O’Connor
T.C.J.:
This
appeal
was
heard
on
September
3,
1997
at
Vancouver,
British
Columbia
pursuant
to
the
General
Procedure
of
this
Court.
The
Appellant
appeals
against
an
assessment
against
him
as
a
director
of
Cognoscente
Industries
Inc.
(“Corporation”)
pursuant
to
section
227.1
of
the
Income
Tax
Act
(“Act”)
for
unremitted
employee
source
deductions
during
the
period
January,
1991
to
September,
1991.
The
appeal
relates
only
to
the
federal
unremitted
income
tax
totalling
$18,415.81
and
related
penalty
and
interest.
The
outcome
of
this
appeal
however
will
also
affect
the
director’s
liability
for
unremitted
provincial
tax,
Canada
Pension
Plan
and
Unemployment
Insurance
premiums
and
the
associated
penalites
and
interest.
The
Appellant’s
Notice
of
Appeal
relied
only
on
the
defence
of
due
diligence
provided
by
subsection
227.1(3)
of
the
Act
but
at
the
hearing
the
Appellant
raised
the
further
defence
(without
objection
by
counsel
for
the
Respondent)
of
the
limitation
period
of
two
years
provided
for
in
subsection
227.1(4).
The
relevant
provisions
of
the
Act
read
as
follows:
153(1)
Every
person
paying
at
any
time
in
a
taxation
year
(a)
salary
or
wages
or
other
remuneration,
shall
deduct
or
withhold
therefrom
such
amount
as
may
be
determined
in
accordance
with
prescribed
rules
and
shall,
at
such
time
as
may
be
prescribed,
remit
that
amount
to
the
Receiver
General
on
account
of
the
payee’s
tax
for
the
year
under
this
Part
or
Part
XI.3,
as
the
case
may
be.
227.1(1)
Where
a
corporation
has
failed
to
deduct
or
withhold
an
amount
as
required
by
subsection
135(3)
or
section
153
or
215,
has
failed
to
remit
such
an
amount
or
has
failed
to
pay
an
amount
of
tax
for
a
taxation
year
as
required
under
Part
VII
or
VIII,
the
directors
of
the
corporation
at
the
time
the
corporation
was
required
to
deduct,
withhold,
remit
or
pay
the
amount
are
jointly
and
severally
liable,
together
with
the
corporation,
to
pay
that
amount
and
any
interest
or
penalties
relating
thereto.
227.1(2)
A
director
is
not
liable
under
subsection
(1),
unless
(a)
a
certificate
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
registered
in
the
Federal
Court
of
Canada
under
section
223
and
execution
for
such
amount
has
been
returned
unsatisfied
in
whole
or
in
part;
(b)
the
corporation
has
commenced
liquidation
or
dissolution
proceedings
or
has
been
dissolved
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
earlier
of
the
date
of
commencement
of
the
proceedings
and
the
date
of
dissolution;
or
(c)
the
corporation
has
made
an
assignment
or
a
receiving
order
has
been
made
against
it
under
the
Bankruptcy
Act
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
date
of
the
assignment
or
receiving
order.
227.1(3)
A
director
is
not
liable
for
a
failure
under
subsection
(1)
where
he
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
227.1(4)
No
action
or
proceedings
to
recover
any
amount
payable
by
a
director
of
a
corporation
under
subsection
(1)
shall
be
commenced
more
than
two
years
after
he
last
ceased
to
be
a
director
of
that
corporation.
It
is
to
be
noted
that
the
requirements
under
subsection
227.1(2)
for
the
registration
of
a
certificate
in
the
Federal
Court
of
Canada
and
execution
being
returned
unsatisfied
were
met.
As
to
due
diligence,
the
Appellant
testified
that
the
business
of
the
Corporation
was
the
development
and
marketing
of
computer
software
systems.
He
stated
that
he
relied
on
one
Shannon
Richardson
to
handle
the
remittance
of
source
deductions,
that
he
travelled
quite
frequently
and
was
not
a
day
to
day,
hands
on,
manager.
He
acknowledged
that
he
owned
100%
of
the
shares
of
the
Corporation,
was
the
principal
person
involved
in
the
Corporation
and
its
sole
director.
During
the
period
in
question
the
Corporation
had
approximately
four
or
five
other
employees
besides
the
Appellant.
He
explained
that
when
he
hired
Ms.
Richardson
in
December
of
1990
he
outlined
her
duties
as
including
the
handling
of
payroll
and
making
of
remittances
to
Revenue
Canada.
He
testified
that
he
checked
her
references
and
her
resumé
and
felt
that
she
could
be
trusted
to
look
after
these
matters
including
remittances.
Shannon
Richardson
was
subpoenaed
by
the
Minister.
