Telephone: (613) 954-8585
Telecopier: (613) 990-1233
XXXXX File: 11750-3 (rw)
XXXXX
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Attention: XXXXX
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April 22, 1994
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Dear Sirs:
We are replying to your inquiry concerning XXXXX role in the financial restructuring of XXXXX. We apologize for the delay in responding to your submission.
You have asked whether the court-ordered appointments, pursuant to the Companies' Creditors Arrangement Act ("CCAA"), of XXXXX bring it within the scope of section 266 of the Excise Tax Act (the "Act"). In other words, you wish to determine whether XXXXX is a "receiver" as defined in that section and who must therefore assume the obligations and liabilities prescribed therein.
Statement of Facts
In summary form, we understand the facts to be as follows:
1. XXXXX is a holding and management company with investments in a number of subsidiary and associated companies which are engaged in the following types of businesses:
(a) financial intermediary and fiduciary operations (trust and lending);
(b) corporate finance; investment and money management;
(c) property and casualty insurance;
(d) mortgage insurance; and
(e) real estate activities.
2. As a result of its financial difficulties, XXXXX and representatives for many of the company's creditors developed a plan to reorganize and restructure XXXXX[.]
3. Following various activities related to the restructuring of XXXXX negotiations between XXXXX and its creditors culminated in a draft agreement (the "Purchase Agreement") whereby XXXXX major assets (the "Transferred Assets") would be sold to XXXXX, a newly-incorporated company to be owned by participating creditors. Under the terms of the Purchase Agreement, in exchange for the sale of the Transferred Assets to XXXXX, XXXXX would receive a reduction in its debt in the amount of XXXXX. However, despite its restructuring activities, XXXXX would continue to operate under its existing management which, subject to certain constraints, retained control over the business and affairs of the company.
4. The Transferred Assets consist primarily of common and preferred shares of several of XXXXX subsidiary and associated companies as well as a number of liabilities owed to these companies and XXXXX[.]
5. The sale of the Transferred Assets as described in the Purchase Agreement (the "Transaction") received court approval in a court order dated July 9, 1992 (XXXXX[).]
6. XXXXX provided that XXXXX be appointed as XXXXX. It was expected that XXXXX in this capacity, would monitor XXXXX activities, ensure that the Transferred Assets were protected, and generally facilitate the Transaction. In particular, XXXXX is specifically authorized to execute the Purchase Agreement and effect the sale of the Transferred Assets to XXXXX and to supervise the calling for and proving of claims against XXXXX by creditors.
7. In performing its duties under the appointment, XXXXX engaged in various activities, including the following:
(a) attendance at meetings and discussions with solicitors respecting the Transaction;
(b) review of all agreements and documents related to the Transaction;
(c) acting as a conduit for delivery of information needed by legal and other advisors to obtain regulatory approvals required to consummate the Transaction;
(d) meeting with and reporting to a steering committee of the senior lenders of XXXXX on a regular basis to keep the steering committee abreast of progress toward implementing the Transaction;
(e) providing assistance in the performance of due diligence on the Transferred Assets; and
(f) held regular meetings and discussions with both XXXXX management and senior management of the major operating entities in the XXXXX group of companies to review operating results, forecasts and significant operating issues.
8. Pursuant to the XXXXX, XXXXX is given a broad range of powers to deal with the Transferred Assets, including the following:
(a) to take all steps and do all things necessary to protect the Transferred Assets;
(b) to take possession of the Transferred Assets;
(c) to pay such debts or obligations of XXXXX or make loans to or investments in the Transferred Assets as in the judgment of XXXXX may be required in order to properly preserve and maintain the Transferred Assets;
(d) to grant specific security on the Transferred Assets for the repayment of monies borrowed; and
(e) to vote the shares held by XXXXX in the Transferred Assets.
9. The XXXXX provides, however, that XXXXX has these powers only to the extent necessary to effect the Transaction as well as a related agreement concerning the participation of creditors in XXXXX[.] In the normal course of performing its duties under the XXXXX, it has not been, nor was it expected to be, necessary for XXXXX to exercise these powers and take possession of, or otherwise assume direct control over, the Transferred Assets from XXXXX management other than taking temporary possession of the certificates and other instruments evidencing the Transferred Assets in order to deliver them to XXXXX[.]
10. An application was brought on June 12, 1992 under the Winding-up Act (Canada) by XXXXX to (1) wind-up XXXXX and appoint XXXXX as Liquidator of the undertaking, property and assets of XXXXX or, alternatively, (2) appoint XXXXX as Provisional Liquidator of the undertaking, property and assets of XXXXX with the authority to complete the Transaction. XXXXX.
