Date:
20081014
Dockets: A-40-08
A-41-08
Citation: 2008 FCA 304
CORAM: DÉCARY
J.A.
BLAIS
J.A.
RYER
J.A.
Docket A-40-08
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
AMARJIT AUJLA
Respondent
Docket A-41-08
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
HARJINDER AUJLA
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1]
Two appeals
(A-40-08 and A-41-08) were taken from a decision of Bowie J. (the “Tax Court
Judge”) of the Tax Court of Canada (2007TCC764), dated December 21, 2007,
allowing the appeals of Amarjit and Harjinder Aujla, which were heard on common
evidence, against assessments issued to them, pursuant to subsection 323(1) of the
Excise Tax Act, R.S.C. 1895, c. E-15 (the “ETA”), for the outstanding
liability for goods and services tax (“GST”), interest and penalties of Aujla
Construction Ltd. (the “Company”) at the time that it was struck from the register
of companies under the Company Act, R.S.B.C. 1996, c. 62 (the “BCCA”),
for failure to file annual reports.
[2]
If a
corporation fails to remit or pay certain amounts that are specified in
subsection 323(1) of the ETA, that provision imposes a liability on the
directors of the corporation, at the time of such failure, to pay the amounts
(including interest on and penalties relating to those amounts) that should
have been remitted or paid by the corporation. Subsection 323(4) of the ETA
permits the Minister to assess the directors for the amount of the liability
that has been imposed upon them under subsection 323(1) of the ETA. Subsection
323(5) of the ETA stipulates that an assessment pursuant to subsection 323(4)
of the ETA cannot be made against a person more than two years after that
person last ceased to be a director of the corporation.
[3]
The issue
in this appeal is whether the limitation period in subsection 323(5) of the ETA
prevents the Minister from assessing the Aujla brothers for $162,331.92,
pursuant to subsection 323(1) of the ETA, in respect of the failure of the
Company to remit GST and related interest and penalties of a like or greater amount
for reporting periods that ended prior to its dissolution, as provided for in
section 257 of the BCCA, as a consequence of its failure to file annual
reports.
RELEVANT STATUTORY PROVISIONS
[4]
The
relevant provision of the ETA is section 323. The relevant provisions of the
BCCA are sections 1, 257, 262 and 263. These provisions are reproduced in
Appendix A.
BACKGROUND
[5]
The appeal
in the Tax Court of Canada proceeded on an agreed statement of facts that is
reproduced in the reasons of the Tax Court Judge. While the facts are
non-contentious, it is useful to consider them briefly.
[6]
The
Minister assessed the Company for GST, interest and penalties in the amount of
$197,995.75 on March 20, 1998. Approximately one year after the date of that
assessment, the Company was dissolved on March 5, 1999, for failure to file
annual reports, in accordance with section 257 of the BCCA.
[7]
In an
attempt to collect the amount owing, on February 20, 2003, the Minister applied
to have the Company restored to the register, pursuant to subsection 262(1) of
the BCCA.
[8]
On February
20, 2003, approximately five years after the assessment against the Company,
the British Columbia Supreme Court issued an order (the “Court Order”) that
restored the Company to the register of companies under the BCCA for a two year
period. The record contains no explanation for the Minister’s approximately
five year delay in pursuing the collection of the amount owing by the Company.
[9]
The Court
Order reads as follows:
THIS COURT
ORDERS that Aujla Construction Ltd. is restored to the Register of Companies
for a period of not more than two (2) years, commencing on the date of the
filing of a certified copy of this Order with the Registrar of Companies, for
the purpose of enabling the Minister of National Revenue to facilitate the
assessment and collection of the Goods and Services Tax debt owing by Aujla
Construction Ltd. to the Receiver General for Canada.
THIS COURT
FURTHER ORDERS that Aujla Construction Ltd. shall be deemed to have continued
in existence as if its name had never been struck off the register and
dissolved, without prejudice to the rights of any parties which may have been
acquired prior to the date on which Aujla Construction Ltd. is restored to the
Register of Companies.
[10]
The Court
Order led to the issuance of a Certificate of Restoration by the British
Columbia Registrar of Companies, on March 6, 2003, that restored the Company to
the register of companies under the BCCA for a two year period.
[11]
After the
restoration of the Company, the Minister commenced collection actions against
the Aujla brothers by Third Party Notices of Assessment, dated September 4,
2003, on the basis of subsection 323(1) of the ETA, contending that they were
vicariously liable for the amount that was assessed against the Company because
they were directors of the Company at the time that the liability arose. That
provision reads as follows:
|
323(1) 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(1) Les administrateurs d’une personne morale au
moment où elle était tenue de verser, comme l’exigent les paragraphes 228(2)
ou (2.3), un montant de taxe nette ou, comme l’exige l’article 230.1, un
montant au titre d’un remboursement de taxe nette qui lui a été payé ou qui a
été déduit d’une somme dont elle est redevable, sont, en cas de défaut par la
personne morale, solidairement tenus, avec cette dernière, de payer le
montant ainsi que les intérêts et pénalités afférents.
|
[12]
The Aujla
brothers objected to these assessments on the basis that they had ceased to be
directors of the Company as of the date of its dissolution on March , 1999, and
the two year limitation period in subsection 323(5), which ended on March 4,
2001, precluded the assessments. That provision reads as follows:
|
323(5)
An assessment under subsection (4) of any amount payable
by a person who is a director of a corporation shall not be made more than
two years after the person last ceased to be a director of the corporation.
|
323(5) L’établissement d’une telle cotisation pour un
montant payable par un administrateur se prescrit par deux ans après qu’il a
cessé pour la dernière fois d’être administrateur.
|
[13]
The
Minister justified the assessments on two bases. First, because the Company was
dissolved as a consequence of its failure to file annual reports, and because
they never formally resigned, the Aujla brothers never ceased to be directors.
Secondly, because the Court Order had the effect of retroactively restoring the
Company as if there had been no dissolution, the Court Order similarly must
have retroactively reconstituted the directorship of the Aujla brothers. In
either case, the Minister concluded that the two year limitation in subsection
323(5) was not engaged. As a result, the assessments were confirmed and the
Aujla brothers appealed against them to the Tax Court of Canada.
THE DECISION OF THE TAX COURT OF CANADA
[14]
The Tax
Court Judge held that the Aujla brothers ceased to be directors of the Company when
the dissolution occurred on March 5, 1999, because a dissolved company cannot
have directors.
[15]
The Tax
Court Judge then considered the effect of the Court Order and concluded that it
did not have the effect of retroactively reinstating the directorships of the
Aujla brothers, as the Crown contended.
[16]
The Tax
Court Judge referred to subsections 262(1) and (2) and section 263 of the BCCA,
which read as follows:
Restoration
to register
262
(1) If a company has been dissolved, or the registration of an
extraprovincial company has been cancelled under this Act or any former Companies
Act, the court may, if it is satisfied that it is just that the company or
extraprovincial company be restored to the register, not more than 10 years
after the date of the dissolution or cancellation, on application by the
liquidator, a member, a creditor of the company or extraprovincial company, or
any other interested person, make an order, subject to the conditions and on
the terms the court considers appropriate, restoring the company or
extraprovincial company to the register.
(2) If
a company or an extraprovincial company is restored to the register under
subsection (1), the company is deemed to have continued in existence, or the
registration of the extraprovincial company is deemed not to have been
cancelled, and proceedings may be taken as might have been taken if the company
had not been dissolved, or the registration of the extraprovincial company had
not been cancelled.
