Statutory Trust Binding on Trustee in Bankruptcy

The decision of the Court of Appeal in GMAC Commercial Credit Corp. - Canada v. TCT Logistics Inc. (2005), 74 O.R. (3d) 382, is often taken to mean that trusts created by Provincial statute or regulation are not binding on a trustee in bankruptcy. 

 

That view, as was made clear today in Norame Inc. (Re), 2008 ONCA 319, is an oversimplification.

 

Just because a Provincial statute or regulation prescribes that a trust is deemed to exist does not, in itself, create a trust binding on a trustee in bankruptcy under the Federal Bankruptcy and Insolvency Act.  But if a trust otherwise exists (that is, it has the three certainties of intention, object and subject) it remains binding on the trustee – the short analysis is that the Provincial statute or regulation does not detract from the existence of a trust but it not sufficient to create one that does not otherwise exist.

 

The Court holds:

 

In GMAC, Feldman J.A. concluded that any statutory deemed trust created by the provincial Regulation would not be a trust within the meaning of s. 67(1)(a) of the federal BIA, and thereby excluded from distribution to creditors, unless it otherwise conformed with the three common law trust principles of the certainties of intention, object, and subject matter.  However, Feldman J.A. also determined at para. 29 that a creditor’s security interest “is subject to the trust mandated by s. 15, so long as the debtor carries out the trust obligation.”  In other words, a creditor’s security interest does not take priority over carriers’ fees provided that the monies received for those fees have been segregated in a trust account.