Insolvency Strategies on
Construction Claims
Duncan Glaholt
Principal
Glaholt & Associates
Howard Wise
Partner
Goodmans
Federal
BIA
Liquidation
Remedy
Trust Issues
S. 68 CLA
Super-Priority
Federal
CCAA
Livent Case Study
Provincial
CLA
Part IX Construction Lien Act
Extraordinary Remedies
 Section
68
 Appointment
of Trustee
 Section
69
 Labour &
Material
Payment Bonds
Section 68
 68(1) Application
for Appointment of
Trustee
 68(2) Powers of Trustee
 68(3) Liens a Charge on Amounts
Recovered
 68(4) Sale Subject to Encumbrances
 68(5) Orders for Completion of Sale
Typical s. 68 Situation
 Cash
flow problems
 Owner abandons
 Work stops
 Premises exposed to elements, vandalism
Remedy:
Appointment
of Receiver
s. 68(1)
•
Any person having a lien, or any
other person having an interest in the
premises may apply to the court for the
appointment of a trustee and the court
may appoint a trustee upon such terms
as to the giving of security or
otherwise as the court considers
appropriate.
s. 68(1)
•
Any person having a lien, or any
other person having an interest in
the premises may apply to the court
for the appointment of a trustee and the
court may appoint a trustee upon such
terms as to the giving of security or
otherwise as the court considers
appropriate.
s. 68(1)
•
Any person having a lien, or any
other person having an interest in
the premises may apply to the court
for the appointment of a trustee and the
court may appoint a trustee upon such
terms as to the giving of security or
otherwise as the court considers
appropriate.
s. 68(1)
•
Any person having a lien, or any
other person having an interest in
the premises may apply to the court
for the appointment of a trustee and
the court may appoint a trustee upon
such terms as to the giving of security
or otherwise as the court considers
appropriate.
s. 68(1)
•
Any person having a lien, or any
other person having an interest in
the premises may apply to the court
for the appointment of a trustee and
the court may appoint a trustee upon
such terms as to the giving of security
or otherwise as the court considers
appropriate.
s. 68(1)
•
Any person having a lien, or any
other person having an interest in
the premises may apply to the court
for the appointment of a trustee and
the court may appoint a trustee upon
such terms as to the giving of security
or otherwise as the court considers
appropriate.
s. 68(2)
•
•
•
•
•
Subject to the supervision and direction of the
court, a trustee appointed under subsection (1)
may,
(a) act as a receiver and manager and, subject to
the Planning Act and the approval of the court,
mortgage, sell or lease the premises or any part
thereof;
(b) complete or partially complete the
improvement;
(c) take appropriate steps for the preservation of
the premises; and
(d) subject to the approval of the court, take such
other steps as are appropriate in the
circumstances.
s. 68(3)

Subject to subsection 78 (7), all liens shall
be a charge upon any amount recovered by
the trustee after payment of the reasonable
business expenses and management costs
incurred by the trustee in the exercise of any
power under subsection (2).
s. 68(3)

Subject to subsection 78 (7), all liens shall
be a charge upon any amount recovered by
the trustee after payment of the reasonable
business expenses and management costs
incurred by the trustee in the exercise of any
power under subsection (2).
s. 68(4)

Any interest in the premises that is to be
sold may be offered for sale subject to
any mortgage, charge, interest or other
encumbrance that the court directs.
s. 68(5)

