McLellan,
J:—This
is
an
application
for
an
order
pursuant
to
subsection
234(1)
of
The
Business
Corporations
Act
setting
aside
payment
of
$966,000
on
October
27,
1981,
and
$322,251.97
on
October
30,
1981,
by
the
Sands
Motor
Hotel
Limited
to
Kristian
Developments
Ltd
and
Green
Spot
Implements
Ltd,
respectively,
and
prohibiting
this
money
from
being
paid
until
the
moneys
owing
by
the
Sands
Motor
Hotel
Limited
pursuant
to
the
provisions
of
the
Income
Tax
Act
have
been
paid
or
secured.
The
shares
of
the
respondent
Sands
Motor
Hotel
Limited
(hereinafter
referred
to
as
“the
taxpayer”)
were
owned
by
the
other
two
respondents.
In
1979
the
taxpayer
sold
its
sole
property
the
Sands
Motor
Hotel.
In
anticipation
of
receipt
of
income
from
the
sale
of
the
property
the
taxpayer
declared
dividends
in
August,
1981,
of
$56,000,
$84,500
and
$560,000.
On
October
21,
1981,
the
corporation
received
$1,452,146
from
the
sale
of
the
property.
The
taxpayer
on
that
date
distributed
$966,000
to
the
respondent
Kristian
Developments
Ltd.
On
October
30,
1981,
the
taxpayer
distributed
$322,251.97
to
the
other
respondent.
There
were
no
resolutions
passed
by
the
taxpayer
in
October,
1981,
with
respect
to
these
payments.
Prior
to
the
taxpayer
making
the
payments
the
Department
of
National
Revenue
had
mailed
a
letter
dated
September
12,
1981,
wherein
it
advised
the
taxpayer
that
it
proposed
to
tax
the
gain
on
the
sale
of
the
hotel
property,
“as
an
adventure
in
the
nature
of
trade,
ie
income
and
not
a
capital
gain”.
The
letter
to
the
taxpayer
concluded
as
follows:
Based
on
our
telephone
conversation
of
September
10,
1981,
we
will
be
making
the
above
adjustment
with
the
understanding
that
there
is
no
basis
for
settlement
at
this
time.
The
Department,
on
February
26,
1982,
mailed
to
the
taxpayer
a
notice
of
reassessment
imposing
additional
taxes
in
the
amount
of
$541,064.13.
The
taxpayer
filed
a
notice
of
objection
on
March
18,
1982.
There
was
a
further
reassessment
by
the
Department
in
April
1983,
resulting
in
additional
taxes
of
$419,903.63
which
reassessment
was
again
appealed
by
the
taxpayer.
The
end
result
is
that
as
of
October
6,
1983,
the
Department
claims
taxes
owing
by
the
taxpayer
in
the
sum
of
$1,270,984.25
plus
interest.
In
response
to
letters
of
Requirement
of
Information
the
taxpayer
advised
the
Department
of
its
financial
affairs
and
in
particular
advised
that
having
distributed
the
proceeds
received
from
the
sale
of
the
hotel
it
had
no
other
assets.
Section
234
of
The
Business
Corporations
Act
(hereinafter
referred
to
as
the
“BCA”)
provides
in
part
as
follows:
234.—(1)
A
complainant
may
apply
to
a
court
for
an
order
under
this
section.
(2)
If,
upon
an
application
under
subsection
(1),
the
court
is
satisfied
that
in
respect
of
a
corporation
or
any
of
its
affiliates:
(a)
any
act
or
omission
of
the
corporation
or
any
of
its
affiliates
effects
as
a
result;
(b)
the
business
or
affairs
of
the
corporation
or
any
of
its
affiliates
are
or
have
been
carried
on
or
conducted
in
a
manner;
or
(c)
the
powers
of
the
directors
of
the
corporation
or
any
of
its
affiliates
are
or
have
been
exercised
in
a
manner;
that
is
oppressive
or
unfairly
prejudicial
to
or
that
unfairly
disregards
the
interests
of
any
security
holder,
creditor,
director
or
officer,
the
court
may
make
an
order
to
rectify
the
matters
complained
of.
