CRA wants Delta 9 directors to be liable for more than $9 million in unpaid taxes

January 13, 2025 | Sarah Clark

The Canada Revenue Agency wants Delta 9 Bio-Tech’s directors to be liable for more than $8.2 million in unremitted excise duties and nearly $1 million in GST.

In a submission from Thursday, January 9, 2025, the Canada Revenue Agency requested that the stay against Delta Bio-Tech Inc. be lifted to the extent necessary to allow it to assess Delta-9’s CEO John Arbuthnot and the company’s other directors for unremitted excise duties before Delta 9’s liability for them is transferred to a new company, ResidualCo.

ResidualCo is the company named as all of Delta 9’s excluded assets, excluded contracts, and excluded liabilities as part of the recent deal whereby Simply Solventless Concentrates Ltd. is to acquire all the issued and outstanding shares of the Winnipeg-based Delta 9 Bio-Tech.

In a Bench Brief posted on January 6, it is noted that an Approval and Reverse Vesting Order (ARVO) in respect of that Simply transaction, if granted, also provides for the releases in favour of the current directors and officers of Bio-Tech, Bio-Tech’s legal counsel and advisors, Bio-Tech’s monitor and its legal counsel, directors and officers of ResidualCo, and Bio-Tech in respect of the released claims.

The proposed ARVO contemplates the creation of ResidualCo, to which excluded assets, excluded contracts, and excluded liabilities would be transferred.

If granted, the ARVO would provide for releases involving these CCAA proceedings and the Simply Transaction for various third parties, including Bio-Tech’s current directors and officers, its legal counsel and advisors, the Monitor and its legal counsel, and Bio-Tech (the Released D&Os). The released claims include claims against the Released D&Os for unpaid source deductions, goods and services tax, and excise taxes relating to the pre-filing period.

The CRA says that CEO John Arbuthnot and the company’s other directors are liable for Delta 9 Bio-Tech Inc.’s $8,216,924 of unremitted excise duties, saying the company diverted this money to other uses. In addition, the submission from the CRA says that Bio Tech Inc. also failed to remit the $936,993.68 in GST that it collected on cannabis sales while collecting hundreds of thousands of dollars in compensation.

Siding with the CRA will have no impact upon the sale of Delta 9’s Winnipeg property to 6599366 Canada Ltd., the share purchase agreement with Simply Solvent Concentrates Ltd., the reverse vesting order, or any other aspect of the Delta 9 restructuring.