I. Waxman & Sons Ltd. (Re), 2010 ONCA 447

In the Matter of the Bankruptcy of I. Waxman & Sons Limited

[Indexed as: I. Waxman & Sons Ltd. (Re)]

100 O.R. (3d) 561

2010 ONCA 447

Court of Appeal for Ontario,

Goudge, MacPherson and MacFarland JJ.A.

June 17, 2010

Bankruptcy and insolvency -- Priorities -- Canada Revenue Agency obtaining jeopardy order under Income Tax Act permitting it to take collection action on amounts owed by taxpayer on basis that taxpayer's looming receivership would preclude collection of tax debt -- Taxpayer declared bankrupt after CRA collected funds and applied them to tax debt -- Trustee bringing motion for order directing that funds seized pursuant to jeopardy order be returned to Trustee for purpose of distribution in accordance with priorities set out in Bankruptcy and Insolvency Act or for order directing Trustee to set off amounts garnished by CRA against dividend amount to be distributed to CRA as unsecured creditor in taxpayer's estate -- Motion judge correctly dismissing motion -- Motion constituting collateral attack on jeopardy order -- Jeopardy order not constituting interim preservation order -- Sections 70(1) and 86(1) of BIA not applying -- CRA's conduct not inequitable -- No basis existing for exercise of court's equitable jurisdiction to subordinate CRA's claim -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 70(1), 86(1) -- Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

The Canada Revenue Agency ("CRA") obtained a jeopardy order under the Income Tax Act from the Federal Court permitting it to take collection action on the outstanding amounts owed by IWS on the basis that IWS's looming receivership would preclude collection of the tax debt. IWS was subsequently declared bankrupt. The Trustee brought a motion for an order directing that the funds seized by the CRA from IWS pursuant to the jeopardy order be returned to the Trustee for the purpose of distribution in accordance with the priorities set out in the Bankruptcy and Insolvency Act or, alternatively, an order directing the Trustee to set off the amounts garnished by the CRA against the dividend amount to be distributed to the CRA as an unsecured creditor in the IWS estate. The motion was dismissed. The Trustee appealed.

Held, the appeal should be dismissed.

The Trustee, by suggesting that the collection pursuant to the jeopardy order was invalid by reason of the provisions of the BIA, was challenging the validity of the jeopardy order. To suggest that the Trustee was not challenging the jeopardy order, but only its effect, was to ignore the fact that the collection by the CRA could not have occurred absent the order. The Trustee's motion was a collateral attack on the jeopardy order.

The jeopardy order was not an interim preservation order. The language of the ITA does not speak in terms of "preserving the assets of a taxpayer" or otherwise use language that suggests a jeopardy order is merely an interim device pending the final adjudication of the tax dispute. To the contrary, it restores the CRA's right to immediately enforce payment of the amount assessed, which was suspended when IWS filed a notice of objection. The CRA collected the funds and applied them to IWS's indebtedness long before IWS was declared bankrupt. Section 70(1) had no application in the circumstances, as the payment to the creditor was completely executed by the time of the bankruptcy. The jeopardy order did not constitute an improper Crown priority. Section 86(1) of the BIA had no application to the facts of this case. There was no basis for exercising the court's equitable jurisdiction to subordinate the CRA's claims. The CRA's conduct was not inconsistent with the BIA, and it did not engage in inequitable conduct. It was statutorily entitled to seek a jeopardy order and, upon obtaining such an order, to immediately collect what was owed.

APPEAL from the order of Pepall J., 1998 28142 (MB QB), [2009] O.J. No. 4461, [2010] C.T.C. 259 (S.C.J.) dismissing the motion by the trustee in bankruptcy.

Cases referred to Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, 2004 SCC 25, 237 D.L.R. (4th) 385, 319 N.R. 38, J.E. 2004-931, 186 O.A.C. 128, 43 B.L.R. (3d) 163, 9 E.T.R. (3d) 163, 130 A.C.W.S. (3d) 32, distd Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 70 [as am.], (1) [as am.], 73(4) [as am.], 86(1) [as am.] Business Corporations Act, R.S.O. 1990, c. B.16 [as am.] Courts of Justice Act, R.S.O. 1990, c. C.43 [as am.] Criminal Code, R.S.C. 1985, c. C-46, s. 347 [as am.] Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 158 [as am.], 225.1(1) [as am.], (a)-(g) [as am.], (7), 225.2 [as am.], (2) [as am.]

