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Citation: 2003TCC566
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Date: 20030912
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Docket: 2000-4344(IT)G
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BETWEEN:
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JACQUES BÉRUBÉ,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Dussault, J.
[1] This is an appeal from an assessment made under subsection 227(10) and section 227.1 of the Income Tax Act ("Act"). The assessment in the amount of $16,420.02 is for source deductions of income tax and employment insurance contributions, plus penalties and interest, not remitted by Industries Leclerc Inc. ("Corporation").
[2] The total amount of $16,420.02 represents the sum of source deductions, contributions, interest and penalties owed for the second pay period of September 1996 ($3,296.52), for the second pay period of October 1996 ($8,331.25) and for the first pay period of November 1996 ($4,792.25). No cheque was sent to Revenue Canada in respect of the first period referred to. As to the amounts owed for the other two periods, the two cheques dated November 10 and 25, 1996, that were sent in payment could not be cashed because there were insufficient funds.
[3] On December 28, 1996, the National Bank of Canada ("Bank") used its guarantees in respect of loans granted to the Corporation, and the corporation assigned its property on January 17, 1997. No dividend was paid following the bankruptcy.
[4] The appellant admits his liability as a director for the amount of $3,296.52 owed for the second pay period in September. However, with respect to the amounts owed for the other two periods, he contends that he had no further control over the Corporation and that it was the Bank that decided whether or not to honour his cheques starting on October 15, 1996.
[5] The Corporation, Nilus Leclerc Inc. and Plancher Leclerc Inc. were subsidiaries of "Groupe Bois Leclerc Inc.". The three corporations had a joint line of credit of $6 million with the Bank. At the start of 1996, the corporations were contemplating a $16 million expansion project, which was not carried out.
[6] According to the appellant, starting in March 1996, the corporations occasionally exceeded the credit limit authorized by the Bank, and there was some question of a $10 million refinancing planned for October 1996. Around October 15, it became clear that the refinancing would not take place.
[7] The appellant stated that, in September or October 1996, and definitely by October 15 of that year, the Bank had taken control of the cash flow of the corporations, authorizing or denying the cashing of issued cheques on a daily basis depending on cash inflows. The appellant asserted that he had prepared all the documents and cheques for source deductions on a regular basis. He said that the Bank had designated the accounting firm of Raymond, Chabot, Martin, Paré and a consultant, a certain Michel Gauthier, to protect its guarantees. Thus, starting on October 15, 1996, Mr. Gauthier initialled the cheques for which he agreed to authorize payment. It is known that the two cheques the Bank refused are dated November 10 and 25, 1996.
[8] The appellant also stated that, as of September 1996, he was no longer the Corporation's sole director and that five other persons, including Michel Gauthier, had been named as directors.
[9] The appellant thus contended that he had lost control of the cash flow as of October 15, 1996, and that it was Michel Gauthier and the Bank that decided whether to send the cheques in payment or to honour those that he had taken it upon himself to have issued.
[10] The appellant's testimony is contradicted on a certain number of points by the documentary evidence brought by the respondent (Exhibit I-1).
[11] First, a resolution authorizing the appellant, as sole director of the Corporation, to file a proposal under the Bankruptcy and Insolvency Act and appointing a trustee was adopted by the appellant himself on January 19, 1997. The minutes of the meeting signed by the appellant were filed with the official receiver for the district of Québec (Exhibit I-1, tab 19). No other document of the Corporation stating that the other five persons had been officially elected as directors of the Corporation, as the appellant asserted, was filed in evidence.
[12] A resolution of Nilus Leclerc Inc. dated November 15, 1996, and signed by the appellant as secretary, indicates the appointment of the following persons as directors of that corporation and members of the executive committee responsible for managing all the businesses of Groupe Leclerc Inc.:
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Michel Gauthier
Robert Savoie
Jean-Claude Arpin
Denis Gagné
Jacques Bérubé
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Director and advisor to the National Bank
Director and representative of the National Bank
Director and representative of the National Bank
Representative of SDI
President of Groupe Leclerc inc.
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[13] On November 18, 1996, the appellant, as President of Groupe Bois Leclerc Inc., was somewhat compelled to appoint Michel Gauthier as acting managing director of that corporation and of its subsidiaries (Exhibit I-1, tab 15).
