Ontario Superior Court decision favours contractors for bankruptcy creditor priority, says COCA

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The Council of Ontario Construction Associations (COCA) says a recent court case favours contractors in a decision relating to the interaction of the Federal Bankruptcy and Insolvency Act and provincial statutes such as the Ontario Construction Act.

COCA explained the case between the Royal Bank of Canada v. A-1 Asphalt Maintenance Ltd. and a recent decision by the Ontario Court of Appeal with implications for the industry, describing the story as follows:

A1 Asphalt went bankrupt. The City of Hamilton and the Region of Halton paid the trustee in bankruptcy $675,372.27 in respect of work done by A-1 Asphalt and its subcontractors before the bankruptcy.

The issue in the case was how the money was to be distributed. Three groups of creditors had a claim on the money. First, there was RBC, who was a secured creditor of A-1 Asphalt. Next, there was the Guarantee Company of North America, the bonding company that had paid out money to various subcontractors and suppliers and then taken over their claims against A1 Asphalt. Lastly, there were two unions representing claims by the employees of A1 Asphalt.

At first instance, Madam Justice Conway awarded all of the money to the RBC. Her decision was in keeping with the outcome in a previous case called Atlas Block.

The Guarantee Company of North America appealed Justice Conway’s decision to the Ontario Court of Appeal.

The Ontario Court of Appeal granted the appeal. “At the risk of oversimplifying, the Court of Appeal ruled that the statutory trust in the Construction Act also created a common law trust over the funds received by the trustee in bankruptcy,” COCA reported. “The effect of the ruling was to overturn the Atlas Block decision and give to the subcontractors, suppliers, and employees priority over the trust funds.”

RBC had until mid-March to appeal the decision to the Supreme Court of Canada. It is uncertain if the bank has taken that step (or the Supreme Court will consider the appeal), but COCA said in its early March newsletter that the bank would likely try to appeal the decision.

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