R. v. Giglio, [1997] 2 CTC 2608

Sobier T.CJ.:

This is an application pursuant to section 174 of the Income Tax Act (the “Act”) for an Order for a determination of a question.

Prior to the hearing of the determination, it was agreed that Mr. Frank Decaria (“Mr. Decaria”), previously named as a Respondent and now being bankrupt, would not be included in any determination made, but that any determinations would be limited to Mr. Joseph Giglio (“Mr. Giglio”) and Mr. John Paterson (“Mr. Paterson”).

The question to be determined is whether, and if so when, resignations by Messrs. Giglio and Paterson occurred and whether the assessments issued by the Minister of National Revenue (the “Minister”) were proscribed by subsection 227.1(4) of the Act.

Upon making an investment in Nu-West Hardwood Flooring Contractors Limited (sometimes referred to as “Nu-West” or the “Company”) through Patersil Incorporated, Messrs. Giglio and Paterson became directors of Nu-West joining Mr. Frank Decaria and Mr. John Frucci (“Frucci”). Mr. Frucci soon left Nu-West to engage in another business venture and Mr. Decaria acquired his shares. Therefore at that time Mr. Decaria owned 50% of the shares of Nu-West and Patersil Incorporated the remaining 50%. At the time Mr. Frucci transferred his shares to Mr. Decaria, he also re- signed as an officer and director of the Company according to a resignation dated October 1, 1986, which resignation was stated to be effective on that date. With Mr. Frucci’s resignation, there were three remaining directors, two of whom represented Patersil Incorporated. In order to put Mr. Decaria at ease, and so that there would only be one representative of each 50% shareholder, Mr. Paterson was to resign and thereafter Mr. Decaria would only be required to deal with Mr. Giglio.

Mr. Paterson recalls his intention to resign and stated that he signed something “to resign in either 1986 or 1987”. A signed resignation dated October 1, 1986 was entered into evidence and the signature was acknowledged by Mr. Paterson to be his. A written resolution of the shareholders of Nu-West dated October 1, 1986, signed by Patersil Incorporated and Mr. Frucci, but not signed by Mr. Decaria, purported to accept the resignation of both Mr. Paterson and Mr. Frucci.

Nu-West is a corporation incorporated under the Business Corporation Act of Ontario (“the OBCA”). The relevant provisions of the OBCA dealing with the resignation of directors may be found in section 121 of that statute. It reads as follows:

121. (1) When director ceases to hold office — A director of a corporation ceases to hold office when he or she,

(a) dies or, subject to subsection 119(2/, resigns;

(b) is removed in accordance with section 122; or

(c) becomes disqualified under subsection 118(1).

(2) Idem — A resignation of a director becomes effective at the time a written resignation is received by the corporation or at the time specified in the resignation, which ever is later.

Mr. Paterson’s resignation was in writing and two of the three shareholders accepted it. In any event, it appears to have been delivered to Nu- West since it was found in Nu-West’s Minute Book. I find therefore that Mr. Paterson resigned on October 1, 1986.

Things were not going well for Nu-West in 1991 and Messrs. Paterson and Giglio believed that their investment through Patersil Incorporated and/or personally was lost. However, in mid-1991 a meeting was held

Subsection 119(2) deals with resignations of first directors and is not applicable in this instance.

where Mr. Giglio and Mr. and Mrs. Decaria were present and at which it was decided that each shareholder would invest a further $50,000 in Nu- West and Nu-West would pay its liabilities and cease carrying on business. These monies were in fact paid to Nu-West.

It was about this time that Nu-West’s accountant, Mr. Steven Rose, as well as Nu-West’s bookkeeper, Miss Elizabeth Giglio, sister of Mr. Giglio, were advising Mr. Giglio as to his liability as a director of Nu-West for various things including unremitted employee withholdings under the Act. To this end, Mr. Giglio stated that a meeting was held at the office of a Nu- West’s solicitor, Mr. Magerman. Mr. Giglio maintains that it was at this meeting that he intended to resign. There was no signed resignation presented at the meeting nor was there any unsigned resignation delivered to Nu-West or to anyone. At best, I find that Mr. Giglio gave instructions to Mr. Magerman to prepare the necessary documents to effect his resignation.

While counsel for the Respondents maintains that no signed resignation was executed at the time, he argues that an unsigned resignation would suffice and, in this respect, he refers to the case of Cybulski v. Minister of National Revenue, (1988), 88 D.T.C. 1531 (T.C.C.). With respect, Cybulski does not stand for that proposition. In Cybulski, the Appellant delivered a signed resignation, but since he was a first director of the corporation, his resignation was not effective since a successor had not been elected in his place. Associate Chief Judge Christie of this Court found that, except for the provision of subsection 119(2) of the OBCA the resignation would have been effective. However, having said that he then went on to find that the Appellant exercised due diligence, as required under subsection 227.1(3) and allowed the appeal.

Here one can also say that failure to abide by the provisions of section 121 also rendered any purported resignation ineffective.

Although in some instances, such as a director handing a written but unsigned resignation to an official of a corporation, it might be argued that subsection 121(2) of the OBCA has been satisfied, however, in the case at bar there was not even that. Nothing was ever delivered, or purported to be delivered, to Nu-West which could be construed to be a resignation signed or unsigned.

Several years later in 1994, after Revenue Canada was threatening Mr. Paterson with an assessment under section 227.1 of the Act, Mr. Giglio obtained the minute book of Nu-West and signed his resignation as a director, which he found in that minute book. He apparently was unaware of its existence. Unfortunately, he also forged Mr. Decaria’s signature to resolutions, including one accepting Mr. Giglio’s resignation as of October 1, 1991.

While Nu-West was a small private corporation, the OBCA applies to it as well as to the largest corporation incorporated pursuant to its provisions which of course means that the provisions of section 121 also apply. A director ceases to hold office when he resigns in the prescribed fashion. In some respects, one can attempt to put a broad interpretation on that section, however one cannot ignore it. Mr. Giglio did not cease to be a director by virtue of expressing an intention to do so or by instructing a solicitor to prepare the necessary documents, which in itself, would lead one to believe that Mr. Giglio knew that something more was required than merely stating an intention to resign to make such resignation effective.

In Cybulski (supra), at page 1533, Associate Chief Judge Christie stated the following:

In reassessing the respondent assumed that the appellant was a director of the Company on 15 September 1984, 15 October 1984 and 15 January 1985. The onus is, of course, on the appellant to establish on the balance of probability that this assumption is wrong.

In my opinion the evidence does not go far enough to establish that a resignation took place in October of 1991.

On balance, Mr. Giglio has not satisfied me that he did in fact resign. Accordingly, Mr. Giglio did not cease to be a director in 1991 but at the earliest in 1994. Mr. Giglio therefore remained a director since he did not meet the prerequisites set forth in section 121 of the OBCA.

It is therefore ordered and determined that Mr. Paterson ceased to be a director in October 1991 and that the assessment issued by the Minister of National Revenue was proscribed by subsection 227.1(4) of the Act. It is also ordered and determined that Mr. Giglio remained a director at least until 1994.

Ordered accordingly