Alan Merskey and Jessica Caplan, for Deloitte & Touche Inc. as trustee in bankruptcy of the estate of I. Waxman & Sons Ltd. (moving party/appellant). Nancy Arnold and Tamara Sugunasiri, for Canada Revenue Agency (respondent/respondent in appeal). Gideon Forrest, for Morris Waxman.

1MACFARLAND J.A. (MACPHERSON J.A. concurring): -- This is an appeal from the order of Pepall J. dated October 20, 2009, dismissing the Trustee's motion for an order: (a) directing that the funds seized from I. Waxman & Sons Limited by Canada Revenue Agency ("CRA") pursuant to an ex parte jeopardy order be returned to the Trustee for the purpose of distribution in accordance with the priorities set out in the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3; and (b) in the alternative, directing the Trustee to set off the CRA dividend against the funds held by CRA under the jeopardy order and directing payment of the remainder by CRA.

Overview

2This appeal is primarily concerned with the correct interpretation of, and relationship between, certain provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "ITA") and the Bankruptcy and Insolvency Act (the "BIA"). Under the provisions of the ITA, the Canada Revenue Agency (the "CRA") is able to seek jeopardy orders, which allow for it to take collection action on outstanding amounts assessed owing by a taxpayer, notwithstanding the fact that the taxpayer has filed a notice of objection. Here, the CRA successfully obtained such an order from the Federal Court by arguing that the looming receivership of I. Waxman & Sons Limited ("IWS") would preclude collection of the tax debt. The Trustee submits that the effect of the jeopardy order -- that is, the CRA garnishing funds from its bank account -- conflicts with the provisions of the BIA which specify that the Crown is an unsecured creditor in a bankruptcy proceeding and that a bankruptcy order takes precedence over all other interim judgments and orders.

The Facts

3As of September 18, 2006, IWS owed the CRA $1,273,452.10 in respect of corporate tax, penalties and interest for 2002, 2003 and 2004, arising from reassessments issued in August and September 2006. On October 6, 2006, the CRA received a notice of objection from IWS with respect to its 2002 taxation year, and on November 1, 2006, the CRA received notices of objection with respect to its 2003 and 2004 taxation years.

4On February 19, 2007, the CRA issued a requirement to pay notice to the Canadian Imperial Bank of Commerce ("CIBC") to collect the amount of $621,415.06 owed by IWS. This amount consisted of the portion of the tax debt the CRA was permitted to collect at that time pursuant to s. 225.1(7) of the ITA. Section 225.1(7) of the ITA allows the CRA to collect from a corporation for a taxation year in which it is a "large corporation" (which it is undisputed the appellant was at all material times) certain amounts determined by the formulae set out in the subsection, notwithstanding any objection or appeal of the assessment for that year by the corporation. CIBC complied with the requirement to pay notice and the CRA received payment of that amount. This appeal does not relate to the payment of this sum by CIBC to the CRA.

5By notice of motion dated February 28, 2007, Morris Waxman brought an application for the appointment of Deloitte & Touche Inc. as the receiver of IWS pursuant to the provisions of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the "OBCA") and the Courts of Justice Act, R.S.O. 1990, c. C.43. The CRA received notice of the application in early March 2007. The application, originally returnable on March 7, 2007, was adjourned and heard on March 26, 2007, at which time Deloitte & Touche Inc. was appointed as receiver.

6On March 5, 2007, after having applied the sum of $621,415.06 to IWS's outstanding debt for 2002 and 2003, IWS's debt was reduced to $704,735.53. The notices of objection filed by IWS precluded the CRA from taking collection action in respect of the remaining outstanding amount absent a court order authorizing it to do so under s. 225.2 of the ITA, commonly called a "jeopardy order".

