Citation: 2008TCC285
Date: 20080602
Docket: 2006-2338(GST)G
BETWEEN:
EVELYNE RANCOURT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL
ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1]
This is an assessment issued
against the appellant in her capacity as director of the company Criz'Antenne
Centre d'éducation sur les arts d'interprétation (Criz'Antenne), the notice of
which bears number PM‑12016-1 and is dated May 2, 2006. The amount
claimed from the appellant is $9,414.96, including interest and penalties, and
relates to the period from August 1, 2003, to April 30, 2004.
[2]
Criz'Antenne was duly
incorporated on July 2, 1996, as a non-profit organization. At all relevant
times, it was registered for the purposes of Part IX of the Excise Tax Act
(ETA). The corporation's activities involved distributing shows and operating a
performance hall and bar under the name "L'Espace Alizé". For the
period in question, Criz'Antenne failed to pay the Minister of Revenue (the
Minister) the amounts of net tax that it was required to pay under the ETA. On
September 8, 2004, the Minister had a certificate issued by the Federal
Court attesting that Criz'Antenne owed a debt of $19,610.47 for the period from
November 30, 2002, to May 31, 2004. After a writ of execution was issued
and property having a value of no more than $150.10 was seized, the debt remained
unpaid.
[3]
The issue is therefore
whether the appellant, in her capacity as a director of Criz'Antenne, exercised
the degree of care, diligence and skill that a reasonably prudent person would
have exercised in comparable circumstances to prevent the failure of Criz'Antenne
to remit all of the net tax owing for the period in issue. The relevant
statutory provisions are reproduced below:
323(1) Liability of directors – If a corporation fails to remit an amount of net tax as required
under subsection 228(2) or (2.3) or to pay an amount as required under section
230.1 that was paid to, or was applied to the liability of, the corporation as
a net tax refund, the directors of the corporation at the time the corporation
was required to remit or pay, as the case may be, the amount are jointly and
severally, or solidarily, liable, together with the corporation, to pay the
amount and any interest on, or penalties relating to, the amount.
323(3) Diligence – A director of a
corporation is not liable for a failure under subsection (1) where the director
exercised the degree of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable circumstances.
[4]
The appellant was born
on September 13, 1978. At the relevant time, she had no particular
training in, or knowledge of, accounting or taxation. In October 2001, she met
Stéphane Toupin who was, at the time, the chairman of Criz'Antenne's board of
directors and employed by Criz'Antenne as activities and programming manager. He
was also the founder of the business. He hired the appellant as a barmaid, the
job she worked in until October 2002 when she left to take similar employment
elsewhere.
[5]
A few months after she
was hired, when she was still employed by Criz'Antenne, Stéphane Toupin offered
her a place on the board of directors, and subsequently proposed that she sit
on the board of directors of Criz'Antenne as a director, to which she agreed.
In July 2002, at a general meeting of the members of Criz'Antenne, the appellant
was elected to the board of directors, and she was given the office of
secretary. The board of directors was composed of five members, four of whom
were elected at that meeting, including the chairman, Stéphane Toupin, who held
that position until 2003.
[6]
Stéphane Toupin, in his
capacity as manager and chairman, and one Sylvain Laplante were employees of Criz'Antenne
who were responsible for ensuring that the day-to-day activities of Criz'Antenne
went smoothly. Mr. Laplante coordinated the activities. The appellant's
duties as secretary boiled down to preparing the minutes and organizing
meetings. One of the matters referred to in the minutes of the first meeting of
the new board of directors, held on August 4, 2002, was accounts payable, including
unremitted source deductions (SDs) amounting to $8,000. The meeting was
obviously dominated by Stéphane Toupin and Sylvain Laplante and no
participation by the appellant is apparent, other than her seconding the
adjournment of the meeting.
[7]
The board of directors next
met on December 16, 2002, but there were no minutes from that meeting
introduced in evidence. It was not until the meeting on January 15, 2003, that
an attempt was made to resume discussions, and it became apparent that Criz'Antenne
was in a difficult situation and the accounting was poor, as there were conflicting
figures and cash discrepancies. The appellant was not present at that meeting,
which was again, in my view, dominated by Stéphane Toupin and Sylvain Laplante.
