T-1228-78
Coopers & Lybrand Limited, agent for Mercantile
Bank of Canada and Receiver and Manager of
Venus Electric Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Gibson J.—Toronto, June 26;
Ottawa, July 11, 1979.
Income tax — Withholding tax from salaries paid —
Receivership — Plaintiff appointed receiver under terms of
debenture, caused net salaries of employees of company in
receivership to be paid — Minister assessed plaintiff as person
who had failed to remit amount of withholding tax required by
the Income Tax Act by virtue of s. 227(9),(10) — Whether or
not plaintiff required to remit taxes pursuant to s. 153(1)(a) —
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 150(3), 153(1)(a),
227(5),(9),(10), 248.
Plaintiff caused to be paid to the employees of Venus Electric
Limited the net salaries and wages (the gross pay minus
withholding tax, Canada pension plan and unemployment in
surance contributions) accrued due and owing them for a
two-week period. Plaintiff is the receiver and manager appoint
ed by The Mercantile Bank of Canada, holder of a fixed and
floating charge debenture, pursuant to the enabling powers to
appoint given in the debenture written contract by Venus
Electric Limited to the Bank. The power given authorized the
receiver to take possession of the business, not as the business of
the receiver but as the business of Venus Electric Limited, and
authorized the receiver to carry on the business observing all
equitable principles vis-Ã -vis the rights of others than the Bank
until the receiver had realized the amount due the debenture
holder. The Minister assessed plaintiff as a person who had
failed to remit or pay an amount deducted or withheld as
required by this Act or Regulations by virtue of section
227(9),(10) of the Income Tax Act. The issue is whether or not
plaintiff was by reason of section 153(1)(a) of the Income Tax
Act required to remit withholding taxes.
Held, the appeal is allowed. Receivership is not to be read
ejusdem generis with "liquidation, assignment or bankruptcy"
as those words are used in section 227(5) of the Act. Plaintiff,
acting as agent only and not as principal to what it did as
receiver in paying these employees was not required under the
Income Tax Act (1) to comply with section 153(1)(a) by
requiring The Mercantile Bank of Canada to put it in funds for
the gross amount of the wages and salaries due the employees
of Venus Electric Limited so that it could remit the requisite
withholding amount from the gross amount and remit such
amount on account of the employees' tax; (2) to comply with
section 227(5) if it had been put in funds for the gross amount
of such wages and salaries because during any material time
there was not any "liquidation, assignment or bankruptcy" of
Venus Electric Limited and that subsection does not concern
the situation where at the material time the company was being
carried on by this receiver as agent. The assessment should
have been against the proper principal, Venus Electric Limited
to which section 153(1) (a) applies.
INCOME tax appeal.
COUNSEL:
T. A. Sweeney for plaintiff.
J. R. Power and P. Barnard for defendant.
SOLICITORS:
Borden & Elliot, Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
GIBSON J.: The plaintiff, Coopers & Lybrand
Limited, after September 24, 1976 caused to be
paid to the employees of Venus Electric Limited
the net salaries and wages accrued due owing to
them for the two-week period ending September
24, 1976. The amount paid totalled $190,270
which amount equals the net pay-roll amount that
was due and payable as of September 24, 1976 to
the employees or (describing the amount paid in
another way) is an amount equal to the gross
payment due, minus the amount that normally
would be deducted for withholding tax, Canada
pension plan and unemployment insurance contri
butions.
The issue for determination is whether or not
the plaintiff, Coopers & Lybrand Limited, was by
reason of the provisions of section 153(1)(a) of the
Income Tax Act required to remit withholding
taxes which would have been the sum of
$28,499.78 (see Exhibit A-9).
The plaintiff is the receiver and manager
appointed on September 24, 1976 by The Mercan
tile Bank of Canada, holder of a fixed and floating
charge debenture, pursuant to the enabling powers
to appoint given in the debenture written contract
by Venus Electric Limited to the Bank. In that
debenture contract, a copy of which is Exhibit
A-2, at paragraph 4-04 Venus Electric Limited by
the power given authorized the receiver to take
possession of the business, not as the business of
the receiver, but as the business of Venus Electric
Limited, and authorized the receiver to carry on
the business observing all equitable principles vis-
à -vis the rights of others than the Bank, namely,
Venus Electric Limited and its other creditors, (cf
The Clarkson Company Limited v. The Queen')
until the receiver had realized the debt due to the
debenture holder, The Mercantile Bank of
Canada.
