INTRODUCTION AND BRIEF DESCRIPTION
This section of the Criminal Code provides defences for individuals charged with an offence related to failure to keep books, including accounting for losses and proving no intention to defraud, or if the failure occurred more than five years prior to being unable to pay creditors in full.
SECTION WORDING
402(2) No person shall be convicted of an offence under this section (a) where, to the satisfaction of the court or judge, he (i) accounts for his losses, and (ii) shows that his failure to keep books was not intended to defraud his creditors; or (b) where his failure to keep books occurred at a time more than five years prior to the day on which he was unable to pay his creditors in full.
EXPLANATION
Section 402(2) is an important provision in the Criminal Code of Canada as it sets out two defences for individuals who are charged with an offence under this section. Section 402 deals specifically with fraudulent dealings with property, and can include offences related to failing to maintain proper bookkeeping records. This section is designed to protect creditors from being defrauded by individuals who conceal assets or engage in other fraudulent activities. Subsection (a) of 402(2) provides a defence where an accused can demonstrate that they have accounted for their losses and that their failure to keep proper books was not done with the intention to defraud their creditors. This defence is intended to provide protection for individuals who may have made mistakes or been negligent in their bookkeeping, but who did not intend to engage in fraudulent activities. This defence places a burden on the accused to provide evidence to satisfy the court or judge that they have not engaged in any fraudulent activities. Subsection (b) of 402(2) provides a defence for individuals who failed to maintain their bookkeeping records more than five years prior to becoming unable to pay their creditors in full. This defence is intended to provide protection for individuals who may have been negligent in their record-keeping in the past, but who have since made efforts to rectify the situation. This defence is not available to individuals who have been intentionally concealing assets or engaging in fraudulent activities. Overall, section 402(2) of the Criminal Code of Canada provides important protections for individuals who may have made mistakes or been negligent in their bookkeeping, but who did not intend to defraud their creditors. These defences ensure that individuals are not unfairly punished for unintentional mistakes and protect the integrity of the criminal process.
COMMENTARY
Section 402(2) of the Criminal Code of Canada is a unique provision that provides a defense against charges for failing to keep proper books and records. This section is particularly relevant to businesses that fail to properly account for their transactions and assets, as failing to do so can be seen as an attempt to defraud creditors. However, the section also recognizes that there may be situations where a business owner fails to keep proper records without any intention to defraud his or her creditors, or where the failure occurred more than five years prior to the individual being unable to pay his or her creditors. The provision essentially says that an individual cannot be convicted of an offense under section 402 of the Criminal Code if he or she can demonstrate that the account of his or her losses can be satisfactorily explained, and that the failure to keep books and records was not an attempt to defraud creditors. In other words, it's a defense against the charges. Essentially, this section is in place to ensure that those who fail to keep proper books and records are not automatically presumed to have been intentionally committing fraud. This section of the Criminal Code is critical since it recognizes the importance of record-keeping and accounting for business owners. It also recognizes that failures to keep accurate records or accounts are not always indicative of fraudulent behavior. Additionally, it recognizes that even though some individuals may fail to maintain proper records for an extended period, they may not have done so with the intention to defraud their creditors. Business owners have a responsibility to maintain proper records of their financial transactions. Keeping accurate records is crucial to the success of any business since it aids in assessing the company's finances, decision-making regarding expenditures, and providing backup for audits or investigations. Failure to keep proper records can make it difficult to prove to creditors that a person is creditworthy, and can lead to accusations of fraudulent behavior. This provision is necessary since it recognizes that there may be situations outside the control of business owners where they may have failed to maintain proper records. This could be due to reasons like mismanagement or lack of resources to hire an accountant. It recognizes that an individual may not be able to achieve perfection in accounting for their losses or that they may make trivial errors in their record-keeping. Therefore, the failure to keep accurate records and accounts cannot automatically lead to accusations of fraudulent behavior. The proof of the failure to keep records must be shown to have been intentional or part of a larger fraud scheme. Otherwise, section 402(2) of the Canadian Criminal Code is a necessary provision that protects individuals and businesses from unfounded claims of fraudulent behavior due to errors in bookkeeping. In conclusion, section 402(2) of the Canadian Criminal Code is critical as it ensures that individuals and businesses are not automatically accused of fraudulent behavior where they fail to keep proper records. It recognizes that managing finances for a business can be challenging and that innocent mistakes can be made along the way. By proving to the court that the failure to keep records was unintentional or occurred more than five years prior to the inability to pay creditors in full, individuals or businesses can mount a successful defense against charges under section 402 of the Criminal Code of Canada.
STRATEGY
When facing charges under section 402(1) of the Criminal Code of Canada for failing to keep proper books and records, defendants may consider various strategic considerations, including arguing their case under subsections 402(2)(a) or (b). These strategies aim to challenge the prosecution's case by demonstrating that the defendant's failure to keep books was not intentional or that it occurred more than five years before they were unable to pay their creditors in full. One of the key strategic considerations to keep in mind when facing charges under section 402(1) is to understand the elements of the offence and how the prosecution may seek to prove them. The offence requires the prosecution to establish beyond a reasonable doubt that the defendant (i) was required by law to keep books and records, (ii) failed to do so, and (iii) did so with intent to defraud their creditors. To prove intent to defraud, the prosecution must establish that the defendant had a dishonest purpose in failing to keep books and records. Another strategic consideration to keep in mind is the available defences under subsections 402(2)(a) and (b). Under 402(2)(a), defendants may argue that they accounted for their losses and can demonstrate that their failure to keep books was not intended to defraud their creditors. Defendants may strengthen this argument by presenting evidence of extenuating circumstances that may have contributed to their inability to keep proper books and records, such as sudden illness or unexpected business disruptions. Under 402(2)(b), defendants may argue that the failure to keep books occurred more than five years prior to their inability to pay their creditors in full. To make this argument, defendants may seek to establish that the relevant statute of limitations has expired or that the prosecution is barred by the doctrine of laches, which precludes enforcement of a claim due to unreasonable delay. The defendant may use this argument to persuade the court that it would not be appropriate to impose criminal liability for a failure to keep books that occurred many years in the past where the defendant has since taken steps to address their record-keeping practices. Another relevant strategic consideration in dealing with charges under section 402(1) is to consider the potential consequences of a conviction. A conviction for failing to keep proper books and records can result in significant fines, imprisonment, or both, and can also have serious reputational consequences for the defendant and their business. Accordingly, defendants may wish to consider exploring plea negotiations or other strategies to mitigate the potential consequences of a conviction. In conclusion, various strategic considerations may impact how defendants choose to respond to charges under section 402(1) of the Criminal Code of Canada. Effective defence strategies may focus on challenging the prosecution's case by arguing under subsections 402(2)(a) or (b), presenting evidence of extenuating circumstances, and seeking to mitigate the potential consequences of a conviction. Ultimately, each case will depend on its unique circumstances, and defendants are encouraged to consult with experienced legal counsel to explore their options and develop effective defence strategies.