Her Majesty The Queen in Right of Canada Appellant v. Canada North Group Inc., Canada North Camps Inc., Campcorp Structures Ltd., DJ Catering Ltd., 816956 Alberta Ltd.,, 2021 SCC 30

SUPREME COURT OF CANADA Citation: Canada v.

Canada North Group Inc., 2021 SCC 30 Appeal Heard: December 1, 2020 Judgment Rendered: July 28, 2021 Docket: 38871 Between: Her Majesty The Queen in Right of Canada Appellant and Canada North Group Inc., Canada North Camps Inc., Campcorp Structures Ltd., DJ Catering Ltd., 816956 Alberta Ltd., 1371047 Alberta Ltd., 1919209 Alberta Ltd., Ernst & Young Inc. in its capacity as monitor and Business Development Bank of Canada Respondents - and - Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals Interveners Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.

Reasons: (paras. 1 to 74) Côté J. (Wagner C.J. and Kasirer J. concurring) Concurring Reasons: (paras. 75 to 182) Karakatsanis J. (Martin J. concurring) Joint Dissenting Reasons: (paras. 183 to 253) Brown and Rowe JJ. (Abella J. concurring) Dissenting Reasons: (paras. 254 to 265) Moldaver J. Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports .

canada v. canada north group inc. Her Majesty The Queen in Right of Canada Appellant v. Canada North Group Inc., Canada North Camps Inc., Campcorp Structures Ltd., DJ Catering Ltd., 816956 Alberta Ltd., 1371047 Alberta Ltd., 1919209 Alberta Ltd., Ernst & Young Inc. in its capacity as monitor and Business Development Bank of Canada Respondents and Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals Interveners Indexed as: Canada v. Canada North Group Inc. 2021 SCC 30 File No.: 38871. 2020: December 1; 2021: July 28.

Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ. on appeal from the court of appeal of alberta Bankruptcy and insolvency — Priority — Source deductions — Priming charges — Employee source deductions not remitted to Crown by companies in receivership — Judge supervising restructuring proceedings under Companies’ Creditors Arrangement Act ordering priming charges over debtor companies’ assets in favour of interim lender, monitor and directors — Order giving priority to priming charges over claims of secured creditors and providing that they are not to be limited or impaired in any way by provisions of any federal or provincial statute — Property of debtor companies subject to deemed trust in favour of Crown for unremitted source deductions under Income Tax Act — Whether court has authority to rank priming charges ahead of Crown’s deemed trust for unremitted source deductions — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), s. 227(4.1) — Companies’ Creditors Arrangement Act, R.S.C. 1985, c.

C-36, ss. 11 , 11.2 , 11.51 , 11.52 . Canada North Group and six related corporations initiated restructuring proceedings under the Companies’ Creditors Arrangement Act (“ CCAA ”).

In their initial CCAA application, they requested a package of relief including the creation of three priming charges (or court-ordered super-priority charges): an administration charge in favour of counsel, a monitor and a chief restructuring officer for the fees they incurred, a financing charge in favour of an interim lender, and a directors’ charge protecting their directors and officers against liabilities incurred after the commencement of the proceedings.

The application included an affidavit from one of their directors attesting to a debt to Her Majesty The Queen for unremitted employee source deductions and GST. The CCAA judge made an order (“Initial Order”) that the priming charges were to “rank in priority to all other security interests, . . . charges and encumbrances, claims of secured creditors, statutory or otherwise”, and that they were not to be “otherwise . . . limited or impaired in any way by . . . the provisions of any federal or provincial statutes” (“Priming Charges”).

The Crown subsequently filed a motion for variance, arguing that the Priming Charges could not take priority over the deemed trust created by s. 227(4.1) of the Income Tax Act (“ ITA ”) for unremitted source deductions. The motion to vary was dismissed, and the Crown’s appeal to the Court of Appeal was also dismissed. Held (Abella, Moldaver, Brown and Rowe JJ. dissenting): The appeal should be dismissed. Per Wagner C.J. and Côté and Kasirer JJ.: The Priming Charges prevail over the deemed trust. Section 227(4.1) does not create a proprietary interest in the debtor’s property.

Further, a court-ordered super-priority charge under the CCAA is not a security interest within the meaning of s. 224(1.3) of the ITA . As a result, there is no conflict between s. 227(4.1) of the ITA and the Initial Order made in this case, or between the ITA and s. 11 of the CCAA .

In general, courts supervising a CCAA reorganization have the authority to order super-priority charges to facilitate the restructuring process. The most important feature of the CCAA is the broad discretionary power it vests in the supervising court: s. 11 of the CCAA confers jurisdiction on the supervising court to “make any order that it considers appropriate in the circumstances”.

This jurisdiction is constrained only by restrictions set out in the CCAA itself and the requirement that the order made be appropriate in the circumstances — its general language is not restricted by the availability of more specific orders in ss. 11.2, 11.4, 11.51 and 11.52. As restructuring under the CCAA often requires the assistance of many professionals, giving super priority to priming charges in favour of those professionals is required to derive the most value for the stakeholders.

For a monitor and financiers to put themselves at risk to restructure and develop assets, only to later discover that a deemed trust supersedes all claims, would defy fairness and common sense. Her Majesty does not have a proprietary interest in a debtor’s property that is adequate to prevent the exercise of a supervising judge’s discretion to order super-priority charges under s. 11 of the CCAA or any of the sections that follow it.

Section 227(4.1) does not create a beneficial interest that can be considered a proprietary interest, and it does not give the Crown the same property interest a common law trust would. Without attaching to specific property, creating the usual right to the enjoyment of property or the fiduciary obligations of a trustee, the interest created by s. 227(4.1) lacks the qualities that allow a court to refer to a beneficiary as a beneficial owner.

Furthermore, under Quebec civil law, it is clear that s. 227(4.1) does not establish a legal trust as it does not meet the three requirements set out in arts. 1260 and 1261 of the Civil Code of Québec . Although s. 227(4.1) provides that the assets are deemed to be held “separate and apart from the property of the person” and “to form no part of the estate or property of the person”, the main element of a civilian trust is absent in the deemed trust established by s. 227(4.1): no specific property is transferred to a trust patrimony, and there is no autonomous patrimony to which specific property is transferred.

Section 227(4.1) states that the Receiver General shall be paid the proceeds of a debtor’s property “in priority to all such security interests”, as defined in s. 224(1.3) , but court-ordered super-priority charges under s. 11 of the CCAA or any of the sections that follow it are not security interests within the meaning of s. 224(1.3).

Section 224(1.3) defines “security interest” as meaning “any interest in, or for civil law any right in, property that secures payment or performance of an obligation” and including “an interest, or for civil law a right, created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for”.

The grammatical structure of this provision evidences Parliament’s intent that the list have limiting effect, such that only the instruments enumerated and instruments that are similar in nature fall within the definition. Court-ordered super-priority charges are utterly different from any of the interests listed in s. 227(4.1) because they were not made for the sole benefit of the holder of the charge, nor were they made by consensual agreement or by operation of law. Instead, they were ordered by the CCAA judge to facilitate the restructuring in furtherance of the interests of all stakeholders. This

interpretation is consistent with the presumption against tautology, which suggests that Parliament intended interpretive weight to be placed on the examples, and with the ejusdem generis principle, which limits the generality of the final words on the basis of the narrow enumeration that precedes them. Preserving the deemed trusts under s. 37(2) of the CCAA does not modify the characteristics of these trusts. They continue to operate as they would have if the insolvent company had not sought CCAA protection.

Similarly, granting Her Majesty the right to insist that a compromise or arrangement not be sanctioned by a court unless it provides for payment in full under s. 6(3) does not modify the deemed trust created by s. 227(4.1) in any way. In any event, s. 6(3) comes into operation only at the end of the CCAA process when parties seek court approval of their arrangement or compromise. Finally, whether Her Majesty is a “secured creditor” under the CCAA or not, the supervising court’s power in s. 11 provides a very broad jurisdiction that is not restricted by the availability of more specific orders.

