Linder v. Rutland Moving and Storage Ltd., [1991] 1 CTC 517 (BCCA)

Hollinrake, J.A. (Macdonald and Toy, JJ.A. concurring):—This is an appeal from the Judgment of Hamilton, J. (as he now is) pronounced September 11, 1989 in which the proceeds from the sale of the defendant's Motor Carrier Commission licences were ordered to be distributed to the plaintiffs in priority to the claim of the Attorney General of Canada as represented by Revenue Canada. The Attorney General of Canada argues on this appeal that it has priority to the net proceeds resulting from this sale by reason of the statutory trusts created under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act"), the Canada Pension Plan, R.S.C. 1985, c. C-8, and the Unemployment Insurance Act, R.S.C. 1985, c. U-1. The Attorney General is the appellant in this appeal having been added as a defendant by order of Hamilton, J.

In February, 1986, the plaintiffs were granted judgment against the defendant Rutland Moving and Storage Ltd. in the amount of $19,834.95.

On November 22, 1988, Drossos, J. (as he now is) appointed Mr. John McLachlan receiver by way of equitable execution of the Motor Carrier Commission licences of the defendant with power to convert and liquidate these licences''and to pay over to the [p]laintiffs such sums as is necessary to retire its judgment, interest and costs herein".

The defendant is indebted to the Department of National Revenue in the sum of $22,387.03 based on assessments made by the Department for the taxation years 1986 to 1988. This figure is broken down as follows: $16,122.17 for federal income tax, provincial income tax, Canada Pension Plan and unemployment insurance deductions which the defendant was required to make from its employees, and $6,264.86 for the employer contributions for Canada Pension Plan and unemployment insurance plus penalties and interest.

On April 7,1989, "Requirements to Pay” the above amounts were sent by the Department of National Revenue to the receiver McLachlan.

On August 22, 1989, Preston, J. (as he now is) ordered that the receiver be authorized to accept an offer to purchase the licences for the sum of $23,000 with the issue of priority to the proceeds among the Workers' Compensation Board, Revenue Canada and the plaintiffs being adjourned to August 31, 1989. It was then agreed by the parties that the claim of the Workers'Compensation Board in the amount of $6,100 would be paid in priority to whatever the plaintiffs were entitled as a result of this sale.

On September 11, 1989, Hamilton, J. dismissed the claim of the Attorney General of Canada, as represented by Revenue Canada, to priority to or to share rateably with the plaintiffs the net proceeds from this sale and ordered that the proceeds be distributed according to the following priorities: (1) the receiver's fees, disbursements and legal expenses, (2) the plaintiffs” costs for the appointment of a receiver on a solicitor and own-client basis, (3) by the consent of the parties, the Workers' Compensation Board in the sum of $6,100,

(4) the balance of the judgment due to the plaintiffs, and (5) the balance, if any, to Revenue Canada pursuant to its third party demand.

The sale proceeds were in fact distributed as follows:

It is to the sum of $4,213.89 that Revenue Canada says it has priority over the plaintiffs.

The judge below did not deliver written reasons for judgment but counsel's notes of his oral reasons are available to the Court and they are as follows:

Upon hearing submissions from counsel for the Receiver General and for the Receiver, the Court ruled that the sale of the single asset by the Receiver acting in equitable execution, does not fall within the scope of Section 227 of the Income Tax Act such as to cause the moneys to constitute trust moneys and that it is only where the whole of the business is placed into receivership, liquidation, assignment or bankruptcy, that moneys will constitute trust moneys.

It is assumed that what the judge below said about the Income Tax Act also applies to the Canada Pension Plan and the Unemployment Insurance Act.

The relevant sections of the Act are:

227.(4) Idem.—Every person who deducts or withholds any amount under this Act shall be deemed to hold the amount so deducted or withheld in trust for Her Majesty.

(5) Amount in trust not part of estate.—Notwithstanding any provision of the Bankruptcy Act, in the event of any liquidation, assignment, receivership or bankruptcy of or by a person, an amount equal to any amount

(a) deemed by subsection (4) to be held in trust for Her Majesty, or

(b) deducted or withheld under an Act of a province with which the Minister of Finance has entered into an agreement for the collection of taxes payable to the province under that Act that is deemed under that Act to be held in trust for Her Majesty in right of the province

shall be deemed to be separate from and form no part of the estate in liquidation, assignment, receivership or bankruptcy, whether or not that amount has in fact been kept separate and apart from the person's own moneys or from the assets of the estate.