11. Under a court order made September 22, 1992 XXXXX was also appointed XXXXX to supervise the calling for and proving of claims by creditors of XXXXX[.] Generally speaking, XXXXX duties under the XXXXX appear to be limited to advertising the proposed reorganization of XXXXX in the prescribed manner and providing creditors with information and claim forms. The order does not otherwise grant to XXXXX any powers over any business or property of XXXXX[.]
12. It is an assumed fact that, to the best of XXXXX knowledge, XXXXX has complied with the Act and, in particular, has filed all returns required of it and has properly accounted for tax.
Interpretation
As you may be aware, section 266 of the Act has been subject to a number of changes since it was originally enacted. However, given the dates on which XXXXX was appointed to the capacities in question and the nature of the issues raised in your submission, it appears that these changes are either not applicable or not material. Consequently, the version of section 266 which is applicable in this case is that which was originally enacted by S.C. 1990, c. 45 (Bill C-62). In order to avoid confusion, any reference to section 266 in this interpretation will be a reference to this version of the provision, unless otherwise stated.
The pertinent portions of section 266 read as follows:
266. (1) Receivers — For the purposes of this Part, where at any time a receiver is appointed to manage, operate or liquidate any business or property, or to manage the affairs, of a person ...
(c) the receiver and the person are jointly and severally liable for the payment of any tax payable by the person before that time or during the period during which the receiver is acting as receiver for the person and for the remittance of any tax collected by the person before that time or during that period, except that
(i) the receiver is liable for the payment of tax payable before that time and the remittance of tax collected before that time only to the extent of the property of the person in possession or under the control and management of the receiver ...
(2) Meaning of "receiver" — In this section, "receiver" means
(a) a receiver or receiver-manager who is appointed under a debenture, bond or other debt security agreement or under a court order to manage or operate the business or property of a person;
(b) a liquidator who is appointed to liquidate the assets of a corporation or to wind up the affairs of the corporation ...
Thus, section 266 does not apply unless a receiver is appointed "to manage or operate the business or property" of another person. A common situation involving receivers is where one assumes control of the assets and operations of a debtor and maintains it as a going concern. In the course of carrying on the debtor's business for a period of time, the receiver may acquire inputs, make supplies, and otherwise deal with the assets of the debtor. In such a case, it is our view that the receiver is appointed to manage or operate the business or property and section 266 would be applicable.
However, according to the facts provided, the purpose of XXXXX appointment under the XXXXX is to oversee the Transaction and the conveyance of the Transferred Assets. In doing so, XXXXX played only a monitoring function and would not assume day-to-day control of XXXXX property or affairs. The question you present is whether XXXXX would be viewed as having been appointed to manage or operate the business or property of XXXXX despite its more limited role. If the answer is no, then section 266 would not be applicable and XXXXX would be relieved of any obligations and potential liability imposed by that provision.
While we recognize that XXXXX role pursuant to this appointment is different than that of a receiver in the usual case, it is nevertheless possible, in our view, to advance arguments both for and against the position that XXXXX is managing or operating the business or property of XXXXX[.] This is not to say, however, that the Department will necessarily adopt the position that section 266 is applicable to XXXXX in this instance. On the contrary, it may be appropriate for the Department to accept that XXXXX is not managing the business or property provided that certain conditions are met.
Pursuant to section 266, the responsibility to account for GST related to a debtor's activities is placed on the receiver for the reason that the debtor would usually not be in a position to do so itself. However, provided that XXXXX has filed the required returns and has accounted for tax, it would not be necessary for the Department to look to XXXXX to do so in this case. In other words, the Department would have no need to assert that XXXXX is a receiver for the purposes of section 266 under these circumstances.
In addition, the Department will not take the position that XXXXX is a receiver in order to impose liability, through section 266, which may result from any non-compliance on the part of XXXXX provided that XXXXX was not, and could not reasonably be expected to be, aware of such non-compliance.
Lastly, it is our view that XXXXX has not been appointed to manage or operate the business or property of XXXXX pursuant to the XXXXX. Consequently, XXXXX would not, in its capacity as Plan Administrator, be a receiver for the purposes of section 266.
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It is our understanding that there is a considerable range of responsibilities and powers which a court may order to be given to a person pursuant to the CCAA. We wish to advise that our preceding comments are intended to apply only to this particular case and with the specific facts as set out above. As each case must be considered on its own merits, our comments here should not be interpreted as being applicable to other situations which may be similar in nature.
This interpretation is based upon our current understanding of the ETA and regulations thereunder in their present form and does not take into account the effects of any proposed or future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
If you have any questions concerning this interpretation, please contact Robert Wong at (613) 952-9577. Any other concerns should be directed to your district Excise/GST office.
Yours truly,
H.L. Jones
Director
General Tax Policy
GTP: XXXXX
c.c.: D. Caron
P. Banham
D. Bennett, Collections
M. Chenier, Collections
XXXXX
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