She
gave
testimony
and
told
an
entirely
different
story.
Neither
her
education
nor
her
work
history
qualified
her
for
the
position.
She
was
never
instructed
to
make
remittances
but
simply
to
calculate
the
deductions
using
a
computer
and
pay
the
employees
their
net
pay.
She
was
very
firm
in
stating
that
remittances
were
never
discussed
and
she
understood
they
were
being
handled
directly
by
the
Appellant.
In
her
words,
it
was
his
corporation.
The
Appellant
was
a
hands
on,
day
to
day,
manager.
He
travelled
very
little
and
spent
most
of
his
time
at
the
office.
In
a
word,
she
totally
contradicted
the
principal
portions
of
the
Appellant’s
evidence.
I
found
Shannon
Richardson
to
be
a
most
credible
witness
and
accept
her
testimony.
The
Appellant
was
an
active
director
and
manager
and
had
no
reason
to
believe
that
Shannon
Richardson
was
in
charge
of
making
remittances.
I
therefore
find
that
the
defence
of
due
diligence
fails
absolutely.
As
to
the
limitation
period
provided
for
in
subsection
227.1(4),
the
relevant
facts
are
as
follows:
1.
The
Corporation,
which
was
incorporated
under
the
British
Columbia
Company
Act
(“B.C.
Act”)
in
1986,
was
dissolved
on
September
27,
1991
for
failure
to
file
returns
pursuant
to
section
281
of
that
Act,
2.
The
Attorney
General
of
Canada
applied
to
the
Supreme
Court
of
British
Columbia
for
an
Order
restoring
the
Corporation
to
the
register
pursuant
to
section
286
of
the
B.C.
Act
and
on
July
12,
1993
the
Court
issued
the
following
Order:
THIS
COURT
ORDERS
that
Cognoscente
Industries
Inc.
is
restored
to
the
register
of
British
Columbia
companies
for
a
period
of
not
more
that
two
(2)
year,
commencing
on
the
date
of
the
filing
of
a
certified
copy
of
this
Order
with
the
Registrar
of
Companies,
for
the
purpose
of
enabling
the
Minister
of
National
Revenue
to
facilitate
the
collection
of
the
tax
debt
owing
by
Cognoscente
Industries
Inc.
to
the
Receiver
General
For
Canada
for
Cognoscente
Industries
Inc.
1991
and
1992
taxation
years.
THIS
COURT
FURTHER
ORDERS
that
Cognoscente
Industries
Inc.
shall
be
deemed
to
have
continued
in
existence
as
if
its
name
had
never
been
struck
off
the
register
and
dissolved,
without
prejudice
to
the
rights
of
any
parties
which
may
have
been
acquired
prior
to
the
date
on
which
Cognoscente
Industries
Inc.
is
restored
to
the
register
of
British
Columbia
Companies.
3,
By
a
Certificate
of
Restoration
dated
August
5,
1993,
the
Registrar
of
Companies
certified
that
the
Corporation
had
been
restored
to
the
register
for
a
period
of
two
years
ending
August
4,
1995.
The
Appellant’s
position
is
that
the
company
legally
died
on
September
27,
1991.
when
it
was
struck
from
the
register,
that
the
Appellant
ceased
to
be
a
director
at
the
same
time
and
since
he
was
only
assessed
in
October
of
1993
the
two
year
period
provided
for
in
subsection
227.1(4)
had
expired
and
he
is
therefore
not
liable
as
a
director.
The
relevant
provisions
of
the
B.C.
Act
are
as
follows:
281
(1)
Where
(a)
a
company
...
has
for
2
years
failed
to
file
with
the
registrar
the
annual
report
or
any
other
return,
notice
or
document
required
by
this
Act
to
be
filed
by
it;
the
registrar
shall
mail
to
the
company
...
a
registered
letter
notifying
it
of
its
failure
or
of
his
belief,
and
of
his
powers
under
subsection
(3).
(3)
Where,
within
one
month
after
the
registrar
mails
the
letter
referred
to
in
subsection
(1)
or
(2),
he
does
not
receive
a
response
that
(a)
indicates
that
the
failure
has
been
or
is
being
remedied,
or
is
otherwise
satisfactory
to
him;
or
the
registrar
may
publish
in
the
Gazette
a
notice
that,
at
any
time
after
the
expiration
of
one
month
from
the
date
of
publication
of
the
notice,
the
company
will,
unless
cause
is
shown
to
the
contrary,
be
struck
off
the
register
and
dissolved,...
(4)
At
any
time
after
one
month
after
the
date
of
publication
of
the
notice
referred
to
in
subsection
(3)
the
registrar
may,
unless
good
cause
to
the
contrary
is
shown
to
him,
strike
the
company
off
the
register
and,
thereon,
the
company
is
dissolved,...
