subject to certain exceptions, none of which mentions GST, deemed trusts in favour of the Crown do not operate under the CCAA . Accordingly, under the CCAA the Crown ranks as an unsecured creditor in respect of GST. Nonetheless, at the time LeRoy Trucking commenced CCAA proceedings the leading line of jurisprudence held that the ETA took precedence over the CCAA such that the Crown enjoyed priority for GST claims under the CCAA , even though it would have lost that same priority under the BIA . The CCAA underwent substantial amendments in 2005 in which some of the provisions at issue in this appeal were renumbered and reformulated (S.C. 2005, c. 47). However, these amendments only came into force on September 18, 2009. I will refer to the amended provisions only where relevant.
[4] On April 29, 2008, Brenner C.J.S.C., in the context of the CCAA proceedings, approved a payment not exceeding $5 million, the proceeds of redundant asset sales, to Century Services, the debtor’s major secured creditor. LeRoy Trucking proposed to hold back an amount equal to the GST monies collected but unremitted to the Crown and place it in the Monitor’s trust account until the outcome of the reorganization was known. In order to maintain the status quo while the success of the reorganization was uncertain, Brenner C.J.S.C. agreed to the proposal and ordered that an amount of $305,202.30 be held by the Monitor in its trust account.
[5] On September 3, 2008, having concluded that reorganization was not possible, LeRoy Trucking sought leave to make an assignment in bankruptcy under the BIA . The Crown sought an order that the GST monies held by the Monitor be paid to the Receiver General of Canada. Brenner C.J.S.C. dismissed the latter application. Reasoning that the purpose of segregating the funds with the Monitor was “to facilitate an ultimate payment of the GST monies which were owed pre-filing, but only if a viable plan emerged”, the failure of such a reorganization, followed by an assignment in bankruptcy, meant the Crown would lose priority under the BIA (2008 BCSC 1805, [2008] G.S.T.C. 221).
[6] The Crown’s appeal was allowed by the British Columbia Court of Appeal (2009 BCCA 205, 270 B.C.A.C. 167). Tysoe J.A. for a unanimous court found two independent bases for allowing the Crown’s appeal.
[7] First, the court’s authority under s. 11 of the CCAA was held not to extend to staying the Crown’s application for immediate payment of the GST funds subject to the deemed trust after it was clear that reorganization efforts had failed and that bankruptcy was inevitable. As restructuring was no longer a possibility, staying the Crown’s claim to the GST funds no longer served a purpose under the CCAA and the court was bound under the priority scheme provided by the ETA to allow payment to the Crown. In so holding, Tysoe J.A. adopted the reasoning in Ottawa Senators Hockey Club Corp. (Re) (2005), 73 O.R. (3d) 737 (C.A.), which found that the ETA deemed trust for GST established Crown priority over secured creditors under the CCAA .
[8] Second, Tysoe J.A. concluded that by ordering the GST funds segregated in the Monitor’s trust account on April 29, 2008, the judge had created an express trust in favour of the Crown from which the monies in question could not be diverted for any other purposes. The Court of Appeal therefore ordered that the money held by the Monitor in trust be paid to the Receiver General.
2. Issues
[9] This appeal raises three broad issues which are addressed in turn:
(1) Did s. 222(3) of the ETA displace s. 18.3(1) of the CCAA and give priority to the Crown’s ETA deemed trust during CCAA proceedings as held in Ottawa Senators?
(2) Did the court exceed its CCAA authority by lifting the stay to allow the debtor to make an assignment in bankruptcy?
(3) Did the court’s order of April 29, 2008 requiring segregation of the Crown’s GST claim in the Monitor’s trust account create an express trust in favour of the Crown in respect of those funds?
3. Analysis
[10] The first issue concerns Crown priorities in the context of insolvency. As will be seen, the ETA provides for a deemed trust in favour of the Crown in respect of GST owed by a debtor “[d]espite . . . any other enactment of Canada (except the Bankruptcy and Insolvency Act )” (s. 222(3)), while the CCAA stated at the relevant time that “notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a debtor company shall not be [so] regarded” (s. 18.3(1)). It is difficult to imagine two statutory provisions more apparently in conflict. However, as is often the case, the apparent conflict can be resolved through interpretation.