Canada Pension Plan

23.(3) Where an employer has deducted an amount from the remuneration of an employee as or on account of any contribution required to be made by the employee but has not remitted that amount to the Receiver General, the employer shall keep that amount separate and apart from his own moneys and shall be deemed to hold the amount so deducted in trust for Her Majesty.

(4) In the event of any liquidation, assignment or bankruptcy of an employer, an amount equal to the amount that by subsection (3) is deemed to be held in trust for Her Majesty shall be deemed to be separate from and form no part of the estate in liquidation, assignment or bankruptcy, whether or not that amount has in fact been kept separate and apart from the employer's own moneys or from the assets of the estate.

Unemployment Insurance Act

57.(2) Where an employer has deducted an amount from the remuneration of an insured person as or on account of any employee's premium required to be made by the insured person but has not remitted the amount to the Receiver General, the employer shall keep the amount separate and apart from his own moneys and shall be deemed to hold the amount so deducted in trust for Her Majesty.

(3) In the event of any liquidation, assignment or bankruptcy of an employer, an amount equal to the amount that by subsection (2) is deemed to be held in trust for Her Majesty shall be deemed to be separate from and form no part of the estate in liquidation, assignment or bankruptcy, whether or not that amount has in fact been kept separate and apart from the employer's own moneys or from the assets of the estate.

Counsel for the appellant notes that all three Acts refer to"any liquidation . . ." and says that has to mean a liquidation of the whole or any part of the company's assets. Here, only one asset of the company was made the subject of equitable execution by the court appointed receiver.

It is only subsection 227(5) of the Income Tax Act that makes reference to ” receivership". Counsel for the appellant says that“ "any liquidation” as referred to in subsection 23(4) of the Canada Pension Plan and subsection 57(3) of the Unemployment Insurance Act contemplates liquidation by way of a receivership, and refers to Dauphin Plains Credit Union Ltd. v. Xyloid Industries Ltd., [1980] 1 S.C.R. 1182; [1980] C.T.C. 247; 80 D.T.C. 6123; 108 D.L.R. (3d) 257 (S.C.C.). In that case a company was put into receivership by a credit union and the receivership was completed by the sale and distribution of all the assets of the employer company. The claim to priority in that case involved the Department of National Revenue and a secured creditor. The Acts involved were the same as those in the case before us. The Supreme Court of Canada held that the term“ liquidation” was wide enough on its dictionary definition to include the process of receivership at a creditor's request. Pigeon, J., at pages 269-70, referred to the reasons of Middleton, J.A. in Davey v. Gibson (1930), 3 D.L.R. 606; 65 O.L.R. 379 at D.L.R. 607-608, where he said:

The argument before us turned rather upon a discussion of the question whether the Act should be strictly or liberally construed. It is not, in my view, necessary to enter upon any such discussion . . .

The term "gone into liquidation” is not anywhere defined; the language is more or less colloquial, for there is not, at the present time, any legal proceeding known as liquidation. At one time there was, but it has long since been obsolete. The technical term used in the Companies Act is "wind-up", although the officer appointed to conduct the winding-up is designated a liquidator.

If one searches dictionaries, it is not hard to find a definition of liquidation wide enough to include bankruptcy. In the Century Dictionary this is given: — “Liquidation: the act or operation of winding-up the affairs of a firm or company by getting in the assets, settling with its debtors and creditors, and apportioning the amount of each partner's or shareholder's profit or loss, etc." In Murray's New English Dictionary, p. 330, is the following:—' Liquidate: Law and commerce: To ascertain and set out clearly the liabilities of (a company or firm) and to arrange the apportioning of the assets; to "wind-up"." In 37 Corp. Jur., p. 1265, that mine of information, is this definition: — "Liquidation, a word of French origin, is not a technical term, and, therefore, can have no fixed legal meaning; but it has a fairly defined legal meaning, and "it is said to be a term of jurisprudence, of finance, and of commerce. It is defined as the act of settling, adjusting debts, or ascertaining their amounts or balance due; settlement or adjustment of an unsettled account. . . Applied to a partnership or company. The act or operation of winding up the affairs of a firm or company by getting in the assets, settling with its debtors and creditors, and appropriating the amount of profit or loss.

[Emphasis added.]

I agree with the submission of counsel for the appellant that the term "liquidation" is wide enough to include a receivership such as we have here. That being so, the remaining issue is whether the term “liquidation” in the Canada Pension Plan and the Unemployment Insurance Act and the term "receivership" in the Income Tax Act include the case where, as here, a single asset of a company is sold by way of equitable execution through the appointment of a receiver.