According to the minutes, agreements were made regarding the SDs and the goods
and services tax (GST) remittances were being made since July 2002, except that
steps had to be taken to resolve the payment issue.
[8]
A general orientation
meeting for Criz'Antenne was held on February 11, 2003. The appellant was
not present. The minutes indicate that individuals who were not on the board of
directors were present and that there was a quorum. Among the matters discussed
was the fact that the deficit was not all that disastrous, that an agreement
had been made regarding the SDs and that there was only the GST to deal with.
There seems to have been some uncertainty as to Criz'Antenne's GST liability to
the government and the government's debt owing to the business. Sylvain
Laplante was delegated to do what was necessary to resolve the matter.
[9]
The next meeting of the
board of directors was held on April 23, 2003. The appellant was present. A
possible refund from Revenu Québec was questioned and the fact that the balance
sheets for January to April 2003 were not available raised questions. Someone
asked why they were not received every week. Sylvain Laplante explained
that it was because of the lack of interest on the part of the board of
directors and the fact that he had not required them from the then accountant
because they owed him money. Stéphane Toupin and Sylvain Laplante again
dominated the meeting.
[10]
The minutes of the
meeting of the board of directors on May 14, 2003, show that in January 2003 a
cheque for $13,000 was sent in payment of the GST amounts payable for a period
of six months. Sylvain Laplante announced that he would be leaving the organization
when his contract was finished at the end of August 2003. He proposed that he
train someone to replace him. The meeting was informed that Criz'Antenne was
paying about $6,500 in GST and Quebec sales tax (QST) every quarter. It was
also told that the board of directors was run by Stéphane Toupin. The appellant
brought up the fact that the job descriptions were not detailed and specific
enough as to each person's work, that there was a lack of organization and that
there were major shortcomings in the areas of promotion and publicity. A new
development plan was discussed.
[11]
During July and August
2003 there were two meetings of the board of directors. There were intense
discussions about the financial situation and management of Criz'Antenne. The
upshot was that Stéphane Toupin was dismissed on the ground that he had not
followed the decisions made by the board of directors, in particular regarding
certain renovations, failure to pay employees' wages, and the departure of employees
and members of the board of directors.
[12]
According to the appellant,
Stéphane Toupin was not replaced, and another director, the vice-chairman, had stopped
attending meetings, despite the fact that at the meeting on August 4, 2003, he,
along with the appellant and Elaine Grisé, was appointed to sit as an acting
director. Criz'Antenne thus found itself with no chairman or vice-chairman. Elaine
Grisé was appointed as co-signer but we do not know the identity of the other
co‑signer. As for the appellant, she never signed any cheques. The
accounting was still not satisfactory, despite the fact that someone had been
hired to do it; that person, however, left Criz'Antenne. On August 18, 2003, at
a special general meeting, Elaine Grisé was appointed as coordinator.
[13]
The next meeting of the
board of directors took place on November 13, 2003. The board of directors then
had only three members: Elaine Grisé, Jean Beaumier and the appellant.
Mr. Beaumier was not present at that meeting, since no one had been able
to reach him. Elaine Grisé was looking after day-to-day activities and
personnel management. Someone had been hired to do the accounting, for 10 hours
a week. That person was responsible for the SDs, GST, payroll and financial
statements. The appellant was not informed that the person had been hired until
that meeting. It was also announced there that there were no longer any
problems requiring immediate attention but that they still had to deal with
previous debts. For the immediate future there was the matter of a $900 debt to
Revenue Canada which, according to the appellant, was the
current monthly debt. The appellant was informed that the expense reduction process
had been set in motion and that efforts to optimize revenue were being made.
The appellant stayed on as a director because there was no one to take her
place and she cared about the organization. In fact, had it not been for the
fact that she wanted to vote in favour of dismissing Stéphane Toupin, she would
have resigned in August 2003.
