“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.”
The SCC (5:4, with separate concurring reasons, and two sets of dissenting reasons) dismissed the appeal.
Justice Côté wrote as follows (at paras. 3-4, 22-23, 30, 55, 57, 67-68, 72-73):
“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.
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.
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 courts exercise particular caution before interfering with orders made in accordance with that discretion (Pacific National Lease Holding Corp., Re (1992), 72 B.C.L.R. (2d) 368 (C.A.), at paras. 30-31).
In addition to s. 11 , there are more specific powers in some of the provisions following that section. They include the power 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 ), critical suppliers (s. 11.4), the monitor and financial, legal or other experts (s. 11.52 ), or indemnification of directors or officers (s. 11.51 ). Each of these provisions empowers the court to “order that the security or charge rank in priority over the claim of any secured creditor of the company” (ss. 11.2(2), 11.4(4), 11.51(2) and 11.52(2)).
Super-priority charges in favour of the monitor, financiers and other professionals are required to derive the most value for the stakeholders. They are beneficial to all creditors, including those whose claims are protected by a deemed trust. The fact that they require super priority is just a part of “[t]he harsh reality . . . that lending is governed by the commercial imperatives of the lenders” (Indalex, at para. 59). It does not make commercial sense to act when there is a high level of risk involved. 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, smacks of unfairness. As McLachlin J. (as she then was) said, granting a deemed trust absolute priority where it does not amount to a trust under general principles of law would “defy fairness and common sense” (British Columbia v. Henfrey Samson Belair Ltd.,  2 S.C.R. 24, at p. 33).
I reiterate that, without specific property to attach to, there can be no trust. The fact that s. 227(4.1) specifically anticipates that the character of assets will change over time and automatically releases any assets that the debtor chooses to alienate from the deemed trust means that Parliament had in mind something different from beneficial ownership in the common law sense of the word. I tend to agree with Noël J.A.’s assessment of s. 227(4.1) : “The deemed trust mechanism, whether applied in Quebec or elsewhere, effectively creates in favour of the Crown a security interest . . .” (Caisse populaire d’Amos, at para. 46).
Nonetheless, for our purposes it is not necessary to conclusively determine whether the interest created by s. 227(4.1) should be characterized as a security interest. What is clear is that s. 227(4.1) does not create a beneficial interest that can be considered a proprietary interest. Like the deemed trust at issue in Henfrey, it “does not give [the Crown] the same property interest a common law trust would” (p. 35). 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. Therefore, I do not accept the Crown’s argument that Her Majesty has 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.
Finally, if Parliament had wanted to include court-ordered super-priority charges in the definition of “security interest”, it would have said so specifically. Parliament must be taken to have legislated with the operation of the CCAA in mind. In the words of Professor Sullivan, “The legislature is presumed to know its own statute book and to draft each new provision with regard to the structures, conventions, and habits of expression as well as the substantive law embodied in existing legislation” (Sullivan (2014), at p. 422 (footnote omitted)). Given that, in Indalex, this Court has already found that granting super-priority charges is critical as “a key aspect of the debtor’s ability to attempt a workout”, one would expect Parliament to use clearer language where such a definition could jeopardize the operation of another one of its Acts. I am therefore in total disagreement with my colleagues Justices Brown and Rowe that “nothing in the definition of security interest in the ITA precludes the inclusion of an interest that is designed to operate to the benefit of all creditors” (para. 210). To the contrary, everything hints at priming charges being excluded from the definition of security interest.
In conclusion, 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. I therefore respectfully disagree with my colleague Justice Moldaver’s suggestion that there may be a conflict between s. 11 of the CCAA and the ITA (para. 258). The Initial Order’s super-priority charges prevail over the deemed trust.
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. In creating a super-priority charge, a supervising judge must always consider whether the order will achieve the objectives of the CCAA . When there is the spectre of a claim by Her Majesty protected by a deemed trust, the judge must also consider whether a super priority is necessary. The record before us contains no reasons for the Initial Order, so this is difficult to determine in this case. Given that Her Majesty has been paid and that the case is in fact moot, it is not critical for us to determine whether the supervising judge believed it was necessary to subordinate Her Majesty’s claim to the super-priority charges. Based on Justice Topolniski’s reasons for denying the Crown’s motion to vary the Initial Order, it is clear that she would have found that the super-priority charges deserved priority over Her Majesty’s interest (paras. 100‑104). However, I wish to say a few words on when it may be necessary for a supervising judge to subordinate Her Majesty’s interest to super-priority charges.
It may be necessary to subordinate Her Majesty’s deemed trust where the supervising judge believes that, without a super-priority charge, a particular professional or lender would not act. This may often be the case. On the other hand, I agree with Professor Wood that, although subordinating super-priority charges to Her Majesty’s claim will often increase the costs and complexity of restructuring, there will be times when it will not. For instance, when Her Majesty’s claim is small or known with a high degree of certainty, commercial parties will be able to manage their risks and will not need a super priority. After all, there is an order of priority even amongst super-priority charges, and therefore it is clear that these parties are willing to have their claims subordinated to some fixed claims. A further example of where different considerations may be in play is in so‑called liquidating CCAA proceedings. As this Court recently recognized, CCAA proceedings whose fundamental objective is to liquidate — rather than to rescue a going concern — have a legitimate place in the CCAA regime and have been accepted by Parliament through the enactment of s. 36 (Callidus Capital, at paras. 42-45). Liquidating CCAA proceedings often aim to maximize returns for creditors, and thus the subordination of Her Majesty’s interest has less justification beyond potential unjust enrichment arguments.”