In a recent edition of Fully Secured (September 29, 2011 – Volume 2, No. 3), the decision of the Ontario Court of Appeal in Re Indalex Limited was discussed, in which the Ontario Court of Appeal held that a statutory deemed trust claim arising out of a pension plan wind-up deficiency ranked in priority to debtor in possession (“DIP”) financing.

There have been several recent developments with respect to this decision since the date of that publication.

In a decision dated January 11, 2012, a New York court applied the “separate entity rule” to dismiss a judgment creditor’s special proceeding against a garnishee bank, confirming that the rule remains alive and well in New York.  Under the separate entity rule, bank branches are treated as separate legal entities for the purposes of attachment and garnishment.  Where the rule applies, a judgment creditor seeking to restrain a judgment debtor’s bank account must serve the post-judgment restraining notice upon the bank branch where the account is maintained.    

In a succinct decision rendered on January 12, the same day as the hearing, the Supreme Court of Canada finally settled the question of whether requirements to pay, issued pursuant to section 317 of the Excise Tax Act ("ETA") prior to the bankruptcy of a tax debtor, but not paid before such time, remain valid against the garnishee.1 Supreme Court Justice LeBel, speaking on behalf of the Court, simply stated that the Court agreed with the reasons of Noël J.A. of the Federal Court of Appeal.

Introduction

In “True Lease v. Security Lease – Is the Distinction Still Relevant?” which appeared in the June 2008 issue of Collateral Matters, Jill Fraser discussed a 2007 amendment to the Personal Property Security Act (Ontario) (the “PPSA”) and whether or not the distinction between a true lease and a security lease was still relevant in light of that amendment.

What role does business common sense play in the interpretation of commercial contracts? This issue was recently addressed by the Supreme Court of the United Kingdom in Rainy Sky S.A. v. Kookmin Bank. The answer: “where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense”. Since there is currently some uncertainty in Canada on the point, Rainy Sky is an important case to consider.

Decision

On August 19, 2011, the Federal Minister of Finance released a significant package of proposed amendments to Canada’s income tax rules applicable to Canadian multinational corporations with foreign affiliates (the Proposals).  The Proposals apply to most distributions from, and reorganizations of, foreign subsidiaries of Canadian corporations and contain new rules applicable to certain loans received from foreign subsidiaries that remain outstanding for at least two years, among other significant changes.  In addition to certain important new measures, the Proposals replace numero

Unremitted source deductions are subject to a deemed trust in favour of the Crown under Section 227 of the Income Tax Act (the “ITA”), Section 86 of theEmployment Insurance Act (the “EIA”) and Section 23 of the Canada Pension Plan (the “CPP”). Subsection 227(4) of the ITA creates the trust for income tax deductions and Subsection 227(4.1) creates a super-priority lien in favour of the Crown, in the amount of the trust, over all the debtor’s assets.

Bill 68 – An Act to promote Ontario as open for business by amending or repealing
certain Acts (the “Open for Business Act”)1 received Royal Assent on October 25,
2010. It is an omnibus Act which contains more than 100 amendments to existing
legislation spread out across 10 ministries.

introduction

In a client update released earlier this month, we discussed the recent decision of the Ontario Court of Appeal in the CCAA proceedings of Indalex Limited. In that case, the Court decided that Indalex’s pension plan wind-up deficiency claims had priority over Indalex’s CCAA secured lender in the context of that case. Of concern is the "chill" that decision may have on secured lending in Ontario to borrowers that sponsor defined benefit pension plans.