(3)
In
connection
with
an
application
under
this
section,
the
court
may
make
any
interim
or
final
order
it
thinks
fit
including,
without
limiting
the
generality
of
the
foregoing:
(a)
an
order
restraining
the
conduct
complained
of;
(b)
an
order
appointing
a
receiver
or
receiver-manager;
(c)
an
order
to
regulate
a
corporation’s
affairs
by
amending
the
articles
or
bylaws
or
creating
or
amending
a
unanimous
shareholder
agreement;
(d)
an
order
directing
an
issue
or
exchange
of
securities;
(e)
an
order
appointing
directors
in
place
of
or
in
addition
to
all
or
any
of
the
directors
in
office;
(f)
an
order
directing
a
corporation,
subject
to
subsection
(6),
or
any
other
person,
to
purchase
securities
of
a
security
holder;
(g)
an
order
directing
a
corporation,
subject
to
subsection
(6),
or
any
other
person,
to
pay
to
a
security
holder
any
part
of
the
moneys
paid
by
him
for
securities;
(h)
an
order
varying
or
setting
aside
a
transaction
or
contract
to
which
a
corporation
is
a
party
and
compensating
the
corporation
or
any
other
party
to
the
transaction
or
contract;
(i)
an
order
requiring
a
corporation,
within
a
time
specified
by
the
court,
to
produce
to
the
court
or
an
interested
person
financial
statements
in
the
form
required
by
section
149
or
an
accounting
in
such
other
form
as
the
court
may
determine;
(j)
an
order
compensating
an
aggrieved
person;
(k)
an
order
directing
rectification
of
the
registers
or
other
records
of
a
corporation
under
section
236;
(1)
an
order
liquidating
and
dissolving
the
corporation;
(m)
an
order
directing
an
investigation
under
Division
XVII
to
be
made;
(n)
an
order
requiring
the
trial
of
any
issue.
A
complainant
is
defined
under
paragraph
231(b)
of
the
BCA
as:
(i)
a
registered
holder
or
beneficial
owner,
and
a
former
registered
holder
or
beneficial
owner,
of
a
security
of
a
corporation
or
any
of
its
affiliates;
(ii)
a
director
or
an
officer
or
a
former
director
or
officer
of
a
corporation
or
of
any
of
its
affiliates;
(iii)
the
Director;
or
(iv)
any
other
person
who,
in
the
discretion
of
a
court,
is
a
proper
person
to
make
an
application
under
this
Division.
[Emphasis
added]
I
must
first
of
all
decide
whether
the
applicant,
as
a
creditor
of
the
corporation
has
the
status
of
a
complainant
under
the
BCA.
However,
prior
to
making
that
decision
it
must
be
determined
whether
the
applicant
was
a
creditor
of
the
taxpayer
at
the
time
the
payments
were
made
in
October
1981,
as
the
respondents
take
the
position
that
the
applicant
was
not
a
creditor
at
that
time.
Income
taxes
are
a
debt.
Section
222
of
the
Income
Tax
Act
(the
“Act”)
provides
as
follows:
222.
All
taxes,
interest,
penalties,
costs
and
other
amounts
payable
under
this
Act
are
debts
due
to
Her
Majesty
and
recoverable
as
such
in
the
Federal
Court
of
Canada
or
any
other
court
of
competent
jurisdiction
or
in
any
other
manner
provided
by
this
Act.
The
respondents
argue
that
the
debt
with
respect
to
payment
of
income
taxes
does
not
arise
until
the
assessment
or
reassessment
has
been
issued
pursuant
to
subsection
158(1)
of
the
Act.
Subsection
158(1)
states
that:
The
taxpayer
shall,
within
30
days
from
the
day
of
mailing
of
the
notice
of
assessment,
pay
to
the
Receiver
General
any
part
of
the
assessed
tax,
interest
and
penalties
then
remaining
unpaid,
whether
or
not
an
objection
to
or
appeal
from
the
assessment
is
outstanding.