Power of
court
263 In an
order made under section 262, the court may give directions and make provisions
it considers appropriate for placing the company or extraprovincial company and
every other person in the same position, as nearly as may be, as if the company
had not been dissolved or the registration of the extraprovincial company
cancelled, but, unless the court otherwise orders, the order is without
prejudice to the rights of parties acquired before the date on which the
company or extraprovincial company is restored to the register.
At paragraphs 13 and 14 of his reasons, the Tax Court Judge
stated:
13 Subsection
262(1) permits the court to make an order restoring the company to the register
"on the terms the court considers appropriate ...". "Section 263
empowers the court "to give directions and make provisions it considers
appropriate for placing the company ... and every other person in the
same position, as nearly as may be, as if the company had not been dissolved
..." [emphasis in original].
14 The effect
of the order and the restoration of the company to the register, by the terms
of subsection 262(2), is that the company is deemed to have continued in existence,
and proceedings that might have been taken had there been no dissolution may be
taken thereafter. Notably, the order of the court made no provision, as it
might have done, to place the directors in the same position as if the company
had not been dissolved. The words of the order add nothing to the effects that
flow automatically by reason of the words of the Act from the simple
fact of restoration.
[17]
The Tax
Court Judge observed that it did not appear that the Crown advised the British
Columbia Supreme Court that the order that it was requesting would be used to
assess the Aujla brothers, as a consequence of their having been directors at
the time when the tax liability of the Company arose, as they were apparently
not given notice of the application to restore the Company.
[18]
The Tax
Court Judge further commented upon subsection 262(1) and section 263 of the
BCCA, stating in paragraph 16 of his reasons:
16 As important
as the words of the statute and the order are, the words omitted from them are
equally important. I am asked, in effect, to conclude that by necessary
implication the deeming provision in subsection 262(2) not only deems the
company to have been in existence when in fact it was not, but also deems the
directors to have been directors when in fact they were not. There is, for good
reason, a presumption against expanding by interpretation the scope of
retrospective legislation: see Driedger on the Construction of Statutes,
3rd Ed., pp. 511-17 and the authorities there cited. In the present case, there
is an additional reason not to extend the deeming provision beyond the company
to the directors. The British Columbia legislature, by enacting section 263,
has given to the court hearing the restoration application the discretionary
power to decide whether "other persons" are to be retrospectively
affected by the restoration order, or are to have the benefit of the
"without prejudice" clause in that section. The absence of a
provision in the order placing the directors in the position for which the
respondent contends, and the inclusion of the without prejudice provision in
it, both are indicative of an intent that the directors are not to be, in
effect, deemed to have been directors throughout the period during which the
company was struck off [emphasis added].
[19]
Taking
into consideration the fact that the British Columbia Supreme Court declined to
exercise its discretion to include any “other persons” in the Court Order, as
well as the principle supporting a narrow construction of retroactive legislation,
the Tax Court Judge concluded that the Court Order did not, by implication,
provide that the Aujla brothers were retroactively reconstituted as directors.
As a result, he allowed the appeal.
ISSUES
[20]
In the
appeal, the Crown reiterated the arguments it made in the Tax Court of Canada in
support of its contention that the limitation period in subsection 323(5) of
the ETA was inapplicable in relation to the assessments that were issued to the
Aujla brothers. First, the Crown contended that the Aujla brothers never ceased
to be directors of the Company because they had not resigned from their
positions as directors and the dissolution of the Company was the consequence
of its having been struck off pursuant to section 257 of the BCCA. In the
alternative, the Crown argued that if the Aujla brothers ceased to be directors
of the Company by virtue of its dissolution, the Court Order, which restored the
Company to the register and deemed it to have continued in existence, had the
effect of reconstituting the directorships of the Aujla brothers as if the
dissolution of the Company had never occurred and they had never ceased to be
directors.
[21]
The Crown
added a third argument. It asserted that by finding that the Aujla brothers
were not retroactively reconstituted as directors, the Tax Court Judge implicitly
found that they were prospectively reconstituted as directors for the
two year period that commenced on the date of the Court Order. It follows,
according to the Crown, that the September 4, 2003 assessments against the
Aujla brothers could not be resisted on the basis of the limitation period in
subsection 323(5) of the ETA because, at the time of those assessments, the
Aujla brothers actually held the office of directors of the Company, having
been reconstituted as directors as of the date of the Court Order. In that
regard, the Crown asserts that it is immaterial that the directorships of the
Aujla brothers had been interrupted between March 5, 1999, the day of the
dissolution of the Company, and March 6, 2003, the day of its restoration.
[22]
The Aujla
brothers disagree with the Crown’s contentions and add one of their own. They
argue that even if the Court Order had the effect of reconstituting their
directorships as of the date of the restoration of the Company, the “without
prejudice” language in subsection 263 of the BCCA and the Court Order must be
interpreted so as to preserve their right to assert the two year limitation
period in subsection 323(5) of the ETA as a basis upon which to resist the
assessments that were made against them.
ANALYSIS
Provincial Commercial Law Applies
[23]
Both
parties contend that the application of section 323 of the ETA is to be
undertaken in light of the applicable provincial corporate law provisions,
citing the decision of this Court in Kalef v. R., [1996] 2 C.T.C. 1
(F.C.A.). In that decision, McDonald J.A. agreed with the reasoning of MacKay
J. in Perri (J.F.) v. M.N.R., [1995] 2 C.T.C. 196 (F.C.) to the effect
that the principles that apply to the question of whether a directorship has
been terminated are to be determined under the applicable provincial law and
that the answer to that question may vary from province to province. Specifically,
at page 5, McDonald J.A. stated:
I
agree with the reasoning of MacKay J. While it may be open to Parliament to
expressly deviate from the principles of corporate law for the purposes of the Income
Tax Act, I do not think such an intention should be imputed.
[24]
In my
view, the provisions of the ETA do not provide any guidance with respect to whether
the Aujla brothers ceased to be directors of the Company as a consequence of
its dissolution on March 5, 1999, or if their directorships terminated on the
dissolution, whether the Court Order had the effect of reconstituting those
directorships, either retroactively or prospectively. These matters should be
approached from the perspective of the applicable commercial law – in this
case, the law of British
Columbia.
[25]
As
recognized by the Courts in Perri and Kalef, the underlying
commercial law may vary from province to province and, accordingly, its
application may produce potentially different fiscal consequences in different
provinces. For this reason, I am of the view that jurisprudence which
interprets commercial law of jurisdictions other than British Columbia law is of limited relevance. Moreover,
in the circumstances of this case, it is the BCCA – not successor or
predecessor legislation – that must be considered. To that extent, caution must
be exercised even when British
Columbia
legislation and jurisprudence are being considered.
Did the Aujla Brothers Ever Cease to be
Directors of the Company?
[26]
The
Crown’s proposition that the Aujla brothers did not cease to be directors when the
Company was dissolved on March 5, 1999, because the dissolution occurred
involuntarily, pursuant to subsection 257(3) of the BCCA, cannot be accepted.
No authority for that proposition was shown. Indeed, the authorities presented
to this Court pointed in the opposite direction. See R. v. Gill (1989),
40 B.C.L.R. (2d) 360 at 367 (B.C.Co.Ct.); also see Shaw v. Hyde,
[1921] 61 D.L.R. 666 at 670 (B.C.Co.Ct.).
Did the Court Order Retroactively
Reconstitute the Directorships of the Aujla Brothers?
