Chilton Insurance Consulting Inc. v. Canada (Attorney General), [1996] 2 CTC 185

Wedge J.: — Both Chilton Insurance Consulting Inc. and Trevor Chilton (as director of the Chilton company) were convicted of unlawfully failing to comply with a demand to provide completed and signed Corporate income tax returns for the years 1990 (Count 1) and 1991 (Count 2). The Provincial Court judge fined the company and Mr. Chilton $1,000 on each count. This is an appeal from the convictions.

There is no dispute that Chilton Insurance Consulting Inc. was struck off the Corporate Registry on May 31, 1989 for failing to file its annual return as required under section 290 of the Business Corporations Act, R.S.S. 1978, c. B-10, nor that the company and Chilton failed to file income tax returns in 1990 and 1991. The issue at trial and on appeal was whether under the Act, the company continued to exist once it was struck off the registry for failure to file corporate returns. If it did not exist it could not file income tax returns. On appeal, Chilton Insurance Consulting Inc. conceded that the Saskatchewan Act, unlike legislation in other provinces, does not provide that a corporation is automatically dissolved when its name is struck. The division of the Act entitled “Liquidation and Dissolution” in subsections 201 to 206, sets out procedures, designed to protect creditors, whereby a company may be dissolved. It is common ground that these procedures were not followed here.

The cases relied upon by the appellants turned upon the interpretation of British Columbia, Alberta, Manitoba and Ontario statutes, which provide for dissolution upon failure to register, are of no help to the appellant. I shall not refer to them.

As noted by the trial judge, the Crown and the defence tendered, at trial, evidence as to whether the company held out to the public that it was in existence and carrying on business after the date on which it was struck from the register. He found as a fact (page 127 of the transcript) that the company held out that it continued to exist through 1990 and 1991 through Mr. Chilton’s use of company letterheads and bank account and a company listing in the telephone book. It is obvious that Mr. Chilton’s exculpatory explanations were not accepted by him.

However, the trial judge was of the opinion that evidence that a company held out that it was in existence could not be used to prove that it was actually in existence. He said (at page 129 of the transcript):

To exist in law, a corporation must be declared by the law of some jurisdiction to have come into existence and to continue to be in existence, because the legislation of the jurisdiction creating it says that it continues or at least implies that it continues in existence by continuing to give it at least one legal power or obligation.

I agree with this reasoning. Subsections 262(1) and 263(3) of the Act, under which a corporation is deemed to be carrying on business if it does certain things or is listed in a Saskatchewan telephone directory do not help in a determination of whether a corporation exists. They would assist the Crown in a prosecution under section 299 of the Act which makes it an offence for a person to carry on business under a corporate name which is not on the registry.

The appellants maintain that, although the company was not dissolved, it was (in the words of Mr. Justice Turgeon, in Dadson v. Grest, [1928] 1 W.W.R. 287, 22 Sask. L.R. 253 (C.A.) “paralysed in its activities and unable, consequently, to operate under the Act.” In a British Columbia case Thomas v. Minister of National Revenue (1990), [1990] 2 C.T.C. 2315, 90 D.T.C. 1806 (TCC), such a company was said to be in a “state of suspense”. The appellants’ reason that it is not logical to conclude that a company, which is paralysed or in a state of suspense, is able to activate itself for the purpose of filing income tax returns.

The legislative scheme in Saskatchewan is set out in Part II of the Act, titled Registration of Corporations. The Provincial Court judge examined this scheme very carefully.

A corporation which is not registered under the Act suffers certain disabilities. It is unlawful for it to carry on its usual course of business and, under subsection 275(1), it is not capable of commencing or maintaining legal action in respect to its business contracts. But section 276 provides that a corporation has the legal ability to overcome any disability by reregistering and section 277 validates actions taken during de-registration. Section 278 specifically enacts that no act of a corporation is invalid by reason only that it is not registered. Section 287(4) gives the director power to revoke registration but, by subsection 287(5) such revocation cannot affect the rights of creditors. Section 291 confirms that all liabilities of the corporation and its officers continue after it is struck from the register.

