Decision #121/07 - Type: Workers Compensation
Preamble
This appeal deals with Directors’ liabilities to pay an employer firm’s unpaid assessment.
A hearing was held on August 1, 2007 at the employer’s request to consider the matter.
Issue
Whether or not the Directors are required to pay the outstanding balance of $5,384.63 to the WCB.Decision
That the Directors are required to pay the outstanding balance of $5,384.63 to the WCB.Decision: Unanimous
Background
The employer’s file was started with the WCB in January 2000. At the time there were two company Directors.
On January 13, 2006, the employer went into receivership and a receiver manager took over the company. The WCB then conducted a corporate records search at the Companies Office in February 2006 in which the names of the two Directors were listed.
In a letter to both Directors dated February 12, 2007, the WCB’s collection officer indicated that the outstanding assessment on this file was in the amount of $5,384.61. Subsection 85.2(1) of The Workers Compensation Act (the Act) was referred to in the letter. The amount owing was based on the 2005 fourth quarter worker’s earnings and 2006 first quarter worker’s earnings, up to the date the receiver manager took over on January 13, 2006.
The two Directors appealed the above decision to the Assessment Committee. They stated:
“Although I was a Director of the Company, I had nothing whatsoever to do with any of the day to day financial matters. All employee payments, deductions, statutory payments etc., were handled by the CFO of the company. As and after November 1, 2005, these matters were all handled under the supervision and direction of the [receiver’s name]. If there were any arrears, of which I am unaware, these should have been paid by the ultimate trustee in bankruptcy, [name], inasmuch as the proceeds of sale were in excess of $8 million and WCB would, as I understand it, have priority with respect thereto. In any event, at all times I was assured by the CFO that all required statutory payments were being made and I believe that should have satisfied any Director’s responsibility that I might have had.”
On May 8, 2007, the WCB’s Assessment Committee denied the appeal. It stated that regardless of a firm’s status, the WCB can pursue any outstanding balance when a firm is in default and owes monies. Based on subsection 85.2(1) of the Act, the WCB can pursue collection of an outstanding balance from the Directors of a corporation. The WCB said the current status of the file under receivership does not absolve the Directors from any liability which occurred prior to January 13, 2006. In May 2007, both Directors appealed the Assessment Committee’s decision to the Appeal Commission and a hearing took place on August 1, 2007.
Reasons
Directors’ Position
The Directors attended the hearing. For the purposes of this decision they are referred to as Director A and B. Director A made a submission on behalf of the Directors. Both Directors answered questions posed by the panel.
Director A acknowledged that the amount of assessment in issue has been correctly calculated. He advised that on November 1, 2005, a creditor of the employer firm sent in staff to operate the business and that although they were not official receivers, they in effect, took over the business. They were officially appointed by the courts in January 2006. He advised that after November 1, 2005, the Directors had no authority for the operations of the business and should not be held liable for debts after this date.
Director A referred to various provisions of the Act in support of their position. He submitted that section 85 does not create a strict or absolute requirement for Directors to pay assessment. He noted that it does not state that the “directors shall pay.”
He submitted that subsection 86(3) is applicable to this case. He said it provides the board with the authority, if it is satisfied that there is a reasonable excuse, to choose not to impose liability. He noted the subsection provides for relief, in whole or in part, from liabilities imposed under the section. He submitted that assessment is a liability imposed under this section and that the board can provide relief from the liability.
He also referred to subsection 88(2) which applies where a change of ownership occurs in respect of an employer firm. When asked whether he was implying that an equitable change in ownership took place when the creditor stepped in under the security agreement on November 1, 2005, he replied “Yes, yes, I am saying that, in effect, [creditor] stepped in under their security agreement which provides them the right to step in and I believe that probably would be covered under the receivers receiving order which is where they acted, which entitled them to step in and deal with the company as if, in fact, they were owners.”
Analysis
The issue before the panel was whether the Directors are required to pay the outstanding balance of $5,384.63 to the WCB. The panel has considered the arguments advanced on behalf of the Directors, the file information and the Act, and finds that the Directors are required to pay the outstanding balance.
The Director’s liability arises under subsection 85.2(1) of the Act. This provision provides
Liability of directors for money owing
85.2(1) Where an employer who defaults in the payment of money to the board under this Act is a corporation, a director of the corporation at the time the amount is due, other than a director elected pursuant to a collective agreement that entitles the workers employed by the corporation to have representation on the board of directors, is jointly and severally liable with the corporation to pay to the board any amount owing in excess of $1,000.00, and section 85 applies to a director of a corporation as if the director were the employer.
The facts of this case clearly establish the Directors’ liability under this subsection:
- the employer is a corporation which defaulted in the payment of money to the board,
- Director A and B were Directors at the time the amount was due, and
- the amount owing is greater than $1,000.00
As a result, the Directors are jointly and severally liable with the corporation to pay the board any amount owing in excess of $1,000.00.
Director A acknowledged that the requirements of subsection 85.2(1) have been met. He submitted however that the obligation to pay the amount due is not absolute and that the board has authority to relieve the Directors from the responsibility to pay the outstanding amount. The argument was based largely on the Directors evidence that they did not have control of the business after the creditor took over in November 2005. The panel however finds that they were Directors as required under subsection 85.2(1) regardless of the presence of the creditor’s representatives at the business. The Directors’ liability arises for amounts due until the receiver was officially appointed by the Court and the ownership changed. The panel rejects the Directors submission that a change of ownership took place on November 1, 2005 in accordance with subsection 88(2). The panel finds that the change of ownership did not occur until the receiver was appointed by the court in January 2006.
The panel disagrees with the Directors’ submission that subsection 86(3) provides authority to the panel to excuse the payment of the outstanding balance. The panel finds that this section applies only to liabilities directly imposed by the preceding subsections, 86(1) and (2). These subsections do not impose the liability to pay assessment, rather they create administrative penalties and interest charges. Subsection 86(3) provides authority to relieve payment of these administrative penalties and interest charges. The balance owing in this case is not composed of administrative penalties and interest, rather it is the employer’s assessment and is owing in accordance with subsection 85.2(1). Accordingly, the panel does not have discretion under the Act to excuse the Directors’ liability.
The Directors’ appeal is denied.
Panel Members
A. Scramstad, Presiding OfficerA. Finkel, Commissioner
B. Malazdrewich, Commissioner
Recording Secretary, B. Kosc
A. Scramstad - Presiding Officer
(on behalf of the panel)
Signed at Winnipeg this 18th day of September, 2007