Attorney General of Canada v. Richter Advisory Group Inc., 2023 QCCA 1295

On October 26. 2021, two debtors filed a notice of intention to make a proposal pursuant to s. 50.4 of the Bankruptcy and Insolvency Act (“BIA”) and, a day later, the Quebec Superior Court issued an order for interim financing of the debtors by a bank (CIBC) to sustain their operations during a sale process, with such financing ordered to have a super-priority charge. The net proceeds of the sale totalled about $2.2 million, the super-priority charges totalled approximately $2.4 million and the unremitted federal and Quebec source deductions of the debtors totalled approximately $3.2 million.

In finding that the Superior Court had the jurisdiction to provide that the super-priority charges ranked ahead of the deemed trust for the federal source deductions under ITA s. 227(4.1) (and also for the Quebec source deductions under s. 20 of the Quebec Tax Administration Act, for which the analysis was stated to be the same), Schrager JA noted:

• Canada North decided that CCAA courts could grant super-priority charges ranking in priority to s. 227(4.1) deemed trusts.
• Callidus indicated that the “proposal provisions in the BIA serve … the same remedial purpose as those in the CCCA – i.e., the financial rehabilitation of an insolvent corporate debtor” and “to the extent possible, the two statutes should be treated in a harmonized fashion” (para. 46).
• Regarding BIA s. 50.6(3), which was the basis of the “judge’s power to establish the rank of the charge to secure an interim loan” (para. 49), and provided that the “court may order that the … charge rank in priority over the claim of any secured creditor,” the arguments of Attorney General that this provision had no application because s. 227(4.1) did not create a security interest, “it would seem nonsensical in the overall scheme of the BIA that a court could order that the interim lending charge take priority over the claim of any hypothecary or mortgage creditor but not over the claim of an unsecured creditor benefiting from a sui generis non-proprietary right akin to a floating charge, that is, the ITA Deemed Trust” (para. 51).
• If the above interpretation of s. 50.6(3) was incorrect, “the judge’s power to order the creation of priming charges is justified by his inherent jurisdiction” (para. 54): “Judgments of this Court have acknowledged the existence of this inherent jurisdiction under the BIA” (para. 57).

At the conclusion of the sale process for the assets of two debtors who had filed a proposal under the Bankruptcy and Insolvency Act (“BIA”), the net sale proceeds were less than both the amount of interim financing from CIBC that the Quebec Superior Court had ordered to have a super-priority, and the total amount of unremitted federal and Quebec source deductions.

In finding that the Superior Court had the jurisdiction to provide that the super-priority charge ranked ahead of the deemed trust for the federal source deductions under ITA s. 227(4.1) (as well as the Quebec equivalent), Schrager JA noted:

• Canada North decided that CCAA courts could grant super-priority charges ranking in priority to s. 227(4.1) deemed trusts
• Callidus indicated that the “proposal provisions in the BIA serve … the same remedial purpose as those in the CCCA – i.e., the financial rehabilitation of an insolvent corporate debtor” and “to the extent possible, the two statutes should be treated in a harmonized fashion” (para. 46).
• Regarding the Attorney General’s argument - that BIA s. 50.6(3), which provided that the “court may order that the … charge rank in priority over the claim of any secured creditor,” did not apply because s. 227(4.1) did not create a security interest - “it would seem nonsensical in the overall scheme of the BIA that a court could order that the interim lending charge take priority over the claim of any hypothecary or mortgage creditor but not over the claim of an unsecured creditor benefiting from a sui generis non-proprietary right akin to a floating charge, that is, the ITA Deemed Trust” (para. 51).
• If the above interpretation of s. 50.6(3) was incorrect, the Superior Court nonetheless had the inherent jurisdiction to order the super-priority: “Judgments of this Court have acknowledged the existence of this inherent jurisdiction under the BIA” (para. 57).