Although ss. 11.2, 11.51 and 11.52 of the CCAA may attach only to the property of the debtor’s company, there is no such restriction in s. 11 . That said, courts should still recognize the distinct nature of Her Majesty’s interest and ensure that they grant a charge with priority over the deemed trust only when necessary. Per Karakatsanis and Martin JJ.: There is no conflict between the ITA and CCAA provisions at issue in this appeal. The broad discretionary power under s. 11 of the CCAA permits a court to rank priming charges ahead of the Crown’s deemed trust for unremitted source deductions.

Section 227(4.1) of the ITA provides that a deemed trust attaches to property of the employer to the extent of unremitted source deductions “notwithstanding any security interest in such property” or “any other enactment of Canada”. Although this provision clearly specifies that the Crown’s right operates notwithstanding other security interests, the content of that right for the purposes of insolvency cannot be inferred solely from the text of the ITA .

Section 227(4.1) states that the amount of the unremitted source deductions is “beneficially owned” by the Crown, but there is no settled doctrinal meaning of the term “beneficial ownership”, and s. 227(4.1) modifies even those features of beneficial ownership that are widely associated with it under the common law. As a creature of statute, a statutory deemed trust does not have to fulfill the ordinary requirements of trust law. In the case of the deemed trust in s. 227(4.1) , there is no identifiable trust property and therefore no certainty of subject matter.

Moreover, without specific property being transferred to the trust patrimony, s. 227(4.1) does not satisfy the requirements of an autonomous patrimony contemplated by the Civil Code of Québec in arts. 1260, 1261 and 1278. As a result, s. 227(4.1) traces the value of the unremitted source deductions, capping the Crown’s right at that value, and the specific property that constitutes the debtor’s estate remains unchanged, with the debtor continuing to have control over it. The Bankruptcy and Insolvency Act (“ BIA ”) and the CCAA each give the deemed trust meaning for their own purposes.

The purpose of a BIA liquidation is to give the debtor a fresh start and pay out creditors to the extent possible. To realize these goals, the BIA is strictly rules-based and has a comprehensive scheme for the liquidation process. In the BIA , the deemed trust for unremitted source deductions appears in s. 67(3). Section 67(1)(

a) excludes property held in trust by the bankrupt from property of the bankrupt that is divisible among creditors. Section 67(2) provides an exception for deemed trusts that are not true trusts. Section 67(3) provides a further exception by stating that s. 67(2) does not apply in respect of the Crown’s deemed trust for unremitted source deductions under the ITA and other statutes. The result of this scheme is that the debtor’s estate — to the extent of the unremitted source deductions — is not “property of a bankrupt divisible among his creditors” , as required by s. 67(1) of the BIA .

Section 67 therefore gives content to the

Crown’s right of beneficial ownership under s. 227(4.1) of the ITA : the amount of the unremitted source deductions is taken out of the pool of money that is distributed to creditors in a BIA liquidation. In contrast, the purpose of the CCAA is remedial; it provides a means for companies to avoid the devastating social and economic consequences of commercial bankruptcies. Due to its remedial nature, the CCAA is famously skeletal in nature and there is no rigid formula for the division of assets.

When a debtor’s restructuring is on the table, the goal pivots, and interim financing is introduced to facilitate restructuring. Entitlements and priorities shift to accommodate the presence of the interim lender — a new and necessary player who is absent from the liquidation scheme under the BIA . The Crown’s right to unremitted source deductions in a CCAA restructuring is protected by both ss. 37(2) and 6(3) of the CCAA .

Section 37(2) provides that the Crown continues to beneficially own the debtor’s property equal in value to the unremitted source deductions; the unremitted source deductions “shall . . . be regarded as being held in trust for Her Majesty”. Although this signals that, unlike deemed trusts captured by s. 37(1), the Crown’s deemed trust continues and confers a stronger right, s. 37(2) does not explain what to do with that right for the purposes of a CCAA proceeding. It does not, for example, provide that trust property should be put aside, as it would be in the BIA context.

Section 6(3) gives specific effect to the Crown’s right by requiring that a plan of compromise provide for payment in full of the Crown’s deemed trust claims within six months of the plan’s approval. As such, the Crown can demand to be paid in full in priority to all “security interests”, including priming charges. The remedial goal of the CCAA is at the forefront of providing flexibility in preserving the Crown’s right to unremitted source deductions in s. 37(2) , and in giving a concrete effect to that right in s. 6(3) of the CCAA .

The fact that the Crown’s right under s. 227(4.1) of the ITA is treated differently between the two statutes is consistent with the different schemes and purposes of the BIA and CCAA . Sections 11.2 , 11.51 and 11.52 of the CCAA , which allow the court to order priming charges over a company’s property, do not give the court the authority to rank priming charges ahead of the Crown’s deemed trust for unremitted source deductions. Instead, that authority comes from s. 11 of the CCAA .

Section 11 allows the court to make any order that it considers appropriate in the circumstances, subject to the requirements of good faith and due diligence on the part of the applicant. It can be used to rank priming charges ahead of the Crown’s deemed trust for unremitted source deductions for two reasons. First, ranking a priming charge ahead of the Crown’s deemed trust does not conflict with the ITA provision.

So long as the Crown is paid in full under a plan of compromise, the Crown’s right under s. 227(4.1) remains intact “notwithstanding any security interest” in the amount of the unremitted source deductions. Second, depending on the circumstances, such an order may further the remedial objectives of the CCAA . Interim financing is often crucial to the restructuring process. If there is evidence that interim lending cannot be obtained without ranking the interim loan ahead of the Crown’s deemed trust, such an order could further the CCAA ’s remedial goals.

In general, the court should have flexibility to order super-priority charges in favour of parties whose function is to facilitate the proposal of a plan of compromise that, in any event, will be required to pay the Crown in full. Per Abella, Brown and Rowe JJ. (dissenting): The appeal should be allowed. The text, context, and purpose of s. 227(4.1) of the ITA support the conclusion that s. 227(4.1) and the related deemed trust provisions under the the ITA , the CPP , and the EIA (collectively, the “Fiscal Statutes”) bear only one plausible

interpretation: the Crown’s deemed trust enjoys priority over all other claims, including priming charges granted under the CCAA . Parliament’s intention when it amended and expanded s. 227(4) and 227(4.1) of the ITA was clear and unmistakable: it granted this unassailable priority by employing the unequivocal language of “notwithstanding any . . . enactment of Canada”. This is a blanket paramountcy clause; it prevails over all other statutes. No similar “notwithstanding” provision appears in the CCAA .

Indeed, it is quite the opposite: unlike most deemed trusts which are nullified in CCAA proceedings by the operation of s. 37(1) of the CCAA , s. 37(2) preserves the deemed trusts of the Fiscal Statutes.

The Fiscal Statutes give absolute priority to the deemed trusts for source deductions over all security interests notwithstanding the CCAA , and the priming charges provisions in ss. 11.2(1) , 11.51(1) and 11.52(1) of the CCAA fall under the definition of “security interest”, because they are “interests in the debtor’s property securing payment or performance of an obligation”, i.e. the payment of the monitor, the interim lender, and directors.

As the definition of “security interest” in the ITA includes “encumbrances of any kind, whatever, however or whenever arising, created, deemed to arise or otherwise provided for”, there is no reason that the definition would preclude the inclusion of an interest that is designed to operate to the benefit of all creditors. This is sufficient to decide the appeal. This finding does not leave the deemed trust provisions in the Fiscal Statutes in conflict with the CCAA .

Section 11 of the CCAA contains a grant of broad supervisory discretion and the power to “make any order that it considers appropriate in the circumstances”, but that grant of authority is not unlimited. Parliament avoided any conflict between the CCAA and the ITA by imposing three restrictions that are significant here.

First, although s. 37(1) of the CCAA provides that “property of the debtor company shall not be regarded as being held in trust for Her Majesty unless it would be so regarded in the absence of that statutory provision”, s. 37(2) provides for the continued operation of the deemed trusts under the Fiscal Statutes in a CCAA proceeding. In addition, while the deemed trusts are not “true trusts” and the commingling of assets renders the money subject to the deemed trusts untraceable, tracing has no application to s. 227(4.1) .

Second, the unremitted source deductions are deemed not to form part of the property of the debtor’s company. If there is a default in remittances, the Crown is deemed to obtain beneficial ownership in the tax debtor’s property in the amount of the unremitted source deductions that it can collect “notwithstanding” any other enactment or security interest. However, priming charges can attach only to the debtor’s property, so the Crown’s interest under the deemed trust is not subject to the Priming Charges.