[27]
The
Crown’s next argument is that even if the dissolution of the Company caused the
directorships of the Aujla brothers to cease on March 5, 1999, the Court Order
had the effect of retroactively reconstituting those directorships such that,
as a matter of law, those directorships never ceased. Consequently, according
to the Crown, the two year limitation period in subsection 323(5) of the ETA
never commenced and was, therefore, no bar to the assessments of the Aujla
brothers on September 4, 2003, because they were directors of the Company on
that date.
[28]
The Aujla
brothers contend that the alleged retroactive reconstitution of their
directorships is unfair as it deprives them of the benefit of the limitation
period that is provided for in subsection 323(5) of the ETA. They point out
that the assessments were made against them approximately five years after the
assessment was made against the Company and that the Minister has “slept on his
rights”. They cite the decision of the Supreme Court of Canada in Markevich
v. Canada, [2003] 1 S.C.R. 94 and, in particular, paragraphs 19 and 20 of the
decision of Major J., which read as follows:
The
appellant’s submission that the rationales for limitation periods militate
against their application to tax collection cannot be correct. As noted above,
limitation provisions are based upon what have been described as the certainty,
evidentiary, and diligence rationales: see M. (K.), supra, at p. 29. The
certainty rationale recognizes that, with the passage of time, an
individual “should be secure in his reasonable expectation that he will not be
held to account for ancient obligations”: M. (K.), supra, at p. 29. The
evidentiary rationale recognizes the desire to preclude claims where the
evidence used to support that claim has grown stale. The diligence rational
encourages claimants “to act diligently and not ‘sleep on their rights’”: M.
(K.), supra, at p. 30.
Each
of the rationales submitted as applicable to there being no limitation periods
affecting collection are in fact just the opposite and are directly applicable
to the Minister’s collection of tax debts. If the Minister makes no effort to
collect a tax debt for an extended period, at a certain point a taxpayer may
reasonably come to expect that he or she will not be called to account for the
liability, and may conduct his or her affairs in reliance on that expectation.
As well, a limitation period encourages the Minister to act diligently in
pursuing the collection of tax debts. In light of the significant effect that
collection of tax debts has upon the financial security of Canadian citizens,
it is contrary to the public interest for the department to sleep on its rights
to enforce collection. It is evident that the rationales which justify the
existence of limitation periods apply to the collection of tax debts.
[29]
In my
view, the contention of the Aujla brothers is not without merit, considering
that the Crown has offered no explanation for its delay in attempting to
collect the amounts owed by the Company and that the Crown apparently did not
give notice to the Aujla brothers of the application to restore the Company,
when it was clear to the Crown that the Aujla brothers could be affected by the
restoration. However, I am of the view that these contentions are more relevant
to the question of whether the ability of the Aujla brothers to rely on the
limitation period in subsection 323(5) of the ETA is a substantive right that
is to be maintained by virtue of the “without prejudice” language in section
263 of the BCCA and the Court Order.
[30]
Thus, the
question, at this point, is whether the Court Order had the effect of
retroactively reconstituting the directorships of the Aujla brothers. In my
view, this question turns on the interpretation of subsection 262(2) and section
263 of the BCCA. Those provisions bear repeating.
262 (2) If
a company or an extraprovincial company is restored to the register under
subsection (1), the company is deemed to have continued in existence, or the
registration of the extraprovincial company is deemed not to have been
cancelled, and proceedings may be taken as might have been taken if the company
had been dissolved, or the registration of the extraprovincial company had not
been cancelled.
263 In an
order made under section 262, the court may give directions and make provisions
it considers appropriate for placing the company or extraprovincial company and
every other person in the same position, as nearly as may be, as if the company
had not been dissolved or the registration of the extraprovincial company
cancelled, but, unless the court otherwise orders, the order is without
prejudice to the rights of parties acquired before the date on which the
company or extraprovincial company is restored to the register.
[31]
The Tax
Court Judge concluded that the deeming provision in subsection 262(2) of the
BCCA did not result in the retroactive reconstitution of the directorships of
the Aujla brothers. He found that the power to bring about that result existed
in section 263 of the BCCA but that the British Columbia Supreme Court did not
exercise that power in making the Court Order, since that order contained no
reference to any such reconstitution and it was unacceptable to find such a
reconstitution by implication.
[32]
The Tax
Court Judge observed that the Crown’s contention that the directorship of the
Aujla brothers should be regarded as having been implicitly reconstituted is
inconsistent with the fact that they were given no notice of the Crown’s
application to restore the Company. He further supported his conclusion by
reference to the general presumption against expanding, by interpretation, the
scope of retroactive legislation, citing Ruth Sullivan, Driedger on the
Construction of Statutes, 3rd ed. (Toronto: Butterworths, 1994) at 511-517.
[33]
In my
view, the Tax Court Judge was correct in his conclusion that the retroactive
reconstitution of the Aujla brothers could only have arisen out of express
language to that effect in the Court Order.
[34]
In
addition to the reasons that were put forward by the Tax Court Judge, I find
support for his conclusion in the decision of the British Columbia Court of
Appeal in Natural Nectar Prod. Can. Ltd. v. Theodor, [1990] 5 W.W.R.
590. In that case, the British Columbia Court of Appeal interpreted subsection
286(2) and section 287 of the Company Act, R.S.B.C. 1979, c. 59 (the “Former
BCCA”). Subsection 286(2) of the Former BCCA is substantially similar to
subsection 262(2) of the BCCA and section 287 of the Former BCCA is identical
to section 263 of the BCCA.
[35]
The
central issue in that case was whether the deeming provision in subsection
286(2) of the Former BCCA had the effect of retroactively restoring the
corporate existence of the company in question, as was contended by the
respondent. Since this is a decision of the highest court in British Columbia that bears directly upon the
issue that is before this Court in the present appeal, it is worthwhile to
reproduce the relevant portion of the decision. In particular, at pages 594 and
595, Hinkson J.A. stated:
In the present case, the order made
restoring the company to the Register of Companies on 27th February 1989
provided:
THIS COURT ORDERS that Natural Nectar Products Canada Ltd. be and
the same is hereby restored to the Registrar of Companies commencing on the
date of the filing of a certified copy of this Order with the Registrar of
Companies and that the said company shall be deemed to have continued in
existence, without prejudice, however, to the rights of any parties which may
have been acquired prior to the date on which the Company is restored to the
Register.
In drawing the form of order counsel for
the respondent inserted the words after, “... continued in existence” the words
“as if its name had never been struck off” but the judge did not include those
words in the order made by him. In my opinion, it was open to him to do so if
he considered it appropriate in the circumstances. He would then have been
exercising a power conferred by s. 287. But he did not do so.
Counsel for the respondent relied upon the
deeming provision in s. 286 and contended that legislation containing deeming clauses
has been determined to have retrospective effect in the following cases: A.G.B.C.
v. Royal Bank of Can., [1937] S.C.R. 459, [1937] 3 D.L.R. 393; Culchoe
Nu Lodge (1980) Ltd. v. Cando Contr. Ltd. (1986), 73 A.R. 342 (M.C.); Montreal
Trust Co. v. Boy Scouts of Can. (Edmonton Region) Foundation, [1978] 5
W.W.R. 123, 3 E.T.R. 1, 88 D.L.R. (3d) 99 (B.C.S.C.); Home Mtge. Ltd. v.
