August 4, 2021

SCC Provides Much-Needed Clarity on Deemed Trust Priority

The Supreme Court of Canada (“SCC”) in Canada v. Canada North Group Inc., 2021 SCC 30 [Canada North] recently held that courts in proceedings under the Companies’ Creditors Arrangement Act (the “CCAA”) have the authority to rank super-priority charges ahead of the Crown’s deemed trust claim for unremitted source deductions. The SCC’s ruling is a landmark decision for the Canadian restructuring community and provides much-needed clarity on an issue of significant importance to debtors, creditors, interim lenders and insolvency practitioners. 


Canada North Group and six related corporations (collectively, “Canada North”) commenced restructuring proceedings under the CCAA in 2017. The Initial Order granted by Justice Nielsen of the Alberta Court of Queen’s Bench ordered that the priority of the super-priority charges (the “Priming Charges”) was not to be limited or impaired by any federal or provincial statute. The Crown sought to vary the Initial Order as it failed to recognize the Crown’s statutory deemed trust in unremitted source deductions (the “Deemed Trust”) pursuant to section 227(4.1) of the Income Tax Act (Canada) (the “ITA”). The Crown’s motion to vary the Initial Order was dismissed by the Alberta Court of Queen’s Bench and its appeal to the Alberta Court of Appeal was also dismissed.

SCC Decision 

In a split decision (5-4), the SCC also dismissed the Crown’s appeal. Writing on behalf of Chief Justice Wagner and Justice Kasirer, Justice Coté made the following determinations:

i) section 227(4.1) of the ITA does not create a proprietary interest in the debtor’s property;

ii) a court-ordered super-priority charge (such as the Priming Charges) is not a security interest within the meaning of section 224(1.3) of the ITA;

iii) the broad section 11 discretionary power afforded to CCAA judges is constrained only by the restrictions set out in the CCAA itself; and

iv) accordingly, the Priming Charges prevail over the Deemed Trust as there is no conflict between section 227(4.1) of the ITA and the Initial Order, or section 11 of the CCAA.

Writing for Justice Martin and herself, Justice Karakatsanis held that the broad discretionary power under section 11 of the CCAA permits a court to rank priming charges ahead of the Deemed Trust. Justice Karakatsanis noted that the CCAA is a remedial statute, and the role of the interim lender in CCAA proceedings is so crucial that accommodation of the interim lender becomes paramount.

Justice Karakatsanis distinguished between the Bankruptcy and Insolvency Act and CCAA provisions regarding the Deemed Trust. Whereas the BIA expressly provides that the statutory deemed trust property is to be set aside, the CCAA’s equivalent provisions regarding the Deemed Trust do not. Further, there are other protections in favour of the Crown built in to the CCAA.  For example, pursuant to section 6(3) of the CCAA, certain amounts owing to the Crown, including those payable under section 227(4.1) of the ITA, must be paid in full within six months of a plan of compromise or arrangement being sanctioned. When interpreting the statute as a whole and in the context of its remedial purpose, the court must have the flexibility to order super-priority charges in favour of parties whose function is to facilitate the proposal of a plan of compromise or arrangement.

The dissent (minority judgments were written by both Justices Brown and Rowe as well as Justice Moldaver) would have allowed the Crown’s appeal. Both opinions concluded that the Deemed Trust must take priority over the Priming Charges. The focus of the minority judgments was the use of the blanket clause in section 227(4.1) that the deemed trust applies “notwithstanding any… enactment of Canada”. In the eyes of the dissent, this was “clear and unmistakable” evidence that Parliament intended to provide the Deemed Trust with priority over all other claims, including the Priming Charges.


The issue of whether the Deemed Trust could be primed under the CCAA has been a live one for decades. Numerous courts have issued seemingly inconsistent decisions [1]. The SCC’s majority decision in Canada North should provide certainty for interim lenders and restructuring professionals that CCAA courts have the discretion to prime the Crown’s statutory deemed trusts. 

It will be interesting to follow the application of the SCC’s decision in Canada North moving forward. In particular, the majority concurring judgment written by Justice Karakatsanis emphasized that priming the deemed trust should only be done where necessary and appropriate. The CCAA judge is given the task of weighing and balancing the relevant interests at play. 

In any event, Canada North provides CCAA courts and restructuring professionals with another tool in the kit to affect a successful restructuring and promote the remedial objectives of the CCAA. It is a welcome decision and provides some finality on an issue that had been unsettled.



[1] For example, in 2017, the same year the Alberta Court of Queen’s Bench dismissed the Crown’s motion to vary the Initial Order in the Canada North case, the Supreme Court of Nova Scotia held that the ITA deemed trust takes priority over all security interests, including a DIP charge in a BIA proposal (noting that while property may be sold by the debtor free from the trust, this does not mean that charges could supercede the trust) in Rosedale Farms Limited, Hassett Holdings Inc., Resurgam Resources (Re), 2017 NSSC 160.


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