Third, under the definition of “secured creditor” in s. 2 of the CCAA , the Crown is not a “secured creditor” in respect of its deemed trust claims under the Fiscal Statutes. That definition must be read as “secured creditor means . . . a holder of any bond of the debtor company secured by . . . a trust in respect of, all or any property of the debtor company”, which makes it manifestly clear that the Crown is not a “secured creditor” in respect of its deemed trust claims under the Fiscal Statutes.

Giving effect to Parliament’s clear intent to grant absolute priority to the deemed trust does not render s. 6(3) or s. 11.09 of the CCAA meaningless. To the contrary, s. 6(3) and s. 11.09 respect the ultimate priority of the deemed trusts by allowing for the ultimate priority of the Crown claim to persist, while not frustrating the remedial purpose of the CCAA . Section 6(3) of the CCAA , which protects the Crown’s claims under the deemed trusts as well as claims not subject to the deemed trusts under the Fiscal Statutes, operates only where there is an arrangement or compromise put to the court.

In contrast, the deemed trusts arise immediately and operate continuously from the time the amount was deducted or withheld from employee’s remuneration, and apply to only unremitted source

deductions. Without s. 6(3), the Crown would be guaranteed entitlement only to unremitted source deductions when the court sanctions acompromise or arrangement, and not to its other claims under s. 224(1.2) of the ITA, because most of the Crown’s claims rank asunsecured under s. 38 of the CCAA. However, s. 6(3) does not explain the survival of the deemed trust or the rights conferred on theCrown under the deemed trust.

Their survival is explained by s. 37(2), which continues the operation of s. 227(4.1), or by s. 227(4.1),which provides that the proceeds of the trust property “shall be paid to the Receiver General in priority to all such security interests”.Finally, s. 6(3) protects different interests than those captured by the deemed trusts, and the right not to have to compromise under s. 6(3)is a right independent of the Crown’s right under deemed trusts.

Section 11.09 of the CCAA, which permits the court to stay the Crown’s enforcement of its claims under the deemed trustclaims, can apply to the Crown’s deemed trust claims, but it does not remove the priority granted by the deemed trusts. Further, no concerns regarding certainty of subject matter or autonomous patrimony arise here. The deemed trust is not a“true” trust and it does not confer an ownership interest or the rights of a beneficiary to the Crown as they are understood at common lawor within the meaning of the Civil Code of Québec.

The requirements of “true” trusts of civil and common law are irrelevant toascertaining the operation of a statutorily deemed trust as the deemed trust is a legal fiction with sui generis characteristics that aredescribed in s. 227(4) and (4.1) of the ITA. Finally, concluding that the deemed trusts under the Fiscal Statutes have priority over the priming charges would not lead toabsurd consequences. The conclusion that interim financing would simply end was not supported by the record, and there are usuallyenough funds available to satisfy both the Crown claim and the court-ordered priming charges.

Equally unfounded is the claim thatconfirming the priority of the deemed trusts would inject an unacceptable level of uncertainty into the insolvency process. Interimlenders can rely on the company’s financial statements to evaluate the risk of providing financing. Per Moldaver J. (dissenting): There is substantial agreement with the analysis and conclusions of Brown and Rowe JJ.However, there are two points to be addressed. First, the question of the nature of the Crown’s interest should be left to another day.

Thisis because, properly interpreted, the relevant provisions of the CCAA and ITA work in harmony to direct that the Crown’s interest unders. 227(4.1) of the ITA — in whatever form it takes — must be given priority over court-ordered priming charges. This conclusion issufficient to dispose of the appeal. Second, while there is agreement that s. 37(2) of the CCAA can be interpreted as an internal restriction on s. 11, if thisinterpretation is mistaken, s. 11 is nonetheless restricted by s. 227(4.1), as Parliament has expressly indicated the supremacy ofs. 227(4.1) over the provisions of the CCAA.

The Crown’s deemed trust claim must thus take priority over all court-ordered primingcharges, whether they arise under the specific priming charge provisions, or under the court’s discretionary authority. A necessaryconsequence of the absolute supremacy of the Crown’s deemed trust claim is that the Crown’s interest under s. 227(4.1) cannot be giveneffect by s. 6(3) of the CCAA. Unlike s. 227(4.1), which is focused on ensuring the priority of the Crown’s claim, s. 6(3) merelyestablishes a six-month timeframe for payment to the Crown in the event that the debtor company succeeds in staying viable as a goingconcern.

Accordingly, if s. 6(3) gave effect to the Crown’s interest, the Crown could be ranked last, so long as it is paid within sixmonths of any arrangement. Such an outcome would be plainly inconsistent with the absolute priority of the Crown’s claim. Further, ass. 6(3) does not apply where a liquidation occurs under the CCAA, the Crown would be deprived of its priority over security interests insuch circumstances. It cannot be doubted that Parliament considered the potential consequences of its legislative actions, including anyconsequences for CCAA proceedings.

If circumstances do arise in which the priority of the Crown’s claim threatens the viability of aparticular restructuring, it clearly lies with the Crown to be flexible so as to avoid any consequences that would undermine the remedialpurposes of the CCAA. Cases Cited By Côté J. Distinguished: Royal Bank of Canada v. Sparrow Electric Corp., (SCC), [1997] 1 S.C.R. 411;considered: First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Sun Indalex Finance, LLC v. United Steelworkers,2013 SCC 6, [2013] 1 S.C.R. 271; British Columbia v.

Henfrey Samson Belair Ltd., (SCC), [1989] 2 S.C.R. 24; Caissepopulaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29, [2009] 2 S.C.R. 94; referred to: Temple City Housing Inc., Re,2007 ABQB 786, 42 C.B.R. (5th) 274; Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379;9354-9186 Québec inc. v.

Callidus Capital Corp., 2020 SCC 10; Pacific National Lease Holding Corp., Re (1992), (BC CA), 72 B.C.L.R. (2d) 368; Grant Forest Products Inc., Re (2009), (ON SC), 57 C.B.R. (5th) 128; TimmincoLtd., Re, 2012 ONSC 506, 85 C.B.R. (5th) 169; In the Matter of a Plan of Compromise or Arrangement of Green Growth Brands Inc.,2020 ONSC 3565, 84 C.B.R. (6th) 146; Ernst & Young Inc. v. Essar Global Fund Ltd., 2017 ONCA 1014, 139 O.R. (3d) 1; First LeasideWealth Management Inc. (Re), 2012 ONSC 1299; Triton Électronique inc. (Arrangement relatif à), 2009 QCCS 1202; Chef ReadyFoods Ltd. v.

Hongkong Bank of Can. (1990), (BC CA), 51 B.C.L.R. (2d) 84; Canada (Attorney General) v. Caissepopulaire d’Amos, 2004 FCA 92, 324 N.R. 31; Bank of Nova Scotia v. Thibault, 2004 SCC 29, [2004] 1 S.C.R. 758; Valard ConstructionLtd. v. Bird Construction Co., 2018 SCC 8, [2018] 1 S.C.R. 224; Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795; Csak v. Aumon(1990), (ON SC), 69 D.L.R. (4th) 567; Dauphin Plains Credit Union Ltd. v. Xyloid Industries Ltd., (SCC), [1980] 1 S.C.R. 1182; National Bank of Greece (Canada) v. Katsikonouris, (SCC), [1990] 2 S.C.R. 1029;McDiarmid Lumber Ltd. v.

God’s Lake First Nation, 2006 SCC 58, [2006] 2 S.C.R. 846; Placer Dome Canada Ltd. v. Ontario (Ministerof Finance), 2006 SCC 20, [2006] 1 S.C.R. 715. By Karakatsanis J. Considered: First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Royal Bank of Canada v. SparrowElectric Corp., (SCC), [1997] 1 S.C.R. 411; Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010]3 S.C.R. 379; Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 2009 SCC 49, [2009] 3 S.C.R. 286; referred to: Sun

Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271; Saulnier v. Royal Bank of Canada, 2008 SCC 58,[2008] 3 S.C.R. 166; Wotherspoon v. Canadian Pacific Ltd., (SCC), [1987] 1 S.C.R. 952; Town of Lunenburg v.Municipality of Lunenburg, (NS CA), [1932] 1 D.L.R. 386; R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402; Canada(Attorney General) v. Caisse populaire d’Amos, 2004 FCA 92, 324 N.R. 31; Guarantee Company of North America v. Royal Bank ofCanada, 2019 ONCA 9, 144 O.R. (3d) 225; British Columbia v.