Robertson, [1988] 4 W.W.R. 260, 68 Sask. R. 274 (Q.B.); and Zangelo
Invt. Ltd. v. Glasford State Inc. (1987), 59 O.R. (2d) 510, 38 D.L.R. (4th)
395; affirmed 63 O.R. (2d) 510, 49 D.L.R. (4th) 320 (C.A.).
Each of those cases dealt with statutory
sections which differ from the present provisions of ss. 286 and 287 of the
Company Act.
In my opinion, the deeming provision in s.
286 was inserted in the section to overcome the problems that would otherwise
arise when a company was struck from the register and subsequently restored to
the register. As Jenkins, L.J. observed in the Tymans case at p. 622:
Otherwise obvious
difficulties as to incorporation, membership, share capital, and so forth would
arise, and if the resuscitated company was brought into being as a legal entity
distinct from the dissolved one, claims by and against the resuscitated company
in respect of the pre-dissolution dealings of the dissolved company would not
be maintainable.
The purpose in inserting the deeming
provision was to avoid those problems and to avoid any suggestion that the
company had not been revived by being restored to the register.
Upon the basis of that reasoning, however,
I do not conclude that s. 286 should be given retrospective operation. Rather,
such an effect can be given to the order restoring the company to the register
if the court gives appropriate directions under s. 287 for placing the company
"in the same position, as nearly as may be, as if the company had not been
dissolved . . .”
In my opinion, that would have been the
effect of the order restoring the company to the register if the words "as
if its name had never been struck off" had been contained in the order.
Construing the order as it was entered, in
my opinion, it does not have the effect of placing the company in the same
position, as nearly as may be, as if the company had not been dissolved.
[Emphasis
added.]
[36]
In my view,
this passage makes it clear that the deeming provision in subsection 286(2) of
the Former BCCA, and therefore subsection 262(2) of the BCCA, does not have the
effect of retroactively reconstituting the corporate existence of a company
that has been restored. Instead, that result can only be brought about by the
inclusion in the order of express language to that effect, in accordance with
the exercise of the power contained in section 287 of the Former BCCA, or
subsequently, section 263 of the BCCA. Thus, a restoration order that does not
contain the requisite language will have the effect of restoring the company in
question on a prospective and not a retroactive basis.
[37]
In
applying the rationale in Natural Nectar to the issue at hand, it is my
view that section 263 of the BCCA empowers the British Columbia Supreme Court
to order the retroactive reconstitution of directorships that were in place at
the time of the dissolution of the company in question, since each person who
was then a director would fall within the meaning of the phrase “other person” in
section 263 of the BCCA. However, I am also of the view that since explicit
language in a restoration order is necessary to bring about a retroactive
restoration of a company, exercising a power granted under section 263 of the
BCCA (as was the conclusion of the Court in Natural Nectar), it must
follow that the retroactive reconstitution of the directorships that existed at
the date of the dissolution of the company in question equally requires the
inclusion of explicit language to that effect in the restoration order, in the
exercise of the power granted under that statutory provision.
[38]
In the
circumstances under consideration, the Court Order deemed the Company to have
continued in existence “as if its name had never been struck off”. In my view,
this language evidences the specific exercise of the power granted to the
British Columbia Supreme Court under section 263 of the BCCA to retroactively
restore the corporate existence of the Company. However, the Court Order
contains no mention whatsoever of the reconstitution of the directorships of
the Aujla brothers, retroactively or otherwise, as it surely could have.
Accordingly, I am of the view that the Court Order had no such effect and the
Aujla brothers were not reconstituted as directors of the Company by virtue of
the Court Order.
[39]
I wish to
reiterate that this conclusion is based upon the particular provisions of the
BCCA that were in force at the time of the assessments against the Aujla
brothers, as such provisions have been interpreted in the relevant jurisprudence.
It is clear that British
Columbia
corporate law has evolved over time. See A.-G. B.C. v. Royal Bk. et al.,
[1937] 3 D.L.R. 393 (S.C.C.), in which the Court considered the restoration of
a company that had been struck off the register pursuant to the Companies
Act, R.S.B.C., 1924, c. 38. Under the applicable provisions of that
legislation, the restoration had retroactive effect that did not depend upon the
exercise of judicial discretion. This is in marked contrast to the
corresponding provisions of the Former BCCA, as interpreted in Natural
Nectar, and the BCCA that are under consideration in this appeal. Thus, it
may be observed that even within the same province, the relevant corporate
legislation may change over time, with the result that the fiscal consequences
of similar transactions or events may differ depending upon the specific
provisions of such corporate legislation at the time that such transactions or
events take place.
[40]
I would add
that the retroactively reconstituted existence of the Company without the
retroactive reconstitution of the directorships that were in place at the time
of its dissolution, might appear to be problematic in that without directors
the Company would seemingly be unable to function. In the circumstances under
consideration, this potential concern does not arise since the record does not
contain any indication that the Company undertook or desired to undertake any
activities after the date of its dissolution on March 5, 1999. If the
shareholders of the Company had considered it to be useful for the Company to
have undertaken any activity after its restoration, they could have passed a
resolution under which directors could have been elected. I would hasten to add
that this is not a case in which any person who held the office of director
prior to the dissolution of a company, pursuant to subsection 257(3) of the
BCCA, continued to act as if the directorship of that person had persisted in
spite of such dissolution. In those circumstances, I would observe that the
definition of director in section 1 of the BCCA includes “every person, by
whatever name designated, who performs functions of a director”. Thus, if such
a company were retroactively reconstituted and a person who was a director
immediately before the dissolution continued to perform functions of a director
of that company in the period after the dissolution, that person’s actions
might well be sufficient to bring that person within the definition of director
in section 1 of the BCCA. In the circumstances of this case, these
considerations are academic since there is no indication that the Aujla
brothers undertook any actions after March 5, 1999, that could bring them
within the definition of director in section 1 of the BCCA or that any action
by or on behalf of the Company occurred or was contemplated.
Did the Court Order Prospectively
Reconstitute the Directorships of the Aujla Brothers?
[41]
With
respect to the Crown’s final argument that the Tax Court Judge implicitly found
that the Aujla brothers were reconstituted as directors of the Company as of
the date of the Court Order, in my view, the Tax Court Judge made no such
finding. Accordingly, that argument cannot be accepted.
Conclusion
[42]
In summary,
I conclude that the Aujla brothers ceased to be directors of the Company on March
5, 1999, the date of its dissolution, and were not reconstituted as directors
by the Court Order (retroactively or otherwise). As such, it follows that they
are entitled to resist the assessments made against them on September 4, 2003,
since those assessments were made after the limitation period provided for in
subsection 323(5) of the ETA, which expired in March of 2001. It also follows
that it is unnecessary for me to consider the effect of the “without prejudice”
language in section 263 of the BCCA and the Court Order.
DISPOSITION
[43]
For the
foregoing reasons, I would dismiss the appeals with one set of costs. I would
also direct that a copy of these reasons should be placed in each of Court
files A-40-08 and A-41-08.
“C.
Michael Ryer”
“I
agree.
Robert
Décary J.A.”
BLAIS
J.A. (Dissenting Reasons)
INTRODUCTION
[44]
This is an
appeal from 2007TCC764, a judgment rendered by Justice Bowie of the Tax Court
of Canada dated December 21, 2007.
[45]
Generally
at issue is whether Amarjit Aujla and Harjinder Aujla (Aujla brothers) can be
held personally liable, as directors of the recently restored Aujla
Construction Ltd. (the Company), for taxes in the amount of $197,995.75 owed
under the Excise Tax Act.