[11] In order to properly interpret the provisions, it is necessary to examine the history of the CCAA , its function amidst the body of insolvency legislation enacted by Parliament, and the principles that have been recognized in the jurisprudence. It will be seen that Crown priorities in the insolvency context have been significantly pared down. The resolution of the second issue is also rooted in the context of the CCAA , but its purpose and the manner in which it has been interpreted in the case law are also key. After examining the first two issues in this case, I will address Tysoe J.A.’s conclusion that an express trust in favour of the Crown was created by the court’s order of April 29, 2008.
3.1 Purpose and Scope of Insolvency Law
[12] Insolvency is the factual situation that arises when a debtor is unable to pay creditors (see generally, R. J. Wood, Bankruptcy and Insolvency Law (2009), at p. 16). Certain legal proceedings become available upon insolvency, which typically allow a debtor to obtain a court order staying its creditors’ enforcement actions and attempt to obtain a binding compromise with creditors to adjust the payment conditions to something more realistic. Alternatively, the debtor’s assets may be liquidated and debts paid from the proceeds according to statutory priority rules. The former is usually referred to as reorganization or restructuring while the latter is termed liquidation.
[13] Canadian commercial insolvency law is not codified in one exhaustive statute. Instead, Parliament has enacted multiple insolvency statutes, the main one being the BIA . The BIA offers a self-contained legal regime providing for both reorganization and liquidation. Although bankruptcy legislation has a long history, the BIA itself is a fairly recent statute — it was enacted in 1992. It is characterized by a rules-based approach to proceedings. The BIA is available to insolvent debtors owing $1000 or more, regardless of whether they are natural or legal persons. It contains mechanisms for debtors to make proposals to their creditors for the adjustment of debts. If a proposal fails, the BIA contains a bridge to bankruptcy whereby the debtor’s assets are liquidated and the proceeds paid to creditors in accordance with the statutory scheme of distribution.
[14] Access to the CCAA is more restrictive. A debtor must be a company with liabilities in excess of $5 million. Unlike the BIA, the CCAA contains no provisions for liquidation of a debtor’s assets if reorganization fails. There are three ways of exiting CCAA proceedings. The best outcome is achieved when the stay of proceedings provides the debtor with some breathing space during which solvency is restored and the CCAA process terminates without reorganization being needed. The second most desirable outcome occurs when the debtor’s compromise or arrangement is accepted by its creditors and the reorganized company emerges from the CCAA proceedings as a going concern. Lastly, if the compromise or arrangement fails, either the company or its creditors usually seek to have the debtor’s assets liquidated under the applicable provisions of the BIA or to place the debtor into receivership. As discussed in greater detail below, the key difference between the reorganization regimes under the BIA and the CCAA is that the latter offers a more flexible mechanism with greater judicial discretion, making it more responsive to complex reorganizations.
[15] As I will discuss at greater length below, the purpose of the CCAA — Canada’s first reorganization statute — is to permit the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets. Proposals to creditors under the BIA serve the same remedial purpose, though this is achieved through a rules-based mechanism that offers less flexibility. Where reorganization is impossible, the BIA may be employed to provide an orderly mechanism for the distribution of a debtor’s assets to satisfy creditor claims according to predetermined priority rules.
[16] Prior to the enactment of the CCAA in 1933 (S.C. 1932-33, c. 36), practice under existing commercial insolvency legislation tended heavily towards the liquidation of a debtor company (J. Sarra, Creditor Rights and the Public Interest: Restructuring Insolvent Corporations (2003), at p. 12). The battering visited upon Canadian businesses by the Great Depression and the absence of an effective mechanism for reaching a compromise between debtors and creditors to avoid liquidation required a legislative response. The CCAA was innovative as it allowed the insolvent debtor to attempt reorganization under judicial supervision outside the existing insolvency legislation which, once engaged, almost invariably resulted in liquidation (Reference re Companies’ Creditors Arrangement Act, [1934] S.C.R. 659, at pp. 660-61; Sarra, Creditor Rights, at pp. 12-13).
[17] Parliament understood when adopting the CCAA that liquidation of an insolvent company was harmful for most of those it affected — notably creditors and employees — and that a workout which allowed the company to survive was optimal (Sarra, Creditor Rights, at pp. 13-15).
[18] Early commentary and jurisprudence also endorsed the CCAA ’s remedial objectives. It recognized that companies retain more value as going concerns while underscoring that intangible losses, such as the evaporation of the companies’ goodwill, result from liquidation (S. E. Edwards, “Reorganizations Under the Companies’ Creditors Arrangement Act ” (1947), 25 Can. Bar Rev. 587, at p. 592). Reorganization serves the public interest by facilitating the survival of companies supplying goods or services crucial to the health of the economy or saving large numbers of jobs (ibid., at p. 593). Insolvency could be so widely felt as to impact stakeholders other than creditors and employees. Variants of these views resonate today, with reorganization justified in terms of rehabilitating companies that are key elements in a complex web of interdependent economic relationships in order to avoid the negative consequences of liquidation.