The trial judge said (on pages 139-40):

I conclude that a company created under Saskatchewan law does not cease to exist because it is struck off the register, by virtue of the words and the legislative scheme of the Act. Moreover, it makes no “policy” sense to conclude that a corporation ceases to exist for that reason, because it would allow people to escape their non-contractual disabilities. For example, corporations and directors of corporations which are struck off could plead exemption from liability for health and safety regulations or anti-pollution regulations or holiday, pension, unemployment or wage benefits imposed by law on, for example, directors of corporations, as well as on legal obligations to file tax returns. The provinces have at least as much interest in such things, including taxes, as the federal government.

If the appellants’ interpretation of the legislative scheme is valid, then a corporation could escape its liability for such important social concerns as environmental damage by simply failing to file its company returns. I do not think such an easy escape hatch was intended.

In his well reasoned judgment, the trial judge made no error in law in convicting Chilton Insurance Consulting Inc. I add that this same result was reached, within a few days of the trial decision here, in R. v. Rasmussen [1995] 5 W.W.R. 536, 130 Sask. R. 308 (Prov. Ct.) affirmed at, [1995] 2 W.W.R. 339, 138 Sask KR. 311 (Q.B.).

There remains the question of Mr. Chilton’s conviction as director of the appellant company, under section 242 of the Income Tax Act, which provides that where a corporation is guilty of an offence under the Act, an officer, director or agent of the corporation who directed, assisted or acquired in or participated on the commission of an offence is a party to and guilty of the offence.

As noted by the trial judge (page 147 — transcript), Mr. Chilton was the only human being involved in the company. He admitted at trial (page 164

- transcript), that he was the “only shareholder, only director and president during the life of the company”. A human person had to be a party to a decision of a corporate person not to file corporate tax returns. Having found that the company “existed” after it was struck off, and continued to incur liabilities, the logical inference is that its only director and officer can continue to act on its behalf.

It was also argued that an invalid demand was made upon Trevor Chilton because court authorization, required under subsection 231.2(2) of the Income Tax Act was not obtained. This section reads:

Unnamed persons — The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection (1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection (3).

[Emphasis added.]

This argument fails on a plain reading of the section. The notice to Trevor Chilton (the third party) was to provide information relating to Chilton Insurance Consulting Inc. — not an “unnamed” person.

In support of its position that compliance with the notice was not possible, the appellant relied upon R. v. Gill (sub nom. Canada v. Gill), [1990] 2 C.T.C. 318, 40 B.C.L.R. (2d) 360 (Co. Ct.). The reasons why Mr. Gill was not convicted is to be found on page 323 (B.C.L.R. 367).

Inasmuch as the demand letters in each case call for the signed income tax return of the corporation, it is clear that those returns must be executed in strict accordance with the provisions of section 236. A dissolved corporation is a dead corporation and with it die its officers and directors. There appears to be no evidence that Mr. Gill was at any tine an officer of any of the corporations, although he was a director. There was accordingly at the time of demand, no officer in existence capable in law of signing a return, nor was there a board of directors capable in law of authorizing any other person to sign a return on behalf of the defunct corporation. It should be noted that a director as such is neither an officer of the company nor a person who is a designated signatory pursuant to section 236.

Chilton Insurance Consulting Inc. was not dissolved nor “dead” and the evidence was that Mr. Chilton was president from incorporation to striking out.

In the recent Rasmussen case referred to above, Saskatoon Salvage Co. was convicted of failure to file a Goods and Services Tax return, but Mr. Rasmussen, fired as a director, was not. The distinguishing facts in that case are that the trial judge found that a demand was made only upon the corporate defendant and there was no evidence that Mr. Rasmussen was a director.

The appeals of both the corporate and the individual defendant are dismissed.

Appeals dismissed.