[46]
Specifically
at issue is whether the Aujla brothers can be imputed with personal obligations
as directors despite the absence of any mention of the Aujla brothers in the
February 2003 order issued by the British Columbia Supreme Court (the Court
Order) that restored the Company.
[47]
I will
rely on the facts as presented by the Tax Court judge and my colleague in lieu
of reproducing them here.
[48]
I
have had the benefit of reading the reasons prepared by my colleague and
respectfully disagree.
ANALYSIS
[49]
The
determination of any obligations potentially owed by the Aujla brothers is
premised on the Court Order, the federal Excise Tax Act, and the Company
Act of British
Columbia.
[50]
The Court
Order reads as follows:
THIS COURT
ORDERS that the Company is restored to the Register of Companies for a period
of not more than two (2) years, commencing on the date of the filing of a
certified copy of this Order with the Registrar of Companies, for the purpose
of enabling the Minister of National Revenue to facilitate the assessment and
collection of the Goods and Services Tax debt owing by the Company to the
Receiver General of Canada.
THIS COURT
FURTHER ORDERS that the Company shall be deemed to have continued in existence
as if its name had never been struck off the register and dissolved, without
prejudice to the rights of any parties which may have been acquired prior to
the date on which the Company is restored to the Register of Companies.
[51]
The power
to restore a company through a court order is found in provisions 262 and 263
of the British
Columbia Company
Act, R.S.B.C. 1996 c. 62:
262 (1) If a
company has been dissolved, or the registration of an extraprovincial company
has been cancelled under this Act or any former Companies Act, the court may,
if it is satisfied that it is just that the company or extraprovincial company
be restored to the register, not more than 10 years after the date of the
dissolution or cancellation, on application by the liquidator, a member, a
creditor of the company or extraprovincial company, or any other interested
person, make an order, subject to the conditions and on the terms the court
considers appropriate, restoring the company or extraprovincial company to the
register.
(2) If a
company or an extraprovincial company is restored to the register under
subsection (1), the company is deemed to have continued in existence, or the
registration of the extraprovincial company is deemed not to have been
cancelled, and proceedings may be taken as might have been taken if the company
had not been dissolved, or the registration of the extraprovincial company had
not been cancelled.
(3) The court
may make an order under subsection (1) restoring a company or an
extraprovincial company to the register for a limited period, and, after the
expiration of that period, the company must promptly be struck off the
register, or, in the case of an extraprovincial company, its registration
cancelled, by the registrar. […]
and
263 In an
order made under section 262, the court may give directions and make provisions
it considers appropriate for placing the company or extraprovincial company and
every other person in the same position, as nearly as may be, as if the company
had not been dissolved or the registration of the extraprovincial company
cancelled, but, unless the court otherwise orders, the order is without
prejudice to the rights of parties acquired before the date on which the
company or extraprovincial company is restored to the register. (emphasis
added)
[52]
The
limitation period relevant to these facts is contained in the Excise Tax Act,
R.S.C. 1985, c. E-15 at subsections 323(4) and (5). It reads:
|
323. (4)
The Minister may assess any person for any amount payable by the person under
this section and, where the Minister sends a notice of assessment, sections
296 to 311 apply, with such modifications as the circumstances require.
(5) An
assessment under subsection (4) of any amount payable by a person who is a
director of a corporation shall not be made more than two years after the
person last ceased to be a director of the corporation. (emphasis added)
|
323.
(4) Le ministre peut établir une cotisation pour un montant payable par une
personne aux termes du présent article. Les articles 296 à 311 s’appliquent,
compte tenu des adaptations de circonstance, dès que le ministre envoie
l’avis de cotisation applicable.
(5)
L’établissement d’une telle cotisation pour un montant payable par un
administrateur se prescrit par deux ans après qu’il a cessé pour la dernière
fois d’être administrateur.
|
[53]
When
contemplating the Aujla brothers’ potential liability, the greatest hurdle is
the limitation period. Since it sets the limitation period at two years
“after the person last ceased to be a director”, the Aujla brothers must be
found to either a) have continued to be directors during the period when the
Company was struck off the register or b) be reinstated as directors when the
Company was restored such that they have not yet “last ceased” to be directors.
[54]
Any other
consideration regarding the timing of the Minister’s five-year delay in
pursuing the collection of the amount owing by the Company is not relevant to
these proceedings. According to section 262 of the Company Act, the
Master had the discretion to restore the Company to the register subject to the
condition that the restoration was just and that the restoration take place
within 10 years of the Company’s dissolution. By the fact that the restoration
order was issued, it is clear that the Master found the order just. That order
has not been appealed. Therefore any consideration of the Minister’s delay or
suggestion that the Minister slept on its rights is inappropriate to these
proceedings.
Did the Aujla brothers continue as
directors despite the dissolution?
[55]
If the
Aujla brothers continued as directors despite the Company’s dissolution, then
they would never have “ceased” to be directors and the limitation period in
section 323(5) of the Excise Tax Act would not have been triggered.
[56]
The
parties agree that applicable provincial legislation governs whether an
individual has ceased to be a director. In the case of the Aujla brothers, the
Crown contends that according to the British Columbia Company Act, directors only cease to hold office in
accordance with section 130 or when a company is voluntarily dissolved.
[57]
Clearly,
the directorship of the Aujla brothers was not affected by section 130 of the British Columbia Company Act. Section
130 reads:
130
(1) A director ceases to hold office when his or her term expires in accordance
with the articles or when he or she
(a)
dies or resigns,
(b)
is removed in accordance with subsection (3),
(c)
is not qualified under section 114, or
(d)
is removed in accordance with the memorandum or articles.
(2) Every resignation of a director becomes effective
at the time a written resignation is delivered to the registered office of the
company or at the time specified in the resignation, whichever is later.
(3) A company may, despite any provision in the
memorandum or articles, remove a director before the expiration of the
director's term of office by special resolution, and, by ordinary resolution,
may appoint another person in his or her stead.
[58]
Relying on
R v. Gill (B.C. Co. Ct.), [1989] B.C.J. No. 2225, 40 B.C.L.R.
(2D) 360 (Gill), the Crown attempted to argue that a director ceases to
hold offices when a company dissolves, but only when such a dissolution is
voluntary. In fact, the decision in Gill only indicates that, “a
dissolved corporation is a dead corporation and with it died its officers and
directors.”
[59]
There is
no case law supporting the contention that when a corporation dissolves
involuntarily its directors do not cease to be directors. Thus, before the
issuance of the Court Order restoring the Company, the Company had ceased to
exist and the Aujla brothers’ legal status as directors was in limbo.
Did the liability of the Aujla brothers
survive the dissolution?
[60]
The
Company was struck off the register in accordance with paragraph 257(1)(a) and
subsections 257(3) and (4) of the British Columbia Company Act:
257 (1) If
(a) a company
or an extraprovincial company has for 2 years failed to file with the
registrar the annual report or any other return, notice or document required by
this Act to be filed by it,
[…]
the registrar
must mail to the company or extraprovincial company a registered letter
notifying it of its failure or of the registrar's belief, and of the
registrar's powers under subsection (3).
[…]
257 (3) If, within one month after the registrar mails
the letter referred to in subsection (1) or (2), the registrar does
not receive a response that
(a) indicates that the failure has been or is being
remedied, or is otherwise satisfactory to the registrar, or
(b) notifies the registrar that the extraprovincial
company continues to carry on business in British
Columbia,
the registrar may publish in the Gazette a notice
that, at any time after the expiration of one month after the date of
publication of the notice, unless cause is shown to the contrary, the
company will be struck off the register and dissolved, or, in the case of
an extraprovincial company, its registration will be cancelled.