[14] Second, the series of copies of cheques and cheque duplicates filed in evidence includes three cheques made out to the Receiver General for Canada covering the Corporation's source deductions for the second period of November 1996 and for the first and second periods of December of that year. All the duplicates bear Michel Gauthier's initials (Exhibit I-1, tab 18, pages 5, 6 and 7). Thus, the cheques covering the source deductions, following those of the periods in issue, were in fact approved by Michel Gauthier and cashed in a regular manner.
[15] However, there is also a duplicate of a cheque dated October 26, 1996, covering the source deductions for the first period of the same month that does not bear Michel Gauthier's initials (Exhibit I-1, tab 18, page 11). And yet that cheque was cashed in the regular manner. What is more surprising, however, is that there is also a duplicate of a cheque dated September 10, 1996, for the source deductions for the second period in August of that year bearing Michel Gauthier's initials (Exhibit I-1, tab 18, page 12), whereas the duplicates of the cheques dated respectively September 25 and October 10, 1996, covering the source deductions for the first and second periods of September 1996 respectively, do not bear Michel Gauthier's initials (Exhibit I-1, tab 18, pages 13 and 14). And yet those cheques were cashed. The appellant's explanation is that Michel Gauthier was not yet occupying his position at that time.
[16] It cannot be concluded from these documents as a whole that the appellant lost effective control of the Corporation's cash flow on October 15, 1996, and that he was then at the complete mercy of Michel Gauthier and the Bank with regard to the mailing of cheques covering source deductions and to their authorization for cashing.
[17] Another document also establishes that Michel Gauthier took control of the Corporation's cash flow at a later date. This is a document prepared by counsel for the respondent in the context of a dispute between the appellant and the Commission des normes du travail. In the document, which is dated March 27, 1996, counsel Gary Makila establishes a chronology of the events leading to the difficulties of Groupe Leclerc Inc. and its subsidiaries (Exhibit I-1, tab 21). Here I will cite only two brief passages from the document at pages 2 and 3, under the dates of Monday, October 21, 1996, and Monday, November 18 of that same year.
[TRANSLATION]
MONDAY, OCTOBER 21, 1996:
Michel Gauthier begins his work within the business - he has a mandate to conduct a "due diligence" for NBC and to make recommendations -Bérubé retains control over cash flow and daily operations.
MONDAY, NOVEMBER 18, 1996:
Upon his arrival, Gauthier calls a meeting of executives to inform them of his appointment. Present at the meeting are: Benoit Poitras, Martin Richard, Jacques Lemay, Bernard Dumais, Richard Poirier and Jean-Paul Gustini. He informs them all that he is taking over management of the business and that they must now report directly to him. Once that meeting with the executives is over, Gauthier meets administration officials (accounting clerks and so on) to give them the same message - Gauthier is very firm: Bérubé must not interfere with corporate cash flow in any way. Any instruction from Bérubé must not be followed and must be brought to his attention immediately.
From that moment on, Bérubé is excluded from day-to-day management of the business. Gauthier controls the issuing of cheques. He decides which accounts must be paid and in what order of priority (wages, source deductions and so on). Gauthier also initials most cheques.
The working atmosphere has deteriorated quite a bit during the week. Some executives are not interested in continuing to work in these circumstances and are preparing to leave.
[18] I am rather inclined to conclude that it was as of November 18, 1996, as a result of Michel Gauthier's appointment as acting managing director, not October 15, 1996, that the appellant actually lost de facto control of the Corporation and that, as a director, he was no longer in a position to prevent the Corporation's failure with respect to the source deductions. It is true that the Bank refused to cash the cheque of November 10, 1996. However, according to the document prepared by his own counsel and admitted in evidence, the appellant was still in control of the situation on that date. On the evidence adduced, however, I am prepared to acknowledge that he was no longer in control as of November 18, 1996. He is thus not liable for the source deductions not remitted for the first period of November 1996 and for which the cheque dated November 25, 1996, the Bank refused to cash.
[19] Having regard to the foregoing, the appeal from the assessment made under subsection 227(10) and section 227.1 of the Act is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amount of source deductions and assessed penalties and interest of $16,420.02 shall be reduced to $11,627.77, the whole with costs to the respondent.
Signed at Ottawa, Canada, this 12th day of September 2003.
Dussault, J.
Translation certified true
on this 27th day of July 2004.
Sophie Debbané, Revisor
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