Prior to 1992, Crown claims and of workers’ compensation bodies (hereafter referred to simply as "Crown claims") were afforded the status of a preferred claim in bankruptcy and any provincial devices, such as a statutory charge or deemed trust, were rendered inoperative. In 1992 this regime underwent a fundamental change. Crown claims are now afforded an unsecured creditor ranking in bankruptcy unless the matter falls within either of two exceptions.106The first is where the claim is secured by a security conferred by a law of general application. The Crown is therefore able to obtain a consensual security interest in the same manner as any other creditor. The second exception is where the Crown registers the security in the manner provided for in the BIA.107If either of these exceptions is satisfied, the Crown’s claim will enjoy the
status of a secured creditor and the bankruptcy provisions that apply to secured creditors will come into play.108These provisions do not apply to deemed trusts in favour of the Crown. A different bankruptcy provision invalidates most deemed trusts in favour of the Crown unless they satisfy the legal requirements of an ordinary express trust.109
The provisions respecting Crown claims do not apply to the federal statutory garnishment remedy that secures certain types of unremitted deductions or withholdings or to any provincial counterpart.110The federal legislation provides an attachment remedy by which a debt owed by a third party to the debtor can be intercepted. It also provides that the remedy has priority over competing secured creditors who have a security interest in this account.111This claim will therefore continue to enjoy priority over secured creditors despite a bankruptcy of the debtor.
In order to comply with the registration requirements, the security must be registered before the date that an application for a bankruptcy order is filed in the case of an involuntary bankruptcy or the date of an assignment in the case of a voluntary bankruptcy.112Crown claims are registered in the appropriate real or personal property registry,113and several provinces have modified their registration rules to specifically accommodate these types of registrations.114
The bankruptcy provisions also provide a priority rule to resolve competitions between a Crown claim and the claim of a secured creditor.115The rule has two parts to it. First, the Crown’s security is subordinate to competing...