The
applicant
argues
that
the
tax
liability
exists
as
soon
as
the
income
is
earned
and
cite
in
support
of
that
proposition
the
case
of
The
Queen
v
Simard-
Beaudry
Inc,
71
DTC
5511
where
Noel,
AJ
states
at
5515:
As
to
his
second
argument,
namely
that
the
debt
arising
from
re-assessment
of
the
taxpayer
dates
only
from
the
time
that
the
taxpayer
is
assessed,
and
that
it
did
not,
accordingly,
exist
at
the
time
the
agreement
was
made,
it
seems
to
me
that
the
answer
to
this
is
that
the
general
scheme
of
the
Income
Tax
Act
indicates
that
the
taxpayer’s
debt
is
created
by
his
taxable
income,
not
by
an
assessment
or
re-assessment.
In
fact,
the
taxpayer’s
liability
results
from
the
Act
and
not
from
the
assessment.
In
principle,
the
debt
comes
into
existence
the
moment
the
income
is
earned,
and
even
if
the
assessment
is
made
one
or
more
years
after
the
taxable
income
is
earned,
the
debt
is
supposed
to
originate
at
that
point.
Here
the
re-assessments
issued
on
August
14,
1969,
for
income
earned
in
previous
years
seem
to
me
to
be
at
most
a
confirmation
or
acknowledgement
of
the
amounts
owing
for
these
earlier
years.
Indeed,
in
my
opinion,
the
assessment
does
not
create
the
debt,
but
is
at
most
a
confirmation
of
its
existence.
I
agree
with
the
reasoning
of
Noël,
ACJ.
In
my
opinion
there
was
a
debt
owing
at
the
time
that
the
letter
was
written
to
the
taxpayer
on
September
12,
1981,
although
the
exact
amount
of
that
debt
had
not
yet
been
ascertained.
The
provisions
of
section
234
of
the
BCA
expressly
provide
that
it
is
to
protect,
among
others,
creditors,
from
acts
or
conduct
that
is
oppressive
or
unfairly
prejudicial
to
or
that
unfairly
disregards
the
interests
of
any
creditor.
If
the
applicant
cannot
be
a
complainant
then
I
fail
to
see
who
is
to
complain
on
her
behalf.
If
a
creditor
does
not
come
within
the
definition
of
complainant
one
wonders
how
a
creditor
can
obtain
remedies
for
breaches
of
those
provisions
of
the
BCA
which
are
obviously
inserted
for
the
protection
of
creditors
such
as
the
solvency
tests
contained
in
sections
34
and
40.
It
would
seem
to
me
that
in
the
circumstances
the
applicant
is
a
proper
person
to
make
an
application.
I
therefore
exercise
the
discretion
granted
to
me
by
paragraph
231(b)
and
hold
that
the
applicant
in
this
case
is
a
complainant
within
the
provisions
of
section
234.
The
payment
by
the
taxpayer
of
the
dividends
in
the
amount
of
$1,228,251.97
was
in
violation
of
the
provisions
of
section
40
of
the
BCA
which
provide:
40.
A
corporation
shall
not
declare
or
pay
a
dividend
if
there
are
reasonable
grounds
for
believing
that:
(a)
the
corporation
is,
or
would
after
the
payment
be,
unable
to
pay
its
liabilities
as
they
become
due;
or
(b)
the
realizable
value
of
the
corporation’s
assets
would
thereby
be
less
than
the
aggregate
of
its
liabilities
and
stated
capital
of
all
classes.
There
were
certainly
reasonable
grounds
for
believing
that
after
those
payments
the
taxpayer
would
be
unable
to
pay
its
liabilities
as
they
became
due
and
in
particular
that
it
would
be
unable
to
pay
the
additional
income
taxes
that
it
had
been
advised
were
in
the
process
of
being
assessed.
In
my
opinion
the
payment
by
the
taxpayer
of
dividends
when
it
could
not
meet
the
solvency
test
set
forth
in
section
40
of
the
BCA
was
an
act
that
effected
a
result
that
was
unfairly
prejudicial
to
and
unfairly
disregarded
the
interests
of
Her
Majesty
the
Queen
as
a
creditor
of
the
taxpayer
and
the
applicant
is
entitled
to
an
order
under
section
234.