7In the time between receiving notice of application to appoint a receiver and the application being heard, the CRA sought a jeopardy order. Specifically, on March 19, 2007, the CRA, as the Minister of National Revenue, brought an ex parte application under s. 225.2(2) before the Federal Court seeking authorization to take collection action in respect of the outstanding amount. On the application, the CRA submitted evidence of IWS's unwillingness to pay its debt and of IWS's imminent receivership, and argued that, because it could take no steps to attempt to collect or to secure its position vis-à-vis other creditors, the collection of the debt would be jeopardized by a delay in the collection thereof. The CRA explained that if the receivership order were granted, the CRA's claim in the receivership would be unsecured and the stay of proceedings resulting from the receivership order would preclude the CRA from doing anything to improve its position in the future. As an unsecured claimant, the CRA would only realize its pro rata share of any funds that remained after the secured creditors, including the Ontario Ministry of Finance, were paid. As the other unsecured claims were upwards of $50 million, it was unlikely that the CRA would recover much, if any, of the debt unless a jeopardy order were granted. On the same day, March 19, 2007, Blanchard J. of the Federal Court issued the requested order, which authorized the Minister of National Revenue to take forthwith any of the collection measures specified in s. 225.1(1)(a) to (g) of the ITA (the "jeopardy order").

8By requirement to pay notice, dated March 21, 2007, served on CIBC, the CRA collected the sum of $707,278.16, which was applied to the outstanding liability of IWS.

9On April 18, 2007, the receiver filed an application in the Federal Court to set aside the jeopardy order, but in July of that year counsel for both parties agreed to defer the scheduling of the application until other issues in the IWS estate were addressed. To date, that application has not been heard.

10On September 4, 2007, IWS was declared bankrupt and Deloitte & Touche Inc. was appointed as the trustee in bankruptcy (the "Trustee").

11The CRA has filed unsecured proofs of claim in the bankruptcy as follows: (1) a Proof of Claim dated September 20, 2007 for the employer's portion of Canada Pension Plan contributions and Employment Insurance contributions with penalties and interest in the amount of $4,413.81; (2) an Amended Proof of Claim dated December 6, 2007 for unpaid GST in the amount of $37,809.24; and (3) an Amended Proof of Claim dated September 4, 2008 for unpaid income tax, penalties and interest for the 2004 and 2006 taxation years in the amount of $746,962.26.

12The latter amount ($746,962.26) is the liability that remains owing to the CRA after the payment received from CIBC in March 2007, pursuant to the jeopardy order, was applied to the debt.

13To date, the IWS estate has made three interim distributions representing approximately 62 cents on the dollar; however, no payments have been made to the CRA. Based on its proofs of claim, the CRA is entitled to approximately $489,330.

14By letter dated December 23, 2008, the Trustee wrote to the CRA to advise that it was asserting a right of set-off of the amounts garnished by the CRA from CIBC in March 2007, plus the interest earned on those funds, against the dividend amount to be distributed to the CRA as an unsecured creditor in the IWS estate. The Trustee advised the CRA that the set-off was being asserted on the grounds that the jeopardy order obtained by the CRA was ill-founded as there was no evidence of asset dissipation or movement out of the jurisdiction, and that the effect of the jeopardy order was to create a preference for the benefit of the CRA contrary to the order of priorities as set out in the BIA.

15Thereafter, the Trustee moved unsuccessfully before the motion judge for the orders detailed in paragraph one of these reasons.

The Decision Below

16In her reasons, the motion judge referenced s. 70(1) of the BIA, which provides that a bankruptcy order takes precedence over all judicial or other attachments, judgments, executions and other process, except those that have been completely executed by payment to the creditor. She concluded that it fell to her to determine whether a jeopardy order is an interim order and, if not, whether the process was completely executed by payment to the CRA.

17She found that nothing in the statutory language or scheme suggested that the order was interim in nature or designed to preserve funds; rather, the order authorized the CRA to take the collection action notwithstanding an objection having been filed by the taxpayer. She noted that Parliament imposed certain constraints, including the need for a court order in which terms that are fit may be imposed, and the ability of a taxpayer to seek a review of the jeopardy order. Applying a contextual and purposive approach, she concluded that the jeopardy order was not an interim preservation order. Moreover, CIBC's payment of funds to the CRA, and the CRA's application of those funds to IWS's indebtedness, constituted a complete execution of the process and, as such, s. 70(1) of the BIA did not operate to require the CRA to repay the amount or to permit the Trustee to exercise any set-off.

18Further, the motion judge determined that the exercise of the jeopardy order was not contrary to s. 86(1) of the BIA, which specifies that, in the bankruptcy context, Crown claims rank as unsecured claims. The CRA complied completely with the statutory provisions of the ITA. Further, s. 70 of the BIA permitted the CRA to collect its debt unaffected by any subsequent insolvency. Barring certain exceptions, such as fraud, completed executions survive a bankruptcy.

