Kerr Interior Systems Ltd., Re, (2009) 457 A.R. 274 (CA)

• Judge: Berger, O'Brien and Watson, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: April 01, 2009
• Citations: (2009), 457 A.R. 274 (CA);2009 ABCA 240

Kerr Interior Systems Ltd., Re (2009), 457 A.R. 274 (CA);

      457 W.A.C. 274

MLB headnote and full text

Temp. Cite: [2009] A.R. TBEd. JN.116

Kerr Interior Systems Ltd. and Composite Building Systems Inc. (respondents/debtors) v. Kenroc Building Materials Co. Ltd. (appellant/creditor)

(0803-0135-AC)

Kerr Interior Systems Ltd. and Composite Building Systems Inc. (respondents/debtors) v. Superior Plus LP, and Winroc, a Division of Superior Plus LP (appellant/creditor)

(0803-0136-AC; 2009 ABCA 240)

Indexed As: Kerr Interior Systems Ltd., Re

Alberta Court of Appeal

Berger, O'Brien and Watson, JJ.A.

June 25, 2009.

Summary:

Composite Building Systems Inc. manufactured materials for Kerr Interior Systems Ltd. Kerr and Composite (the debtors) found themselves in financial difficulties. With the support of their banker and other major secured creditors they attempted to compromise their debt obligations, satisfy their outstanding contracts and remain in business. The debtors obtained an order declaring that they were entities to which the Companies' Creditors Arrangement Act (CCAA) applied and an order granting a stay of proceedings against them. The debtors prepared a plan for review and approval by the creditors and the court. Should the plan be approved the debtors would settle approximately $5 million in debt for $2.6 million. The debtors applied for court sanction of the plan. Two creditors (Kenroc Building Materials Co. Ltd. and Winroc, a Division of Superior Plus LP) were opposed. Notwithstanding the stay order, Kenroc filed a lien with Land Titles Registry in Saskatchewan against a building owned by a third party (101051991 Saskatchewan Ltd.) who had hired the debtors. Winroc brought an action against Composite in relation to the same third party. The third party encountered difficulties due to the existence of these two liens with the result that it paid the sum of $150,000 into the Saskatchewan Court of Queen's Bench. The plan created a single creditor class, defined as "unsecured creditors" which included Kenroc and Winroc. The debtors applied for an order amending the plan to increase the amount to be paid to the unsecured creditors from $2.4 to $2.6 million and for an order sanctioning the plan. Each of Kenroc and Winroc opposed approval of the plan in its current form. Winroc applied for an order directing that the plan be amended to: a) classify Kenroc and Winroc as the sole secured creditors, and b) order Kenroc and Winroc paid in full from the monies held by the Court of Queen's Bench of Saskatchewan.

The Alberta Court of Queen's Bench, in a decision reported at 449 A.R. 185, dismissed the application. Kenroc and Winroc appealed.

The Alberta Court of Appeal, Watson, J.A., dissenting in part, allowed the appeals.

Creditors and Debtors - Topic 8587

Debtors' relief legislation - Companies' creditors arrangement legislation - Classification of creditors - Composite Building Systems Inc. manufactured materials for Kerr Interior Systems Ltd. (collectively, the debtors) - The debtors found themselves in financial difficulties - They obtained an order declaring that they were entities to which the Companies' Creditors Arrangement Act (CCAA) applied and an order granting a stay of proceedings against them - The debtors prepared a plan for review and approval by the creditors and the court - Should the plan be approved the debtors would settle approximately $5 million in debt for $2.6 million - The debtors applied for court sanction of the plan - Two creditors (Kenroc and Winroc) were opposed - Notwithstanding the stay order, Kenroc filed a lien with Land Titles Registry in Saskatchewan against a building owned by a third party who had hired the debtors - Winroc brought an action against Composite in relation to the same third party - The third party encountered difficulties due to the existence of these two liens with the result that it paid the sum of $150,000 into the Saskatchewan Court of Queen's Bench - The plan created a single creditor class, defined as "unsecured creditors" which included Kenroc and Winroc - Winroc applied for an order directing that the plan be amended to classify Kenroc and Winroc as the sole secured creditors because they were beneficiaries of a trust created for them under s. 7(1) of the Builders' Lien Act (BLA) (Sask.) as required by s. 2 of the CCAA - The chambers judge dismissed the application - The Alberta Court of Appeal allowed Kenroc's appeal - Kenroc's equitable interest in the monies owed to it by the debtors constituted a trust in respect of the debtors' property, being the latter's equitable interest in the monies owed to it by the third party, such as to constitute Kenroc a secured creditor within the meaning of s. 2 of the CCAA - The trust attached to the contractor's receivable, which was property of the contractor, and thereby fell within the CCAA definition of secured creditor - See paragraphs 1 to 22.

