Ahmar – Federal Court of Appeal finds that a director’s plan to turn the company around is not a due diligence defence to failure to remit

After a construction company (Strong Forming) began to run out of money, its sole shareholder, director and officer (Mr. Ahmar) decided that Strong Forming would stop making HST remittances, but that it would continue on with another construction contract using revenues that came in and money contributed by Mr. Ahmar – before Strong Forming had to cease operations. In affirming that Mr. Ahmar had not made out the due diligence defence to director liability for failure to remit, Mactavish JA stated:

… Mr. Ahmar made the conscious decision to have Strong Forming defer payment of its HST debt, and to use these revenues to satisfy other obligations in the hopes of turning the company’s financial position around. …

… Buckingham … state[ed] that the defence under section 323 “should not be used to encourage such failures by allowing a due diligence defence for directors who finance the activities of their corporation with Crown monies on the expectation that the failures to remit could eventually be cured”… .

In its COVID-19 release, Finance is now effectively letting companies defer GST/HST remittance obligations in order to help keep themselves afloat. Will doing so still give rise to director’s liability?

Neal Armstrong. Summary of Ahmar v. Canada, 2020 FCA 65 under ETA s. 323(3).