Henfrey Samson Belair Ltd., (SCC), [1989] 2 S.C.R.24; Friends of Toronto Public Cemeteries Inc. v. Public Guardian and Trustee, 2020 ONCA 282, 59 E.T.R. (4th) 174; Bank of NovaScotia v. Thibault, 2004 SCC 29, [2004] 1 S.C.R. 758; Rawluk v. Rawluk, (SCC), [1990] 1 S.C.R. 70; Foskett v.McKeown, [2001] 1 A.C. 102; 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10; Elan Corp. v. Comiskey (1990), (ON CA), 1 O.R. (3d) 289; Metcalfe & Mansfield Alternative Investments II Corp. (Re), 2008 ONCA 587, 92 O.R. (3d)513; Stelco Inc. (Re) (2005), (ON CA), 75 O.R. (3d) 5; U.S.

Steel Canada Inc., Re, 2016 ONCA 662, 402 D.L.R. (4th)450; Husky Oil Operations Ltd. v. Minister of National Revenue, (SCC), [1995] 3 S.C.R. 453; Canada (Superintendentof Bankruptcy) v. 407 ETR Concession Company Ltd., 2013 ONCA 769, 118 O.R. (3d) 161; Royal Oak Mines Inc., Re (1999), (ON SC), 7 C.B.R. (4th) 293; Royal Oak Mines Inc., Re (1999), (ON SC), 6 C.B.R. (4th) 314;Urbancorp Cumberland 2 GP Inc. (Re), 2020 ONCA 197, 444 D.L.R. (4th) 273; Temple City Housing Inc., Re, 2007 ABQB 786, 42C.B.R. (5th) 274. By Brown and Rowe JJ. (dissenting) Royal Bank of Canada v.

Sparrow Electric Corp., (SCC), [1997] 1 S.C.R. 411; First Vancouver Finance v.M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Canada (Attorney General) v. Caisse populaire d’Amos, 2004 FCA 92, 324 N.R. 31; Bankof Nova Scotia v. Thibault, 2004 SCC 29, [2004] 1 S.C.R. 758; R. v. Verette, (SCC), [1978] 2 S.C.R. 838;Toronto-Dominion Bank v. Canada, 2020 FCA 80, [2020] 3 F.C.R. 201; Century Services Inc. v. Canada (Attorney General), 2010 SCC60, [2010] 3 S.C.R. 379; Merk v.

International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771,2005 SCC 70, [2005] 3 S.C.R. 425; Caisse populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29, [2009] 2 S.C.R. 94;DaimlerChrysler Financial Services (Debis) Canada Inc. v. Mega Pets Ltd., 2002 BCCA 242, 1 B.C.L.R. (4th) 237; Minister of NationalRevenue v. Schwab Construction Ltd., 2002 SKCA 6, 213 Sask. R. 278; Temple City Housing Inc., Re, 2007 ABQB 786, 42 C.B.R. (5th)274; 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10; Stelco Inc. (Re) (2005), (ON CA), 75 O.R. (3d)5; British Columbia v.

Henfrey Samson Belair Ltd., (SCC), [1989] 2 S.C.R. 24; Bristol-Myers Squibb Co. v. Canada(Attorney General), 2005 SCC 26, [2005] 1 S.C.R. 533; Baxter Student Housing Ltd. v. College Housing Co-operative Ltd., (SCC), [1976] 2 S.C.R. 475; R. v. Caron, 2011 SCC 5, [2011] 1 S.C.R. 78; Lévis (City) v. Fraternité des policiers de LévisInc., 2007 SCC 14, [2007] 1 S.C.R. 591; Elan Corp. v. Comiskey (1990), (ON CA), 1 O.R. (3d) 289; R. v. McIntosh, (SCC), [1995] 1 S.C.R. 686. By Moldaver J. (dissenting) 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10; Stelco Inc. (Re) (2005), (ON CA), 75O.R. (3d) 5.

Statutes and Regulations Cited Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 43(1), 50.4(1), 67, 81.1, 81.2, 86(3). Canada Pension Plan, R.S.C. 1985, c. C-8, s. 23(3), (4). Civil Code of Québec, arts. 1260, 1261, 1278, 1306, 1313. Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, ss. 2(1) “secured creditor”, 3(1), 6(3), 10(2)(c), 11, 11.09, 11.2, 11.4,11.51, 11.52, 36, 37 to 39. Employment Insurance Act, S.C. 1996, c. 23, ss. 23(4), 86(2), (2.1). Excise Tax Act, R.S.C. 1985, c. E-15, s. 222(3). Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 18(5) “security interest”, 116, 153(1),

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Hanlon, Michael J., Vicki Tickle, and Emily Csiszar. “Conflicting Case Law, Competing Statutes, and the Confounding Priority Battle of the Interim Financing Charge and the Crown’s Deemed Trust for Source Deductions”, in Janis P. Sarra et al., eds., Annual Review of Insolvency Law 2018 . Toronto: Thomson Reuters, 2019, 897. Houlden, L. W., G. B. Morawetz, and Janis Sarra. Bankruptcy and Insolvency Law of Canada , vol. 4, 4th ed. rev. Toronto: Thomson Reuters, 2019 (loose-leaf updated 2021, release 3). Lamer, Francis L. Priority of Crown Claims in Insolvency .

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The Law of Tracing . Oxford: Clarendon Press, 1997. Smith, Lionel D. “Trust and Patrimony” (2008), 38 R.G.D. 379 . Sullivan, Ruth. Sullivan on the Construction of Statutes , 6th ed. Markham, Ont.: LexisNexis, 2014. Waters, D. W. M. “The Nature of the Trust Beneficiary’s Interest” (1967), 45 Can. Bar Rev. 219. Waters’ Law of Trusts in Canada , 4th ed., by Donovan W. M. Waters, Mark R. Gillen, and Lionel D. Smith. Toronto: Carswell, 2012. Wood, Roderick J. “Irresistible Force Meets Immovable Object: Canada v. Canada North Group Inc. ” (2020), 63 Can. Bus. L.J. 85.

Wood, Roderick J. “The Floating Charge in Canada” (1989), 27 Alta. L. Rev. 191. Wood, Roderick J., and Rick T. G. Reeson. “The Continuing Saga of the Statutory Deemed Trust: Royal Bank v. Tuxedo Transportation Ltd. ” (2000), 15 B.F.L.R. 515. Ziegel, Jacob S. “Crown Priorities, Deemed Trusts and Floating Charges: First Vancouver Finance v. Minister of National Revenue ” (2004), 45 C.B.R. (4th) 244 . APPEAL from a judgment of the Alberta Court of Appeal (Rowbotham, Wakeling and Schutz JJ.A.), 2019 ABCA 314 , 93 Alta.

L.R. (6th) 29, 437 D.L.R. (4th) 122, 72 C.B.R. (6th) 161, 95 B.L.R. (5th) 222, [2019] 12 W.W.R. 635, 11 P.P.S.A.C. (4th) 157, 2019 D.T.C. 5111, [2019] A.J. No. 1154 (QL), 2019 CarswellAlta 1815 (WL Can.), affirming a decision of Topolniski J., 2017 ABQB 550 , 60 Alta. L.R. (6th) 103, 52 C.B.R. (6th) 308, [2018] 2 W.W.R. 731, [2017] A.J. No. 930 (QL), 2017 CarswellAlta 1631 (WL Can.). Appeal dismissed, Abella, Moldaver, Brown and Rowe JJ. dissenting. Michael Taylor and Louis L’Heureux , for the appellant.