The
applicant
also
seeks
an
order
setting
aside
the
redemption
of
certain
shares
by
the
taxpayer.
On
October
12,
1982,
the
taxpayer
redeemed
preferred
shares
of
the
taxpayer
held
by
one
of
its
directors,
Jerry
Kristian
and
by
one
of
its
corporate
shareholders
Scott
One
Investments
Ltd
in
the
amounts
of
$187,500
and
$80,358,
respectively,
by
offsetting
the
value
of
the
shares
against
advances
made
by
the
taxpayer
to
the
said
director
and
shareholder
in
anticipation
of
redemption
of
those
shares.
The
redemption
of
those
shares
by
the
taxpayer
was
contrary
to
the
provisions
of
section
34
of
the
BCA
which
provides
as
follows:
34.
(1)
Notwithstanding
subsection
32(2)
or
subsection
33(3),
but
subject
to
subsection
(2)
of
this
section
and
to
its
articles,
a
corporation
may
purchase
or
redeem
any
redeemable
shares
issued
by
it
at
prices
not
exceeding
the
redemption
price
thereof
stated
in
the
articles
or
calculated
according
to
a
formula
stated
in
the
articles
(2)
A
corporation
shall
not
make
any
payment
to
purchase
or
redeem
any
redeemable
shares
issued
by
it
if
there
are
reasonable
grounds
for
believing
that:
(a)
the
corporation
is,
or
would
after
the
payment
be,
unable
to
pay
its
liabilities
as
they
become
due;
or
(b)
the
realizable
value
of
the
corporation’s
assets
would
after
the
payment
be
less
than
the
aggregate
of:
(i)
its
liabilities;
and
(ii)
the
amount
that
would
be
required
to
pay
the
holders
of
shares
that
have
a
right
to
be
paid,
on
a
redemption
or
in
a
liquidation,
rateably
with
or
prior
to
the
holders
of
the
shares
to
be
purchased
or
redeemed.
Again
the
redemption
of
the
shares
was
an
act
that
effected
a
result
that
was
unfairly
prejudicial
to
and
unfairly
disregarded
the
interests
of
the
applicant
as
a
creditor
of
the
taxpayer
and
it
is
therefore
entitled
to
a
further
order
under
section
234.
There
will
be
an
order
directing
that:
(1)
The
payments
by
the
taxpayer
of
$966,000
on
October
27,
1981
to
the
respondent
Kristian
Developments
Ltd
and
of
$322,251.97
on
October
30
to
the
respondent
Scott
One
Investments
Ltd
be
set
aside
and
that
the
taxpayer
do
forthwith
recover
the
payments
from
the
said
respondents;
(2)
The
corporate
shareholders
of
the
said
taxpayer
Kristian
Developments
Ltd
and
Scott
One
Investments
Ltd
repay
forthwith
to
the
taxpayer
the
sums
of
966,000
and
$322,251.97,
respectively;
(3)
The
redemption
of
the
preferred
shares
by
the
taxpayer
in
the
amounts
of
$187,500
and
$80,358
held
by
Jerry
Kristian
and
Scott
One
Investments
Ltd
respectively
be
set
aside;
(4)
The
taxpayer
collect
forthwith
the
advances
in
the
amount
of
$187,500
and
$80,358
made
respectively
to
Jerry
Kristian
and
Scott
One
Investments
Ltd;
(5)
The
taxpayer
be
prohibited
from
distributing
or
otherwise
disposing
of
the
assets
it
will
recover
under
the
provisions
of
the
preceding
paragraphs
1,
2,
3
and
4,
until
the
payment
in
full
of
the
moneys
owing
by
the
taxpayer
to
Her
Majesty
pursuant
to
the
provisions
of
the
Income
Tax
Act
and
the
assessments
issued
thereunder.
The
applicant
will
have
its
costs
of
the
application.
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