284.
The
liability
of
every
director,
officer,
liquidator
and
member
of
a
company
that
is
struck
off
the
register,
...
pursuant
to
section
280,
281,
283
or
344,
shall
continue
and
may
be
enforced
as
if
the
company
had
not
been
struck
off
the
register.
286.(1)
Where
a
company
has
been
dissolved,
…
under
this
Act
or
any
former
Companies
Act,
the
court
may,
if
it
is
satisfied
that
it
is
just
that
the
company
...
be
restored
to
the
register,
not
more
than
10
years
after
the
date
of
the
dissolution
or
cancellation,
on
application
by
the
liquidator,
a
member,
a
creditor
of
the
company
...,
or
any
other
interested
person,
make
an
order,
subject
to
the
conditions
and
on
the
terms
the
court
considers
appropriate,
restoring
the
company
...
to
the
register.
(2)
Where
a
company
or
...
is
restored
to
the
register
under
subsection
(1),
the
company
shall
be
deemed
to
have
continued
in
existence,
...
and
proceedings
may
be
taken
as
might
have
been
taken
if
the
company
had
not
been
dissolved,...
(3)
The
court
may
make
an
order
pursuant
to
subsection
(1)
restoring
a
company
...
to
the
register
for
a
limited
period,
and,
after
the
expiration
of
that
period,
the
company
shall
promptly
be
struck
off
the
register,...
287.
In
an
order
made
under
section
286
the
court
may
give
directions
and
make
provisions
it
considers
appropriate
for
placing
the
company
...
and
every
other
person
in
the
same
position,
as
nearly
as
may
be,
as
if
the
company
had
not
been
dissolved
...;
but,
unless
the
court
otherwise
orders,
the
order
shall
be
without
prejudice
to
the
rights
of
parties
acquired
prior
to
the
date
on
which
the
company
...
is
restored
to
the
register.
Counsel
for
the
Appellant
referred
to
the
decision
of
the
British
Columbia
Court
of
Appeal
in
Natural
Nectar
Products
Canada
Ltd.
v.
Theodor,
[1990]
5
W.W.R.
590
(B.C.
C.A.).
In
that
case,
the
corporate
plaintiff
brought
an
action
against
one
of
its
directors.
At
the
time
the
writ
was
issued,
the
plaintiff
corporation
had
been
struck
from
the
register
and
dissolved
for
failure
to
file
annual
reports
under
the
B.C.
Act.
It
was
subsequently
restored.
The
defendant
director
applied
for
an
Order
dismissing
the
action
on
the
ground
that
the
writ
was
not
made
valid
by
the
subsequent
restoration.
The
court
held
that
while
section
287
permitted
retroactive
effect
to
be
given
to
an
Order
of
the
court
restoring
a
company
to
the
register,
the
Order
in
question
did
not
have
this
effect.
Section
287
gives
the
court
discretion
to
give
appropriate
directions
replacing
the
corporation
in
the
same
position,
as
nearly
as
may
be,
as
if
the
company
had
not
been
dissolved.
In
restoring
the
plaintiff,
however,
the
court
Order
had
not
included
the
words
“as
if
its
name
had
never
been
struck
off”
the
register
or
similar
words.
Accordingly,
the
court
concluded
that
the
restoration
Order
could
have,
but
did
not
have
retroactive
effect
with
respect
to
this
action
and
the
writ
was
held
not
to
be
valid.
In
my
opinion
the
decision
in
Natural
Nectar
is
not
applicable
in
the
present
appeal
as
the
Order
in
question
in
this
appeal
did
contain
the
magical
words
“as
if
its
name
had
never
been
struck
off’.
Counsel
for
the
Appellant
also
referred
to
R.
v.
Gill
(1989),
40
B.C.L.R.
(2d)
360
(B.C.
Co.
Ct.).
In
Gill,
the
County
Court
had
to
consider
the
liability
of
an
individual
who
had
been
charged
criminally
in
his
capacity
as
a
director
of
various
British
Columbia
corporations
with
failing
to
provide
signed
corporate
tax
returns
under
the
Income
Tax
Act.
At
the
time
the
Minister’s
demand
to
file
returns
was
served
the
corporation
was
dissolved
and,
being
non-existent,
the
former
corporation
could
not
be
required
to
file
a
tax
return.
Consequently
no
valid
demand
could
be
made
of
the
accused
to
file
such
a
return.
The
fact
that
the
corporation
was
restored
to
the
register
subsequent
to
the
demand
did
not
alter
the
factual
situation.
