Executive Summary: Key Legal and Evidentiary Issues

• Dissolution of a CBCA corporation causes directors to cease holding their positions, as established in the Aujla precedent

• Revival of a dissolved corporation under subsection 209(4) of the CBCA does not prospectively reinstate former directors

• Subsection 323(5) of the Excise Tax Act imposes a two-year limitation period for assessing director's liability after a person ceases to be a director

• Textual, contextual, and purposive analysis of CBCA provisions favored the appellant's interpretation regarding director reinstatement

• The Respondent failed to meet the burden of proving the appellant acted as a de facto director after dissolution

• Accepting automatic reinstatement of directors would significantly undermine the certainty, evidentiary, and diligence rationales underlying limitation periods

Background and corporate dissolution

Anastase Maragos was a director of Salmon's Linen Supply Inc. (SLS), a corporation incorporated under the Canada Business Corporations Act (CBCA). In 2018, the Director for Innovation, Science and Economic Development Canada dissolved SLS under section 212 of the CBCA for failing to file its annual returns. At that point, SLS ceased to exist.

The Minister's actions and the assessment

The Minister of National Revenue subsequently applied to have SLS restored. The Minister then tried to collect certain outstanding GST debts from SLS. When that failed, the Minister assessed Mr. Maragos for director's liability under section 323 of the Excise Tax Act. Mr. Maragos appealed that assessment.

The central legal question

The parties asked the Court to determine under section 58 of the Tax Court of Canada Rules (General Procedure) when Mr. Maragos last ceased to be a director of SLS for purposes of subsection 323(5) of the Excise Tax Act. Mr. Maragos took the position that he last ceased to be a director when SLS was dissolved and that the assessment was therefore made beyond the two-year limit set out in subsection 323(5). The Respondent took the position that while the dissolution of SLS caused Mr. Maragos to cease to be a director, its revival reinstated him. The Respondent said Mr. Maragos maintained his reinstated position as director until he formally resigned on May 15, 2019.

Analysis of the de jure director issue

The Court conducted a textual, contextual, and purposive analysis of subsection 209(4) of the CBCA. Textually, the provision does not explicitly refer to the revived corporation's directors—it neither states that the corporation's former directors are reinstated nor states that the shareholders need to elect new ones. The Court found the silence ambiguous. The Respondent's interpretation would require concluding that when a corporation is dissolved, a director is held in some sort of suspended animation pending a possible revival—a position unsupported by the text of subsection 209(4).

Contextually, the CBCA contemplates the possibility that a corporation could have no directors and has solutions in place to deal with it. Subsection 109(4) states that if all of the directors have resigned or have been removed without replacement, a person who manages or supervises the management of the business and affairs of the corporation is deemed to be a director. The Court was also concerned that the Respondent's interpretation would cause conflicts with other provisions of the CBCA, including subsection 106(9), which requires an individual to have consented to their election or appointment as a director, and subsections 105(3) to (4), which set out certain residency requirements for directors.

The purposive analysis and limitation periods

The Court found that the Respondent's interpretation of subsection 209(4) would significantly undermine the purpose of limitation periods. The purpose of limitation periods is to provide certainty, evidentiary integrity and diligence, as established in the Supreme Court of Canada's decision in Markevich v. The Queen. The Court noted it must seek an interpretation that allows subsections 209(4) of the CBCA and 323(5) of the ETA to work together. The CBCA has its own director's liability provisions in section 119, which states that a director is not liable unless sued while a director or within two years after ceasing to be a director. If the Respondent's interpretation were accepted, a former employee of a dissolved CBCA corporation could, long after its dissolution, apply to restore the corporation and immediately thereafter sue the reinstated directors—running completely counter to the certainty, evidentiary and diligence rationales laid out by the Supreme Court.

The de facto director argument

The Minister assessed Mr. Maragos on the basis that he was a de jure director, not a de facto director. As a result, the Minister made no assumptions of fact to support his assessment as a de facto director. The burden of proving the facts to support the alternative argument that Mr. Maragos became a de facto director when SLS was restored lay with the Respondent. The Respondent did not provide any evidence that SLS carried on any activities whatsoever or even held any assets after it was restored. The evidence before the Court indicated that, by the spring of 2018, SLS had surrendered its lease, transferred its assets to a different company, no longer had any employees and had collected the last of its accounts receivable. The Court found the Respondent had not met his burden.

A few months after Mr. Maragos learned that the Minister had restored SLS, he filed a protective resignation to remove his name from the public record. Since the Court found that SLS's restoration did not reinstate Mr. Maragos as a de jure director, the Court found there was nothing for him to resign from. His resignation was meaningless.

The ruling and outcome

Justice David E. Graham determined that Mr. Maragos last ceased to be a de jure director of SLS on July 24, 2018 when the corporation was dissolved and that he has never been a de facto director. The two-year time limit in subsection 323(5) began on July 24, 2018 when SLS was dissolved. It ended on July 24, 2020, well before the Minister issued the May 14, 2021 assessment. The Court noted that in the circumstances, it is difficult to see how the Respondent could succeed in the appeal, but stated it is not the Court's role in hearing a section 58 motion to determine the outcome of the appeal, leaving it to the parties to determine how they will proceed. No specific monetary amount was determined in this decision as it addressed only the preliminary question of when Mr. Maragos last ceased to be a director.