Darren R. Bieganek , Q.C. , and Brad Angove , for the respondents Canada North Group Inc., Canada North Camps Inc., Campcorp Structures Ltd., DJ Catering Ltd., 816956 Alberta Ltd., 1371047 Alberta Ltd., 1919209 Alberta Ltd. and Ernst & Young Inc. in its capacity as monitor . Jeffrey Oliver and Mary I. A. Buttery , Q.C. , for the respondent the Business Development Bank of Canada . Kelly J. Bourassa , for the intervener the Insolvency Institute of Canada. Randal Van de Mosselaer , for the intervener the Canadian Association of Insolvency and Restructuring Professionals.

The reasons of Wagner C.J. and Côté and Kasirer. JJ. were delivered by Côté J. — I. Overview [ 1 ] The Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 (“ CCAA ”), has a long and storied history. From its origins in the Great Depression to its revival and reinvention during the 1970s and 1980s, the CCAA has played an important role in Canada’s economy. Today, the CCAA provides an opportunity for insolvent companies with more than $5,000,000 in liabilities to restructure their affairs through a plan of arrangement.

The goal of the CCAA process is to avoid bankruptcy and maximize value for all stakeholders. [ 2 ] In order to facilitate the restructuring process, courts supervising CCAA restructurings may authorize an insolvent company to incur certain critical costs associated with this process. Supervising courts may also secure payment of these costs by ordering a super-priority charge against the insolvent company’s assets.

Today, our Court is called upon to determine whether a supervising court may order super-priority charges over assets that are subject to a claim of Her Majesty protected by a deemed trust created by s. 227(4.1) of the Income Tax Act , R.S.C. 1985, c. 1 (5th Supp .) (“ ITA ”). [ 3 ] The Crown raises two arguments as to why a supervising court should be unable to subordinate Her Majesty’s interest to super-priority charges. First, the Crown says that s. 227(4.1) creates a proprietary interest in a debtor’s assets and a court cannot attach a super-priority charge to assets subject to Her Majesty’s interest.

Second, the Crown says that even if s. 227(4.1) does not create a proprietary interest, it creates a security interest that has statutory priority over all other security interests, including super- priority charges. [ 4 ] Both of these arguments must fail. As this Court has previously held, the CCAA generally empowers supervising judges to order super-priority charges that have priority over all other claims, including claims protected by deemed trusts.

In all cases where a supervising court is faced with a deemed trust, the court must assess the nature of the interest established by the empowering enactment, and not simply rely on the title of deemed trust. In this case, when the relevant provisions of the ITA are examined in their entirety, it is clear that the ITA does not establish a proprietary interest because Her Majesty’s claim does not attach to any specific asset. Further, there is no conflict between the CCAA order and the ITA , as the deemed trust created by the ITA has priority only over a defined set of security interests.

A super-priority charge ordered under s. 11 of the CCAA does not fall within that definition. For the reasons that follow, I would therefore dismiss the appeal. II. Background [ 5 ] Canada North Group and six related corporations (“Debtors”) initiated restructuring proceedings under s. 50.4(1) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (“ BIA ”), but soon changed course and sought to restructure under the CCAA .

In their initial CCAA application, they requested a package of relief standard to CCAA proceedings, including a thirty-day stay on all proceedings against them, the appointment of a monitor and the creation of three super-priority charges. The first charge they requested was an administration charge of up to $1,000,000 in favour of counsel, a monitor and a chief restructuring officer for the fees they incurred. The second was a $1,000,000 financing charge in favour of an interim lender.

The third was a $150,000 directors’ charge protecting their directors and officers against liabilities incurred after the commencement of the proceedings. The Debtors included in their initial motion an affidavit from one of their directors attesting to a $1,140,000 debt to Her Majesty The Queen for source deductions and Goods and Services Tax (“GST”). [ 6 ] Justice Nielsen of the Court of Queen’s Bench heard the motion together with a cross-motion by the Debtors’ primary lender, Canadian Western Bank, seeking the appointment of a receiver.

Justice Nielsen granted an initial order in favour of the Debtors on the terms requested in the initial application, aside from a $500,000 reduction in the administration charge (Alta. Q.B., No. 1703-12327, July 5, 2017 (“Initial Order”)).

The terms of that order included the following with regard to priority: Each of the Directors’ Charge, Administration Charge and the Interim Lender’s Charge (all as constituted and defined herein) shall constitute a charge on the Property and subject always to section 34(11) of the CCAA such Charges shall rank in priority to all other security interests, trusts, liens, charges and encumbrances, claims of secured creditors, statutory or otherwise (collectively, “Encumbrances”) in favour of any Person. [Emphasis deleted; para. 44.] Justice Nielsen further ordered that these charges “shall not otherwise be limited or impaired in any way by . . . (

d) the provisions of any federal or provincial statutes” (para. 46). [ 7 ] Three weeks after the Initial Order was granted, the Debtors sought supplementary orders extending the stay of proceedings and increasing the interim financing to $2,500,000. Canadian Western Bank again filed a motion to appoint a receiver. At

the hearing of the three motions, counsel for Her Majesty appeared in order to advise that Her Majesty would be filing a motion to vary the Initial Order on the ground that the order failed to recognize Her priority interest in unremitted source deductions (the portion of remuneration that employers are required to withhold from employees and remit directly to the Canada Revenue Agency (“CRA”)). [ 8 ] The Crown filed the motion soon after. Its argument for variance was grounded in the nature of Her Majesty’s interest in the Debtors’ property. It argued that the nature of Her Majesty’s interest is determined by s. 227(4.1) of the ITA and that that provision creates a proprietary interest:

(4) Every person who deducts or withholds an amount under this Act is deemed, notwithstanding any security interest (as defined in subsection 224(1.3) ) in the amount so deducted or withheld, to hold the amount separate and apart from the property of the person and from property held by any secured creditor (as defined in subsection 224(1.3) ) of that person that but for the security interest would be property of the person, in trust for Her Majesty and for payment to Her Majesty in the manner and at the time provided under this Act.

(4.1) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection 227(4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the manner and at the time provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3) ) of that person that but for a security interest (as defined in subsection 224(1.3) ) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed (

a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and (

b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest and is property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof, and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests. III. Judgments Below A. Court of Queen’s Bench, 2017 ABQB 550 , 60 Alta.

L.R. (6th) 103 [ 9 ] Justice Topolniski heard Her Majesty’s motion to vary the Initial Order. Despite the delay between the Initial Order and the motion to vary, Topolniski J. found that she had jurisdiction to hear the motion based on the discretion and flexibility conferred by the CCAA . However, she dismissed the motion on the ground that s. 227(4.1) of the ITA creates a security interest that can be subordinated to court-ordered super-priority charges. [ 10 ] Justice Topolniski relied upon Temple City Housing Inc., Re , 2007 ABQB 786 , 42 C.B.R. (5th) 274, and First Vancouver Finance v.

M.N.R. , 2002 SCC 49 , [2002] 2 S.C.R. 720, to conclude that the deemed trust created by s. 227(4.1) of the ITA is not a proprietary interest. Rather, the ITA creates something similar to a floating charge over all the debtor’s assets, which permits the debtor to alienate property subject to the deemed trust. These characteristics are inconsistent with a proprietary interest, and thus s. 227(4.1) does not create such an interest. [ 11 ] Justice Topolniski also considered whether s. 227(4.1) creates a security interest that requires Her Majesty’s interest to take priority over court-ordered charges.

She acknowledged that the CCAA preserves the operation of the deemed trust, but she found that it also authorizes the reorganization of priorities by court order. Because each of the charges included in the Initial Order was critical to the restructuring process, they were necessarily required by the CCAA regime. B. Leave to Appeal, 2017 ABCA 363 , 54 C.B.R. (6th) 5 [ 12 ] Following the dismissal of the Crown’s motion, the Debtors determined that there were sufficient assets in the estate to satisfy both Her Majesty and the beneficiaries of the three court-ordered super-priority charges in full.

However, the Crown sought and obtained leave to appeal in order to seek appellate guidance on the nature of Her Majesty’s priority. C. Court of Appeal of Alberta, 2019 ABCA 314 , 93 Alta. L.R. (6th) 29 [ 13 ] The Court of Appeal dismissed the appeal. It was divided as to whether the super-priority charges had priority over Her Majesty’s claim.

Justice Rowbotham wrote for the majority and agreed with the motion judge that s. 227(4.1) of the ITA creates a security interest, in accordance with this Court’s earlier finding in First Vancouver that the deemed trust is like a “floating charge over all of the assets of the tax debtor in the amount of the default” ( First Vancouver , at para. 40).