Although
subsection
286(2)
provides
that
where
a
company
is
restored
to
the
register
and
is
deemed
to
have
continuing
existence,
the
court
held
that
this
provision
could
not
be
interpreted
as
having
the
intent
or
effect
of
retroactively
creating
criminal
liability
arising
from
the
failure
of
a
deceased
company
to
act
from
its
grave
(or
the
failure
of
a
third
party
to
act
on
its
behalf).
Its
subsequent
revival
could
not
retroactively
validate
the
demands.
The
Crown
in
Gill
relied
on
section
284
of
the
B.C.
Act
which
refers
to
the
liability
of
a
director
continuing
as
if
the
company
had
not
been
struck
off
the
register.
On
this
issue
the
Court
held
as
follows
(at
364):
In
my
judgment,
the
“liability”
to
which
this
section
refers
means
any
liability
which
as
a
matter
of
law
was
in
existence
immediately
prior
to
the
moment
of
dissolution.
If
a
ministerial
demand
pursuant
to
s.
231.2
of
the
Income
Tax
Act
can
be
said
to
create
a
liability
on
the
part
of
the
person
to
whom
it
was
addressed
to
do
certain
things
in
response,
such
liability
arises
only
at
the
time
of
the
demand.
This
appeal
is
distinguishable
from
Gill.
That
case
dealt
with
criminal
proceedings
and
the
technical
validity
of
the
demand.
Moreover,
the
director’s
liability
in
this
appeal
clearly
existed
prior
to
the
moment
of
dissolution.
Counsel
for
the
Respondent
referred
to
Montreal
Trust
Co.
v.
Boys
Scouts
of
Canada
(Edmonton
Region)
Foundation,
(1978),
88
D.L.R.
(3d)
99
(B.C.
S.C.)
.
In
that
case
the
British
Columbia
Supreme
Court
examined
subsection
189(1)
of
the
Alberta
Companies
Act,
a
provision
very
similar
to
section
287
of
the
B.C.
Act.
In
each
case
the
effect
of
a
restoration
order
was
that
the
company
was
to
be
deemed
to
have
continued
in
existence
as
if
it
had
never
been
struck.
The
court
concluded
that
the
deeming
provision
raised
a
conclusive
presumption
and
held
that
a
legacy
to
an
incorporated
charity
which
had
been
struck
off
the
register
before
the
testator’s
death
but
restored
thereafter
did
not
lapse
and
remained
valid.
The
court
stated
as
follows
at
(at
104-105):
Two
phrases
of
s.
189
are
of
particular
significance:
“the
company
shall
be
deemed
to
have
continued
in
existence”,
and
“but
without
prejudice
to
the
rights
of
parties
acquired
prior
to
the
date
on
which
the
company
is
restored
to
the
register”.
Counsel
for
the
petitioner
said
one
possible
interpretation
of
this
“deeming
provision”
is
that
it
merely
provides
for
a
presumption
that
the
company
has
continued
in
existence,
rather
than
conclusively
deeming
the
company
to
have
continued
in
existence.
Thus
if
the
presumption
is
rebutted
in
some
particular
case
the
company
will
not
be
deemed
to
have
remained
in
existence,
i.e.,
for
that
period
of
time
when
a
right
was
created
such
as
a
vesting
right
in
an
estate.
I
agree
that
what
is
meant
by
“deemed”
depends
upon
the
circumstances
in
each
case“.
Here
I
find
that
s.
189
of
the
statute
and
the
order
made
thereunder
established
a
conclusive
rather
than
a
rebuttable
presumption
that
the
company
continued
in
existence,
so
that
not
only
rights
which
previously
existed
but
rights
which
were
acquired
during
the
period
of
hiatus
could
retroactively
become
and
belong
as
part
of
the
property
of
the
corporation.
This
“conclusive”
presumption
does
not
conflict
with
the
protection
of
third
parties
as
referred
to
in
s.
189
of
the
Act,
i.e.,
“without
prejudice
to
the
rights
of
parties
acquired
prior
to
the
date
on
which
the
company
is
restored
to
the
register”.
The
rights
referred
to
are
those
which
third
parties
have
acquired
in
dealing
with
the
company
during
the
period
between
the
dissolution
and
restoration.
In
my
opinion,
the
principals
set
forth
in
Montreal
Trust
are
correct.
The
effect
of
the
restoration
order
was
that
the
company
was
deemed
to
continue
in
existence.
Moreover
by
virtue
of
section
284
of
the
B.C.
Act
the
liability
of
a
director
continued.
Consequently,
the
Appellant
is
not
entitled
to
take
advantage
of
the
limitation
period
provided
in
subsection
227.1(4).
In
conclusion,
for
the
above
reasons,
the
appeal
is
dismissed
with
costs.
Appeal
dismissed.
Email this Content