19In relation to the Trustee's argument that she should exercise her equitable jurisdiction to subordinate the Crown's claims, she concluded that while the Supreme Court of Canada had left open the question of whether the doctrine of equitable subordination should be recognized in Canada, the case before her reflected no need to address the issue. The CRA's conduct was not inconsistent with the BIA, nor could it be said that it had engaged in inequitable conduct. It acted pursuant to a court order that it was entitled to seek.

20In relation to s. 73(4) of the BIA, which sets out that "[a]ny property of a bankrupt under seizure for . . . taxes shall . . . be delivered without delay to the trustee . . .", she concluded that the section was not directed toward facts comparable to those in the case before her. The jurisprudence on the section tended to relate to a landlord or municipality acting on rights of distress for unpaid rent or taxes. A distress that has been completely executed prior to bankruptcy precludes a trustee from recovery under the section since, once executed, the proceeds cease to be property of the bankrupt. In this case, CIBC paid the CRA the funds and the funds were applied to IWS's indebtedness in March 2007. IWS was not declared bankrupt until September 4, 2007.

21In the court below, the CRA objected to the Trustee's motion on the basis that it constituted a collateral attack on the jeopardy order. The motion judge did not address this issue in her reasons.

22For the reasons that follow, I would dismiss the appeal. I agree with the decision of the motion judge and, in addition, I am of the view that the Trustee's motion does constitute a collateral attack on the jeopardy order.

Issue one: Is the Trustee's motion in the Superior Court of Justice, and its appeal in this court, a collateral attack on the jeopardy order granted by the Federal Court?

23The Trustee argues that this question must be answered in the negative. Bifurcation was inevitable since the CRA initiated ex parte proceedings before the Federal Court rather than the Superior Court of Justice, which was already seized of the receivership application. The Trustee remains of the view that the jeopardy order was not well-founded under the ITA, but does not seek to litigate that question before this court. Instead, the Trustee argues that upon the occurrence of bankruptcy, further questions arose as to the effect of executing the jeopardy order. These are questions of bankruptcy -- involving, for example, the interpretation and application of ss. 70(1), 73(4) and 86(1) of the BIA -- over which the Federal Court has no jurisdiction. In short, the Trustee says it is not attacking the legal validity of the jeopardy order, only its legal effect.

24The CRA argues that the proper mechanism to challenge the jeopardy order of Blanchard J. is set out in the ITA and involves an application to the Federal Court for review. While veiled as a BIA matter, the Trustee's objection to the CRA's conduct is that it obtained an authorization to proceed with collection on the eve of insolvency; this is a challenge to the jeopardy order. The implication of the Trustee's argument is that the purpose of the jeopardy provision in the ITA is not to resurrect the CRA's collection mechanisms on the eve of an insolvency where a taxpayer has objected to an otherwise valid and binding assessment.

25The Trustee relies on the decision of the Supreme Court of Canada in Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21. In Garland, the appellant had been charged late payment penalties ("LPPs") by the respondent gas company. The appellant commenced a class action seeking restitution for unjust enrichment of the respondent from the LPPs it received in violation of s. 347 of the Criminal Code, R.S.C. 1985, c. C-46. (In an earlier appeal to the Supreme Court, it was held that charging the LPPs as it had, amounted to charging a criminal rate-of-interest under s. 347 of the Criminal Code. In that appeal, the Supreme Court remitted the matter back to trial for further consideration.)

26The gas company argued that the appellant's action for unjust enrichment could not succeed because LPPs had been authorized by an order of the Ontario Energy Board which qualifies as a disposition of law, a well-established category of juristic reason. At para. 48 of his reasons, Iacobucci J. stated:

In this case, the only possible juristic reason from an established category that could be used to justify the enrichment is the existence of the OEB orders creating the LPPs under the "disposition of law" category. The OEB orders, however, do not constitute a juristic reason for the enrichment because they are rendered inoperative to the extent of their conflict with s. 347 of the Criminal Code.

27It was also argued that the appellant was by his action mounting a collateral attack on the orders of the Ontario Energy Board that authorized the LPPs. In considering this argument, Iacobucci J. stated, at paras. 70-71:

. . . the OEB does not have exclusive jurisdiction over this dispute. While the dispute does involve rate orders, at its heart it is a private law matter under the competence of civil courts and consequently the Board does not have jurisdiction to order the remedy sought by the appellant.

