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Ruling on The Guarantee Company of North America v. Royal Bank

FROM:
Mary Van Buren, MBA, CAE
President
Canadian Construction Association

Dear colleagues,

I would like to provide a brief summary of what is an important win for our industry regarding the case of the Guarantee Company of North America v. Royal Bank that was ruled on January 14 by the Ontario Court of Appeal.

The case centred around whether two pieces of legislation – the Lien Act and the Bankruptcy and Insolvency Act – are in conflict when a trust created by the Province of Ontario for a construction company goes bankrupt.

A-1 Asphalt’s bankruptcy with four outstanding paving projects in 2014 was the test case. The Guarantee Company of North America took the position that funds for payment to outstanding general contractors and subcontractors needed to be held aside from the main estate and the Royal Bank contended that all assets were available for distribution to priority creditors i.e. the bank itself.

The ruling in this case upholds that trust funds for a construction project remain in the construction pyramid until all payment to trust beneficiaries has been satisfied even in the case of a bankruptcy and that provincial lien legislation continues to provide security for right to payment.

We believe that the Royal Bank will now seek leave to appeal the case at the Supreme Court of Canada. We will of course keep all membership appraised if the case is selected for consideration.
Read ruling

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