Hamachi Fine Japanese Cuisine (Re)

Hamachi Fine Japanese Cuisine (Re) Court Supreme Court Date 2016-03-31 Citation 2016 NSSC 58 Docket 39182, 39183, 39184, Hfx 39181 Judge/Registrar/Adjudicator Cregan, Richard (Honourable Justice) Document Type Decision Decision Content SUPREME COURT OF Nova Scotia Citation: Hamachi House Fine Japanese Cuisine (Re), 2016 NSSC 58 Date: March 31, 2016 Docket: Halifax, No. 39181, 39182, 39183 & 39184 Registry: Halifax District of Nova Scotia Division No. 1 Court No. 39181, 39182, 39183, 39184 Estate No. 51-2010086, 51-2010087, 51-2010088 & 51-2010085 IN THE MATTER OF THE Hamachi House Fine Japanese Cuisine, Hamachi Teppan-Yaki Steakhouse Incorporated, 3251929 Nova Scotia Limited, 3221373 Nova Scotia Limited D E C I S I O N Registrar: Richard W. Cregan Q.C. Heard: July 30, 2015 Present: Oral Decision, August 6, 2015 Present: Tim Hill, Q.C., counsel for Hamachi House, et al Deanna M. Frappier, counsel for the Department of Justice Tax Law Services By the Court: I delivered an oral decision in this application on August 6, 2015. What follows is a transcript of that decision with some stylistic improvements: [1] The Applicants are four related companies which have in the past several years been operating restaurants in Halifax. [2] They have been experiencing financial difficulties and have sought the advice of Mark Rosen of BDO Canada Limited, Trustee in Bankruptcy. [3] His advice was to prepare a Proposal under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, (BIA). A Notice of Intention (NOI) under the BIA was filed on June 26, 2015. The NOI was extended for a further 45 days from July 26, 2015. Immediately prior to the filing of the NOI there were two related pay periods: 1. May 18 to May 31 which was paid on June 12, 2015, and 2. June 1 to June 14 which was paid on June 26, 2015, this payment having been made immediately prior to the filing of the NOI. [4] By saying the periods were “paid”, I understand that the payroll had been prepared, the withholdings were allocated, and the employees were paid. [5] The applicable provisions of the Income Tax Act, R.S.C.1985, c.1 (5th sup) (ITA) direct that the payroll withholdings (income tax, CPP, etc.) for each pay period be held aside and paid by the 15th of the month following. In this case, July 15th. [6] On June 29, 2015 a Notice of Stay Proceedings under S. 69.1 of the BIA was filed and served on the Canada Revenue Agency (CRA). It acknowledged such service. [7] The amount owing by the four companies for these withholdings for the two pay period in June is $24,603.53. This sum was to be paid by July 15, 2015. It was not. [8] On July 17, 2015 (two days later) CRA issued a Requirement to Pay (enhanced garnishee) under S. 224(1.2) of the ITA against the companies’ bank which complied by paying the sum from the companies’ account to CRA, the stay of proceedings provision under the BIA notwithstanding. [9] This application is for directions pursuant to the authority of S.34(1) of the BIA declaring that the enhanced garnishee issued pursuant to S.224 (1.2) of the ITA after the NOI was issued is void, asking that the money be returned to the companies, and costs be paid. [10] Everyone agrees that this is the proper authority under the BIA and that this is the proper forum. [11] I begin by quoting part of S. 69(1) of the BIA: …on the filing of a notice of intention under section 50.4 by an insolvent person, (a) no creditor has any remedy against the insolvent person or the insolvent person’s property, or shall commence of continue any action, execution or other proceedings for recovery of a claim provided in bankruptcy… (c) Her Majesty in right of Canada may not exercise Her rights under (i) subsection 224 (1.2) of the Income Tax Act… until the filing of a proposal under subsection 62(1) in respect of the insolvent person or the bankruptcy of the insolvent person. And part of S.69(3): A stay provided by paragraph (1)(c) or (d) does not apply, or terminates, in respect of Her Majesty in right of Canada and every province if (a) the insolvent person defaults on payment of any amount that becomes due to Her Majesty after the filing of the notice of intention and could be subject to a demand under (i) subsection 224(1.2) of the Income Tax Act, (ii) any provision of the Canada Pension Plan or the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act… [12] Houlden, Morawetz and Sarra: The 2015 Annotated Bankruptcy and Insolvency Act 2015 at F 160 describes the application of the stay pursuant to para 69(1)(c) and the effect of subsection 69(3) as follows: Where a notice of intention to make a proposal is filed, the rights given by s. 224(1.2) and by similar provincial legislation or by the Canada Pension Plan for contributions or the Employment Insurance Act for premiums and by similar provincial legislation cannot be exercised until a proposal is filed or bankruptcy occurs: s. 69(1)(c). The stay imposed by s. 69(1)(c) ceases in two situations: (a) if the insolvent person fails to pay deductions at source or contributions under the Canada Pension Plan or premiums under the Employment Insurance Act or contributions or premiums under similar provincial legislation falling due after the filing of the notice of intention, or (b) some other creditor becomes entitled under its security to seize the amount due to the insolvent taxpayer; s. 69(3). [13] In effect, this authority confirms that Paragraph 69 (1) (c) provides that the stay of proceedings does not apply or terminate when the insolvent person defaults on the payment of amount that become due to Her Majesty after the filing of the NOI. [14] The matter now turns on when the money “becomes due”. [15] I should mention the provisions S.227(4)of the ITA: 227(4) Every person who deducts or withholds an amount under this Act is deemed notwithstanding any security interest (as defined in subsection 224 (1.3)) in the amount so deducted or withheld, to hold the amount separate and apart from the property of the person and from property held by any secured creditor (as defined in subsection 224 (1.3)) of that person that but for the security interest would be property of the person, in trust for Her Majesty and for payment to Her Majesty in the manner and the time provided under this Act. [16] This is summarized in the First Vancouver Finance v. Canada (Minister of National Revenue – M.N.R., 2002 sccc 49, [2002] 2 S.C.R. 720. 