. . . this action does not constitute an impermissible collateral attack on the OEB's order. The doctrine of collateral attack prevents a party from undermining previous orders issued by a court or administrative tribunal. Generally, it is invoked where the party is attempting to challenge the validity of a binding order in the wrong forum, in the sense that the validity of the order comes into question in separate proceedings when that party has not used the direct attack procedures that were open to it (i.e., appeal or judicial reviews). In Wilson v. The Queen, 1983 35 (SCC), [1983] 2 S.C.R. 594, at p. 599, this Court described the rule against collateral attack as follows:

It has long been a fundamental rule that a court order, made by a court having jurisdiction to make it, stands and is binding and conclusive unless it is set aside on appeal or lawfully quashed. It is also well settled in the authorities that such an order may not be attacked collaterally -- and a collateral attack may be described as an attack made in proceedings other than those whose specific object is the reversal, variation, or nullification of the order or judgment.

Based on a plain reading of this rule, the doctrine of collateral attack does not apply in this case because here the specific object of the appellant's action is not to invalidate or render inoperative the Board's orders, but rather to recover money that was illegally collected by the respondent as a result of Board orders. Consequently, the collateral attack doctrine does not apply. (Citations omitted)

28In my view, the case at bar is clearly distinguishable from Garland. In Garland, the orders were only challenged insofar as they purported to authorize what was clearly unlawful. Insofar as the orders of the Board sought the collection of amounts that were unlawful, they were inoperative. The remainder of the orders were not subject to attack and remained in full force and effect. The object of the action was not to invalidate or render inoperative the Board orders, but rather to recover money that was illegally collected by the gas company as a result of the Board's orders. As the court noted, at paras. 72 and 73 of its reasons:

Moreover, the appellant's case lacks other hallmarks of collateral attack. As McMurtry C.J.O. points out at para. 30 of his reasons, the collateral attack cases all involve a party, bound by an order, seeking to avoid the effect of that order by challenging its validity in the wrong forum. In this case, the appellant is not bound by the Board's orders, therefore the rationale behind the rule is not invoked. The fundamental policy behind the rule against collateral attack is to "maintain the rule of law and to preserve the repute of the administration of justice" (R. v. Litchfield, 1993 44 (SCC), [1993] 4 S.C.R. 333, at p. 349). The idea is that if a party could avoid the consequences of an order issued against it by going to another forum, this would undermine the integrity of the justice system. Consequently, the doctrine is intended to prevent a party from circumventing the effect of a decision rendered against it.

In this case, the appellant is not the object of the orders and thus there can be no concern that he is seeking to avoid the orders by bringing this action. As a result, a threat to integrity of the system does not exist because the appellant is not legally bound to follow the orders. Thus, this action does not appear, in fact, to be a collateral attack on the Board's orders.

29In this case, the order authorized the collection of the amount assessed owing. Absent the order, the CRA had no authority to collect. The Trustee in this proceeding, by suggesting the collection was invalid by reason of the provisions of the BIA, challenges the validity of the order.

30The objective of the Trustee is to either require the CRA to pay over the amount it received from CIBC pursuant to the jeopardy order or to obtain a credit in the same amount against amounts additionally owed by IWS to the CRA. Those additional amounts are the amounts represented by the claims filed by the CRA in the bankruptcy. To suggest that the Trustee is not challenging the jeopardy order, but only its effect, is in my view to ignore the reality. In fact, this case is a standard example of the use of the doctrine. As Iacobucci J. noted [at para. 71], "[g]enerally, [the doctrine of collateral attack] is invoked where the party is attempting to challenge the validity of a binding order in the wrong forum, in the sense that the validity of the order comes into question in separate proceedings when that party has not used the direct attack procedures that were open to it."

31The collection by the CRA could not have occurred absent the order. To say the collection was unauthorized can only mean the order pursuant to which it was collected was unauthorized. In my view, this amounts to a collateral attack on the jeopardy order and, on this ground alone, I would dismiss the appeal.

32The appellant, however, raises additional arguments. For completeness, I will deal with those arguments.

Issue two: Is the jeopardy order a "completely executed" order within the meaning of s. 70(1) of the BIA?