She found further support for this in the fact that the deemed trust also falls squarely within the ITA ’s definition of “security interest” in s. 224(1.3) . [ 14 ] After determining that Her Majesty’s interest in the Debtors’ property was a security interest, Rowbotham J.A. turned to the question of whether the deemed trust could be subordinated to the court-ordered super-priority charges. She found that “while a conflict may appear to exist at the level of the ‘black letter’ wording” of the ITA and the CCAA , “the presumption of statutory coherence

require[d] that the provisions be read to work together” (para. 45). A deemed trust that could not be subordinated to super-priority charges would undermine both Acts’ objectives because fewer restructurings could succeed and thus less tax revenue could be collected. If the Crown’s position prevailed, then absurd consequences could follow. Approximately 75 percent of restructurings require interim lenders. Without the assurance that they would be repaid in priority, these lenders would not come forward, nor would monitors or directors.

The reality is that all of these services are provided in reliance on super priorities. Without these priorities, CCAA restructurings may be severely curtailed or at least delayed until Her Majesty’s exact claim could be ascertained, by which point the company might have totally collapsed. [ 15 ] Justice Wakeling dissented. In his view, none of the arguments raised by the majority could overcome the text of the ITA .

On his reading, the text of s. 227(4.1) is clear: Her Majesty is the beneficial owner of the amounts deemed to be held separate and apart from the debtor’s property, and these amounts must be paid to Her Majesty notwithstanding any type of security interest, including super-priority charges. In his view, nothing in the CCAA overrides this proprietary interest.

Section 11 of the CCAA cannot permit discretion to be exercised without regard for s. 227(4.1) of the ITA , nor can ss. 11.2 , 11.51 and 11.52 of the CCAA be used, as they only allow a court to make orders regarding “all or part of the company’s property” (s. 11.2(1)). In conclusion, since no part of the CCAA authorizes a court to override s. 227(4.1), a court must give effect to the clear text of s. 227(4.1) and cannot subordinate Her Majesty’s claims to super-priority charges. IV.

Issue [ 16 ] The central issue in this appeal is whether the CCAA authorizes courts to grant super-priority charges with priority over a deemed trust created by s. 227(4.1) of the ITA . In order to answer this question, I proceed in three stages. First, I assess the nature of the CCAA regime and the power of supervising courts to order such charges.

Given that supervising courts generally have the authority to order super-priority charges with priority over all other claims, I then turn to s. 227(4.1) of the ITA to determine whether it gives Her Majesty an interest that cannot be subordinated to super-priority charges.

Here I assess the Crown’s two arguments as to why s. 227(4.1) provides for an exception to the general rule, namely that Her Majesty has a proprietary or ownership interest in the insolvent company’s assets and that, even if Her Majesty does not have such an interest, s. 227(4.1) provides Her with a security interest that has absolute priority over all claims. I conclude by assessing how courts should exercise their authority to order super-priority charges where Her Majesty has a claim against an insolvent company protected by a s. 227(4.1) deemed trust. V.

Analysis [ 17 ] In order to determine whether the CCAA empowers a court to order super-priority charges over assets subject to a deemed trust created by s. 227(4.1) of the ITA , we must understand both the CCAA regime and the nature of the interest created by s. 227(4.1). A. CCAA Regime [ 18 ] The CCAA is part of Canada’s system of insolvency law, which also includes the BIA and the Winding-up and Restructuring Act , R.S.C. 1985, c. W-11, s. 6(1) , for banks and other specified institutions.

Although both the CCAA and the BIA create reorganization regimes, what distinguishes the CCAA regime is that it is restricted to companies with liabilities of more than $5,000,000 and “offers a more flexible mechanism with greater judicial discretion, making it more responsive to complex reorganizations” ( Century Services Inc. v. Canada (Attorney General) , 2010 SCC 60 , [2010] 3 S.C.R. 379, at para. 14 ). [ 19 ] The CCAA works by creating breathing room for an insolvent debtor to negotiate a way out of insolvency.

Upon an initial application, the supervising judge makes an order that ordinarily preserves the status quo by freezing claims against the debtor while allowing it to remain in possession of its assets in order to continue carrying on business. During this time, it is hoped that the debtor will negotiate a plan of arrangement with creditors and other stakeholders.

The goal is to enable the parties to reach a compromise that allows the debtor to reorganize and emerge from the CCAA process as a going concern ( Century Services , at para. 18). [ 20 ] The view underlying the entire CCAA regime is thus that debtor companies retain more value as going concerns than in liquidation scenarios ( Century Services , at para. 18). The survival of a going-concern business is ordinarily the result with the greatest net benefit.

It often enables creditors to maximize returns while simultaneously benefiting shareholders, employees, and other firms that do business with the debtor company (para. 60). Thus, this Court recently held that the CCAA embraces “the simultaneous objectives of maximizing creditor recovery, preservation of going-concern value where possible, preservation of jobs and communities affected by the firm’s financial distress . . . and enhancement of the credit system generally” ( 9354-9186 Québec inc. v. Callidus Capital Corp. , 2020 SCC 10 , at para. 42 , quoting J. P. Sarra, Rescue!

The Companies’ Creditors Arrangement Act (2nd ed. 2013), at p. 14). [ 21 ] The most important feature of the CCAA — and the feature that enables it to be adapted so readily to each reorganization — is the broad discretionary power it vests in the supervising court ( Callidus Capital , at paras. 47-48).

Section 11 of the CCAA confers jurisdiction on the supervising court to “make any order that it considers appropriate in the circumstances”. This power is vast. As the Chief Justice and Moldaver J. recently observed in their joint reasons, “On the plain wording of the provision, the jurisdiction granted by s. 11 is constrained only by restrictions set out in the CCAA itself, and the requirement that the order made be ‘appropriate in the circumstances’” ( Callidus Capital , at para. 67).

Keeping in mind the centrality of judicial discretion in the CCAA regime, our jurisprudence has developed baseline requirements of appropriateness, good faith and due diligence in order to exercise this power. The supervising judge must be satisfied that the order is appropriate and that the applicant has acted in good faith and with due diligence ( Century Services , at para. 69). The judge must also be satisfied as to appropriateness, which is assessed by considering whether the order would advance the policy and remedial objectives of the CCAA (para. 70).

For instance, given that the purpose of the CCAA is to facilitate the survival of going concerns, when crafting an initial order, “[a] court must first of all provide the conditions under which the debtor can attempt to reorganize” (para. 60). [ 22 ] On review of a supervising judge’s order, an appellate court should be cognizant that supervising judges have been given this broad discretion in order to fulfill their difficult role of continuously balancing conflicting and changing interests.

Appellate courts should also recognize that orders are generally temporary or interim in nature and that the restructuring process is constantly

evolving. These considerations require not only that supervising judges be endowed with a broad discretion, but that appellate courtsexercise particular caution before interfering with orders made in accordance with that discretion (Pacific National Lease Holding Corp.,Re (1992), (BC CA), 72 B.C.L.R. (2d) 368 (C.A.), at paras. 30-31). [23] In addition to s. 11, there are more specific powers in some of the provisions following that section.

They include thepower to order a super-priority security or charge on all or part of a company’s assets in favour of interim financiers (s. 11.2), criticalsuppliers (s. 11.4), the monitor and financial, legal or other experts (s. 11.52), or indemnification of directors or officers (s. 11.51).

Eachof these provisions empowers the court to “order that the security or charge rank in priority over the claim of any secured creditor of thecompany” (ss. 11.2(2), 11.4(4), 11.51(2) and 11.52(2)). [24] As this Court held in Century Services, at para. 70, the general language of s. 11 is not restricted by the availability ofthese more specific orders. In fact, courts regularly grant super-priority charges in favour of persons not specifically referred to in theaforementioned provisions, including through orders that have priority over orders made under the specific provisions.

These include, forexample, key employee retention plan charges (Grant Forest Products Inc., Re (2009), (ON SC), 57 C.B.R. (5th)128 (Ont. S.C.J.); Timminco Ltd., Re, 2012 ONSC 506, 85 C.B.R. (5th) 169), and bid protection charges (In the Matter of a Plan ofCompromise or Arrangement of Green Growth Brands Inc., 2020 ONSC 3565, 84 C.B.R. (6th) 146). [25] In Sun Indalex Finance, LLC v.

