Jobin v. R. – TCC: Bankruptcy of corporation does not mean taxpayer ceased to be a director

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Jobin v. The Queen (November 21, 2014 – 2014 TCC 326, Rip CJ). (English translation dated March 25, 2015.)

Précis: Mr. Jobin was assessed in 2010 for unremitted tax and EI withholdings of 3560643 Canada Inc. (the “Corporation”) for periods ending in 2002. The Corporation made an assignment in bankruptcy in 2003, was struck from the Quebec business register in 2005 and the trustee in bankruptcy was discharged in 2007. Mr. Jobin never resigned as a director and the Corporation was never dissolved or wound up. Mr. Jobin’s counsel argued that the assessment in 2010 was made more than 2 years after he ceased to be a director either upon the assignment in bankruptcy, the striking from the Quebec business register or the discharge of the trustee. The Court rejected these arguments. The bankruptcy did not affect the existence of the Corporation. The Corporation was incorporated under the Canada Business Corporations Act (“CBCA”) and being struck from the Quebec business register did not affect its continuing existence. Mr. Jobin was therefore a director of the Corporation in 2010 when the assessment was issued. The appeal was dismissed with costs.

Decision: This was a single issue case:

[1] The only issue in this appeal is whether the Canada Revenue Agency (CRA) issued outside of the prescribed time, by notice of assessment dated May 21, 2010, an assessment of Danny Jobin for amounts of tax owed under section 227.1 of the Income Tax Act (Act) and for amounts owed under section 83 of the Employment Insurance Act.

[2] I was prepared to issue my reasons dismissing the appeal at the conclusion of the hearing. However, counsel for the appellant requested 15 days to search for certain documents and present written submissions. Those 15 days are now up.

[3] The parties agree that, for the periods ending on September 19, 2002, October 2, 2002, and December 17, 2002, 3560643 Canada Inc. failed to withhold from salaries and wages that it had paid amounts for income tax and employment insurance premiums and to remit those amounts to the Receiver General for Canada. The assessment also includes related interest and penalties.

[4] At all relevant times, Mr. Jobin was the sole director as well as the president of the corporation. He did not argue at trial that, as director, he exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances: subsection 227.1(3) of the Act. The sole issue is whether the CRA made the assessments outside of the prescribed time.

The Corporation went bankrupt in 2003 and was struck from the Quebec business register in 2005. The Trustee was discharged in 2007. Mr. Jobin’s counsel argued that the assessment in 2010 was made more than 2 years after he ceased to be a director either upon the assignment in bankruptcy, the striking from the Quebec business register or the discharge of the trustee.

The Court held that the Corporation’s bankruptcy did not cause it to cease to exist:

[11] The fact that a corporation goes bankrupt has no effect on the existence of the corporation. The corporation continues to exist and its officers continue to hold office, although their powers may be reduced. A person does not cease to be a director by virtue of the appointment of a trustee in bankruptcy: Kalef v. The Queen. I have found neither any provision in the Bankruptcy and Insolvency Act nor any reported case that contradicts Kalef.

[Footnote omitted]

Similarly the Court held that being struck off the Quebec business register did not cause the Corporation, which was incorporated under the CBCA, to cease to exist:

[13] The ALP [Act respecting the legal publicity of sole proprietorships, partnerships and legal persons] does not provide for the creation of any corporation. If a company incorporated outside of Quebec but domiciled in Quebec and registered under the ALP is struck off the register, it continues to exist although it may be prohibited from carrying on business in Quebec. Sections 50 to 53 deal with the striking of a corporation off the register and section 56 provides for the revocation of the striking off the register through an order to that effect. It is quite a stretch to consider striking off the register as constituting dissolution in the case of an extra-provincially incorporated legal person.

Mr. Jobin had not resigned, or been removed, as a director and there was no evidence the Corporation was dissolved or wound up:

[16] Section 109 [of the CBCA] provides for the removal of a director by resolution of the shareholders, and subsection 105(1) [of the CBCA] provides that persons under 18 years of age, persons of unsound mind if so found by a court of law, and persons who have the status of bankrupt cannot be directors. Mr. Jobin did not resign as director nor was he removed from that position.

[17] There was no claim by the appellant that the corporation had been dissolved under the provisions of the CBCA or wound up pursuant to the Winding‑up and Restructuring Act or any other legislation. If the corporation had been dissolved, then Mr. Jobin would have ceased to be a director.

[18] Mr. Jobin was a director of the corporation within the two-year period prior to the notice of assessment under appeal herein.

The appeal was accordingly dismissed with costs.