Principal Issues: Who is responsible for keeping the books and records of a bankrupt corporation and for how long?
Position: The trustee must keep the books and records for at least six years from the end of the last taxation year to which they relate, or until discharged, whichever is less.
Reasons: On the bankruptcy of a corporation the trustee is deemed to be the agent of the corporation whereupon subsections 230(4) to (7) and reg. 5800 apply to the trustee. Upon discharge the agency relationship ends and the BIA General Rules permit the trustee to return the books and records to an officer of the corporation.
September 22, 2010
Taxpayer Services Directorate Income Tax Rulings Directorate Attention: Dave Buchanan, Manager Lindsay Frank Business Programs Section (613) 948-2227
2009-035234
Retention of Books and Records of a Bankrupt Corporation
This is in reply to an email from Eliana Vieglais. At issue is the question of who is responsible for keeping the books and records of a bankrupt corporation and for how long.
In the ordinary course of business, a corporation is responsible for keeping its books and records. On the corporation's bankruptcy, however, a shift in responsibility occurs. Subsection 16(3) of the Bankruptcy and Insolvency Act ("BIA") requires the trustee to take possession of the corporation's books and records, and paragraph 128(1)(a) of the Income Tax Act (the "Act") deems the trustee to be the corporation's agent for all purposes of taxation. At that time, the trustee must abide by subsections 230(4) to (7) of the Act and section 5800 of the Income Tax Regulations and keep the books and records for at least six years from the end of the last taxation year to which they relate.
However, once a trustee has completed the duties required in respect to the administration of the property of a bankrupt, the trustee is entitled to apply to the court for a discharge pursuant to subsection 41(1) of the BIA. Subsection 41(8) provides that an order of discharge releases the trustee from all liability relating to any act done or default made in the administration of the property of the bankrupt, or relating to the conduct of the trustee. It follows that upon discharge, the trustee ceases to be the deemed agent of the bankrupt as provided by paragraph 128(1)(a) of the Act.
Rule 68 of the Bankruptcy and Insolvency General Rules makes a clear distinction between the books, records and documents relating to the administration of the bankrupt estate and those of the debtor. Rule 68(1) provides that, unless ordered otherwise, the trustee must keep the books, records and documents relating to the administration of the estate for at least four years subsequent to the discharge. On the other hand, rule 68(2) provides that after discharge the trustee can give the officer of a bankrupt corporation 30 days to take back the books, records and documents of the corporation.
Pursuant to rule 68(3) the trustee is authorized to dispose of the said books, records and documents where they have not been otherwise removed in accordance with the 30-day notice. Rule 68 is silent on the issue where all the directors are no longer available, but presumably in such instances the trustee would seek direction from the court pursuant to subsection 34(1) of the BIA.
Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Ontario Corporate Tax Division
Income Tax Rulings Directorate
c.c. Eliana Vieglais
Business Programs Section
Taxpayer Services Directorate