Case in Brief
Canada v. Canada North Group Inc.
The Supreme Court decides Canada North Group can pay expenses necessary to its restructuring process before money owed to the Canada Revenue Agency.
The Companies’ Creditors Arrangement Act is a law to help businesses avoid bankruptcy when a company has more than $5 million in debt that it cannot afford to repay. The process is called restructuring. This could include giving a company more time to pay its debt, reducing its interest costs or permitting it to borrow money to repay the debt. Companies that restructure must hire experts such as interim lenders, monitors and lawyers. If there is not enough money to pay everyone, a court will decide who gets paid first.
On July 5, 2017, an Alberta court ordered Canada North Group, an Alberta company that provides remote workforce accommodations, to pay its restructuring experts first. As a result, those expenses became “super priority” charges. This meant the experts would be paid before all other debts, including payroll deductions and GST owed to the federal government (Crown).
However, the Crown objected, asking that it be paid before everyone else.
When the court refused to change the order, the Crown turned to the Alberta Court of Appeal, which dismissed its appeal. The federal government asked the Supreme Court of Canada to consider the issue. Even though there was enough money to pay everyone in this case, the Court decided to hear it to determine the law.
“Super priority” for restructuring-related expenses
A majority of the judges dismissed the Crown’s appeal. They said a court supervising a restructuring process has the authority to order that “super priority” charges be paid first, even before paying the Crown the money it is owed. This is because the Companies’ Creditors Arrangement Act gives the court a broad discretionary power to make any order that it considers appropriate in the circumstances. For experts to put themselves at financial risk in order to restructure a company, only to discover later that other creditors must be paid first, would not be fair.
Four judges disagreed, saying that the money owed to the Crown takes priority over all other debt or expenses, including the money owed to the restructuring experts.
Cases in Brief are prepared by communications staff of the Supreme Court of Canada to help the public better understand Court decisions. They do not form part of the Court’s reasons for judgment and are not for use in legal proceedings.
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