Creditors and Debtors - Topic 8587

Debtors' relief legislation - Companies' creditors arrangement legislation - Classification of creditors - Composite Building Systems Inc. manufactured materials for Kerr Interior Systems Ltd. (collectively, the debtors) - The debtors found themselves in financial difficulties - They obtained an order declaring that they were entities to which the Companies' Creditors Arrangement Act (CCAA) applied and an order granting a stay of proceedings against them on November 7, 2007 - The debtors prepared a plan for review and approval by the creditors and the court - Should the plan be approved the debtors would settle approximately $5 million in debt for $2.6 million - The debtors applied for court sanction of the plan - Two creditors (Kenroc and Winroc) were opposed - Notwithstanding the stay order, Kenroc filed a lien with Land Titles Registry in Saskatchewan against a building owned by a third party who had hired the debtors - Winroc brought an action against Composite in relation to the same third party - The third party encountered difficulties due to the existence of these two liens with the result that it paid the sum of $150,000 into the Saskatchewan Court of Queen's Bench - The plan created a single creditor class, defined as "unsecured creditors" which included Kenroc and Winroc - Winroc applied for an order directing that the plan be amended to classify Kenroc and Winroc as the sole secured creditors because they were beneficiaries of a trust created for them under s. 7(1) of the Builders' Lien Act (BLA) (Sask.) as required by s. 2 of the CCAA - The chambers judge dismissed the application - The Alberta Court of Appeal allowed Winroc's appeal - In Winroc's case, a trust framed by the amount of $46,425.26 was sufficiently ascertainable as of November 7, 2007, so as to make it effective for the purposes of s. 2 of the CCAA as of that date - Moreover, that trust carried forward its legal effect by the establishment of the lien fund in court out of the debtors' receivables which had been impressed with the trust as of that date - See paragraphs 54 to 56.

Cases Noticed:

Andersen (Arthur) Inc. v. Merit Energy Ltd., [2005] 4 W.W.R. 603; 254 Sask.R. 161; 336 W.A.C. 161; 2004 SKCA 124, refd to. [paras. 14, 47].

Deloitte & Touche Inc. v. Merit Energy Ltd. - see Andersen (Arthur) Inc. v. Merit Energy Ltd.

British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; 97 N.R. 61, refd to. [paras. 18, 34].

Metcalfe & Mansfield Alternative Investments II Corp. et al., Re (2008), 240 O.A.C. 245; 92 O.R.(3d) 513; 2008 ONCA 587, refd to. [para. 34].

ATB Financial v. Metcalfe & Mansfield Alternative Investment II Corp. - see Metcalfe & Mansfield Alternative Investments II Corp. et al., Re.

British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; 97 N.R. 61, refd to. [para. 34].

Jacs Jackets and Crest Ltd., Re; Workers' Compensation Board (Alta.) v. Deloitte Haskins and Sells Ltd., [1985] 1 S.C.R. 785; 60 N.R. 81; 63 A.R. 321, refd to. [para. 34].

Deloitte Haskins and Sells Ltd. v. Workers' Compensation Board (Alta.) - see Jacs Jackets and Crest Ltd., Re; Workers' Compensation Board (Alta.) v. Deloitte Haskins and Sells Ltd.

Canadian Airlines Corp., Re (2000), 265 A.R. 201; 2000 ABQB 442, refd to. [para. 41].

Canadian Airlines Corp., Re (2000), 261 A.R. 120; 225 W.A.C. 120; 2000 ABCA 149, refd to. [para. 41].

Resurgence Asset Management LLC v. Canadian Airlines Corp. - see Canadian Airlines Corp., Re.

Sovereign Life Assurance Co. v. Dodd, [1892] 2 Q.B. 573 (C.A.), refd to. [para. 41].

Stelco Inc. et al., Re (2005), 204 O.A.C. 205; 15 C.B.R.(5th) 307 (C.A.), refd to. [para. 41].

Aegon Capital Management Inc. et al. v. BCE Inc. et al., [2008] 3 S.C.R. 560; 383 N.R. 119; 2008 SCC 69, refd to. [para. 42].

BCE Inc. et al. v. 6796508 Canada Inc. et al. - see Aegon Capital Management Inc. et al. v. BCE Inc. et al.

New Skeena Forest Products Inc. et al. v. Kitwanga Lumber Co. (2005), 210 B.C.A.C. 247; 348 W.A.C. 247; 39 B.C.L.R.(4th) 338; 2005 BCCA 192, refd to. [para. 42].

Smoky River Coal Ltd. et al., Re (1999), 237 A.R. 326; 197 W.A.C. 326; 1999 ABCA 179, refd to. [para. 42].

Luscar Ltd. v. Smoky River Coal Ltd. - see Smoky River Coal Ltd. et al., Re.

Keddy Motor Inns Ltd., Re (1992), 110 N.S.R.(2d) 246; 299 A.P.R. 246; 90 D.L.R.(4th) 175 (C.A.), refd to. [para. 42].

Remington Development Corp. v. Alternative Fuel Systems Inc. (2004), 346 A.R. 28; 320 W.A.C. 28; 2004 ABCA 31, refd to. [para. 46].