3. Section 153 (1) of ITA requires employers to deduct and withhold amounts from their employees’ wages (“source deductions”) and remit these amounts to the Receiver General by specified due date. By virtue of s. 227 (4), when source deductions are made they deemed to be held separate and apart from the property of the employer in trust for Her Majesty. If the source deductions are not remitted to the Receiver General by due date, the deemed trust in s. 227 (4.1) of the ITA becomes operative and attaches to property of the employer to the extent of the amount of the unremitted source deductions. As well, the trust is deemed to have existed from the moment the source deductions were made. 4. For the reasons set forth below, I find that the s.227(4.1) deemed trust is similar in principle to floating charge over all the tax debtor’s assets in favour of Her Majesty. The trust arises the moment the tax debtor fails to remit source deductions by the specified due date, but is deemed to have been in existence shown the moment the deductions were made. As long as the tax debtor continues to be in default, the trust continues to float over the tax debtor’s property. Thus, at any given point in time, whatever property then belonging to the tax debtor is subject to the deemed trust. [17] The debt is fully crystalized. It is allocated. It is supposed to be in a separate account. It is charged with a trust. It is to be paid by the 15th of the next month. This is a convenient procedure. It gives companies time to make arrangements. The situation is balanced because CRA has a special privilege of having a clause in any proposal as follows: 60(1.1) Unless Her Majesty consents, no proposal shall be approved by the court that does not provide for the payment in full to Her Majesty in right of Canada or a province, within six months after court approval of the proposal, of all amounts that were outstanding at the time of the filing of the notice of intention of the proposal, if no notice of intention was filed, and are of a kind that could be subject to a demand under (a) subsection 224(1.2) of the Income Tax Act [18] The question is simply, what does “due” mean? The following is what I found in several dictionaries: Oxford Canada Dictionary: Owing or payable as debt obligation Dictionary of Canadian Law 1991 DUE. adj. Payable; owing Black’s Law Dictionary, 4th Ed 1951 DUE: Just; proper; regular; lawful; sufficient; remaining unpaid; reasonable; as in the phrases, “due care,” “due process of Law,” “due notice” Owing; payable; justly owed. That which one contracts to pay or perform to another; that which law or justice requires to be paid or done. Owed, or owing, as distinguished from payable. A debt is often said to be due from a person where he is the party owing it, or primarily bound to pay, whether the time for payments has or has not arrived. The same thing is true of the phrase “due and owing.” Payable. A bill or note is commonly said to be due when the time for payment of it has arrived. Final, is not synonymous with due. Twine v. Locke, D.C.N.Y., 3 F Supp. 1012, 1013. The word “due” always imports a fixed and settled obligation or liability, but with reference to the time for its payment there is considerable ambiguity in the use of the term, as will appear from the foregoing definitions, the precise signification being determined in each case from the context. It may mean that the debt or claim in question is now (presently or immediately) matured and enforceable, or that it matured at some time in the past and yet remains unsatisfied, or that it is fixed and certain but the day appointed for its payment has not yet arrived. But commonly, and in the absence of any qualifying expressions, the word “due” is restricted to the first of these meanings, the second being expressed by the term “overdue” and the third by the work “payable.” See Feeser v. Feeser, 93 Md. 716 50 A. 406 [19] Rules of constitutions were brought to my attention. They suggest a variety of factors, such as purpose, object, policy. I do not think that such is helpful. One must be particularly careful in this regard with taxing statute. [20] The position of CRA is that all that has happened and all the law applicable to the money does not make it due before the 15th of July 2015. [21] However one must note that prior to that date: - The money was allocated; - It was subject to a trust; - It was credited to the employees; - It was noted on the book of the companies; - It was payable; and - It was to be paid by the 15th. [22] It has everything about it that indicates allocation, owing, payable, justly owed, and remaining unpaid. It is just that for practical purposes that law in effect says; “Employer, just keep it to the side and pay at your convenience, but you must pay it by the following 15th of the month, otherwise CRA will pull out all the remedies.” [23] Balancing all these factors, I think the fair meaning to be given to “due: is that the money had become due prior to the filing of the notice of intention on June 26, 2015. [24] The stay under Section 69 (1) of the BIA applies. The taking of the money under the Enhanced Garnishee was improper and must be returned to the companies. R