Words and Phrases - "liquidation"

a
86
b
44
c
76
d
50
e
38
f
31
g
18
h
14
i
73
j
2
k
2
l
32
m
56
n
25
o
38
p
80
q
3
r
76
s
89
t
46
u
15
v
9
w
23
y
2

Michael Kandev, Olivia Khazam, "Was there a ‘Liquidation and Dissolution’? A (Corporate) Existential Question", International Tax (Wolters Kluwer CCH), No. 118, June 2021, pp. 8-9

Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(3.1)

Commercial understanding of “liquidation” and “dissolution” (p. 8)

I]t is reasonably clear that the terms "liquidation" and "dissolution" each have generally accepted and well-understood meaning for Canadian legal practitioners. "Liquidation" generally refers to the factual process of satisfying a corporation's creditors and distributing its remaining assets to its shareholders, and "dissolution" generally refers to the acceptance by the relevant corporate registrar of the corporation's articles of dissolution, which terminates the corporation's legal existence. It is broadly understood that a corporation is "liquidated" before it is "dissolved".

Use of “winding-up” in domestic provisions (p. 9)

What appears to be important in determining whether a corporation has been "liquidated" or "wound-up" is the broad substance of what occurred: Was there a realization of the corporation's assets (if any), a discharge of its liabilities (if any), and a distribution of its surplus (if any) to its shareholders? Canadian courts have qualified transactions and events as "liquidations" or "winding-ups" where, in substance, the corporation was left with no property and no liabilities and the surplus (if any) had been distributed to its shareholders. [citing Dauphin Plains and Smythe].

CRA interpretation of “liquidation and dissolution” (p. 9)

Based on [2003-0034311E5], whether a "liquidation and dissolution" of an FA has occurred is arguably not determined by reference to the specific requirements of Canadian corporate law statutes, but rather by reference to the broader meanings of "liquidation" and "dissolution" in Canadian corporate law parlance. The CRA seems to consider that it is the substance of what occurred (as opposed to the form) that is important.

Words and Phrases
liquidation dissolution winding-up

Dauphin Plains Credit Union Ltd. v. Xyloid Industries Ltd., 80 DTC 6123, [1980] CTC 247, [1980] 1 S.C.R. 1182

Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(3)
"liquidation" includes forced (and not just voluntary) distribution of all the assets of a company

The appellant was a secured debentureholder who, following default by the debtor (“Xyloid”), obtained a court order for the appointment of a receiver. Xyloid had paid only the net amount of wages to employees prior to the appointment of the receiver, and did not have the funds to remit the required amount of source deductions. S. 71(3) of the Unemployment Insurance Act, 1971 (and somewhat similarly a CPP provision) provided that “in the event of any liquidation, assignment or bankruptcy of an employer,” there was a deemed trust in favour of the federal Crown equal to the applicable source deduction amount “whether or not that amount has in fact been kept separate and apart… .”

In finding that the process followed by the receiver amounted to a “liquidation” of Xyloid, Pigeon J stated (at pp. 6129-6130):

We are here dealing with a receivership which was completed by the sale and distribution of all the assets of the employer company. In the statutes of Canada as they stood when the two provisions we have to construe were enacted, “liquidation” was not the word used to describe the voluntary or forced distribution of the asset of a company, the word used was “winding-up… . However, the word liquidation was sometimes used to describe this process of dissolution of a company… .

It seems to me that it would not make sense to hold that, because the assets of a company were realized by a receiver appointed at the request of a creditor rather than by a liquidator or a trustee in bankruptcy appointed by a court, the claim for wages should fail. It appears to me that there is no reason not to give the word “liquidation’ its wide meaning in usual language.

Words and Phrases
liquidation winding-up

24 March 2004 External T.I. 2003-0034311E5 - "liquidation and a dissolution": What does it mean

Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(e)
process of distributing the assets and satisfying the liabilities is "liquidation"

The Agency was advised that under the corporate law of the Czech Republic, there was a distinction between a wind-up with liquidation of a subsidiary (under which an appointed liquidator sold all property of the company and settled all obligations) and a wind-up of a subsidiary into its sole member/shareholder without liquidation where the business assets were transferred to the sole member. In discussing whether either procedure would qualify as "a liquidation and a dissolution" for purposes of s. 95(2)(e.1), the Agency indicated that the question to be answered was whether these procedures corresponded to the nature of a liquidation and a dissolution under Canadian corporate law and stated:

[L]iquidation refers to the act of satisfying the creditors and distributing the remaining assets to its shareholders.

Under our law, a corporation generally has to settle its debts and allocate the property to its shareholders in order to be dissolved. Even if that stage is not referred to as a liquidation under a particular enactment, where the property of the corporation is being distributed to the shareholder and the liabilities of the corporation are discharged, it will likely be qualified as a liquidation for the purposes of the Act. [citing Dauphin Plains]

...[W]hat you refer to as a "winding-up without liquidation" may be similar to what we consider a voluntary liquidation and dissolution under section 211 of the CBCA and provided that you have described Czech law accurately, it could be qualified as "a liquidation and a dissolution" for purposes of paragraph 95(2)(e.1) of the Act.

Words and Phrases
liquidation
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Provincial Law 70
Tax Topics - General Concepts - Foreign Law Czech liquidation procedure compared to Canadian winding-up procedures 110

Dauphin Plains Credit Union Ltd. v. Xyloid Industries Ltd., 80 DTC 6123, [1980] CTC 247, [1980] 1 S.C.R. 1182

Summary Under
Tax Topics - Income Tax Act - Section 159 - Subsection 159(2)

Pigeon J found (at p. 6130) that "the word 'liquidation' [has] its wide meaning in usual language," so that it included a dsitribution of all the assets of an insolvent company by a court-appointed receiver.

Words and Phrases
liquidation