United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271, at para. 60, quoting theamended initial order in that case, this Court confirmed that a court-ordered financing charge with priority over “all other securityinterests, trusts, liens, charges and encumbrances, statutory or otherwise”, had priority over a deemed trust established by the PersonalProperty Security Act, R.S.O. 1990, c. P.10 (“PPSA”), to protect employee pensions. Justice Deschamps wrote for a unanimous Court onthis point.

She found that the existence of a deemed trust did not preclude orders granting first priority to financiers: “This will be thecase only if the provincial priorities provided for in s. 30(7) of the PPSA ensure that the claim of the Salaried Plan’s members haspriority over the [debtor-in-possession (“DIP”)] charge” (para. 48). [26] Justice Deschamps first assessed the supervising judge’s order to determine whether it had truly been necessary togive the financing charge priority over the deemed trust.

Even though the supervising judge had not specifically considered the deemedtrust in the order authorizing a super-priority charge, he had found that there was no alternative but to make the order. Financing securedby a super priority was necessary if the company was to remain a going concern (para. 59).

Justice Deschamps rejected the suggestion“that the DIP lenders would have accepted that their claim ranked below claims resulting from the deemed trust”, because “[t]he harshreality is that lending is governed by the commercial imperatives of the lenders, not by the interests of the plan members or the policyconsiderations that lead provincial governments to legislate in favour of pension fund beneficiaries” (para. 59). [27] After determining that the order was necessary, she turned to the statute creating the deemed trust’s priority.

Section30(7) of the PPSA provided that the deemed trust would have priority over all security interests. In her view, this created a conflictbetween the court-ordered super priority and the statutory priority of the claim protected by the deemed trust. The super prioritytherefore prevailed by virtue of federal paramountcy (para. 60). [28] There are also practical considerations that explain why supervising judges must have the discretion to order othercharges with priority over deemed trusts. Restructuring under the CCAA often requires the assistance of many professionals.

AsWagner C.J. and Moldaver J. recently recognized for a unanimous Court, the role the monitor plays in a CCAA proceeding is critical:“The monitor is an independent and impartial expert, acting as ‘the eyes and the ears of the court’ throughout the proceedings . . . . Thecore of the monitor’s role includes providing an advisory opinion to the court as to the fairness of any proposed plan of arrangement andon orders sought by parties, including the sale of assets and requests for interim financing” (Callidus Capital, at para. 52, quoting Ernst& Young Inc. v.

Essar Global Fund Ltd., 2017 ONCA 1014, 139 O.R. (3d) 1, at para. 109). In the words of Morawetz J. (as he then was),“[i]t is not reasonable to expect that professionals will take the risk of not being paid for their services, and that directors and officers willremain if placed in a compromised position” (Timminco, at para. 66). [29] This Court has similarly found that financing is critical as “case after case has shown that ‘the priming of the DIPfacility is a key aspect of the debtor’s ability to attempt a workout’” (Indalex, at para. 59, quoting J. P. Sarra, Rescue!

The Companies’Creditors Arrangement Act (2007), at p. 97). As lower courts have affirmed, “Professional services are provided, and DIP funding isadvanced, in reliance on super-priorities contained in initial orders. To ensure the integrity, predictability and fairness of the CCAAprocess, certainty must accompany the granting of such super-priority charges” (First Leaside Wealth Management Inc. (Re), 2012ONSC 1299, at para. 51 ). [30] Super-priority charges in favour of the monitor, financiers and other professionals are required to derive the mostvalue for the stakeholders.

They are beneficial to all creditors, including those whose claims are protected by a deemed trust. The factthat they require super priority is just a part of “[t]he harsh reality . . . that lending is governed by the commercial imperatives of thelenders” (Indalex, at para. 59). It does not make commercial sense to act when there is a high level of risk involved. For a monitor andfinanciers to put themselves at risk to restructure and develop assets, only to later discover that a deemed trust supersedes all claims,smacks of unfairness.

As McLachlin J. (as she then was) said, granting a deemed trust absolute priority where it does not amount to atrust under general principles of law would “defy fairness and common sense” (British Columbia v. Henfrey Samson Belair Ltd., (SCC), [1989] 2 S.C.R. 24, at p. 33). [31] It is therefore clear that, in general, courts supervising a CCAA reorganization have the authority to order super-priority charges to facilitate the restructuring process.

Similarly, courts have ensured that the CCAA is given a liberal construction tofulfill its broad purpose and to prevent this purpose from being neutralized by other statutes: [translation] “As the courts have ruled timeand again, the purpose of the CCAA and orders made under it cannot be affected or neutralized by another [Act], whether of public orderor not” (Triton Électronique inc. (Arrangement relatif à), 2009 QCCS 1202, at para. 35 ). “This case is not so much about therights of employees as creditors, but the right of the court under the [CCAA] to serve not the special interests of the directors and officersof the company but the broader constituency referred to in Chef Ready Foods Ltd. [v.

Hongkong Bank of Can. (1990), (BC CA), 51 B.C.L.R. (2d) 84 (C.A.)] . . . Such a decision may inevitably conflict with provincial legislation, but the broad purposes ofthe [CCAA] must be served” (Pacific National Lease Holding, at para. 28). Courts have been particularly cautious when interpreting

security interests so as to ensure that the CCAA ’s important purpose can be fulfilled. For instance, in Chef Ready Foods , Gibbs J.A. observed that if a bank’s rights under the Bank Act , S.C. 1991, c. 46 , were to be interpreted as being immune from the provisions of the CCAA , then the benefits of CCAA proceedings would be “largely illusory” (p. 92). “There will be two classes of debtor companies: those for whom there are prospects for recovery under the [ CCAA ]; and those for whom the [ CCAA ] may be irrelevant dependent upon the whim of the [creditor]” (p. 92).

It is important to keep in mind that CCAA proceedings operate for the benefit of the creditors as a group and not for the benefit of a single creditor. Without clear and direct instruction from Parliament, we cannot countenance the possibility that it intended to create a security interest that would limit or eliminate the prospect of reorganization and recovery under the CCAA for some companies. To do so would turn the CCAA into a dead letter. With this in mind, I turn to the specific provision at issue in this appeal. B.

Nature of the Interest Created by Section 227(4.1) of the ITA [ 32 ] The Crown argues that, despite the authority a supervising court may have to order super-priority charges, Her Majesty’s claim to unremitted source deductions is protected by a deemed trust, and that ordering charges with priority over the deemed trust is contrary to s. 227(4.1) of the ITA . To determine whether this is true, we must begin by understanding how the deemed trust comes about. [ 33 ] Section 153(1) of the ITA requires employers to withhold income tax from employees’ gross pay and forward the amounts withheld to the CRA.

When an employer withholds income tax from its employees in accordance with the ITA , it assumes its employees’ liability for those amounts ( s. 227(9.4) ). As a result, Her Majesty cannot have recourse to the employees if the employer fails to remit the withheld amounts. Instead, Her Majesty’s interest is protected by a deemed trust. Section 227(4) of the ITA provides that amounts withheld are deemed to be held separate and apart from the employer’s assets and in trust for Her Majesty.

If an employer fails to remit the amounts withheld in the manner provided by the ITA , s. 227(4.1) extends the trust to all of the employer’s assets. In this case, the Debtors failed to remit the amounts withheld to the CRA, bringing s. 227(4.1) into operation. [ 34 ] When a company seeks protection under the CCAA , s. 37(1) of the CCAA provides that most of Her Majesty’s deemed trusts are nullified (unless the property in question would be regarded as held in trust in the absence of the statutory provision creating the deemed trust).

However, s. 37(2) of the CCAA exempts the deemed trusts created by s. 227(4) and (4.1) of the ITA from the nullification provided for in s. 37(1) . These deemed trusts continue to operate throughout the CCAA process ( Century Services , at para. 45). In my view, this preservation by the CCAA of the deemed trusts created by the ITA does not modify the characteristics of these trusts. They continue to operate as they would have if the insolvent company had not sought CCAA protection.