Counsel for the appellant says it does, and again points to the word "any", that is "any liquidation” and "any receivership", and he refers to Epp School District v. Rural Municipality of Park, [1936] 2 W.W.R. 331 at 335 (Sask. C.A.) where Gordon, J.A. said: "A reference to the legal dictionaries shows that the word ‘ any' is all-embracing. It is a word which, in its natural meaning, excludes limitation or qualification."

This is an attractive submission from the appellant's viewpoint, but in my opinion, it can only lead to success if the words" liquidation” or" receivership” can be construed to mean liquidation or receivership of a part only as well as the whole.

It must be remembered that in the Dauphin Plains Credit Union Ltd. case, supra, the receivership was completed by the sale and distribution of all the assets of the company. In that case the quote from the judgment of Middleton, J.A. in Davey v. Gibson, supra, where the Court was construing the word "liquidation", concluded with the words I have emphasized above, being: “Applied to a partnership or company, the act or operation of winding up the affairs of a firm or company by getting in the assets, settling with its debtors and creditors, and appropriating the amount of profit or loss."

In my opinion, winding up the affairs of the company can only refer to a sale of all the assets of the company, and subsequent distribution of the proceeds to all entitled in the process.

We were also referred to definitions of “ liquidation” and "receivership" in Black's Law Dictionary, 5th ed. They are:

Liquidation. The act or process of settling or making clear, fixed, and determinate that which before was uncertain or unascertained. Payment, satisfaction, or collection; realization on assets and discharge of liabilities. To clear away (to lessen) a debt. Craddock-Terry Co. v. Powell, 180 Va. 242, 22 S.E. 2d 30, 34. To pay or settle. In re Klink's Estate, 310 III. App. 609, 35 N.E. 2d 684, 687. To take over for collection. Belden v. Modern Finance Co., Ohio App., 61 N.E. 2d 801, 804, 44 0. L.A. 163. Winding up or settling with creditors and debtors. Wilson v. Superior Court in and for Santa Clara County, 2 Cal. 2d 632, 43 P. 2d 286, 288. Winding up of corporation so that assets are distributed to those entitled to receive them. Process of reducing assets to cash, discharging liabilities and dividing surplus or loss.

The settling of financial affairs of a business or individual, usually by liquidating (turning to cash) all assets for distribution to creditors, heirs, etc. It is to be distinguished from dissolution which is the end of the legal existence of a corporation. Liquidation may precede or follow dissolution, depending upon statutes.

Receivership. Legal or equitable proceeding in which a receiver is appointed for an insolvent corporation, partnership or individual. The state or condition of a corporation, partnership or individual over whom a receiver has been appointed for protection of its assets and for ultimate sale and distribution to creditors. See also Receiver; Trustee.

I have concluded that the word “ liquidation” in the Canada Pension Plan and the Unemployment Insurance Act refers only to the case where there is a winding up of the affairs of the company by getting in all its assets, and distributing the proceeds to those entitled.

My conclusion as to the construction of the term “receivership” in the Income Tax Act is a similar one. Section 227(5) of that Act refers to "receivership . . . of or by a person .... That connotes to me an Intention to refer to all the assets of the person, and in my opinion, cannot be read to include the sale of one asset through equitable execution by a receiver.

Counsel for the plaintiffs submitted that these being taxing statutes, they should be strictly construed. That is not the proper approach in these days. In Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; [1984] C.T.C. 294; 84 D.T.C. 6305 at 578, Estey, J. said:

Professor Willis, in his article, supra, accurately forecast the demise of the strict interpretation rule for the construction of taxing statutes. Gradually, the role of the tax statute in the community changed, as we have seen, and the application of strict construction to it receded. Courts today apply to this statute the plain meaning rule, but in a substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable. See Whiteman and Wheatcroft, supra, at p. 37.

While not directing his observations exclusively to taxing statutes, the learned author of Construction of Statutes (2nd ed. 1983), at p. 87, E.A. Driedger, put the modern rule succinctly:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

That is the approach I have taken in reaching the conclusion I have, namely, that the term “liquidation” in the Canada Pension Plan and the Unemployment Insurance Act, and the term “receivership” in the Income Tax Act, cannot be construed to include the sale by a court appointed receiver of a single asset of a company as is the case here.

Counsel for the appellant referred in his argument to the word "assignment" in these sections, but he did not pursue this. His argument focused on the terms "liquidation" and "receivership".

I would dismiss the appeal.

Appeal dismissed.