[19] The CCAA fell into disuse during the next several decades, likely because amendments to the Act in 1953 restricted its use to companies issuing bonds (S.C. 1952-53, c. 3). During the economic downturn of the early 1980s, insolvency lawyers and courts adapting to the resulting wave of insolvencies resurrected the statute and deployed it in response to new economic challenges. Participants in insolvency proceedings grew to recognize and appreciate the statute’s distinguishing feature: a grant of broad and flexible authority to the supervising court to make the orders necessary to facilitate the reorganization of the debtor and achieve the CCAA ’s objectives. The manner in which courts have used CCAA jurisdiction in increasingly creative and flexible ways is explored in greater detail below.
[20] Efforts to evolve insolvency law were not restricted to the courts during this period. In 1970, a government-commissioned panel produced an extensive study recommending sweeping reform but Parliament failed to act (see Bankruptcy and Insolvency: Report of the Study Committee on Bankruptcy and Insolvency Legislation (1970)). Another panel of experts produced more limited recommendations in 1986 which eventually resulted in enactment of the Bankruptcy and Insolvency Act of 1992 (S.C. 1992, c. 27) (see Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency (1986)). Broader provisions for reorganizing insolvent debtors were then included in Canada’s bankruptcy statute. Although the 1970 and 1986 reports made no specific recommendations with respect to the CCAA , the House of Commons committee studying the BIA ’s predecessor bill, C-22, seemed to accept expert testimony that the BIA ’s new reorganization scheme would shortly supplant the CCAA , which could then be repealed, with commercial insolvency and bankruptcy being governed by a single statute (Minutes of Proceedings and Evidence of the Standing Committee on Consumer and Corporate Affairs and Government Operations, Issue No. 15, 3rd Sess., 34th Parl., October 3, 1991, at 15:15-15:16).
[21] In retrospect, this conclusion by the House of Commons committee was out of step with reality. It overlooked the renewed vitality the CCAA enjoyed in contemporary practice and the advantage that a flexible judicially supervised reorganization process presented in the face of increasingly complex reorganizations, when compared to the stricter rules-based scheme contained in the BIA . The “flexibility of the CCAA [was seen as] a great benefit, allowing for creative and effective decisions” (Industry Canada, Marketplace Framework Policy Branch, Report on the Operation and Administration of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (2002), at p. 41). Over the past three decades, resurrection of the CCAA has thus been the mainspring of a process through which, one author concludes, “the legal setting for Canadian insolvency restructuring has evolved from a rather blunt instrument to one of the most sophisticated systems in the developed world” (R. B. Jones, “The Evolution of Canadian Restructuring: Challenges for the Rule of Law”, in J. P. Sarra, ed., Annual Review of Insolvency Law 2005 (2006), 481, at p. 481).
[22] While insolvency proceedings may be governed by different statutory schemes, they share some commonalities. The most prominent of these is the single proceeding model. The nature and purpose of the single proceeding model are described by Professor Wood in Bankruptcy and Insolvency Law:
They all provide a collective proceeding that supersedes the usual civil process available to creditors to enforce their claims. The creditors’ remedies are collectivized in order to prevent the free-for-all that would otherwise prevail if creditors were permitted to exercise their remedies. In the absence of a collective process, each creditor is armed with the knowledge that if they do not strike hard and swift to seize the debtor’s assets, they will be beat out by other creditors. [pp. 2-3]
The single proceeding model avoids the inefficiency and chaos that would attend insolvency if each creditor initiated proceedings to recover its debt. Grouping all possible actions against the debtor into a single proceeding controlled in a single forum facilitates negotiation with creditors because it places them all on an equal footing, rather than exposing them to the risk that a more aggressive creditor will realize its claims against the debtor’s limited assets while the other creditors attempt a compromise. With a view to achieving that purpose, both the CCAA and the BIA allow a court to order all actions against a debtor to be stayed while a compromise is sought.
[23] Another point of convergence of the CCAA and the BIA relates to priorities. Because the CCAA is silent about what happens if reorganization fails, the BIA scheme of liquidation and distribut