Over the last year, several court decisions have touched on the legislative conflict between taxation authorities and secured creditors in insolvency situations.

In the final part of this series, we look at how you can protect your position and be prepared in the event of an impending insolvency.

Thinking ahead

It is always prudent to assess insolvency risk before finalising a contract. The trading history and financial position of a company should be carefully reviewed and a financial risk assessment made at both the outset and during the lifetime of a project. Obtain an up to date set of accounts and a credit report before entering into your contract to enable you to assess the counterparty's financial viability.

In our update this month we take a look at some of the recent cases that will be of interest to those involved in insolvency litigation. These include;

In 2002 the Supreme Court of Canada, in Bank of Montreal v Dynex Petroleum Ltd, 2002 SCC 7 (Dynex) affirmed that gross overriding royalty interests (GOR) could constitute interest in land provided the parties so intended and that intention was sufficiently evidenced in an agreement.

In Esfahani v. Samimi, 2018 ONCA 516 the Ontario Court of Appeal confirmed that a plaintiff pursuing a fraudulent conveyance or preference must recognize that the legal landscapes changes with a bankruptcy and that the effects of a bankruptcy filing cannot be ignored.

With international trade rarely making the news in this era of stable foreign relations and respectful international dialogue, you can be forgiven if you are unaware that Canada has entered several trade agreements that require it to protect trade secrets. But can Canada be forgiven for never actually enacting trade secret legislation? Maybe we can because of Canada’s substitute: the common law action for “breach of confidence”.

Recent legislative amendments in Ontario are intended to protect construction subcontractors from the claims of other creditors in the event of insolvency. They impose a new requirement to maintain written records for trust funds that will be in effect as of July 1, 2018.

Weighing in at the intersection of bankruptcy law and the doctrine of subrogation, the Ontario Court of Appeal has ruled that insurers are not entitled to commence subrogated claims in the name of bankrupt insureds.

Secured Creditor’s Priority Over Unremitted GST/HST: SCC Grants Callidus Capital Corporation Leave to Appeal

On March 22, 2018, the Supreme Court of Canada granted Callidus Capital Corporation (the “Secured Creditor”) leave to appeal the Federal Court of Appeal decision that interpreted subsection 222(3) of the Excise Tax Act (Canada) (the “ETA”) as giving the Crown super priority to property received by a secured creditor from a tax debtor before bankruptcy.

On March 22, 2018, the Supreme Court of Canada granted Callidus Capital Corporation (the “Secured Creditor”) leave to appeal the Federal Court of Appeal decision that interpreted subsection 222(3) of the Excise Tax Act (Canada) (the “ETA”) as giving the Crown super priority to property received by a secured creditor from a tax debtor before bankruptcy.