The Trustee's position

33In essence, the Trustee argues that the jeopardy order is an exceptional interim measure that functions as a preservation mechanism pending the resolution of a taxpayer's dispute with the CRA. This concept is echoed throughout the general policy scheme of the ITA assessment process, which is not complete until objections are resolved. Jeopardy orders are not final; they operate to "freeze" security or in a Mareva-like manner pending the determination of the validity of a tax assessment. The fact that the CRA collected the funds does not alter the nature of the order itself: loss of possession does not automatically result in a completely executed course of action since it remains inextricably linked to an incomplete overall process.

The CRA's position

34The CRA argues that the jeopardy order is not an interim collection measure, nor is it a collection measure at all. Rather, it is a court order authorizing the CRA to take the collection measures specified in s. 225.1(1) of the ITA. Under the ITA, a tax debt is due and owing to the CRA from the moment it becomes payable. Unless and until successfully challenged, the tax liability confirmed by the Minister by the notice of assessment is valid, binding and final. Even where a notice of objection is filed, the tax assessed is still payable forthwith. The characterization of a jeopardy order as an interim measure would render any collection action taken by the CRA under such an order between the time a notice of assessment is issued and the time any such assessment is finally adjudicated, ineffective against a trustee. This is a result contrary to the spirit and intent of the jeopardy provision of the ITA.

Analysis

35Section 70(1) of the BIA provides:

70(1) Every bankruptcy order and every assignment made under this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, legal hypothecs of judgment creditors, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or the creditor's representative, and except the rights of a secured creditor.

36It will be recalled that by requirement to pay notice dated March 21, 2007, served on CIBC, the CRA collected the sum of $707,278.16, which it then applied to IWS's outstanding debt. On September 4, 2007, IWS was declared bankrupt and the appellant was appointed as trustee in bankruptcy.

37The ITA provides a regime for the collection of taxes.

38Section 158 of the ITA provides:

158. Where the Minister mails a notice of assessment of any amount payable by a taxpayer, that part of the amount assessed then remaining unpaid is payable forthwith by the taxpayer to the Receiver General.

39In other words, once the assessment is made and mailed, the amount is immediately due and payable. Section 225.1(1) of the ITA provides that where a taxpayer is liable for payment of an amount assessed, the Minister cannot until after the collection-commencement date take action to collect the assessed amount:

225.1(1) If a taxpayer is liable for the payment of an amount assessed under this Act, other than an amount assessed under subsection 152(4.2), 169(3) or 220(3.1), the Minister shall not, until after the collection-commencement day in respect of the amount, do any of the following for the purpose of collecting the amount: (a) commence legal proceedings in a court, (b) certify the amount under section 223, (c) require a person to make payment under subsection 224(1), (d) require an institution or a person to make a payment under subsection 224(1.1), (e) [Repealed, 2006, c. 4, s. 166] (f) require a person to turn over monies under subsection 224.3(1), or (g) give a notice, issue a certificate or make a direction under subsection 225(1).

40The collection-commencement date is defined in the legislation to be either 90 days or one year after the day on which the notice of assessment was mailed to a taxpayer, depending on the basis of the assessment. The ITA also provides that where a taxpayer serves a notice of objection, the Minister shall not take any collection action until 90 days after the Minister has either mailed a notice confirming or varying the assessment.

41There are, as the motion judge noted, two exceptions to this general rule. First, in dealing with large corporations, as IWS was, these collection restrictions are inapplicable to one half of the amount assessed. This explains the ability of the CRA to collect the sum of $621,415.06 from the CIBC on February 19, 2007 despite the notice of objection filed by IWS.

42The second exception is set out in s. 225.2 of the ITA. Under this section, the CRA may obtain an order on an ex parte application (a "jeopardy order") authorizing it to collect the amount outstanding notwithstanding the filing of a notice of objection. The ITA provides that a taxpayer may apply for a review of any such authorization. If the taxpayer does so, the judge is mandated to determine the question summarily and may confirm, set aside or vary the authorization and make such other order as the judge considers appropriate. There is no appeal from the review order.

43The motion judge concluded that the jeopardy order was not an interim preservation order and I agree with her conclusion. The language of the ITA does not speak in terms of "preserving the assets of a taxpayer" or otherwise use language that suggests a jeopardy order is merely an interim device pending the final adjudication of the tax dispute. To the contrary, it restores the CRA's right to immediately enforce payment of the amount assessed. Here, those moneys were paid to the CRA by CIBC in March 2007, and the CRA applied those moneys to the indebtedness of IWS. This was long before IWS was declared bankrupt on September 4, 2007. Hence, s. 70(1) of the BIA can have no application in these circumstances because the payment to the creditor was completely executed by the time of the bankruptcy.

