The Bank Swept the Accounts First. The Source Deductions Still Came First.

The situation

The notice came from the bank, not from CRA. Oksana's construction company had missed two loan payments during a slow stretch between projects, and the bank's workout officer, Navdeep, sent formal notice that it intended to enforce its general security agreement over all of the company's assets and accounts, giving the standard ten-day period before it moved. Oksana called us the same week, less worried about the bank at first than about something she had been putting off for months.

Oksana had built her construction company over twelve years, working as an incorporated consultant on larger commercial jobs before growing into a full contracting operation with a payroll of framers, electricians, and project staff. Her wife, Jasleen, a surgeon, had no involvement in the business but their combined household finances meant the company's troubles were not an isolated problem. Like a lot of contracting companies riding out a slow season, Oksana's business had kept paying its crews on time while quietly falling behind on remitting the income tax, CPP, and EI it had withheld from those same paycheques, treating it as a short-term cash flow gap she intended to close once two outstanding invoices from clients finally came in.

By the time the bank moved, the company owed CRA a substantial unremitted source deduction balance built up over roughly a year and a half, sitting in the high six figures once penalties and interest were included. Oksana had not told the bank about it, and had not fully grasped what it meant that the money was owed. What she did understand, once we explained it, was the far more urgent problem underneath the deadline: if the bank swept every dollar in the company's accounts under its general security and left nothing behind, CRA had the ability to pursue Oksana personally, as a director, for the unremitted amount the company itself could no longer pay.

The ten-day clock the bank had started was not really about the bank at all. It was about whether anything would be left to answer for the debt that could otherwise land on Oksana directly.

Oksana had not called us about the source deductions on their own. If the bank had never sent its notice, she likely would have continued treating the CRA balance as a debt to work down quietly once cash flow improved, the way she had been managing it for a year and a half already. It was the bank's move, not any letter from CRA, that forced the two problems into the same room at the same time, and made clear that the order in which they were resolved mattered as much as whether they were resolved at all.

The risk we had to size

Before deciding how hard to push against the bank, we had to size two separate but connected risks, and get an honest read on both before Oksana made any decision.

The first was the company's own position. Source deductions, the income tax and CPP and EI a corporation withholds from employee pay, are treated differently from ordinary business debts. The moment they are withheld, the law deems them to be held in trust for the Crown, separate from the company's other assets, and that deemed trust generally has priority over most other claims against the company, including a bank's general security interest, regardless of what the security agreement itself says about ranking. If that deemed trust could be established and traced, it meant CRA's claim was not just another unsecured creditor in line behind the bank. It could come ahead of the bank's own collateral.

The second, and the one that actually worried Oksana, was personal. Directors of a corporation can be held personally liable for the corporation's unremitted source deductions if the corporation cannot pay them, though that liability generally depends on the corporation's own ability to satisfy the debt first, meaning the outcome for the company and the outcome for Oksana personally were tightly linked. If the bank's sweep left the company with nothing, the shortfall on the source deduction debt became Oksana's problem directly, in the range of six to seven figures depending on how much of the debt the company's remaining assets could cover.

The complicating factor was the bank's paperwork itself. Navdeep's initial position, laid out in a follow-up call, was that the bank's security had been properly registered well before any of the source deduction shortfall accumulated, and that its priority was accordingly settled. On a first read of the file, with incomplete payroll records and gaps in the company's remittance history, it was genuinely unclear whether we could show precisely when the withholding obligations arose relative to the bank's security, and without that timeline the deemed trust argument risked looking asserted rather than proven.

There was a third consideration underneath both of those, which was how the money itself had moved. Between the point the shortfall began and the bank's enforcement notice, the company's accounts had kept operating normally, funds coming in from clients and going out to suppliers, subcontractors, and payroll, the ordinary churn of a working business. On the surface, that made the file look worse than it likely was, since a stranger reading the bank statements alone might reasonably wonder whether the withheld amounts had simply been spent on other things rather than held anywhere resembling a trust. Sorting out which was actually true, before deciding how confidently to assert the claim, was as much a bookkeeping exercise as a legal one, and we were honest with Oksana that we did not yet know the answer.

