Schrager, Moore, Weitzman

Appeals from an order by the Superior Court. Dismissed.

The respondent debtors are indebted for $9,192,413 and filed, on the same date, a notice of intention and a motion seeking an order authorizing interim financing secured by a charge. The trial judge granted the motion and stated that the charge would rank in priority over the deemed trust created under section 227 (4.1) of the Income Tax Act (R.S.C. 1985, 5th Supp., c. 1) with respect to the unremitted source deductions. The appellant creditors submit that the judge did not have any power to render this order.

The issue requires a close look at Canada v. Canada North Group Inc. (S.C. Can., 2021-07-28), 2021 SCC 30, SOQUIJ AZ-51783731, 2021EXP-1919, in which the Supreme Court of Canada decided that the super-priority charges ordered under the Companies’ Creditors Arrangement Act (R.S.C. 1985, c. C-36) have priority over the deemed trust. The proposal provisions in the Companies’ Creditors Arrangement Act serve the same purpose as those in the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3), i.e., the financial rehabilitation of an insolvent corporate debtor and both statutes should be treated in a harmonized fashion. The interim lending provisions in both laws are virtually identical.

The judge in the case at bar had the authority to make the order under appeal and to declare that the charge to secure the interim financing would rank in priority over the appellants’ deemed trusts. Nothing in the Bankruptcy and Insolvency Act, including its sections 67 (2) and 67 (3), is an impediment to this position.

The judge’s power to establish the rank of the charge to secure an interim loan is found in section 50.6 (3) of the Bankruptcy and Insolvency Act. In this case, the appellants maintain that this provision is inapplicable because they are not secured creditors. This interpretation would mean, however, that such a charge would only rank ahead of secured creditors, which is untenable. Any security created to secure interim lending pursuant to 50.6 (1) of the Bankruptcy and Insolvency Act ranks – by definition – ahead of the rights of unsecured or ordinary creditors, like those of the appellants in this case. Moreover, it would seem nonsensical that a judge could declare the rank of the interim lending charge in relation to the secured creditors’ claims, but not those of other creditors. Last, the appellants’ reading would make interim financing unavailable to companies with total indebtedness of less than $5 million, which cannot be Parliament’s intention.

In addition, even if the Court’s interpretation is wrong, the conclusion would be the same. Given that section 11.2 of the Companies’ Creditors Arrangement Act and section 50.6 of the Bankruptcy and Insolvency Act are identical, the absence of an equivalent to section 11 Companies’ Creditors Arrangement Act in the Bankruptcy and Insolvency Act in the present context must be taken as a gap to be filled by the exercise of inherent jurisdiction of the Superior Court. The judge could therefore make the order under appeal.

Legislation interpreted: section 50.6 of the Bankruptcy and Insolvency Act

Text of the decision: http://citoyens.soquij.qc.ca