Jul 10, 2018
The Applicant, a lender, entered into agreements with a debtor.  Funds received by the debtor from all sources were held in trust for the applicant, segregated, deposited into blocked bank accounts, transferred to the applicant, and applied to the debt.  The debtor collected GST and HST and included those amounts in the funds transferred to the applicant. The federal Crown claimed a deemed trust under the Excise Tax Act. The debtor made an assignment in bankruptcy. The Crown commenced a proceeding against the Applicant. The Applicant brought a motion on consent asking to have the following question answered: “Does the bankruptcy of a tax debtor and subsection 222(1.1) of the ETA render the deemed trust under section 222 of the ETA ineffective as against a secured creditor who received, prior to the bankruptcy, proceeds from the assets of the tax debtor that were deemed to be held in trust?” Federal Court: question answered in the affirmative. Fed. C.A.: appeal allowed; question answered in the negative. 'The application for leave to appeal...is granted with costs in the cause.'