Scaffold Connection Corp. et al., Re, [2000] A.R. Uned. 50; [2000] 7 W.W.R. 516; 2000 ABQB 33, refd to. [para. 46].

D & K Horizontal Drilling (1998) Ltd. (Bankrupt) v. Alliance Pipeline Ltd. et al. (2002), 216 Sask.R. 199; 2002 SKQB 86, refd to. [para. 47].

Cutting Edge Foods Inc. (Bankrupt), Re (2008), 456 A.R. 40; 2008 ABQB 340, refd to. [para. 47].

Climenhaga v. Canada - see Cutting Edge Foods Inc. (Bankrupt), Re.

Stone Sapphire Ltd. v. Transglobal Communications Group Inc. et al., [2009] A.R. Uned. 29; 2009 ABCA 125, affing. (2008), 451 A.R. 128; 96 Alta. L.R.(4th) 187; 2008 ABQB 575, refd to. [para. 47].

373409 Alberta Ltd. et al. v. Bank of Montreal et al., [2002] 4 S.C.R. 312; 296 N.R. 244; 317 A.R. 349; 284 W.A.C. 349; 2002 SCC 81, refd to. [para. 50].

Boma Manufacturing Ltd. et al. v. Canadian Imperial Bank of Commerce, [1996] 3 S.C.R. 727; 203 N.R. 321; 82 B.C.A.C. 161; 133 W.A.C. 161, refd to. [para. 50].

R. v. Ulybel Enterprises Ltd., [2001] 2 S.C.R. 867; 275 N.R. 201; 206 Nfld. & P.E.I.R. 304; 618 A.P.R. 304; 2001 SCC 56, refd to. [para. 62].

Canada 3000 Inc. (Bankrupt), Re, [2006] 1 S.C.R. 865; 349 N.R. 1; 212 O.A.C. 338; 2006 SCC 24, refd to. [para. 62].

Inter-Canadian (1991) Inc. (Trustee of), Re - see Canada 3000 Inc. (Bankrupt), Re.

Pointe-Claire (Ville) v. Syndicat des employées et employés professionnels - les et de bureau, section locale 57 (S.E.P.B. - U.I.E.P.B. - C.T.C. - F.T.Q.), [1997] 1 S.C.R. 1015; 211 N.R. 1, refd to. [para. 62].

Pointe-Claire (City) v. Quebec (Labour Court) - see Pointe-Claire (Ville) v. Syndicat des employées et employés professionnels - les et de bureau, section locale 57 (S.E.P.B. - U.I.E.P.B. - C.T.C. - F.T.Q.).

Food and Drug Administration et al. v. Brown & Williamson Tobacco Corp. et al. (2000), 529 U.S. 120, refd to. [para. 62].

Ontario (Attorney General) v. Chatterjee (2009), 387 N.R. 206; 249 O.A.C. 355; 2009 SCC 19, refd to. [para. 62].

Ambrozic v. Burcevski et al. (2008), 433 A.R. 25; 429 W.A.C. 25; 2008 ABCA 194, leave to appeal dismissed (2008), 392 N.R. 382 (S.C.C.), refd to. [para. 70].

Khosa v. Canada (Minister of Citizenship and Immigration) (2009), 385 N.R. 206; 2009 SCC 12, refd to. [para. 82].

UTI Energy Corp. v. Fracmaster Ltd. (1999), 244 A.R. 93; 209 W.A.C. 93; 1999 ABCA 178, refd to. [para. 82].

Royal Bank of Canada v. Fracmaster Ltd. - see UTI Energy Corp. v. Fracmaster Ltd.

Orban Industries Ltd. v. Gauntlet Energy Corp., [2004] A.R. Uned. 3; 32 C.L.R.(3d) 68; 2004 ABCA 20, refd to. [para. 82].

Gauntlet Energy Corp., Re - see Orban Industries Ltd. v. Gauntlet Energy Corp.

Statutes Noticed:

Builders' Lien Act, S.S. 1984-85-86, c. B-7.1, sect. 7(1) [para. 8].

Authors and Works Noticed:

Waters, Donovan W.M., The Law of Trusts in Canada (3rd Ed. 2005), p. 149 [para. 56].

Counsel:

J.S. Ehmann, Q.C., for the appellant, Kenroc Building Materials Co. Ltd.;

J.G. Hanley, for the appellant, Superior Plus LP;

D.R. Bieganek, for the respondents, Kerr Interior Systems Ltd. and Composite Building Systems Inc.;

J.H. Hockin, for the Monitor of the respondent/not a party to the appeal.

These appeals were heard on April 1, 2009, by Berger, O'Brien and Watson, JJ.A., of the Alberta Court of Appeal. The judgment of the Court of Appeal was filed on June 25, 2009, at Edmonton, Alberta, and included the following opinions:

O'Brien, J.A. (Berger, J.A., concurring) - see paragraphs 1 to 22;

Watson, J.A., dissenting in part - see paragraphs 23 to 87.