Here, a PWC was appointed receiver for a real estate broker. It collected funds, primarily commissions and deposits for transactions that had or were yet to close. As in all such cases, there were limited funds to distribute and the task of the Court was to allocate the money received among the receiver (for its fees), the various agents and brokers working with the insolvent broker “50549 NL Inc.”, a factoring company (which had lent money to agents against their commissions), the CRA, and secured creditors.
The analysis in this case seems sound in its discussion of trust claims, especially since so much of the reasons are based on conclusions of fact that would be hard to appeal.
CRA was not represented at the hearing and seems to have accepted the arrangement proposed by PWC.
The Court smoothly and easily agrees to protecting the ITA $28,000 source deduction claim. (Paragraph 61 to 63.) But then, to eliminate CRA’s HST claim, it makes an order directing the bankruptcy of 50549 NL. That is an interesting decision. It also seems sound, in that it can be justified as the best way to preserve the assets for all creditors (in particular, against costs of the receiver in dealing with an HST claim). But this approach makes one wonder what is the value of section 222, which deems Canada to have a trust over a registrant’s assets equal to the HST remittable (or, technically, the total tax collectible).
If section 222 creates a trust, then that trust exists before the bankruptcy. And yet ETA s. 222(3) seems to allow the ready extinction of the trust. So what good is it?
Could the CRA have asserted the trust as a claim to assets that were found to belong to agents and certain other parties as trust funds of the proposed bankrupt?
The trouble here is that we have no representation from CRA in the case. Implicitly, CRA did not see the amount or the strength of its rights justified the bother.
Somewhat notable here is the exceptional decision to impose the receiver’s costs on the various trust fund beneficiaries. Yet, at PWC’s request, the CRA’s $28,000 claim was to be paid in full:
[75] PWC submits that the only exception proposed to the pro rata allocation of the Receiver’s Charge is that the CRA statutory deemed trust for unremitted payroll deductions would not be subject to the pro rata deduction. This, says PWC, is largely a matter of efficacy; it is more efficient to pay CRA the relatively small employee remittance claim in full, rather than create confusion for the employees and a possibly lengthy debate between PWC and CRA.
The reasons do not explain what the “confusion for the employees” and lengthy battle would be. Presumably, the confusion for employees might be over how much they still owe for taxes, despite having had the same money withheld from them on account of those taxes. (Perhaps there is some confusion about whether the employer’s deductions are credited to the employee if not remitted; see ITA s. 153(3) and Manke v. The Queen, 1998 CanLII 234 (TCC).)
But would CRA really have insisted on a second payment from the employees? Does that ever happen in these insolvency situations?
Also odd is that, despite saying that it would impose the receiver’s costs on the trust beneficiaries, the Court excepted out the agents’ implied or constructive trusts and yet made the true trust beneficiaries (the vendors and purchasers) pay the fees. The explanation may be that the trusts for the vendors and purchasers were not related to identifiable transactions; whereas the agents’ commission trusts would have identifiable transactions in the post-receivership period.
See PriceWaterhouseCoopers v. Bank of Montreal et al., 2017 CanLII 11229 (NL SCTD) (Stack, J.)