On September 24, 1976, the plaintiff according
ly took possession of the business and commenced
to carry it on.
(Subsequently, the plaintiff, Coopers &
Lybrand Limited, was appointed receiver by the
Court, but that appointment is not relevant in the
determination of the issues on this appeal.)
Coopers & Lybrand Limited by virtue of the
words in the floating charge debenture contract is
called a receiver, but it is really an agent. At
paragraph 4-04 the debenture contract reads: "any
such Receiver shall for all purposes [be] deemed to
be the agent of the Company and not the agent of
the Bank ... any such Receiver may be vested
with all or any of the powers and discretions of the
Bank". As agent it is a servant not a principal. It
has great powers, but it is not personally liable on
contracts of the company Venus Electric Limited
under this floating charge debenture. The Bank
appointed Coopers & Lybrand Limited to do for it
that which it might have done itself, namely, to
carry on the business of the company, Venus Elec
tric Limited, and to do anything that the directors
and officers of the company could have done save
for this appointment of a receiver. (See D. Owen &
Co. v. Cronk 2 ; The Clarkson Company Limited v.
The Queen'; Re Emmadart Ltd 4 ; Toronto-
Dominion Bank v. Fortin 5 ; Re International
Woodworkers of America, Local 1-324 and Wes -
cana Inn Ltd. 6 ; and Peat Marwick Limited v.
Consumers' Gas Company'.)
'79 DTC 5150 at 5152.
2 (1895) 1 Q.B. 265, 64 L.J.Q.B. 288.
3 79 DTC 5150 at 5152, 5153 (F.C.A.).
4 [1979] 1 All E.R. 599 at 602 (Ch. D.).
5 (1978) 85 D.L.R. (3d) 111 at 113 (B.C.S.C.).
6 (1978) 82 D.L.R. (3d) 368 at 373 (Man. C.A.).
(1978) 26 C.B.R. (N.S.) 195 at 197 (Ont. S.C.).
It follows that the contractual appointment of
Coopers & Lybrand Limited as receiver of the
company Venus Electric Limited did not operate
as a dismissal of the employees of the company
Venus Electric Limited or as a change of their
employer inasmuch as there was no change in the
personality of the employer, namely, Venus Elec
tric Limited, which continued to carry on its busi
ness. Management only was in the care and con
trol of the agent, the receiver, Coopers & Lybrand
Limited. That was the change.
After September 24, 1976, The Mercantile
Bank of Canada put Coopers & Lybrand Limited
in funds with which, on behalf of the company
Venus Electric Limited, it paid to the employees
the wages and salaries that had accrued due to
them as of September 24, 1976, for the two-week
period prior to that date.
The defendant submits in part as follows,
namely that:
The sole issue for determination is whether or not the
Plaintiff was subject to the provisions of Section 153(1)(a) of
the Income Tax Act and thus required to remit withholding
taxes (which were deducted from the gross payroll as indicated
on the payroll records of Venus Electric Limited, for the pay
periods ending September 24, 1976), when it paid an amount of
$190,270.00 to the employees of Venus Electric Limited, which
amount equals the net payroll amount of the employees of
Venus Electric Limited after deductions for that period.
The defendant also submits that the evidence
established the following facts and these facts are
correct:
On September 24, 1976, the Mercantile Bank of Canada
under and pursuant to the Demand Debenture, dated March
26, 1976, appointed Coopers & Lybrand Limited as Receiver
and Manager of Venus Electric Limited.
By letter dated September 25, 1976, Coopers & Lybrand
Limited, as Receiver and Manager, notified the employees of
Venus Electric Limited that it had been appointed Receiver
and Manager and were now responsible for the administration
of the company's affairs and that they intended to continue the
company's operations.