(4) At any time after one month after the date of
publication of the notice referred to in subsection (3), the registrar,
unless good cause to the contrary is shown to him or her, may strike the
company off the register and, on being struck off, the company is dissolved,
or, in the case of an extraprovincial company, cancel its registration.
[61]
The Crown
argues that the liability of directors continues in the case of a company
administratively dissolved under section 257. The Crown bases this argument on
section 260 of the Company Act:
260
The liability of every director, officer, liquidator and member of a company
that is struck off the register, or of an extraprovincial company that has
had its registration cancelled, under section 256, 257, 259 or 319 continues
and may be enforced as if the company had not been struck off the register,
or the registration of the extraprovincial company had not been cancelled.
[62]
Thus, it
would appear that the liability of the Aujla brothers continued despite the
fact that the Company was struck off the register. This is supported by Canadian
Sports Specialist Inc. v. Phillipon (1990), 66 D.L.R. (4th) 188,
and Whittier Wood Products v. Vernon-Jarvis, [2003] B.C.J. No. 675 (Whittier) which stand for the premise
that:
… a director
who ha[s] breached fiduciary duties [is] personally responsible for those
actions during the time the company was struck from the register.
[63]
In Whittier, a company was struck from
the register under section 257 of the Company Act for failing to file
annual reports for two years. Despite the dissolution of the company, the
director continued to operate the business by ordering and receiving goods but
refused to pay for them. Provincial Court Justice Yee found the director liable
under section 260 of the British
Columbia Company
Act for failure to meet the fiduciary duty imposed on him as a director.
While Justice Yee imposed liability in part because the director continued to
act as if the company had not been dissolved, it is worth noting that the
language of section 260 does not require that directors continue to behave as
directors of a dissolved company in order to be found liable.
[64]
In the circumstances
of this case, the Aujla brothers were also imputed with a fiduciary duty.
Through the Company, they had collected taxes that were intended to be remitted
to the government. The Aujla brothers held this sum as fiduciaries. Their
failure to remit the taxes to the government was a breach of their duty as
fiduciaries.
[65]
Therefore,
section 260 can be used to argue that the liability of the Aujla
brothers for negligent actions prior to the dissolution of the Company can be
maintained. However, existing case law has not supported the contention that
section 260 somehow permits the Court to find that the directors did not cease
to be directors after the administrative dissolution of the Company. The
relevant difference is that even if the liability for negligence continued to
exist, the Aujla brothers must be found not to have ceased to hold their office
as directors for the limitation period in the Excise Tax Act not to
apply. Since section 260 does not support the Crown’s conclusion that the Aujla
brothers continued to be directors after the dissolution of the Company, the
legal status of the Aujla brothers as directors remains in limbo.
[66]
Conversely,
for the Aujla brothers to take advantage of the limitation period under section
323 of the Excise Tax Act, it was necessary for them to show that they
were not directors according to the law in British Columbia. In the absence of proof that the Aujla
brothers ceased to be directors, their liability survived according to section
260 of the Company Act. Since the Aujla brothers did not cease to hold
their office as directors according to section 130 of the Company Act
and are not affected by any existing Common Law relieving them of their office
as directors, their liability is governed and maintained under section 260 of
the Company Act.
Were the Aujla Brothers reinstated as
directors by the Court Order?
[67]
The Tax
Court judge concluded that the Court Order did not have the effect of
reinstating the Aujla brothers to their position as directors of the Company
when the Company was restored to the Register.
[68]
The Crown
contends that the decision in Natural Nectar Products Canada Ltd. v. Theodor
(B.C.C.A), [1990] B.C.J. No. 1342 (Natural Nectar) supports the
conclusion that when a company has been restored to the register using the
words “as if its name had never been struck off”, the company is placed “in the
same position, as nearly as may be, as if the company had not been dissolved”
and that therefore its directors are also reinstated.
[69]
In his
reasons with respect to this case, my colleague also examines Natural Nectar
but comes to a different conclusion. My colleague argues that just as the order
must include “as if its name had never been struck off” to have a retrospective
effect according to Natural Nectar, the order must also include explicit
language stipulating that the directors are reinstated to have the effect of
returning them to their office as directors.
[70]
This
conclusion creates vast conceptual difficulty. If a company is restored without
assuming either that the directorship of the last known directors of that
company continues, or that the directors existing at the time of the
dissolution are reinstated, then the company is nothing but a name on a
register. Without assets or directors, there is nothing to pursue and no one to
defend the action presumably motivating the restoration order. In short, claims
against the company will not be maintainable.
[71]
The
difficulty created is similar to those enunciated by Jenkins L.J. in Tymans,
Ltd. v. Craven, [1952] 1 All E.R. 613. Jenkins L.J. indicated that:
… obvious
difficulties as to incorporation, membership, share capital, and so forth would
arise and if the resuscitated company was brought into being a legal entity
distinct from the dissolved one, claims by and against the resuscitated
company in respect of the pre-dissolution dealings of the dissolved company
would not be maintainable. (emphasis added)
[72]
In Natural
Nectar, Justice Hinkson quoted the concerns of Jenkins L.J. highlighting
these types of difficulties as the reason that the retroactive deeming
provision was permitted according to the Company Act section 263 and
should be inserted as a clause in any court order that intends to have the
effect of retroactively restoring a company to the register. Justice Hinkson
concluded:
Upon the
basis of that reasoning, however, I do not conclude that s. 286 [now section
262] should be given retrospective operation. Rather, such an effect can be
given to the order restoring the company to the register if the court gives
appropriate directions under s. 287 for placing the company “in the same
position, as nearly as may be, as if the company had not been dissolved.”
In my
opinion, that would have been the effect of the order restoring the company to
the Register if the words, “as if its name had never been struck off” had been
contained in the order.
[73]
While a
retroactive deeming provision was used in the Court Order at issue through the
clause “the Company shall be deemed to have continued in existence as if its
name had never been struck off the register,” my colleague contends that this
is insufficient to restore the directors, and that an additional deeming clause
dealing exclusively with the directors should also have been included to have
such an effect.
[74]
The result
of that reasoning is that an additional clause must be included to reverse the
presumption that the directorships of the Aujla brothers ceased upon
dissolution, despite the clear indication by the existing retroactive provision
that the dissolution did not occur since the Company “continued in existence as
if its name [was] never struck off the register.” The leap in this logic is
that the dissolution is presumed to have triggered the cessation of the Aujla
brothers’ office as directors, but the retroactive annulment of the dissolution
is now said to be insufficient to undo the cessation of the Aujla brothers’
office as directors.
[75]
The
ultimate result in the restoration of the Company to the register without
directors also goes against section 108 of the British Columbia Company Act.
This section indicates that a company “must have at least one
director.” Based on section 108, the Aujla brothers must be presumed to be
reinstated with the restoration of the Company as no other directors have ever
been associated with the Company. Thus, while no express mention of the
restoration of the directors was made in the Court Order, it must none-the-less
have the effect of restoring the Aujla brothers since they never ceased to hold
office under any provisions of the British Columbia Company Act, the
dissolution which is said to have ended their office as directors is
deemed never to have occurred, and a company cannot exist without directors.
[76]
The effect
of this determination is in line with the reasoning of Justice O’Connor of the
Tax Court of Canada in Glass v. Canada, [1997] T.C.J. No. 1020 at
paragraph 16, where he states:
The effect of
the restoration order was that the company was deemed to continue in existence.
