Carillion, the Companies' Creditors Arrangement Act and Construction Lien Act Trusts: Confusion (again) regarding certainty of subject matter and commingling of funds

  • May 26, 2021
  • R. Bruce Reynolds, Kathryn E. Kirkpatrick, Nicholas Reynolds

The Companies' Creditors Arrangement Act ("CCAA") proceedings involving Carillion Canada and related entities (collectively, “Carillion Canada”) have been an ongoing area of interest for the construction industry since proceedings began in early 2018. Recently, Ernst & Young, (in its capacity as Monitor of Carillion Canada in the CCAA proceeding) (the "Monitor"), brought a motion seeking a declaration that certain funds received in relation to various construction projects were deemed statutory trust funds pursuant to the Construction Lien Act ("CLA") (and now the Construction Act).  

The decision from the Commercial List of the Ontario Superior Court may, to a degree, result in uncertainty surrounding how these trusts operate in the context of insolvency, bankruptcy, and creditor protection proceedings, as well as the extent to which contractors on projects to which the CLA applies can mix trust funds with non-trust funds in certain types of bank accounts without the trust funds potentially losing their status as property separate from that of the insolvent.


Carillion plc, the UK parent company of Carillion Canada, commenced insolvency proceedings in early 2018, which in turn precipitated Carillion Canada’s CCAA proceedings. Prior to that, Carillion Canada carried on business as a group of construction companies providing services on various projects throughout Ontario. In the course of providing services on Ontario construction projects (prior to the commencement of the CCAA proceeding), Carillion Canada received nearly $29 million in funds from project owners, which funds were impressed with a trust in favour of unpaid subcontractors and suppliers pursuant to section 8 of the CLA (the “CLA Trust Funds”).

Prior to the CCAA proceedings, HSBC’s UK entity (“HBSC UK”) provided banking services to Carillion Canada, including a cash sweep service whereby cash was “swept” daily from Carillion Canada’s local accounts and deposited into corresponding accounts in London, England (the "Cash Sweep"). More specifically, during the Cash Sweep: i) the net amount in the accounts of each member company of Carillion Canada were “swept” into an HSBC Canada account (the “Canadian Master Account”); ii) the net cash of the Canadian Master Account was “swept” into a corresponding account in the United Kingdom (the “UK Account”); and iii) the UK Account and certain bank accounts of other affiliated global Carillion entities (collectively, the "Pooled Accounts") were offset against each other and appropriate interest charged or earned on the net balance. The CLA Trust Funds were included in the Cash Sweep and accordingly were subject to the offset and interest calculations relating to the Pooled Accounts. The Cash Sweep process was terminated upon commencement of the Canadian CCAA proceedings.

The Monitor requested of HSBC UK that it return the CLA Trust Funds on the basis that they constituted trust funds in Ontario. However, HSBC UK advised that it was entitled to set-off the funds in the UK Account against the negative balances in other equivalent accounts that had participated in the pooling exercise, but it agreed not to exercise its right of set-off without first providing fourteen days’ notice. As of the date of the Commercial Court hearing, HSBC UK had not delivered such notice.

The Monitor brought this motion seeking a declaration that the Trust Funds were subject to a trust pursuant to section 8 of the CLA, and an Order requiring HSBC UK to transfer the funds to the Monitor for distribution to the trust beneficiaries.