By letter dated September 27, 1976, Coopers & Lybrand
Limited, as Receiver and Manager, notified all creditors that:
(a) it had been appointed Receiver and Manager of Venus
Electric Limited,
(b) it was now responsible for the administration of the
company's affairs,
(c) it intended to continue the company's operations.
The amount of $190,270.00 referred to in paragraph 4 of the
Plaintiff's Statement of Claim, is an amount equal to the gross
payroll of Venus Electric Limited for the period ending Sep-
tember 24, 1976, minus the deductions for withholding taxes,
C.P.P., and U.I. contributions.
The Payroll Register of Venus Electric Limited, maintained
by the Scotia Bank for the pay period ending September 24,
1976, indicates that deductions had been made on the account
ing records for withholding tax, etc.
That on September 24, 1976, or up to November 5, 1976,
there are no facts indicating that the employees of Venus
Electric Limited, were, on that date or during that period,
dismissed, or that new contracts of employment were factually
entered into with the various employees, or further, that any
notification was given to the employees by the Receiver and
Manager, notifying them that they were employees of any other
entity.
Funds to meet the payrolls of Venus Electric Limited, ending
on September 24, 1976, were provided for by the Mercantile
Bank of Canada and the cheques of Venus Electric Limited,
relating to such payroll, were either approved or signed by
Coopers & Lybrand Limited as Receiver and Manager.
The income tax deductions indicated on the T-4's of the
employees of Venus Electric Limited equal in amount the total
cumulative tax deducted on the payroll register of Venus
Electric Limited for the period ending September 24, 1976.
The submission and argument of the defendant
in part is as follows:
... the specific language of S. 153 of the Income Tax Act
and its utilization of the words "every person"
... must be taken to have been deliberately chosen ....
and further,
The fact is that the Statute goes beyond the relationship of
employer and employee, and binds any person who is paying
the wages of an employee, including G. & G. It is simple as
that.
(Per Berger, J. In re Bankruptcy of G. & G. Equipment Co.
Ltd. 74 DTC 6407 at 6408 (S.C.B.C.))
and thus, that section properly takes, within its statutory ambit,
a class of person like Receiver Managers who factually and
legally are by their functions, when paying a claim for wages or
arrears of wages
... a person paying salary or wages, as he is in the same
shoes as was, or ought to have been, the insolvent corporation
(Per Monnin, J.A. in Dauphin Plains Credit Union Lim
ited v. Xyloid Industries Ltd. et al, at page 12, Unreported
decision of the Manitoba Court of Appeal, dated February
6, 1979).
(The submission further was that a pure volun
teer stranger who paid salary or wages, for which
such person was not personally liable, could not
escape the provisions of section 153(1)(a) of the
Act, that is if such a person gratuitously, out of his
own pocket, paid any net salary or wages, he
would also have to pay to the Receiver General of
Canada the amount of any withholding taxes after
computing what would be the gross pay or wages
in such circumstances.)
... the appointment of the Receiver Manager, on the 24th day
of September, 1976, pursuant to the terms of the Demand
Debenture, had the effect of
... [suspending] the power of the directors over the assets of
which the Receiver [had] been appointed, so far as requisite
to enable the Receiver to discharge his functions ....
(per Brightman, J. in Re Emmadart Limited [1979] 1 All
E.R. 599 at 602 (Ch. D.))
and further, that the receiver manager then
(I) became responsible for the administration of the company's
affairs;
(2) continued the company's operations
See: Demand Debenture of Venus Electric Limited, dated
March 26, 1976—Defendant's Book of Documents, page
3 at 13;
Letter from Mercantile Bank of Canada to Coopers &
Lybrand Limited dated September 24, 1976—Defend-
ant's Book of Documents, page 25;
Letter from Coopers & Lybrand Limited to the
employees of Venus Electric Limited dated September 25,
1976—Defendant's Book of Documents, page 62;
Letter from Coopers & Lybrand Limited to all creditors,
dated September 27, 1976—Defendant's Book ofDocu-
ments, page 26.
and thus, the receiver manager was
... in complete control of the company's affairs ...
