A recent decision of the Federal Court of Appeal,
Canada v. Callidus, created a surprising exception to the rule
that, in bankruptcy, most government claims are subordinated behind
the position of secured creditors.
Under the Excise Tax
Act, a debtor's assets are subject to a "deemed
trust" or super priority for the amount of any unpaid Goods
and Services Taxes and/or Harmonized Sales Taxes (GST/HST). This
super priority is defeated if the borrower becomes bankrupt, by
virtue of the Bankruptcy and Insolvency Act.
In Callidus, the financially-troubled debtor company
was operating under a forbearance agreement with its lender,
Callidus Capital. The debtor made payments to Callidus as required,
but did not keep up with its GST/HST remittances, and eventually
the Canada Revenue Agency filed a letter of claim against Callidus
in the amount of the arrears, some $177,299.70. The debtor assigned
itself into bankruptcy, and CRA then pressed its claim against
Callidus for