[14]
A general meeting of
members was scheduled for January 2004, but ultimately did not take place until
March 20, 2004. The organization's accounting seems to have been managed
better, but Criz'Antenne's financial situation and its future were discussed,
because there was a problem with the lease renewal. One last meeting of the
members was convened for May 29, 2004, to discuss the future of Criz'Antenne,
but no minutes from that meeting were introduced in evidence.
[15]
During the period from
November 2003 to Criz'Antenne's closing, the appellant met informally with Elaine
Grisé to discuss Criz'Antenne's problems, the future of the organization and
the difficulties associated with negotiating the lease renewal. The appellant
testified that she had trusted Elaine Grisé and the accountant who was hired in
the fall of 2003 but left in June 2004. It was only at the very end of 2004
that the appellant apparently learned that the debt to Revenue Canada amounted
to over $40,000.
[16]
During the period in
question, the quarterly GST return was submitted, either late or on time, but
the remittances were never made. The appellant was assessed for the periods
prior to those in issue here, and it was only at the objection stage that the
period was reduced to that now before the Court.
[17]
I do not wish to review
here all of the case law on how to proceed in analyzing the defence of
reasonable diligence where a director is liable as a result of the failure of a
corporation to make the payments required by the ETA. Suffice it to note that
in Soper v. The Queen, [1997] 3 C.T.C. 242, it was held that an
"objective subjective" standard is to be applied in analyzing the
reasonable diligence standard. In Peoples Department Stores Inc. (Trustee of)
v. Wise, [2004] 3 S.C.R. 461, the Supreme Court of Canada modified that
test and adopted an objective standard for applying paragraph 122(1)(b)
of the Canada Business Corporations Act, R.S.C. 1985, c. C‑44, and
thus, by necessary implication, for applying subsection 323(3) of the ETA, which is worded
identically.
Paragraph 63 of that decision reads as follows:
To say that the standard is objective makes it clear that the
factual aspects of the circumstances surrounding the actions of the director or
officer are important in the case of the s. 122(1)(b) duty of care, as
opposed to the subjective motivation of the director or officer, which is the
central focus of the statutory fiduciary duty of s. 122(1)(a) of the
CBCA.
[18]
The Supreme Court
further stated, at paragraph 67 of the decision, that the duty of care can
be met if the directors acted prudently and on the basis of the information
they had. It is not a duty to make the best decision, it is a duty to make a
business decision that is reasonable in the circumstances. It is important to
note that in applying the diligence test, it is not a matter of analyzing the
business situation in light of subsequent facts, but rather of doing so on the
basis of the information available to the directors at the time they made their
decision; I quote:
Directors and officers will not be held to be in breach of the duty
of care under s. 122(1)(b) of the CBCA if they act prudently and on
a reasonably informed basis. The decisions they make must be reasonable
business decisions in light of all the circumstances about which the directors
or officers knew or ought to have known.
[19]
It should also be remembered
that the courts have on numerous occasions stressed that subsection 323(3)
of the ETA specifies when a director must act in order to come within the
diligence exception to liability. The director must have exercised the degree
of care, diligence and skill to prevent the failure that a reasonably prudent
person would have exercised in comparable circumstances. The efforts made by a
director to limit the failure after the fact, or to remedy the failure, are of
no importance. The analysis must be done having regard to the measures taken to
prevent the corporation's failure to fulfil its statutory obligations, and in
light of the circumstances of each case. The applicable standard is also no
different whether it is applied in the case of a director of a non-profit
organization or in the case of the director of a business corporation.
Flexibility is called for in applying the standard (see paragraph 24 of
the decision of the Federal Court of Appeal in Her Majesty the Queen v.
