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Posted in Construction

The long arm of the federal government is again thrusting its revenue hand between payors and payees in the construction chain. We speak of the super priorities regarding employee deductions and GST.

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Posted in Construction

The Companies Creditors Arrangement Act of Canada establishes a procedure by which an insolvent corporation is given time to make necessary arrangements, including the sale of some or all of its assets, with its creditors so that either the corporation can continue operations (e.g. Air Canada) or the corporation essentially dies in an orderly fashion (e.g. Nortel). The court appoints a monitor, who must be a trustee in bankruptcy, to oversee the steps that the insolvent corporation is taking while in CCAA protection. This statute is only available to corporations, either singly or as part of a family of related corporations, with debt of at least $5 million.
How does this procedure tie in with the Construction Lien Act and the liens and trusts that are available to subcontractors of a general whose debts are so large that it claims the protection of the CCAA? This question was the subject of Re Kerr Interior Systems Ltd., a 2009 decision of the Alberta Court of Appeal.
Sub A and Sub B each provided building materials to the general on a particular project. The general encountered financial problems. On November 7, it was granted a protection order under the CCAA. On November 6, Sub A had registered its claim for lien and on November 14, after and in contravention of the order, Sub B registered its claim for lien. Two months later, the owner of the project paid $150,000 into court and discharged the two liens. The fight was over that money.
The general’s plan of arrangement listed the Subs as ordinary creditors. The Subs claimed that they were secured creditors under the CCAA and therefore were in their own class to vote on the plan and, more importantly, to receive their funds from the $150,000 paid into court.
This was an Alberta case (because the CCAA order was taken out in Alberta), but the project had been in Saskatchewan. The Saskatchewan Builders Lien Act has, in essence, the same trust provisions as the Ontario Construction Lien Act. Section 7 of it (section 8 in Ontario) provides that all amounts owing to a contractor, whether or not due, or received by a contractor on account of the contract price of an improvement, constitute a trust for the benefit of subs who have provided materials or services to the contractor for the improvement.
The court had to determine whether the deemed trust provisions were sufficient to create a trust for the purposes of section 2 of the CCAA and thus constitute the Subs as secured creditors. 
The minority felt that there had to be more than just a deemed trust; there had to be a trust under common law. He therefore decided that Sub A’s claim was secured because it had registered its claim for lien before the general obtained the CCAA order and that Sub B was out of luck because its claim for lien was registered after that time. He felt that a trust fund under the Saskatchewan Act becomes sufficiently identifiable only when it is reasonably ascertainable and it is only reasonably ascertainable once a lien has been registered. 
 The majority held that the validity of a trust was not dependent on the filing of a lien. Either the general owed the money to the Subs or it did not. It did not matter whether the Subs had actually registered a lien in order for the trust to exist under both the lien legislation and the CCAA.
The majority took an expansive view of the lien legislation and stated,
“The purpose of the Saskatchewan legislation is to ensure that subcontractors are secured, at least to a minimal extent, and that they obtain payment to that extent before general creditors. I resist any attempt to carve up the statute into little parts – it is all one scheme designed to protect subcontractors. As pointed out by (Sub A), the suppliers rely upon the protections provided by the statute in their assessment of credit risk. While the definition of secured creditor in the federal statute must prevail, there is no need here to construe it in a fashion that strips the protections at a time when the suppliers most need it; i.e., in dealing with the insolvent contractors, such as (Sub B).”
Although it was not spelled out in the reasons for decision, the monies in court were paid to the Subs to the extent of their trust claims. We assume that if there were more claims in aggregate than the monies in court, they would have been paid rateably.
This case is relevant to all trust situations. However, the trust provisions for an owner are far different from those for a general. Accordingly, generals who supply materials or services to the owner of an improvement are not necessarily in the same position, for purposes of the CCAA, as subs providing materials or services to a general.

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