(per Cross J. in Lawson v. Hosemaster Machine Co., Ltd.
[1965] 3 All E.R. 401 at 410 (Ch. D.))
... during the time period between September 24, 1976, the
date of the Receiver Manager's appointment pursuant to the
Demand Debenture, and the Court appointment of November
5, 1976, coupled with the specific facts of this case and the fact
that there is no evidence that the Receiver Manager entered
into new contracts of employment or dismissed the employees
of the company, the contracts of employment between Venus
Electric Limited and its employees were not terminated.
I therefore find the law to be that the appointment by the
debenture holders of a receiver and manager as agent of the
company, not being an appointment under an order of the
court, does not of itself automatically terminate contracts of
employment previously made and subsisting between the
company and all its employees. There are three situations in
which this may be qualified.
(per Lawson, J. in Griffiths v. Secretary of State for
Social Services [1973] 3 All E.R. 1184 at 1198 (Q.B.D.))
The three qualifications set forth by His Lordship were:
L The appointment of the Receiver and Manager was
accompanied by a sale of the business of the company; or
2. Simultaneously with, or very soon after, the appointment,
the Receiver entered into a new agreement with a particular
employee which was inconsistent with the continuation of his
previous contract of service; or
3. The continuation of a particular employee's employment
was inconsistent with the role and function of the Receiver
and Manager.
On the facts of the present case, none of these qualifications are
applicable.
See also: Re Foster Clark Ltd's Indenture Trusts [1966] 1 All
E.R. 43 at 48 (Ch. D.)
Re Mack Trucks (Britain), Ltd. [1967] 1 All E.R.
977 at 982 (Ch. D.)
... November 5, 1976, the date of the Court appointment of
the Receiver Manager:
1. The effect of such appointment was to continue the operation
of the company under the administration of the Receiver
Manager. Furthermore, a Receiver Manager is not an assign-
ee, he is a person appointed, not only to preserve the physical
assets, but also the goodwill of the business, namely, he is a
collector and custodian with varying additional powers of
use, disposition, coupled with powers to carry on the business
and undertaking. Similarly, the appointment of a Receiving
Manager of the assets in business of a company does not
dissolve and annihilate the company.
The effect of such an appointment by the Court of a Receiver
Manager was considered by the House of Lords in Moss
Steamship Company Limited v. Whinney [1912] A.C. 254 at
260, where the Earl of Halsbury said:
[The appointment of a Receiver] removes the conduct and
guidance of the undertaking from the directors appointed
by the company and places it in the hands of a manager
and receiver, who thereupon absolutely supersedes the
company itself, which becomes incapable of making any
contract on its own behalf or exercising any control over
any part of its property or assets.
Lord Atkinson stated at p. 263:
This appointment of a receiver and manager over the
assets and business of a company does not dissolve or annihi
late the company, any more than the taking possession by the
mortgagee of the fee of land let to tenants annihilates the
mortgagor. Both continue to exist; but it entirely supersedes
the company in the conduct of its business, deprives it of all
power to enter into contracts in relation to that business, or
to sell, pledge, or otherwise dispose of the property put into
the possession, or under the control of the receiver and
manager. Its powers in these respects are entirely in
abeyance.
Also see: Parsons v. The Sovereign Bank of Canada [1913]
A.C. 160 at 167-168
The results of such a Court appointment does not necessarily
terminate contracts of employment. Whether or not such con
tracts are terminated, dismissal of employees has occurred, or
new contracts entered into, will depend on the factual course of
conduct of the Receiver Manager and the employees, in dealing
with such employment relationships. The complexity of that
question which is not at issue in this appeal, was recently
reviewed by the Manitoba Court of Appeal in Re International
Woodworkers of America, Local 1-324 and Wescana Inn Ltd.
(1977) 82 D.L.R. (3d) 368, wherein the majority of that Court
commented upon this aspect of the concept of Receiver Manag
er. Mr. Justice O'Sullivan for the majority of the Court, stated
at page 373:
I am satisfied that the Court is not in any sense the
employer of those who work at Wescana Inn. Since it is
impossible to be an employee without having an employer,
the employer must be either Wescana Inn Ltd. or Clarkson.
