[44] Section 69.3 BIA prohibits actions and proceedings "with a view to the recovery of provable claims". The ordinary meaning of the words conflicts with the [CRA's] position that the notice of assessment is not a recovery measure. While it is true, as stated above, that the notice does not enable recovery on its own, the fact remains that it is issued with a view to recovering this claim, even though the recovery is carried out subsequently, from the bankrupt's assets that are collected by the trustee. In short, the CRA wishes to recover its debt, and its notice of assessment is part of a series of measures to do so. The fact that the recovery does not target a specific asset but the assets as a whole changes nothing: the notice of assessment is the first step in a longer process and, to paraphrase paragraph 27 of M & D Farm Ltd., it would be artificial to isolate it from this process and, having isolated it, contend that it is exempt from the section 69.3 stay.
...
[48] Moreover, no ordinary creditor may be put in a better position, and that includes the CRA. The [CRA's] argument would unduly benefit the CRA, particularly with respect to the short limitation period available to the trustee to object, the fact that the burden would fall on the trustee (unlike in other cases, where the burden is on the creditor), and the consequences in the event there is no objection. These are benefits that run contrary to the objectives of the scheme established by the BIA.
The Quebec Court of Appeal also rejected an earlier, authoritative decision of the Ontario Court of Appeal:
"[49] On the subject of the case law, the respondent [trustee] maintains that the trial judge was justified in not following Re Norris, (1989), 1989 CanLII 4079 (ON CA), 69 O.R. (2d) 285 (Ont. C.A.), Gestion Manoir St-Sauveur inc. (Syndic de), J.E. 93-657 (Sup. Ct.), and St-Pierre (Syndic de), 2011 QCCS 7499 (CanLII), all cited by the appellant. I share his view."
See the reasons at paras. 50 ff, including:
"[61] I agree with [the trial judge's] remark:
[translation]
[34] The obligation to obtain leave from the Bankruptcy Court is in a certain way logical because, in most situations, the trustee does not have the appropriate information to contest a notice of assessment. […]
"[62] Indeed, from a purely practical perspective, the trustee does not have the same knowledge as the bankrupt of his tax situation, especially when, as is the case here, the CRA alleges subterfuge to hide income. In other words, in many cases, the trustee cannot be expected to grasp the entire situation in less than 90 days. Otherwise, he would, as a result, systematically object in every case merely because there might be a basis of contestation, only to withdraw that objection later if it turns out not to be the case. I cannot believe that the statute would require such a potentially pointless, inefficient and onerous process.
"[63] Moreover, it seems to me that the [CRA's] contention could have another negative and unfavourable consequence for the other creditors. If the notice of assessment remains valid so long as the trustee has not successfully objected to it, the CRA would in the meantime be entitled to a percentage of votes as an ordinary creditor equal to the amount of its claim, which in some cases (such as the one here) could allow it to take control of the decisions of the meeting of creditors for months, if not years, even if its claim later turns out to be unfounded. In my view, even retroactive invalidation under section 108 BIA, if applicable, would be an unsatisfactory solution."
The absence of a notice of (re)assessment does not prevent CRA from pressing its claim in the usual BIA way: by entering a proof of claim and, if the trustee rejects it, by appealing the trustee's decision:
"[66] That is why the CRA, if it is dissatisfied with the decision of the trustee, must dispute the disallowance of its provable claim – not of its assessment – before the court.
"[67] Moreover, when the CRA amends its proof of claim, which it may like any other creditor, the process of its consideration by the trustee and the review before the court starts again."
The effect of these reasons is not entirely clear. The QCA says that the 90-day period for the taxpayer (trustee) to object is suspended. But that would not invalidate the notice of assessment, which is deemed to be valid and binding "subject to being varied or vacated on an objection or appeal". (ITA s. 152(8); ETA s. 299(3).)
"[68] In conclusion, if the CRA submits a claim to the trustee, it may issue a notice of assessment. Because this notice of assessment constitutes a proceeding with a view to recovering a provable claim, however, it will not have the legal effects conferred upon it by the ITA unless the CRA obtains leave from the Court. In other words, if the CRA seeks to have the procedure for objection to the notice of assessment in the ITA to be applicable, particularly in regard to the limitation period for objection, it must address the court and obtain its authorization, pursuant to section 69.4 BIA."
