12 May 2009 Internal T.I. 2009-0320991I7 - Directors' Liability

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Liability of directors where a corporation has been involuntarily dissolved for over two (2) years.

Position: The directors may be assessed provided the corporation is revived and the directors are reinstated as if they had never ceased to hold office.

Reasons: Subsection 227.1(4) provides that directors cannot be assessed more than two (2) years after they ceased to hold office. Based on the jurisprudence in two (2) jurisdictions, directors cease to hold office once a corporation is dissolved and revival of the corporation does not reinstate the directors unless it is so provided in the Revival Order.

		May 12, 2009

	Toronto East TSO	 	Headquarters
	Income Tax Rulings Directorate
	Business and Partnerships Division
	Attention: Don Harrison				
		2009-032099
		Richard Aronoff
		613-941-7239

Directors' Liability Where Corporation Dissolved

This is in response to the issues you have raised with regards to the CRA assessing one or more directors of XXXXXXXXXX (the Company). OBCA refers to the Ontario Business Corporations Act.

* Nulla Bona

Paragraph 242(1)(c) of the OBCA provides that "[d]espite the dissolution of a corporation under this Act...any property that would have been available to satisfy any judgment or order if the corporation had not been dissolved remains available for such purpose;"

Since both debts were certified prior to the corporation's dissolution it would seem that paragraph 242(1)(c) of the OBCA is applicable and valid nulla bona returns were obtained.

This, however, does not solve the subsection 227.1(4) issue.

* Revocation of Charter

Subsection 227.1(4) of the ITA provides a two year limitation period within which to assess a director. The time commences when the director ceases to be a director.

There are two Court of Appeal decisions (British Columbia and Quebec) that suggest that a director does not continue to be a director during the period of dissolution.

Consequently, since more than two years has lapsed since the Company was dissolved, it is recommended that application be made to revive the Company under subsection 241(5) of the OBCA and that the application include in the terms and conditions to be imposed upon its revival:

1) that the Company is reinstated retroactive to the date of its dissolution;

2) that the directors of the Company are considered to have never lost their position as directors and, therefore, have continued in office.

Hopefully, these comments have provided the clarification that you were seeking. Should you have any questions or require additional information, please do not hesitate to telephone Richard Aronoff at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate