Priming the Crown in NOI proceedings?

Attorney General of Canada v. Richter Advisory Group
Can the Crown’s deemed trust be subordinated in NOI proceedings?

Overview: The Québec Court of Appeal has confirmed that the ability to subordinate the Crown’s deemed trust extends to proposals under the BIA. It was previously clear that this right existed under section 11 of the CCAA, but until this case, the situation was unclear in proposals under the BIA.

The issue arose in the NOI proceedings of ChronoMétriq Inc. and Health Myself Innovations Inc., two related Montreal, Quebec-based companies in the healthcare sector. In October 2021, the Court made an order authorizing interim financing, an administrative charge, a SISP, a D&O charge, a KERP and certain other relief. These charges were ordered to prime existing charges, including up to an estimated $3.1 million of unremitted source deductions.

The Crown appealed, arguing that the Court did not have jurisdiction to subordinate its deemed trust under the NOI. According to the Crown, the Supreme Court's decision in Canada North relied on the broad discretionary power provided for under section 11 of the CCAA, and there is no equivalent under the BIA since section 183 of the BIA is not as broad.

The Quebec Court of Appeal dismissed the appeal. Writing for a unanimous Court, Justice Schrager found that the Superior Court had jurisdiction to grant an interim financing charge that ranked ahead of the deemed trust. Stating that the proposal provisions in the BIA serve the same remedial purpose as those in the CCAA (i.e., the financial rehabilitation of an insolvent corporate debtor), Justice Schrager found that the Superior Court necessarily has all the powers necessary or incidental to s. 50.6 of the BIA (which uses the same wording as s. 11.2 CCAA), which includes subordinating the deemed trust to an interim financing charge. Without this power, lenders would not offer interim financing, as 75% of restructurings include interim financing. Moreover, nothing in the BIA prohibits ranking a priming charge ahead of the deemed trust.

Alternately, Justice Schrager found that the Superior Court’s power to prime the deemed trust was grounded in its inherent jurisdiction. Justice Schrager found that because s. 50.6 BIA and s. 11.2 CCAA are identical, the absence of a s. 11 CCAA equivalent must be taken as a statutory gap in the BIA to be filled by the exercise of inherent jurisdiction.

Judges: Justice Schrager, Justice Moore and Justice Weitzman

Counsel: Hugo Babos-Marchand and Frédérique Drainville of McCarthy Tétrault for Richter in its capacity as Proposal Trustee

Harvey Chaiton of Chaitons and Joshua Bouzaglou of Woods for CIBC as Interim Lender

Christian Lachance and Benjamin Jarvis of Davies for the intervener Canadian Bankers’ Association

Alain Riendeau and Brandon Farber of Fasken for the intervener Insolvency Institute of Canada

Kim Sheppard, George Bódy and Arianne Gauthier for the Attorney General of Canada

Daniel Cantin for Agence du Revenu du Quebec

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