Moreover by virtue of section 284 [now 260] of the B.C. Act the liability of a
director continued. Consequently, the Appellant is not entitled to take
advantage of the limitation period provided …
[77]
The
interpretation that directors are reinstated upon the restoration of the
Company to the register is also supported by the decision in Cadorette c.
Canada, [2008] CCI 416, [2008] A.C.I. No. 316 where Justice Favreau of the
Tax Court of Canada determined that:
…l’appelant
doit être considéré comme n’ayant jamais perdu son statut d’administrateur
entre le moment où l’immatriculation de la société a été radiée d’office et le
moment où le registraire des entreprises a révoqué la radiation de
l’immatriculation de la société.
However, this jurisprudence is of limited persuasiveness
since it deals with the status of directors under corporate law in the province
of Quebec and all parties to this
appeal agree that the law applicable to the determination of the status of the
Aujla brothers as directors is governed solely by the Company Act in the
province of British Columbia.
Does the “without prejudice” clause in
section 263 apply to the directors?
[78]
The
“without prejudice” language found in section 263 requires that the Court Order
not affect “the rights of parties acquired before the date on which the company
or extraprovincial company is restored to the register.” However, since the
Aujla brothers never ceased to be directors of the Company they never acquired
any rights and the Court Order does not have the effect of prejudicially
affecting those rights.
[79]
In addition,
this provision is intended to apply to third parties who have acquired rights
since the dissolution. This is confirmed in Re: Montreal Trust Company and
Boys Scouts of Canada Foundation et al., 88 D.L.R. (3d) 99 at paragraph 18
where Justice Ruttan concluded:
Here
I find that s. 189 of the Statute and the order made thereunder established a
conclusive rather than a rebuttable presumption that the company continued in
existence, so that not only rights which previously existed but rights which
were acquired during the period of hiatus could retroactively become and belong
part of the property of the corporation.
This
"conclusive" presumption does not conflict with the protection of
third parties as referred to in s. 189 [now section 262] of the Act, i.e.
"without
prejudice to the rights of parties acquired prior to the date on which the
company is restored to the register."
The
rights referred to are those which third parties have acquired in dealing with
the company during the period between the dissolution and restoration.
[80]
Whereas
section 263 refers to “rights of parties” generally, section 260 clearly
stipulates that the liability of “every director, officer, liquidator and
member of a company that is struck off the register” survives. In view of this
specific provision, the general “without prejudice to the rights of parties”
language is interpreted to apply to persons other than those listed in section
260.
Public policy argument with respect to
the limitation period
[81]
There
exists a public policy argument in favour of not reinstating the Aujla brothers
as directors since they likely no longer viewed themselves as directors of the
Company and thus ordered their personal affairs for many years believing they
would not be held liable.
[82]
However,
the Aujla brothers should not be rewarded for their negligence. As directors of
the Company, the Aujla brothers collected money in the form of taxes to be
remitted to the government. The Company was later dissolved through an
administrative act of the Registrar because of the Aujla brothers’ failure to
file annual reports. The administrative striking of the Company from the
register and subsequent involuntary dissolution of the Company is a penalty
imposed due to the Aujla brothers’ negligence.
[83]
The Aujla
brothers would not have been entitled to apply for the voluntary dissolution of
the Company without complying with section 268 of the British Columbia Company Act. Section 268 requires
the directors of a company to affirm that the company will be able to pay its
debts soon after dissolution. It reads:
268 (1) If
it is proposed to wind up a company voluntarily, the majority of the directors,
before calling the general meeting at which the resolution for the winding up
of the company is to be proposed, must make an affidavit that they have made
a full inquiry into the affairs of the company and that they are of the opinion
that the company will be able to pay its debts in full within the period, not
exceeding 12 months from the commencement of the winding up, specified in
the affidavit.
(2) An affidavit referred to in subsection (1) must
(a) be made within 5 weeks immediately preceding the
date the members pass the resolution for the voluntary winding up of the
company, and
(b) contain a statement of the assets and liabilities
of the company as at the latest practicable date.
(3) A copy of the affidavit must be
(a) filed with the registrar before the meeting, and
(b) presented to the meeting at which the resolution
for the voluntary winding up of the company is to be proposed.
(4) Every director of a company who makes an affidavit
under this section without having reasonable grounds for the opinion that the
company will be able to pay its debts in full within the period specified in
the affidavit commits an offence.
(5) If a company is wound up in accordance with a
resolution passed within 5 weeks after the making of the affidavit, but its
debts are not paid or provided for in full within the period stated in the
affidavit, it is presumed, until the contrary is shown, that the declarant did
not have reasonable grounds for the declarant's opinion.
(6) This section does not apply to a winding up
commenced before October 1, 1973.
[84]
Should the
directors fail under their obligation as directors or under section 268, the Court
may make provisions under section 290:
290 If a
company is being wound up, the court may
[…]
(i) on application by any of the persons mentioned in
section 271(1), examine into the conduct of any person who has taken part in
the formation or promotion of the company or any person that is a past or
present director, officer, receiver, receiver manager, liquidator or member of
the company if it appears that the person has misapplied, or retained, or
become liable or accountable for, any money, or property, or breach of trust,
in relation to the company, and compel the person to repay or to restore the
money, or property, or any part of it, with interest at the rate the court
considers appropriate, or to contribute the sum to the assets of the company by
way of compensation in respect of the misapplication, retainer or breach of
trust as the court considers appropriate, and this provision applies even if
the conduct complained of is conduct for which the person may be liable to
prosecution.
[…]
[85]
The Aujla
brothers did not voluntarily dissolve their company. The Company was
involuntarily dissolved because of the Aujla brothers’ failure to file annual
reports. The Company also failed to remit taxes owed to the government. To find
that the Aujla brothers are no longer responsible for the liabilities they
evaded by allowing their Company to be struck from the register would allow the
Aujla brothers to profit from their negligence as directors when responsible
directors who properly wind up their companies are not permitted to do so
according to section 268 and following of the Company Act.
[86]
Before the
dissolution of the Company the Aujla brothers could have resigned as directors.
The registrar was obliged, under section 257(1) to send the directors of the
Company a letter indicating their failure to file annual reports. One month
after the mailing of the letter the Registrar was obligated under section
257(3) to publish a notice of its intent to strike the Company off the register
in the Gazette. One month after the publication of the notice, the Registrar
was able to strike the Company off the register. At no time during these delays
did the Aujla brothers resign from the Company. Their failure to do so results
in their ban from benefiting from the two year limitation period set out in
section 323 of the Excise Tax Act.
CONCLUSION
[87]
The Aujla
brothers failed to properly wind up their company, and never resigned as
directors. The Company was struck off and subsequently restored to the register
and “deemed to have continued in existence as if its name had never been struck
off the register and dissolved.” Therefore, the Aujla brothers continue in
their position as directors of the Company and their liability continues as
provided in sections 260 of the British Columbia Company Act and 323(1) of the Excise Tax Act.
[88]
I would
allow the appeal with one set of costs.
[89]
I would
also direct that a copy of these reasons should be placed in each of Court
files A-40-08 and A-41-08.
“Pierre Blais”
APPENDIX “A”
Relevant Statutory Provisions
Section
323 of the Excise Tax Act
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323.(1)
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.