Corsano, 99 DTC 5658, reproduced below):
I agree with counsel
for the appellant that the rationale for subsection 227.1 (1) is the ultimate
accountability of the directors of a company for the deduction and remittance
of employees’ taxes and that such accountability cannot depend on whether the
company is a profit or not-for-profit company, or I would add whether the
directors are paid or not or whether they are nominal but active or merely
passive directors. All directors of all companies are liable for their failure
if they do not meet the single standard of care provided for in subsection
227.1(3) of the Act. The flexibility is in the application of the standard
since the qualifications, skills and attributes of a director will vary from
case to case. So will the circumstances leading to and surrounding the failure
to hold and remit the sums due.
[20]
This entire affair
started for the appellant when she sought employment with Criz'Antenne, which
resulted in her being hired as a barmaid. The appellant was 23 years old
at the time, had no business experience and had no post-secondary education. At
Stéphane Toupin's request, she subsequently became a director of Criz'Antenne because
of her interest in the organization's objectives. She was assigned the role of
secretary, which was limited to preparing the minutes. She did not sign cheques
for Criz'Antenne, and the evidence was that her participation in the activities
of Criz'Antenne as a director was very limited. She left her job with Criz'Antenne
in the fall of 2002. When we read the minutes, we indeed see that her involvement
as a director was relatively passive in that she did not take part in
discussions. We also see that the management of Criz'Antenne was in all
respects handled by Stéphane Toupin and Sylvain Laplante, at least until they
left in August 2003.
[21]
In fact, it was after
they left that the appellant became liable as a director. At that time, the appellant
continued to act as a director, but it was Elaine Grisé who took over the
day-to-day management of Criz'Antenne. In addition to being a director, Elaine
Grisé became the coordinator and was, in that capacity, an employee.
[22]
There is no doubt that
at that time, Criz'Antenne was in crisis, and that steps had to be taken to set
its financial situation right and get its operations back on track. Responsibility
for so doing was in fact given to Ms. Grisé, who took steps to cut
expenses and optimize revenue. With the authorization of the board of
directors, she hired someone to put the accounting in order. Obviously the appellant
was still not playing a very important role, and it was through her presence at
the board of directors meeting on November 13, 2003, that she was able to learn
that the situation had changed in that the accounting was under control and
that the SD and, above all, GST remittances, were up to date, particularly the
$900 payment representing the current remittance, that is, the monthly remittance.
The concrete action taken in August 2003, involving not only the dismissals but
also the appointment of a new coordinator and an accountant, as well as the
adoption of a new action plan, had borne fruit. For someone like the appellant,
a person with little experience in business and management, there was reason to
believe that the decisions made were the ones needed to redress the
corporation's financial situation and ensure that the GST remittances were
paid. In fact, as noted above, it was confirmed at the November meeting that
the GST remittances were up to date, except for one month. In my opinion, the appellant,
as a director who had nothing to do with the corporation's day-to-day activities,
had reason to believe that the situation had been remedied and the GST remittances
were going to be made in the normal course of things.
[23]
However, the situation
did not improve and only one general meeting took place in 2004, namely, that
held on March 20. At that meeting, new members were admitted and they discussed
certain matters that, in my opinion, should have been handled by the board of
directors and not the members. The appellant's participation was again limited
to preparing the minutes and reading the minutes of the previous meeting. Reading
all the minutes did not give the appellant valuable experience in managing a
corporation or enable her to take on the responsibilities of a director of a
corporation. She was there quite simply out of a feeling of identification with
the corporation and a sense of duty, with no conviction that her ideas or
suggestions might have any impact. It is apparent that the organization was run
by one or two people who ignored the instructions given by the board of
directors and acted without its authorization with respect to the renovations
or hiring personnel. In the circumstances, it is difficult to require that
someone like the appellant exercise a high degree of care, diligence and prudence,
or to expect that she could even take any concrete action that might have
prevented the failures to pay the net tax. For these reasons, I find that the appellant
has discharged her burden of proof on the balance of probabilities, and that
she has shown that she acted with reasonable care, prudence and diligence in
the circumstances of this case. The appeal is allowed with costs.
Signed at Edmundston, New Brunswick, this 2nd day of June 2008.
"François Angers"
Translation certified true
on this 29th day of August
2008.
Erich Klein, Revisor
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