Attorney General of Canada v. McKinnon, 2000 DTC 6593 (FCA)

Evans J.A., before going on to find that the taxpayers had established the due diligence defence under s. 227.1(3), indicated (at p. 6602) that it was "inappropriate to import into subsection 227.1(1) a requirement that it is only engaged if the directors have de facto control over the financial operation of the company, particularly the payment of its bills". He further indicated that "the situation is different on the appointment of a receiver whose legal powers supercede those of the directors who, in a functional sense, cease to be directors and thus fall outside the ambit of subsection 227.1(1)".

On October 18, 1993 the company's bank dishonoured a cheque drawn in favour of the Receiver General for Canada in respect of September payroll source deduction, and a few days later it informed the company that it should be careful not to issue cheques that would be beyond its credit limit with the bank (which the bank commenced to reduce) and the bank appointed a "monitor" of the company.

Evans J.A. found that the taxpayers had established the due diligence defence under s. 227.1(3) and under s. 323(3) of the Excise Tax Act with respect to failures of their company to remit source deductions and GST after October 18 given that they were acting on the advice of a consultant who advised them that there was a good prospect of finding a new investor and that the company could be quickly turned around, and who then identified a number of potential investors.