(2)
A director of a corporation is not liable under subsection (1) unless
(a)
a certificate for the amount of the corporation’s liability referred to in
that subsection has been registered in the Federal Court under section 316
and execution for that amount has been returned unsatisfied in whole or in
part;
(b)
the corporation has commenced liquidation or dissolution proceedings or has
been dissolved and a claim for the amount of the corporation’s liability
referred to in subsection (1) has been proved within six months after the
earlier of the date of commencement of the proceedings and the date of
dissolution; or
(c)
the corporation has made an assignment or a bankruptcy order has been made
against it under the Bankruptcy and Insolvency Act and a claim for the
amount of the corporation’s liability referred to in subsection (1) has been
proved within six months after the date of the assignment or bankruptcy
order.
. . .
(4) The Minister may assess any person for any amount
payable by the person under this section and, where the Minister sends a
notice of assessment, sections 296 to 311 apply, with such modifications as
the circumstances require.
(5) An assessment under
subsection (4) of any amount payable by a person who is a director of a
corporation shall not be made more than two years after the person last
ceased to be a director of the corporation.
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323.(1) Les administrateurs d’une personne morale au moment où elle
était tenue de verser, comme l’exigent les paragraphes 228(2) ou (2.3), un
montant de taxe nette ou, comme l’exige l’article 230.1, un montant au titre
d’un remboursement de taxe nette qui lui a été payé ou qui a été déduit d’une
somme dont elle est redevable, sont, en cas de défaut par la personne morale,
solidairement tenus, avec cette dernière, de payer le montant ainsi que les
intérêts et pénalités afférents.
(2) L’administrateur n’encourt de responsabilité selon
le paragraphe (1) que si :
a) un certificat précisant la somme pour laquelle la
personne morale est responsable a été enregistré à la Cour fédérale en
application de l’article 316 et il y a eu défaut d’exécution totale ou
partielle à l’égard de cette somme;
b) la personne morale a entrepris des procédures de
liquidation ou de dissolution, ou elle a fait l’objet d’une dissolution, et
une réclamation de la somme pour laquelle elle est responsable a été établie
dans les six mois suivant le premier en date du début des procédures et de la
dissolution;
c) la personne morale a fait une cession, ou une
ordonnance de faillite a été rendue contre elle en application de la Loi
sur la faillite et l’insolvabilité, et une réclamation de la somme pour
laquelle elle est responsable a été établie dans les six mois suivant la
cession ou l’ordonnance.
[…]
(4) Le ministre peut
établir une cotisation pour un montant payable par une personne aux termes du
présent article. Les articles 296 à 311 s’appliquent, compte tenu des
adaptations de circonstance, dès que le ministre envoie l’avis de cotisation
applicable.
(5) L’établissement d’une telle cotisation pour un
montant payable par un administrateur se prescrit par deux ans après qu’il a
cessé pour la dernière fois d’être administrateur.
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BCCA
PROVISIONS:
Section
1
Definitions and interpretation
1(1)
In this Act:
“director”
includes every person, by whatever name designated, who performs functions of a
director;
Section
257
Registrar
may strike off company
257 (1) If
(a) a
company or an extraprovincial company has for 2 years failed to file with the
registrar the annual report or any other return, notice or document required by
this Act to be filed by it,
(b) the
registrar has reasonable cause to believe that an extraprovincial company has
ceased to carry on business in British Columbia,
(c) a
company or an extraprovincial company has failed to pay, within 10 days after
default in payment of the fine, any fine imposed on it under this Act,
(d) a
company or an extraprovincial company has failed to comply with an order of the
registrar under section 18,
(e) a
reporting company dos not comply with section 139, or
(f) a
company or an extraprovincial company has failed to comply with a requirement
under section 338(3)(b) within 60 days after the date of the mailing to the
company or extraprovincial company of a registered letter referred to in
section 338(4),
the registrar
must mail to the company or extraprovincial company a registered letter
notifying it of its failure or of the registrar’s belief, and of the
registrar’s power under subsection (3).
(2) If
a company or an extraprovincial company is being wound up, and
(a) the
registrar has reasonable cause to believe that no liquidator is acting, or that
the company is fully wound up, or
(b) the
returns required to be made by the liquidator have not been made for a period
of 3 consecutive months,
the registrar
must mail to the company a registered letter inquiring whether a liquidator is
acting, or the company is fully wound up, or notifying the company of the
failure to file returns, or of the registrar’s belief and of the registrar’s
powers under subsection (3).
(3) If,
within one month after the registrar mails the letters referred to in
subsection (1) or (2), the registrar does not receive a response that
(a) indicates
that the failure has been or is being remedied, or is otherwise satisfactory to
the registrar, or
(b) notifies
the registrar that the extraprovincial company continues to carry on business
in British
Columbia,
the registrar
may publish in the Gazette a notice that, at any time after the expiration of
one month after the date of publication of the notice, unless cause is shown to
the contrary, the company will be struck off the register and dissolved, or, in
the case of an extraprovincial company, its registration will be cancelled.
(4) At
any time after one month after the date of publication of the notice referred
to in subsection (3), the registrar, unless good cause to the contrary is shown
to him or her, may strike the company off the register and, on being struck
off, the company is dissolved, or, in the case of an extraprovincial company,
cancel its registration.
(5) A
letter mailed under this section may be addressed to the company at its
registered office, or in the case of an extraprovincial company, at its head
office in British
Columbia.
Section
262
Restoration
to register
262
(1) If a company has been dissolved, or the registration of an
extraprovincial company has been cancelled under this Act or any former Companies
Act, the court may, if it is satisfied that it is just that the company or
extraprovincial company be restored to the register, not more than 10 years
after the date of the dissolution or cancellation, on application by the
liquidator, a member, a creditor of the company or extraprovincial company, or
any other interested person, make an order, subject to the conditions and on
the terms the court considers appropriate, restoring the company or
extraprovincial company to the register.
(2) If
a company or an extraprovincial company is restored to the register under
subsection (1), the company is deemed to have continued in existence, or the
registration of the extraprovincial company is deemed not to have been
cancelled, and proceedings may be taken as might have been taken if the company
had been dissolved, or the registration of the extraprovincial company had not
been cancelled.
(3) The
court may make an order under subsection (1) restoring a company or an
extraprovincial company to the register for a limited period, and, after the
expiration of that period, the company must promptly be struck off the
register, or, in the case of an extraprovincial company, its registration
cancelled, by the registrar.
(4) The
court must not make an order under this section
(a)
in all cases,
(i) unless
notice of the application under subsection (1) and a copy of any document filed
in support of it has been sent to the registrar and the registrar has
consented, and
(ii) until
one week after the application has been published notice of the application
under subsection (1) in one issue of the Gazette and has mailed notice of that
application to the last address shown as the registered office of the company
or head office in British Columbia of the extraprovincial company,
(b) in
the case of a company or extraprovincial company that had, at the time of
cancellation of registration or dissolution, the power of capacity to operate
as a club, without the consent of the minister, and
(c) in
the case of a company or extraprovincial company that was, at the time of
cancellation of registration or dissolution, a reporting company under this Act
or the Securities Act, without the consent of the British Columbia
Securities Commission.
Section 263
Power of
court
263 In an
order made under section 262, the court may give directions and make provisions
it considers appropriate for placing the company or extraprovincial company and
every other person in the same position, as nearly as may be, as if the company
had not been dissolved or the registration of the extraprovincial company
cancelled, but, unless the court otherwise orders, the order is without
prejudice to the rights of parties acquired before the date on which the
company or extraprovincial company is restored to the register.
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