Non-governmental statutory trusts in bankruptcy proceedings in Canada

Introduction

Statutory trusts in the context of bankruptcy proceedings have received various treatment by provincial appellate courts in recent years. In broad terms, the issue created by statutory trusts is relatively simple; can a statutory trust arising pursuant to provincial lien legislation survive bankruptcy? If the funds subject to a statutory trust constitute “property held by the bankrupt in trust for any other person”, the funds are to be remitted to the lien claimants, as beneficiaries. If they do not, the funds become part of the bankrupt estate and are to be distributed according to the scheme of distribution provided by bankruptcy legislation. The jurisprudence in this area of law is presently in a state of flux and this creates uncertainty for both secured creditors and lien claimants.

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