I think the position of a receiver-manager appointed by the
Court is accurately described in Falconbridge on Mortgages,
4th ed. (1977), pp. 759-60, para. 36.5:
If a person is appointed by the court to be receiver and
manager of a company, he is not the agent of the com
pany. The company does not appoint him and cannot
dismiss him, and he is not bound to obey its directions.
Only the court can dismiss him, or give him directions as
to the mode of carrying on the business, or interfere with
him if he is not carrying on the business properly. As it is
impossible to suppose that the relation of agent and
principal exists between him and the court, the inference
is necessarily drawn that he acts in pursuance of his
appointment on his own responsibility and not as an agent.
He has in fact no principal ...
On the issue whether Wescana Inn Ltd. or Clarkson is the
employer, I agree that the point is not completely settled by
authority. On the one hand Pennington's Company Law, 2nd
ed. (1967), says at p. 411:
If a receiver is appointed by the court ... all contracts
of employment ... are automatically terminated in the
same way as if the company had ceased carrying on
business. It is immaterial that the receiver continues
carrying on the business temporarily, for he does not do
so as an agent for the company, and employees who
continue to work for him do so under new contracts of
employment with him.
On the other hand, L.C.B. Gower, Modern Company Law,
3rd ed. (1969) says at p. 437 and footnote 74:
The appointment of a receiver, at any rate if he is
appointed out of court, does not automatically terminate
contracts of employment with the company ...
... the position of a receiver appointed by the court may
be different. It may be, though this is obscure, that such
an appointment automatically determines all contracts of
employment and that a re-engagement will not be deemed
to be continued employment with the company.
In view of the paucity of authority referred to us by
counsel on either side, I would be reluctant to decide the
question at this time unless it were necessary for the determi
nation of the case.
The submission of Coopers & Lybrand Limited
in part is that the said amount of $190,270 paid to
the employees was not "salary or wages or other
remuneration to an officer or employee" within the
meaning of section 153(1)(a) of the Income Tax
Act, R.S.C. 1952, c. 148 as amended by section 1,
c. 63, S.C. 1970-71-72; what Coopers & Lybrand
Limited did in obtaining the funds from The Mer
cantile Bank of Canada was financing the com
pany Venus Electric Limited in order to permit
Venus Electric Limited to meet its obligation and
as a consequence, was not liable to pay withhold
ing tax; that what the receiver Coopers & Lybrand
Limited did in paying the sum of $190,270 was not
an act in relation to or having anything to do with
the "liquidation, assignment or bankruptcy" of the
company Venus Electric Limited within the mean
ing of section 227(5) of the Income Tax Act. (Cf.
Osler J. in Royal Trust Co. v. Montex Apparel
Industries Ltd.' "receivership ... is not a liquida
tion ... or bankruptcy".)
Section 153(1) of the Income Tax Act reads as
follows:
153. (I) Every person paying
(a) salary or wages or other remuneration to an officer or
employee,
at any time in a taxation year shall deduct or withhold there
from such amount as may be prescribed and shall, at such time
as may be prescribed, remit that amount to the Receiver
General of Canada on account of the payee's tax for the year
under this Part.
Section 150(3) reads as follows:
150.. .
(3) Every trustee in bankruptcy, assignee, liquidator, cura
tor, receiver, trustee or committee and every agent or other
person administering, managing, winding-up, controlling or
otherwise dealing with the property, business, estate or income
of a person who has not filed a return for a taxation year as
required by this section shall file a return in prescribed form of
that person's income for that year.
In section 248 "person" is defined:
s (1972) 26 D.L.R. (3d) 405; rev'd. 27 D.L.R. (3d) 551.
248....