The court may make all orders necessary for
the completion of any mortgage, lease or
sale by a trustee under this section.
Procedure:
1. Marshall Support
 Strategize
 Evaluate
Procedure:
2. Get Trustee in Place
 Consent of Trustee to Act
Procedure:
3. Application to Court
 Notice of Application
 Affidavit
Consent of Trustee to Act
(Court and Title of Proceeding)
CONSENT
The ABC Trust Company hereby consents to an Order appointing it Trustee
with power to act as receiver and manager of the premises upon which the
lien or liens in this action are filed, such management to be under the
supervision and direction of this Honourable Court with power when so
directed by this Honourable Court to mortgage, lease or sell the said
premises and/or; to complete or partially complete the said premises; to take
appropriate steps for the preservation of the premises; to take such other
steps as are appropriate in the circumstances; and in the event that mortgage
moneys are advanced to it as Trustee pursuant to such power, such money to
take priority over all liens existing at the date of its appointment as Trustee.
In the alternative, The ABC Trust Company consents to its appointment as
Trustee as aforesaid if the application for the appointment of the Trustee is
referred by the presiding Judge in Chambers to the Judge or Officer having
jurisdiction to try the action.
Consent of Trustee to Act
(Court and Title of Proceeding)
CONSENT (conclusion)
This Consent is given by the ABC Trust Company at the request of
Glaholt & Associates, Solicitors for the Plaintiff herein, and on condition
that the appointment of the company as Trustee, if made, will be
pursuant to the provisions contained in the Construction Lien Act, R.S.O.
1990, Chapter C.30, and in particular sections 68 and 78(7) thereof.
DATED at Toronto, this 2nd day of October, 2001.
The ABC Trust Company
(Seal)
Application for Appointment of Trustee
IN THE ONTARIO COURT (GENERAL DIVISION)
IN THE MATTER OF
The Construction Lien Act,
R.S.O. 1990, c. C 30
(Title of Proceeding)
APPLICATION
The Plaintiff will make an application to the presiding judge in
chambers of this Honourable Court, on Tuesday, the 2nd Day of
October, 2001, at 10:00 o’clock in the forenoon or so soon after
the time as the application can be heard at Osgoode Hall, 130
Queen Street West, Toronto.
THE APPLICATION is for an Order pursuant to the provisions of
section 68 of the Construction Lien Act, and amendments thereto,
appointing the ABC Trust Company as a Trustee who may act as
receiver and manager and with power to manage, mortgage,
lease and sell the premises upon which the liens in this action are
filed, such management and sale to be under the supervision and
direction of this honourable Court and with power to: complete or
partially complete the premises; take appropriate steps for the
preservation of the premises; take such other steps as may be
appropriate in the circumstances; and in the event that mortgage
moneys are advanced to the said Trustee to be appointed as the
result of such power, such moneys to take priority over all liens
THE GROUNDS FOR THE APPLICATION ARE that
several construction liens have been registered against
the lands and premises which are the subject of this
action which make it impossible for mortgage funds to
be advanced to finance the completion of the
improvement thereon. The contractor has abandoned
the project and it is in the best interests of the lien
claimants to have a Trustee appointed pursuant to the
provisions of section 68 of the Construction Lien Act,
R.S.O. 1990, c. C.30, in order that the improvement can
be completed and sold.
THE FOLLOWING DOCUMENTARY EVIDENCE will be used at
the hearing of the application:
1.The affidavit of John Doe.
2.The pleadings and proceedings herein to date.
3.The Consent of The ABC Trust Company.
4.Such further and other material as Counsel may advise and the
Court permit.
Date: October 2, 2001
GLAHOLT & ASSOCIATES,
141 Adelaide Street West, Suite 800,
Toronto, Ontario,
Solicitors for the Plaintiff
TO: etc.
Case Study:
Atlas-Gest Inc. v. Brownstones Building Corp.
(1992), 2 C.L.R. (2d) 275 (Ont. Gen. Div.)
Facts
 Condominium development
 Several
units already sold
 $200,000 required to bring to a state of
completion that allows for sale of units
 Dispute between owner and general
contractor
 Contractor leaves site
More Facts