Overall, these reasons make sense but they are likely to be debated in other provinces still. Although the SCC denied leave to appeal, that is not a definitive approval of the Quebec Court of Appeal's decision. For now, this case suggests that if CRA has not assessed a taxpayer more than 90 days before a bankruptcy proposal or assignment, it may be unable to do so without leave of the bankruptcy court.
See Girard (Syndic de), 2014 QCCA 1922 (leave to appeal refused: SCC file 36220.)
...
[48] Moreover, no ordinary creditor may be put in a better position, and that includes the CRA. The [CRA's] argument would unduly benefit the CRA, particularly with respect to the short limitation period available to the trustee to object, the fact that the burden would fall on the trustee (unlike in other cases, where the burden is on the creditor), and the consequences in the event there is no objection. These are benefits that run contrary to the objectives of the scheme established by the BIA.
The Quebec Court of Appeal also rejected an earlier, authoritative decision of the Ontario Court of Appeal:
"[49] On the subject of the case law, the respondent [trustee] maintains that the trial judge was justified in not following Re Norris, (1989), 1989 CanLII 4079 (ON CA), 69 O.R. (2d) 285 (Ont. C.A.), Gestion Manoir St-Sauveur inc. (Syndic de), J.E. 93-657 (Sup. Ct.), and St-Pierre (Syndic de), 2011 QCCS 7499 (CanLII), all cited by the appellant. I share his view."
See the reasons at paras. 50 ff, including:
"[61] I agree with [the trial judge's] remark:
[translation]
[34] The obligation to obtain leave from the Bankruptcy Court is in a certain way logical because, in most situations, the trustee does not have the appropriate information to contest a notice of assessment. […]
"[62] Indeed, from a purely practical perspective, the trustee does not have the same knowledge as the bankrupt of his tax situation, especially when, as is the case here, the CRA alleges subterfuge to hide income. In other words, in many cases, the trustee cannot be expected to grasp the entire situation in less than 90 days. Otherwise, he would, as a result, systematically object in every case merely because there might be a basis of contestation, only to withdraw that objection later if it turns out not to be the case. I cannot believe that the statute would require such a potentially pointless, inefficient and onerous process.
"[63] Moreover, it seems to me that the [CRA's] contention could have another negative and unfavourable consequence for the other creditors. If the notice of assessment remains valid so long as the trustee has not successfully objected to it, the CRA would in the meantime be entitled to a percentage of votes as an ordinary creditor equal to the amount of its claim, which in some cases (such as the one here) could allow it to take control of the decisions of the meeting of creditors for months, if not years, even if its claim later turns out to be unfounded. In my view, even retroactive invalidation under section 108 BIA, if applicable, would be an unsatisfactory solution."
The absence of a notice of (re)assessment does not prevent CRA from pressing its claim in the usual BIA way: by entering a proof of claim and, if the trustee rejects it, by appealing the trustee's decision:
"[66] That is why the CRA, if it is dissatisfied with the decision of the trustee, must dispute the disallowance of its provable claim – not of its assessment – before the court.
"[67] Moreover, when the CRA amends its proof of claim, which it may like any other creditor, the process of its consideration by the trustee and the review before the court starts again."
The effect of these reasons is not entirely clear. The QCA says that the 90-day period for the taxpayer (trustee) to object is suspended. But that would not invalidate the notice of assessment, which is deemed to be valid and binding "subject to being varied or vacated on an objection or appeal". (ITA s. 152(8); ETA s. 299(3).)
"[68] In conclusion, if the CRA submits a claim to the trustee, it may issue a notice of assessment. Because this notice of assessment constitutes a proceeding with a view to recovering a provable claim, however, it will not have the legal effects conferred upon it by the ITA unless the CRA obtains leave from the Court. In other words, if the CRA seeks to have the procedure for objection to the notice of assessment in the ITA to be applicable, particularly in regard to the limitation period for objection, it must address the court and obtain its authorization, pursuant to section 69.4 BIA."
Overall, these reasons make sense but they are likely to be debated in other provinces still. Although the SCC denied leave to appeal, that is not a definitive approval of the Quebec Court of Appeal's decision. For now, this case suggests that if CRA has not assessed a taxpayer more than 90 days before a bankruptcy proposal or assignment, it may be unable to do so without leave of the bankruptcy court.
See Girard (Syndic de), 2014 QCCA 1922 (leave to appeal refused: SCC file 36220.)
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