Therefore, the Crown’s arguments must be assessed by reviewing the nature of the interest created by s. 227(4.1) of the ITA . [ 35 ] Before doing so, and while it is not strictly speaking required of me given the reasons I set out below, I pause here to clarify the role of s. 6(3) of the CCAA , which provides as follows:

(3) Unless Her Majesty agrees otherwise, the court may sanction a compromise or arrangement only if the compromise or arrangement provides for the payment in full to Her Majesty in right of Canada or a province, within six months after court sanction of the compromise or arrangement, of all amounts that were outstanding at the time of the application for an order under

section 11 or 11.02 and that are of a kind that could be subject to a demand under (a) subsection 224(1.2) of the Income Tax Act . . . . [ 36 ] Section 6(3) merely grants Her Majesty the right to insist that a compromise or arrangement not be sanctioned by a court unless it provides for payment in full to Her Majesty of certain claims within six months after court sanction. Section 6(3) does not say that it modifies the deemed trust created by s. 227(4.1) of the ITA in any way, and it comes into operation only at the end of the CCAA process when parties seek court approval of their arrangement or compromise.

Section 6(3) also applies to numerous claims that are not protected by the deemed trust, including penalties, interest, withholdings on non-resident dispositions and certain retirement contributions (see ss. 224(1.2) and 227(10.1) of the ITA , the latter of which refers to amounts payable under ss. 116, 227(9), (9.2), (9.3), (9.4) and (10.2),

Part XII.5 and

Part XIII). Equating the deemed trust with the right under s. 6(3) renders s. 37(2) of the CCAA and the deemed trust meaningless. I therefore proceed, as this Court did in Indalex , by assessing the interest created by s. 227(4.1) of the ITA without regard to the CCAA ( Indalex , at para. 48). [ 37 ] Section 227(4.1) provides:

(4.1) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection 227(4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the manner and at the time provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3) ) of that person that but for a security interest (as defined in subsection 224(1.3) ) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed (

a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and (

b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest

and is property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof,and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests.

(1) Does Section 227(4.1) of the ITA Create a Proprietary or Ownership Interest in the Debtor’s Assets? [38] This appeal — like previous appeals to this Court — does not require the Court to exhaustively define the nature andcontent of the interest created by s. 227(4.1) of the ITA (Royal Bank of Canada v. Sparrow Electric Corp., (SCC),[1997] 1 S.C.R. 411, and First Vancouver). All that is necessary is to determine whether s. 227(4.1) confers upon Her Majesty an interestin the debtor’s property that precludes a court from ordering charges with priority over Her Majesty’s claim.

The Crown argues thats. 227(4.1) does so by giving Her Majesty a proprietary interest in the debtor’s assets, which “causes those assets to become the propertyof the Crown” (A.F., at para. 46). The Crown rests this argument on the wording of the section. First, it says that property equal in valueto the amount deemed to be held in trust by a person is deemed to be held “separate and apart from the property of the person”. Second,it says that the property deemed to be held in trust is deemed “to form no part of the estate or property of the person”.

Third, it says thatthe property deemed to be held in trust “is property beneficially owned by Her Majesty notwithstanding any security interest in suchproperty”.

The Crown submits that, as a result of Her Majesty’s proprietary interest, amounts subject to the deemed trust cannot beconsidered assets of the debtor in CCAA proceedings. [39] In order to determine whether s. 227(4.1) confers a proprietary or ownership interest upon Her Majesty, we must lookat the nature of the rights afforded to Her Majesty by the deemed trust and compare them to the rights ordinarily afforded to an owner.To begin with, it is clear that the statute does not purport to transfer legal title to any property to Her Majesty.

Instead, the Crown’sargument places considerable weight on the common law meaning of the words “beneficially owned by Her Majesty” and “in trust”.Trusts and beneficial ownership are equitable concepts that are part of the common law. As in all cases of statutory

interpretation, themeaning of these words is a question of parliamentary intent. In the

interpretation of a federal statute that uses concepts of property andcivil rights, reference must be had to ss. 8.1 and 8.2 of the

Interpretation Act, R.S.C. 1985, c. I-21.

These sections provide: 8.1 Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights inCanada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province’s rules, principles orconcepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in theprovince at the time the enactment is being applied. 8.2 Unless otherwise provided by law, when an enactment contains both civil law and common law terminology, or terminology that hasa different meaning in the civil law and the common law, the civil law terminology or meaning is to be adopted in the Province ofQuebec and the common law terminology or meaning is to be adopted in the other provinces. [40] In other words, where Parliament uses a private law expression and is silent as to its meaning, courts must refer to theapplicable provincial private law.

This is known as the principle of complementarity. However, as both these sections also make clear,Parliament is free to derogate from provincial private law and create a uniform rule across all provinces (see R. Sullivan, Sullivan on theConstruction of Statutes (6th ed. 2014), at pp. 158-59). [41] In this case, Parliament has expressly chosen to dissociate itself from provincial private law.

Section 227(4.1) saysthat it operates “[n]otwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 ofthat Act), any other enactment of Canada, any enactment of a province or any other law”. In Caisse populaire Desjardins de l’Est deDrummond v. Canada, 2009 SCC 29, [2009] 2 S.C.R. 94, the majority found that, through these words, Parliament has created astandalone scheme of uniform application across all provinces (paras. 11-13).

The nature of the deemed trust created by s. 227(4.1) mustthus be understood on its own terms. [42] With that said, it is also clear that Parliament has chosen to use terms with established legal meanings in constructingthe deemed trust. While the meaning of these terms is not to be based on their precise meaning under Alberta common law, it is difficultto attempt to understand s. 227(4.1) without any reference to how these concepts generally operate.

Despite the protestations of mycolleagues Justices Brown and Rowe, I do not see how we could begin to understand the meaning of the words “deemed trust”, “held intrust” or “beneficially owned” without reference to the civil law or common law. The law of trusts in both civil law and common lawthus provides critical context for understanding Parliament’s intent. From a civil law perspective, some courts have found it awkward toapply the idea of beneficial ownership under s. 227(4.1) in Quebec “on the ground that it is a concept that is obviously derived from thecommon law” (Canada (Attorney General) v.

Caisse populaire d’Amos, 2004 FCA 92, 324 N.R. 31, at para. 48). I agree with thefollowing observation by Noël J.A. (as he then was): It is not the task of the judiciary to determine whether it is appropriate for Parliament to use common law concepts in Quebec (or to usecivil law concepts elsewhere in Canada) for the purpose of giving effect to federal legislation. The task of the courts is limited todiscovering Parliament’s intention and giving effect to it. [para. 49] [43] Under Quebec civil law, it is clear that s. 227(4.1) does not establish a trust within the meaning of the Civil Code ofQuébec (“C.C.Q.”).

Articles 1260 and 1261 C.C.Q. provide the following: 1260. A trust results from

an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted byhim which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer. 1261. The trust patrimony, consisting of the property transferred in trust, constitutes a patrimony by appropriation, autonomous anddistinct from that of the settlor, trustee or beneficiary and in which none of them has any real right.

As this Court held in Bank of Nova Scotia v. Thibault, 2004 SCC 29, [2004] 1 S.C.R. 758, at para. 31, “Three requirements musttherefore be met in order for a trust to be constituted [under Quebec civil law]: property must be transferred from an individual’spatrimony to another patrimony by appropriation; the property must be appropriated to a particular purpose; and the trustee must acceptthe property.” [44] Under s. 227(4.1) of the ITA, however, no specific property is transferred to a trust patrimony.

Indeterminacy remainsas to which assets are subject to the deemed trust, ergo, as to which assets left the settlor’s patrimony and entered the trust’s patrimony.Although s. 227(4.1) provides that the assets are deemed to be held “separate and apart from the property of the person” and “to form nopart of the estate or property of the person”, this is not sufficient to constitute an autonomous patrimony such as the one contemplated bythe civilian trust regime.

It flows from the autonomous nature of the trust patrimony that assets held in trust must be property in whichnone of the settlor, trustee or beneficiary has any property right. But this runs afoul of the interest created by s. 227(4.1), because nothingin that provision deprives the person whose assets are subject to a deemed trust of property rights in these assets.

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