44In summary, the assessment of tax owing was immediately owing and payable when the notice of assessment was sent. The filing of the notice of objection by the taxpayer provided the taxpayer with at least a 90-day grace period during which time the CRA was precluded from taking collection proceedings. That temporary stay ended when the jeopardy order was issued authorizing the CRA to proceed with collection, which it did. The payment was fully executed in March 2007.

Issue three: Does the jeopardy order constitute an improper Crown priority?

i. Section 86(1) of the BIA

45The Trustee argues that it is the explicit intent of Parliament that the Crown not receive a priority over other creditors. Section 86(1) of the BIA provides:

86(1) In relation to a bankruptcy or proposal, all provable claims, including secured claims, of Her Majesty in right of Canada or a province or of any body under an Act respecting workers' compensation, in this section and in section 87 called "workers' compensation body", rank as unsecured claims.

46In my view, this section simply has no application to the facts of this case. Section 70 of the BIA provides that debts which have been completely executed are unaffected by subsequent bankruptcy, be they debts paid to the CRA or any other creditor. Provided the collection is complete, they are unaffected by any subsequent bankruptcy, subject to certain exceptions which have no application here.

47In respect of the moneys that are the subject of this application, the CRA followed the statutory provisions available to it.

ii. Section 73(4) of the BIA

48The Trustee argues that s. 73(4) has application to funds in possession at the CRA and further strengthens the Trustee's interpretation of s. 70(1) by again emphasizing Parliament's intent that the Crown not receive priority over other creditors. Section 73(4) of the BIA provides:

73(4) Any property of a bankrupt under seizure for rent or taxes shall on production of a copy of the bankruptcy order or the assignment certified by the trustee as a true copy be delivered without delay to the trustee, but the costs of distress or, in the Province of Quebec, the costs of seizure are a security on the property ranking ahead of any other security on it, and, if the property or any part of it has been sold, the money realized from the sale less the costs of distress, or seizure, and sale shall be paid to the trustee.

49For the Trustee's argument to succeed, the jeopardy order would need to be treated as an interim preservation order. This is the argument the Trustee made and, for reasons given earlier, is rejected. There is no "property under seizure" on the facts of this case. To the contrary, there has been a completed payment of a debt prior to the bankruptcy. In accordance with s. 70(1) of the BIA, such payments survive a bankruptcy.

iii. Equitable subordination

50Lastly, the Trustee notes that the CRA recovered all of its tax debt for the years set out in the notice of assessment and that the CRA has related debts against IWS's income earned in subsequent years. The Trustee argues that it is inequitable within the meaning of the doctrine of equitable subordination that the CRA fully recover some of its tax debts using the jeopardy order, at the expense of other creditors, while maintaining a pro rata claim for other tax debts.

51In my view, this argument is summarily and correctly dealt with by the motion judge, in para. 29 of her reasons, wherein she stated:

. . . the CRA's conduct was not inconsistent with the BIA nor can it be said that it engaged in inequitable conduct. Indeed it acted pursuant to a court order that it was entitled to seek. Unsecured creditors who had similarly executed on their judgments would be treated similarly. No unfair advantage has been conferred on the CRA.

52I agree with the motion judge. The CRA is statutorily entitled to seek a jeopardy order and, upon obtaining such an order, to immediately collect what is owed. There is nothing unfair about the process.

Disposition

53For these reasons, I would dismiss the appeal.

54If the parties are unable to agree on costs, they may make brief written submissions to the court, by the CRA within ten days of the release of these reasons and by the Trustee within ten days thereafter.

55GOUDGE J.A. (concurring): -- I concur with the reasons of MacFarland J.A., with one exception.

56In my view, the Trustee's motion is not a collateral attack on the jeopardy order granted by the Federal Court. In the proceeding before us, the Trustee fully accepts the validity of that order. Its argument is that a valid jeopardy order coupled with provisions of the BIA produces, as a matter of law, the result it contends for. I would not characterize this as a collateral attack on the jeopardy order. In this motion, the Trustee is not seeking to indirectly challenge the validity of that order.

57Otherwise, I entirely agree with my colleague and would dismiss the appeal as she proposes.