A licensed producer of cannabis (“Bio-Tech”) had entered CCAA proceedings. A requested reverse vesting order (RVO) contemplated that an arm’s length purchaser (“SSCL”) would acquire all the shares of Bio-Tech and that a residual company (“ResidualCo”) would have transferred to it excluded assets, excluded contracts, and excluded liabilities, which included taxes owing or accrued due to Bio-Tech for the period prior to the CCAA filing date. The draft RVO also provided that such taxes would include any taxes related to debt forgiveness arising from or in connection with the consummation of the transaction.
Marion J accepted the monitor's view that an RVO structure to transfer the Bio-Tech shares was necessary to maximize value due to the highly regulated nature of Biotech's cannabis business, which depended upon maintaining two non-transferable licences, with Health Canada and with CRA (regarding the excise-stamping of its products).
CRA argued successfully that s. 80(13) would operate to include forgiven debt amounts in the income of Bio-Tech on the future date when the transfer to ResidualCo occurred and the Court could not approve a provision in a transaction contract that required the Minister not to apply the ITA regarding the application of s. 80(13) to Bio-Tech. It relied on R v Beach, 2001 BCCA 7 and Proposal of Sail Plein Air inc, 2024 QCCS 1689 (under appeal) to say that such a court approval would be illegal, and that such a provision prohibiting the Minister from including income would be unenforceable: Canadian Red Cross Society, Re, 2006 CanLII 22141 (ON SC) at para 45.
Marion J. ordered that the wording of the RVO was to be amended to include language that made it clear that the above exclusion for tax liabilities of Bio-Tech did not apply to any future inclusion of income to Bio-Tech pursuant to s. 80 of the ITA.