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Docket: 2004-3050(GST)APP
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BETWEEN:
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4028490 CANADA INC.,
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Applicant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Application heard October 18, 2004, at Montréal, Quebec.
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Before: The Honourable
Justice Paul Bédard
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Appearances:
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Counsel for the
Applicant:
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Christopher
Mostovac
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Counsel for the
Respondent:
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Judith Kucharsky
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____________________________________________________________________
ORDER
Given the application made to obtain an
order for an extension of time to serve a notice of objection to the assessment
established under the Excise Tax Act, with the number 03110730 and dated
June 5, 2003;
And given the parties' claims;
The application is dismissed in accordance
with the attached Reasons for Order.
Signed at Ottawa, Canada, this 23rd day of February 2005.
Bédard
J.
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Citation: 2005TCC50
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Date: 20050223
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Docket: 2004-3050(GST)APP
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BETWEEN:
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4028490 CANADA INC.,
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Applicant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Bédard J.
[1] This
is an application made under section 304 of the Excise Tax Act (the
"Act") to obtain an extension of time for the Applicant to file a
notice of objection. The key question in this case is: did the Applicant have
the legal capacity to make such an application, given its bankrupt status?
[2] The
Applicant went bankrupt on February 4, 2003.
[3] H.H.
Davis & Assoc. Inc. (the "Trustee") was appointed trustee of the
Applicant's estate in bankruptcy by the official receiver.
[4] At
the time of the bankruptcy, the sole director for the Applicant was Brian Gray.
[5] On
June 5, 2003, the Minister of National Revenue (the "Minister")
established an assessment for the Applicant for the period from June 1, 2002,
to February 4, 2003.
[6] The
Notice of Assessment was sent to the Trustee.
[7] On
or around December 18, 2003, the accounting firm
Schlesinger Newman Goldman ("SNG") filed an application for
an extension of time to file an objection. In a letter dated December 18, 2003,
the Applicant authorized SNG to present such an application.
[8] Through
a notice of decision dated June 21, 2004, the Minister advised the Applicant of
the decision to dismiss the application for an extension of time to file an objection.
As stated in the notice of decision, the application was dismissed for the
following reason:
It would not be just and equitable
to grant the application for an extension of time to file an objection to a GST
assessment because there are no reasonable grounds for the application since
you are not a legitimate representative who can act on behalf of the company in
bankruptcy.
Respondent's
position
[9] Since
the evidence showed:
(i) that the Trustee never mandated anyone;
(ii) that there was never a request to transfer
the Trustee's mandate to anyone; and
(iii) that there was never a request by anyone
to make representations on behalf of the bankrupt regarding the notice of
assessment in question, or to use procedures or act on behalf of the bankrupt
in objections to the notice of assessment,
the Respondent
claimed that the Applicant did not have the legal capacity to present such an
application for an extension of time to file an objection and only the Trustee,
deemed to be the bankrupt's agent, could present such an application in this
case.
[10] Counsel for the Respondent relied on section 2 (definition of
"property"), section 37, subsection 71(2) of the Bankruptcy and
Insolvency Act (BIA) to support her claim that only the Trustee could make
such an application for an extension of time to file an objection in this case.
Moreover, she relied on Bellram, McNeill, Biron, Sinnott and Kalef to support her claims. She also added
that the Applicant could have asked the Trustee for the mandate to make
representations regarding the notice of assessment, oppose the assessment,
present an application for an extension of time to file an objection, and, if
necessary, to appeal to the Court, but it did not. Finally, she claimed that
the Applicant could have relied on section 37 of the BIA and addressed the
Superior Court of Quebec for permission to contest the notice of assessment in
case of the refusal of the Trustee to agree to such an application, but it did
not.
Applicant's position
[11] Essentially, counsel for the Applicant claimed that although the
Trustee is the agent of the bankrupt for the purposes of the Act, this
fact does not prevent the bankrupt from objecting and filing an appeal when the
Trustee decided not to act. Counsel for the Applicant relied on Sinnott and Leith in support of his claims.
[12] Finally, it must be pointed out that counsel for the Applicant brought
to the Court's attention the possible problem of solidary obligation, which Mr.
Gray could face as the Applicant's director. According to counsel for the
Applicant, on this issue, the Minister would try to hold Mr. Gray jointly and severally
liable for the Applicant's tax liability, which is the subject of the present
case. He claimed that the recent decision by Bowie J. of this Court, in Zaborniak, which states that the provisions of
section 323 of the Act do not allow a director to contest the quantum of
the assessment established for the company for which it is the director, made
it all the more important that I allow this application for an extension of
time to file a notice of objection so that the Applicant can contest the
assessment that is the subject of the present case. In other words, counsel for
the Applicant claimed that he feared Mr. Gray would eventually be unable to
contest the quantum of the assessment established for the Applicant in another
case, given the decision in Zaborniak. It was therefore essential, in
his opinion, that the Applicant be able to contest its assessment since this
might be the only forum at which Mr. Gray could indirectly contest the quantum
of the assessment established for the Applicant, and also limit his
responsibility as its director.
Analysis
[13] In my opinion, despite the Applicant's claims, the BIA cannot be
ignored. According to the BIA, bankruptcy removes all of the bankrupt's
property, which is passed on to the Trustee. When bankruptcy occurs, under
subsection 71(2) of that Act, the Trustee obtains all the bankrupt's rights of
action except personal ones and those affecting property not liable to seizure.
A non-discharged bankrupt does not have the power to appear in court, as it is
the Trustee who is deemed to have been granted this power. The Applicant
therefore did not have the capacity to make such an application for an
extension of time. Not only did the Applicant not show that it had obtained
authorization from the Trustee to make such an application, but the evidence
showed that the Applicant did not even attempt to obtain such an authorization.
[14] As for Leith and
Sinnott,
on which counsel for the Applicant relied in support of the claim that although
the Trustee is the bankrupt's agent for the purposes of the Act, this
fact does not deprive the bankrupt of his rights to object, I must first point
out that in Sinnott, Bowman A.C.J. of this Court recognized the right of
a bankrupt to object to an assessment or file an appeal against it in order to
obtain a refund that belongs to the bankrupt and that is not considered
property subject to division among the bankrupt's creditors. In that case, it
was an income tax return regarding the bankrupt's wages or other compensation
that was paid after the bankruptcy. These returns, according to the provisions
of the Income Tax Act in effect at the time, clearly belonged to the
bankrupt and not the Trustee. I find that Bowman A.C.J. made this finding
considering the facts that were very specific to the case before him, and that
counsel for the Applicant could therefore not rely on the conclusions of Sinnott
in the present case.
Signed at Ottawa, Canada, this 23rd day of February 2005.
Bédard
J.
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