Revenue Quebec Class Action

March 10, 2014

Dear Members and Associates,

CAIRP would like to inform you of a recent development that pertains more particularly to the province of Quebec, but could also have implications across Canada.

By judgment rendered on January 14, 2014, the Superior Court for the Province of Quebec authorized an applicant to initiate a class action proceeding against the Agence du Revenu du Québec (“ARQ”) (the provincial equivalent and counterpart to the Canada Revenue Agency). A copy of the judgment can be accessed at: www.canlii.org/fr/qc/qccs/doc/2014/2014qccs83/2014qccs83.html.

The proceedings ask for damages against ARQ based on a civil liability for damages purportedly caused by the ARQ to a class of individuals and corporations, as a result of ARQ’s collection procedures in files where the individuals or corporations filed consumer proposals or proposals in accordance with the provisions of Part III of the Bankruptcy and Insolvency Act (“BIA”). 

The class action proceeding that has been authorized consists essentially of a complaint regarding a portion of ARQ’s collection policies, consisting of claiming a right of set-off between the amounts due by debtors and the credits due to the debtors relating to the post proposal (or post notice of intention to make a proposal).  It appears that the ARQ’s collection policy includes retaining the credits issued or due in the post proposal period and applying same in reduction of the ARQ’s debt, until the proposal has been fully satisfied.  The applicant that sought and obtained the authorization to take the proceeding and to become the representative of the class asserts (inter alia) that this procedure is illegal and inequitable, as it deprives the debtors of resources after the proposal and provides the ARQ with a disproportionately high recovery on their claims as compared with other creditors.

The class that has been authorized by the Court is comprised of individuals and corporations having less than 50 employees, having had funds “seized” by ARQ after the date of ratification of a proposal under the BIA, after July 6, 2009, to be applied in reduction of tax debts that were provable claims in the proposal.

After consideration, CAIRP is of the view that it would not be authorized to intervene in the proceedings, and accordingly will not be seeking to intervene in this proceeding.  However, that does not mean to say that CAIRP is not interested in the outcome, and CAIRP will be following up on these proceedings and informing members of developments as they arise.

It is possible that in view of the stakes and the target of the proceedings, the case may attract media attention.  If approached by the media, CAIRP asks members to be thoughtful and reserved in their comments, and to stress CAIRP’s position that CAIRP believes strongly in the fulfillment of the objectives of the bankruptcy legislation, in particular those that are brought into play in connection with the class action: 

  • providing an opportunity for a fresh start, in the case of an honest but unfortunate debtor;
  • balancing the interests of debtors and the right of creditors to recover their debts;
  • promoting compromises, settlements and reorganizations instead of bankruptcy and liquidation;
  • equal treatment of creditors.

CAIRP believes that it is in the interest of all members to be aware of this litigation, and to reflect on the message that can be communicated to the media, if asked to comment.  While the case is only applicable to Quebec at this time, a similar situation could arise in the rest of Canada in connection with collection policies used by the Canada Revenue Agency that are essentially the same as those used by QRA that are the object of the class action, and the class action involves the application of the right of set off that has a further reach than just the limited class which will participate in the class action.

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Canadian Association of Insolvency and Restructuring Professionals

277 Wellington Street West, Toronto ON M5V 3H2

Phone 416.204.3242 | Fax 416.204.3410 | Email info@cairp.ca

www.cairp.ca