What we did

1. Reconstructed the full payroll and remittance history month by month. The company's bookkeeping had fallen behind along with the remittances themselves, so before making any claim to the bank or CRA, we rebuilt a complete record of every pay period, what was withheld, and what portion was actually remitted, since the deemed trust claim depended entirely on being able to show these figures precisely.
2. Established the timeline of when each withholding obligation arose. The deemed trust attaches at the point money is withheld from an employee's pay, not when it becomes overdue, so we needed to show that the underlying withholding obligations existed well before the bank's security interest became a live issue, not simply that the debt was old.
3. Confirmed the deemed trust had not been displaced by how the company's accounts had been used. Because the company had continued operating and moving money through its accounts after the shortfall began, we had to trace that the withheld amounts, or their equivalent value, could still reasonably be identified within the company's remaining assets rather than having been fully spent down in a way that could weaken the claim.
4. Formally asserted the deemed trust claim to the bank before it completed enforcement. Once the timeline and figures were solid, we notified the bank directly that CRA's deemed trust claim on the source deductions took priority over its general security, and that any enforcement proceeding without accounting for that priority would be enforcing against assets it did not have first claim to.
5. Engaged directly with CRA to confirm and register the trust claim formally. Rather than relying only on our own assertion to the bank, we brought CRA into the file directly, ensuring the deemed trust claim was on record with the agency itself, which gave the position far more weight in the negotiation with Navdeep than an argument from Oksana's side alone would have carried.
6. Negotiated the order in which sale proceeds from company assets would be distributed. Rather than litigating the priority question to a final result, which would have taken considerably longer and cost more than the dispute justified, we negotiated with the bank an agreed distribution that paid the source deduction debt ahead of the bank's recovery, consistent with the priority the law already gave it.
7. Confirmed in writing that the source deduction debt would be treated as satisfied once paid from the proceeds. This step was what actually protected Oksana personally, since director liability for unremitted deductions depends on the corporation's debt remaining unpaid, and a documented, confirmed payment closed that exposure cleanly rather than leaving it ambiguous.
8. Walked Oksana through what the wind-down of the company would mean separately from the priority dispute. The two issues were connected but not identical, and Oksana needed a clear, honest picture of what enforcement meant for the business itself, distinct from the narrower question of whether the company's debt to CRA would be paid before the bank recovered anything, so she could plan for both rather than only the one that felt most urgent.

The outcome

The bank agreed to the priority once the reconstructed timeline made the deemed trust claim difficult to dispute in good faith, and the proceeds from realizing the company's assets were distributed with the source deduction debt paid first, in an amount that fully covered what the company owed CRA. What was left after that went to the bank against its loan balance, which was less than the bank had originally expected to recover, but consistent with the priority the law actually gives to source deductions over general security.

Navdeep's team did not concede the point immediately. The bank's first response to our formal assertion pushed back on whether the reconstructed payroll records were reliable enough to establish the timeline we were relying on, and it took two further rounds of correspondence, including a detailed walkthrough of the underlying pay records, before the bank's own counsel agreed the claim was solid enough not to litigate. That back-and-forth added a few weeks to the process but avoided a court proceeding that would have taken considerably longer and cost both sides more than the amount ultimately in dispute justified.

For Oksana, the practical result was that the personal director liability risk, which had been the real reason the ten-day deadline mattered in the first place, never materialized. Because the company's debt to CRA was satisfied in full from the company's own assets, there was no shortfall left for CRA to pursue against her personally, and no separate proceeding was ever opened against her, no letter, no demand, nothing carried forward into her own finances.

The construction company itself did not survive the process intact. Enforcement still meant winding down most of its operations, and Oksana was not able to keep the business running through the dispute. What the outcome protected was narrower and, for her, more important: her own financial exposure stopped at the company's door rather than following her home, which is not a guarantee that comes with every insolvency involving a director who has fallen behind on remittances, and it was the one outcome she cared about most once the ten-day notice landed.

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