Stalemate between owner and general
$2.7 million in lien claims
Mortgagee remains unpaid
Condominium is not registered due to ongoing
dispute between owner and mortgagee
Purchasers who already have occupancy cannot
secure title to their holdings until registration is
completed
Even More Facts
 Impasse
between owner and mortgagee
stems from obdurate position being taken
by owner
 Impasse leaves purchasers helpless to
secure final closing
 Real estate market is uncertain
 Debts for hydro and other services accrue
Too Many Facts
 Interest
charges continue to accrue
 Funds available to lien claimants will erode
if impasse continues
 Security interest of mortgagee jeopardized
General Principles
(Stach J.)
 The
appointment of a trustee is an
extraordinary remedy, and must therefore
be a remedy that is granted rarely; but
 An
order appointing a trustee will be made
if it is just and convenient in all of the
circumstances to do so
Appropriate Considerations
 Is
there a vacuum in the management of the
premises?
 Has the owner abandoned the premises?
 Is the owner insolvent?
 Is the owner acting irresponsibly?
 Is there danger of deterioration of the
property?
Appropriate Considerations
 Is
there an income flow to be taken in hand
for the benefit of the lien claimants to avoid
a sale of the property?
 Is the security of the lien claimants at risk?
Application to Facts
“In the case before me, the luxury condominium
building is "up", but unfinished and not in a state
that permits the sale of several additional units to
go ahead. Nor, in this artificial stalemate, can
those units which are already "sold" proceed to
final closings. If existing unit sales were allowed
to complete and prospective sales permitted to go
ahead, two separate streams of substantial income
flow could be tapped.”
Application to Facts
“I am satisfied that the impasse is even now
operating to the financial detriment of lien
claimants and to the financial detriment of
unit purchasers who are otherwise innocent.
The impasse, if allowed to continue, will
result in a proportionately greater erosion of
their respective positions. Accordingly, I am
satisfied that the impasse has resulted in the
neglect of essential management functions.”
Application to Facts
“Although it cannot be said, particularly
with the mortgagee having gone into
possession of the unfinished premises, that
there is any physical deterioration of the
asset here in question; yet it is plain that the
value of the assets is deteriorating in an
economic sense.”
Application to Facts
“Accordingly, I make an order appointing
Coopers & Lybrand Limited as trustee of
the lands in question and as receiver and
manager of The Breakers East Inc. .”
Ontario Court of Justice
(General Division)
Stach J.
ORDER
1. THIS COURT ORDERS THAT
Coopers & Lybrand Limited be and
it is hereby appointed receiver and
manager… with authority to
manage and operate the business
4. THIS COURT ORDERS THAT
The Breakers Inc… do forthwith
deliver to Coopers all of the assets,
property of The Breakers Inc… and
all books, documents, contracts,
papers and records of every kind
5. THIS COURT ORDERS THAT
Coopers be and it is hereby
empowered to complete any
construction or repairs that it feels
are necessary, in order to permit
sales of units to close or to be
entered into
6. THIS COURT ORDERS THAT
Coopers be and it is hereby
authorized to take appropriate
steps for the preservation of the
subject lands and premises
7. THIS COURT ORDERS THAT
Coopers be and it is hereby fully
authorized and empowered to
institute and prosecute all actions,
applications or procedures as may
in its judgment be necessary
9. THIS COURT ORDERS THAT
Coopers shall be at liberty to carry on
the business of The Breakers East Inc.,
including: the power to sell, lease or
mortgage assets, to manage, rent or
lease and collect rents, to purchase or
lease machinery and equipment, to
settle any indebtedness or claim, to
enter into any agreements
12. THIS COURT ORDERS THAT
Coopers may from time to time
move this court for advice and
direction
15. THIS COURT ORDERS THAT
Coopers make a first report to this
court as to its administration within
60 days of the date of this order
Liquidation
Remedy
Federal
BIA
S. 68 CLA
Super-Priority
Trust Issues
Trust Sections
Federal
CCAA
Livent Case Study
Provincial
CLA
Trust Scheme
 Q:
Do construction draws flow through a
construction bankruptcy?
 Q: What happens to trust money in a
bankruptcy?
 Q: Does bankruptcy discharge get me out
of trust liability?
Do construction draws flow through a
construction bankruptcy?

No.
• Monies held by a party in trust do not form
part of that party’s estate in the event of a
bankruptcy or other insolvency.
 British Columbia v. Henfrey Samson Belair
(S.C.C., 1989):
 Trustee to apply to Court to resolve which
assets are subject to the trust
What happens to trust money in
a bankruptcy?

Three methods of distributing trust funds used by
trustees in bankruptcy:
 Reference to Registrar or officer of Court
 Trustee ascertains creditors entitled to trust funds,
notifies all creditors of motion to be made for
approval of distribution scheme
 Trustee obtains indemnity agreements from
creditors entitled to trust funds and distribute
funds without court order
Does bankruptcy discharge get
me out of trust liability?
 A: A finding
of liability under the trust
provisions of the CLA will not
automatically fall within s. 178(1)(d) BIA.
Depends on element of wrongdoing.
 Toro Aluminum Ltd. v. Revah
 Re Zumbo
 Simone v. Daley