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Citation: 2005TCC380
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Date: 20050615
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Docket: 2004-1338(GST)I
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BETWEEN:
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YVAN LABBÉ,
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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]
REASONS FOR JUDGMENT
(Delivered orally from the bench on May 20, 2005, at Québec, Quebec.)
Lamarre Proulx J.
[1] This is an appeal under the informal procedure from an assessment bearing number PQ-2003-7116, dated May 20, 2003, concerning the period from September 1, 2000, to May 31, 2001.
[2] That assessment was made in respect of the Appellant under subsection 323(1) of the Excise Tax Act (the "Act"). That statutory provision describes the liability of the directors of a corporation that fails to pay the net tax.
[3] Subsection 323(5) of the Act provides that such an assessment may not be made more than two years after the person last ceased to be a director.
[4] The Appellant based his defence on that time bar. He claims that he resigned on December 23, 2000, and that he ceased to be a director at that time.
[5] The facts on which the Minister of National Revenue (the "Minister") relies are described in paragraph 7 of the Reply to the Notice of Appeal (the "Reply"), as follows:
[TRANSLATION]
(a) during 2000 and 2001, the Appellant was a director of "Les entreprises Forestières L.P.M. Inc." (hereinafter called the "company");
(b) during the aforementioned years, the company was registered for the purposes of the GST;
(c) following audits, it was found that the company had collected the GST without remitting it to the respondent during the period from September 1, 2000, to May 31, 2001;
(d) on January 28, 2003, the company assigned its assets under the Bankruptcy and Insolvency Act;
(e) although proof of claim was filed on February 13, 2003, that is, within six months of the date of the company's bankruptcy, the Respondent's claim was never fully paid;
(f) the Appellant was a director of the company during the periods when it was required to pay the net tax to the Respondent and handled the day-to-day management of the company;
(g) the Appellant never resigned from his position as director of "Les entreprises Forestières L.P.M. Inc.";
(h) the Appellant, as a director of the company, did not exercise the degree of care, diligence and skill to prevent the violation that a reasonably prudent person would have exercised in comparable circumstances;
(i) in particular, the Appellant took no concrete, positive measures to prevent the violations by the company;
(j) the Appellant preferred to pay the company's suppliers and other accounts instead of making the remittances of tax to the Minister.
[6] The Appellant explained that "Les Entreprises forestières L.P.M. Inc.", which I will refer to as "LPM", acquired forestry equipment in 1999 from Rocan Forestry Ltd., hereinafter "Rocan". That equipment sustained major mechanical breakdowns. For that and other reasons, LPM did not make its payments to Rocan. The affairs of the business apparently began to take a turn for the worse. Being very depressed, the Appellant said that he had resigned on December 23, 2000, on the advice of his brother. To do that, he said he simply filed a resignation memo in his filing cabinet. No one was informed of it. That memo was submitted as Exhibit A-3.
[7] A lawyer's letter dated May 16, 2001, was sent to Rocan on behalf of LPM. It was filed as Exhibit A-2 and begins as follows: "We represent the interests of Les Entreprises Forestières L.P.M. Inc. and those of Yvan Labbé, its president."
[8] That letter essentially stated that LPM owed Rocan nothing, and further claimed damages of $150,000 from Rocan.
[9] LPM and the Appellant received a demand dated August 28, 2002, to pay an amount of $317,899.06.
[10] That demand was filed as Exhibit A-1. It should be noted that it is addressed to the Appellant and to LPM.
[11] LPM's annual return to the Inspector General of Financial Institutions for 2001 appears at tab 5 of Exhibit I-1. It is dated December 10, 2001, and signed by the Appellant on behalf of LPM. In the box entitled "Nature of Activities", the Appellant entered: "Inactive for the moment."
[12] Exhibit I-2 consists of two invoices dated March 30, 2001, for the sale of equipment by LPM to Ferme Ste-Marie de Beauce.
[13] Counsel for the respondent had the Appellant acknowledge a number of documents with respect to which the latter had acted and signed as a director of LPM.
[14] Exhibit I-3 is a release to CIT Financial Ltd. by LPM dated June 18, 2001.
[15] Exhibit I-4 is another document for the transfer of equipment, this one to 9099-9962 Québec Inc., and CitiCapital Corporation Commerciale, dated August 15, 2001.
[16] Exhibit I-5 is the final return made by LPM to the Ministère du revenu du Québec dated June 6, 2002.
[17] Exhibit I-6 is LPM's balance sheet for bankruptcy purposes. It is dated January 28, 2003.
[18] Exhibit I-7 is the minutes of a meeting of LPM's directors for bankruptcy purposes. The meeting was held on January 28, 2003.
[19] Exhibit I-8 is LPM's return concerning the net tax owed for the period from December 1, 2000, to February 28, 2001. The balance payable is $15,827.97. Exhibit I-9 is the net tax return for the period from March 1, 2001, to May 31, 2001. The balance payable is $18,085.11. These two documents are signed by the Appellant, the first dated June 27, 2001, and the second, August 31, 2001.
[20] Exhibit I-10 is a cheque dated March 4, 2002, made out to Revenu Québec by LPM. It is also signed by the Appellant.
Arguments
[21] Counsel for the Appellant said that the case concerned not administrative acts, but rather simple preservation acts. Counsel did not refer to any case law or doctrine on this point.
[22] Counsel for the Respondent argued that these documents were administrative acts and that the Appellant had not lost the capacity of director on May 20, 2003, the date of the assessment. He referred to the Federal Court of Appeal decision in Kalef v. Canada, [1996] F.C.J. No. 269 (Q.L.), more particularly to paragraph 10 of that decision:
10 The Income Tax Act neither defines the term director, nor establishes any criteria for when a person ceases to hold such a position. Given the silence of the Income Tax Act, it only makes sense to look to the company's incorporating legislation for guidance. ...
Analysis and Conclusion
[23] Reference must be made to the incorporating act, which, in this instance, is Quebec's Companies Act.
[24] Section 123.76 of the Companies Act, concerning the term and resignation of a director, reads as follows:
[Continuance in office.] Notwithstanding the expiry of his term, a director remains in office until he is re-elected, replaced, or removed.
[Resignation.] A director may resign from office by giving notice to that effect.
1979, c. 31, s. 27; 1980, c. 28, s. 14.
[25] This section states that a director may resign from office by giving notice to that effect.
[26] Under section 123.81 of the Companies Act, regulatory notices of changes to the board of directors must be given:
Within 15 days after a change is made to the composition of the board of directors, the company must give a notice of a change by filing a declaration to that effect in accordance with the Act respecting the legal publicity of sole proprietorships, partnerships and legal persons (chapter P-45).
[27] The Appellant's resignation from his duties as a director of LPM, dated December 23, 2000, was the Appellant's only defence. However, nothing in the evidence shows that notice of this purported resignation by the Appellant was given. On the contrary, he still presented himself as the director of LPM until at least January 28, 2003. A company is directed by a board of directors. A change of directors is made by resolution. However, the last resolution of LPM filed in evidence describes the Appellant as the director of LPM.
[28] The facts described in the Reply have proven to be true. The evidence showed that the Appellant acted as a director until January 28, 2003, and that he preferred to pay LPM's suppliers rather than remit to the Minister the tax that LPM had collected from recipients as an agent of the government. The evidence did not show in any way that the Appellant had acted to prevent the failure to pay the net tax or that he had resigned from his office.
[29] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 15th day of June 2005.
Lamarre Proulx J.
Translation certified true
on this 8th day of February, 2006.
Garth McLeod, Translator
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