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.

Ted Leroy Trucking Ltd. took protection under the CCAA to arrange its affairs. The debtor applied to lift the stay to allow it to assign itself into bankruptcy. The Crown then moved for immediate payment of the GST. The Court refused the Crown’s motion and allowed the lifting of the stay and the debtor became a bankrupt. As part of the order, the Monitor of the debtor was to hold the amounts for unremitted GST pending the outcome of the reorganization.

The British Columbia Court of Appeal allowed the appeal of the Crown and held that the segregation of the unremitted GST into the Monitor’s account had created an express trust in favour of the Crown. The debtor’s chief creditor appealed.

The Supreme Court of Canada granted the appeal.

The Court held that both the Bankruptcy and Insolvency Act ("BIA") and CCAA nullify deemed trusts in favour of the Crown, and both contain express provisions excepting source deduction deemed trusts from this rule. There is nothing in the CCAA creating a preferred creditor status for GST. If Parliament had intended the provisions of the Excise Tax Act to prevail over the provisions of the CCAA, it would have done so as it has for source deductions. Asymmetry would result if there were different treatments of GST under the CCAA than under the BIA and undermine the purposes of the CCAA. Here the chambers judge’s order staying the Crown’s GST claim was in furtherance of the CCAA’s objectives and avoided a creditor interfering with a liquidation and the orderly transition from the CCAA to the BIA . In addition the chambers judge’s order did not contain an intention to create an express trust for the Crown, as it had not been determined who would receive the funds.

Unlike Re Giffen [1998] 1 S.C.R. 91, this was not a situation where the trustee was entitled to assert rights in the leased goods as against an unperfected secured party, as GE was perfected at the date of the bankruptcy.