Words and Phrases - "winding-up"


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

"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

Kvas v. The Queen, 2016 TCC 199

involuntary dissolution was not a s. 84(2) winding-up

The general contracting company (“CIA”) of two brothers was dissolved in January of 2008 (the “Dissolution Date”) for failure to file Ontario corporate tax returns. Although “upon such dissolution, the property of CIA technically and legally escheated to the provincial Crown” (para. 40), in fact, a CIA bank account was thereafter used to pay various CIA creditors. In addition to being assessed under s. 160 on the basis of alleged property transfers to them after the Dissolution Date, they were treated as having received a deemed dividend under s. 84(2). However, this position was implicitly dropped by Crown counsel in closing argument, where no mention was made of it.

In indicating that s. 84(2) did not apply, Bocock J stated (at para 23):

Factually, CIA was dissolved involuntarily… . A winding-up transaction referenced in subsection 84(2) involves a more orderly and conceived transaction or series of transactions undertaken by the directors during winding-up, culminating in the final act of dissolution, reorganization or arrangement. This did not factually occur.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) involuntary dissolution did not render the corporation a transferor 183

Perrault v. The Queen, 78 DTC 6272, [1978] CTC 395 (FCA)

A substantial dividend was not paid on the "winding-up, discontinuance or reorganization" of a company's business because, following the payment (and the sale of one of the company's two plants), the company continued to carry on business for over a year, "albeit on a reduced scale". (p. 6277) (s.81(1) of the old Act)

Words and Phrases

Gilmour v. The Queen, 81 DTC 5322, [1981] CTC 401 (FCTD)

The taxpayer was the sole individual shareholder of a personal corporation ("LVG") which, in turn, owned approximately 1/3 of the common shares of another corporation ("Trident") which was engaged in the oil business through holding controlling shareholdings in three corporations. Trident realized proceeds as a result of a sale of the most valuable of these subsidiaries and distributed the proceeds to its shareholders, including LVG, on March 22, 1971 and on August 3, 1971 in anticipation of the liquidation and winding-up of Trident.

Collier J. found (at p. 5324) that "as a practical matter there was a 'discontinuance or reorganization' of Trident's business in 1971 and that the amounts received were "on" such event notwithstanding that they were in anticipation of the formal winding-up of Trident and that there was a possibility, due to warranties given on the sale, that some of the money received might have to be returned.

Words and Phrases

Smythe et al. v. Minister of National Revenue, 69 DTC 5361, [1969] CTC 558, [1970] S.C.R. 64

The taxpayers were shareholders of a company (the "old company") who effectively converted its assets to cash through a series of transactions: those assets were sold to a related company owned in essentially the same manner (the "new company") in consideration for a promissory note; the note was paid-off through bank borrowings of the new company; the old company used those cash proceeds to invest in preference shares of two unrelated companies (the "dividend-stripping companies"); and the taxpayers sold the shares of the old company to the dividend-stripping companies for a cash amount based on the old company's net asset value. A portion of the cash proceeds of the sale were reinvested by the taxpayers in debentures of the new company. In finding that these transactions were governed by s. 81(1) of the pre-1972 Act, with the result that the taxpayers were deemed to receive a dividend, Judson J. stated (p. 5364) that:

"There was a winding-up and a discontinuance of the business of the old company, although it is apparent that there was no formal liquidation under the Winding-Up Act or the winding-up provisions of the Ontario Companies Act."

Judson J also found that the purported sale of the shares of the old company to the dividend-stripping companies should be disregarded.

Words and Phrases