"person", or any word or expression descriptive of a person,
includes any body corporate and politic, and the heirs, execu
tors, administrators or other legal representatives of such
person, according to the law of that part of Canada to which
the context extends;
In my view, this case does not fall to be decided
by a reading and applying of section 153(1)(a) of
the Income Tax Act simpliciter. Instead, applying
that section and other sections of the Act to the
facts of this case, one finds that what was done
here is that by assessment, "Notice of which was
dated December 1, 1976, numbered 389649, the
Minister, of National Revenue assessed the plain
tiff for federal tax of $21,403.33, provincial tax of
$7,096.45, together with related penalties and in
terest for failure to remit the prescribed amount to
the Receiver General of Canada on account of the
payees' tax pursuant to Sections 153(1), 227(9)
and 227(10) of the Income Tax Act."
In other words, the Minister assessed Coopers &
Lybrand Limited as a person who had failed to
remit or pay an amount deducted or withheld as
required by this Act or Regulations by virtue of
section 227(9) and (10) of the Income Tax Act
which reads as follows:
227... .
(9) Every person who has failed to remit or pay
(a) an amount deducted or withheld as required by this Act
or a regulation, or
is liable to a penalty of 10% of that amount or $10, whichever is
the greater, in addition to the amount itself, together with
interest on the amount at the rate per annum prescribed for the
purposes of subsection (8).
(10) The Minister may assess any person for any amount
payable by that person under Part XIII, this section or section
235 and, upon his sending a notice of assessment to that person,
Divisions I and J of Part I are applicable mutatis mutandis.
Therefore, the Minister assessed Coopers &
Lybrand Limited because the Minister decided
that Coopers & Lybrand Limited was a person
liable for an amount "payable by that person"
under "this section", that is, section 227 of the
Income Tax Act, which is the section concerned
with and is in respect to withholding tax.
The persons liable under section 227 of the
Income Tax Act to withhold and pay taxes are
among others, the persons referred to in section
227(5) of the Act. The words used are "liquida-
tion, assignment or bankruptcy". There are no
other subsections of section 227 that could refer to
the duty of a receiver. But these words in section
227(5) should be contrasted with the words
employed in section 150(3) of the Act which
employs the words "trustee in bankruptcy, assign-
ee, liquidator, curator, receiver, trustee or commit
tee and every agent or other person administering,
managing, winding-up, controlling or otherwise
dealing with the property, business .... " [ The
underlining is added.]
In my view, receivership is not to be read ejus-
dem generis with "liquidation, assignment or
bankruptcy" as those words are used in section
227(5) of the Act.
As a consequence, in my view, in the circum
stances of this case, Coopers & Lybrand Limited
acting as agent only not as â principal in respect to
what it did as receiver in paying these employees
of Venus Electric Limited the wages and salaries
due and accrued to them was not required under
the provisions of the Income Tax Act (1) to
comply with section 153(1)(a) of the Act by
requiring The Mercantile Bank of Canada to put it
in funds for the gross amount of the wages and
salaries due the employees of Venus Electric Lim
ited so that it could remit the requisite withholding
amount from the gross amount and remit such
amount to the Receiver General of Canada on
account of the employees' tax for that part of the
year under Part I of the Income Tax Act; and (2)
to comply with section 227(5) if it had been put in
funds for the gross amount of such wages and
salaries of the employees of Venus Electric Lim
ited because during any material time there was
not any "liquidation, assignment or bankruptcy"
of the company Venus Electric Limited and that
subsection does not concern the situation where at
the material time when the company was being
carried on by this receiver as agent.
Accordingly, the assessment in this matter
against Coopers & Lybrand Limited as a principal
under section 153(1)(a) of the Income Tax Act
was not correct. There is no obligation anywhere in
the Act requiring an agent such as a contract
appointed receiver in the subject situation before it
paid "salary or wages or other remuneration to an
officer or [other] employee" that were accrued,
due and payable at the time of the receiver's
appointment by contract to demand to be and be
put in gross funds sufficient to comply with the
provisions of section 153(1)(a) or with section 227
of the Income Tax Act.
The assessment in this case should have been
against the proper principal, the company Venus
Electric Limited who is and was at all material
times the "person" in this case to which section
153(1)(a) of the Act applies and applied.
The appeal is allowed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.