The case of Canrock Ventures LLC v. Ambercore Software Inc. et al is a cautionary tale for a Receiver and its counsel alike. In this case, the Ontario Superior Court of Justice rejected a Receiver’s application for the approval of an asset purchase agreement because of a failure to take the requisite steps when conducting a sale process and, in the Court’s view, failing to remain a neutral officer of the Court.

Advising directors and officers of companies that are in the shadow of insolvency regarding the scope of their personal liability can be a daunting task as directors and officers can be exposed to significant personal liability in a variety of areas of the law. Directors are now accountable not only to the corporation and its shareholders but also under certain circumstances to employees, creditors, customers, suppliers, and governments.

In its recent decision in Century Services Inc v Canada,1 the Supreme Court of Canada (the “SCC”) held that, in the context of a Companies’Creditors Arrangement Act2 (the “CCAA”) proceeding, the Crown does not have a superpriority claim over the property of a debtor for unremitted goods and services tax (“GST”) amounts. The decision of the SCC majority rejected existing appellate-level case law, and brought the priority of Crown claims in-line with what they are in bankruptcy proceedings.

In April 2010, we reported on the decision of the Ontario Superior Court of Justice (the “Superior Court”) in In the Matter of the Proposal of C.I.F. Furniture Limited (“CIF”) which dealt with the question of circular priorities. This decision was recently upheld by the Ontario Court of Appeal (“Court of Appeal”). The Court of Appeal’s decision will offer some comfort to lenders where intercreditor agreements exist between some but not all of the secured lenders of a borrower.

MARY BUTTERY WINS IMPORTANT CASE FOR CENTURY SERVICES INC.

Century Services Inc. v. Canada (Attorney General), [2010] S.C.C.A. No. 259, on appeal from (2009) 319 D.L.R. (4th) 735 (BCCA)

The union on behalf of the unionized employees of Ted Leroy Trucking Ltd., the bankrupt employer, had applied to the B.C.S.C. for directions and obtained a decision of that Court that the “wages” protected under the WEPPA “superpriority” for unpaid employees included amounts paid by the employer to third parties on behalf of the employees.

Century Services Inc. v. Canada (Attorney General), 2010 SCC 60

Section 222(3) of the Excise Tax Act creates a deemed trust for unremitted GST, which operates despite any other act of Canada, except the Bankruptcy and Insolvency Act. However section 18.3(1) of the Companies’ Creditors Arrangement Act (the "CCAA") provides that any statutory deemed trust in favour of the Crown does not operate under the CCAA, subject to certain exceptions which do not mention GST.

Abitibi

Outdoor Broadcast Networks Inc (Re), 2010 ONSC 5647

The debtor had filed a notice of intention to make a proposal (“NOI”) to its creditors under the BIA. It was proposing to immediately sell certain assets in Ontario and BC to help it fund its proposal. As the proposal had not yet been made, the debtor was the one selling assets out of the ordinary course, and the sale was subject to the Ontario Bulk Sales Act. That Act does not apply to sales by bankruptcy trustees, receivers, sheriffs, or other liquidators for the benefit of creditors.

The Supreme Court of Canada recently ruled in the Century Servicesi case that Goods and Services Tax (“GST”) deemed trusts under the federal Excise Tax Act (“ETA”) are ineffective in proceedings under the Companies’ Creditors Arrangement Act (“CCAA”).