Case information

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Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

Bankruptcy and insolvency - Provincial (QST) and federal (GST) sales taxes in respect of accounts receivable of now bankrupt suppliers - Whether, in case of bankruptcy of supplier of goods and services, Crown entitled to retain GST received directly from customers of supplier that had, at time of bankruptcy, not yet paid GST on prices of goods and services acquired from it and, in addition, to require trustee in bankruptcy and receiver having collected supplier’s accounts receivable to remit GST, which identifiable, that they had collected in so doing - Whether Crown may collect directly from customers of bankrupt supplier sales taxes that supplier had neither collected nor remitted to Crown before going bankrupt and that its customers were still required to pay - Whether trustee in bankruptcy of bankrupt supplier and any secured creditor holding security charged on supplier’s accounts receivable are required to remit to Crown sales taxes collected from recipient.

The Respondent Bank held security on the property of two bankrupt debtors. It notified the trustee that it was withdrawing the trustee’s authorization to collect the debtors’ accounts receivable. The trustee received a few payments anyway, including amounts owed to the Applicant Deputy Minister of Revenue of Quebec as GST and QST. The Deputy Minister wrote to all the customers of the debtors to claim the taxes associated with their accounts payable. Faced with this situation, the trustee refused to give the amounts to the Bank and kept them in a trust account. The Bank appealed the trustee’s decisions to the Superior Court.

The Bank maintained, inter alia, that the claims on which it held security included the portion representing the GST and the QST. The Deputy Minister argued that the taxes, which were uncollected on the date of the bankruptcy, belonged to him, had never been part of the debtors’ patrimonies and had therefore never been part of the amounts used as security for the Bank or of the estates of the bankrupts. He contended that he was the sole owner of the taxes.

The Superior Court ruled in favour of the Deputy Minister. The Court of Appeal reversed the decision and held that the Bank was the first-ranking creditor for all the claims of the debtors. It ordered the trustee and the tax authorities to hand over to the Bank all amounts collected as accounts receivable or claims of the debtors.