Oppression Remedy - Piercing the Corporate Veil

Caselaw.Ninja, Riverview Group Publishing 2021 ©
Date Retrieved:	2024-04-25
CLNP Page ID:	2173
Page Categories:	[Corporate Law]
Citation:	Oppression Remedy - Piercing the Corporate Veil, CLNP 2173, <https://rvt.link/4p>, retrieved on 2024-04-25
Editor:	Sharvey
Last Updated:	2023/03/14

FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92 (CanLII)

[31] There are two requirements for an oppression remedy claim under s. 248 of the OBCA to succeed. First, the complainant must identify the expectations it claims have been violated by the conduct at issue and show that those expectations were reasonably held. Second, the complainant must show that these reasonable expectations were violated by corporate conduct that was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of any security holder, creditor, director, or officer: Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R. 1037, at para. 24.

...

[33] The Supreme Court held that personal liability may be imposed on a director for oppressive conduct if two criteria are met: (1) the director has the requisite degree of involvement in the oppressive conduct so that it is attributable to them; and (2) personal liability is fit in the circumstances. An order against a director personally will be fit where it is a fair way of dealing with the situation, the order goes no further than necessary to rectify the oppression, the order serves only to vindicate the reasonable expectations of the complainant, and other forms of statutory and common law relief are not more fitting in the circumstances: Wilson, at paras. 47-55.

....

[38] In J.S.M. Corporation (Ontario) Ltd. v. The Brick Furniture Warehouse Ltd., 2008 ONCA 183, 41 B.L.R. (4th) 51, at para. 66, Doherty J.A. distinguished between the situation of a creditor who could, but did not, protect itself from a risk it assumed when it entered into an agreement with a corporation, and “a creditor who finds his interest as a creditor compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself. In the latter case, there is much more room for relief under the oppression provisions than in the former case” (emphasis added).

...

[40] Contrary to the motion judge’s observation, in light of the allegation of unpaid amounts owing to creditors, Ms. Ross, as sole shareholder was not entitled to use Wag and Train’s money as her own or to appropriate its business. Nor could she, as sole director, confer either upon herself. The power of a director to declare a dividend to shareholders is subject to the corporation being able to pay its creditors: OBCA, s. 38(3). A shareholder of a corporation does not have a right to the corporation's assets while it is ongoing: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 34. That right only arises if and when the corporation is wound up. On winding up, a shareholder’s right to payment or to receive assets is subject to the prior rights of unpaid creditors: OBCA, s. 221(1)(a).

[41] Accordingly, the appellants’ allegations – that Ms. Ross stripped value from Wag and Train to avoid payment of amounts known to be owing to the appellants – present an arguable case for a personal remedy against her under the oppression remedy relating to the stripped value. Although the appellants have not specifically alleged that they had a reasonable expectation that such conduct would not occur, reasonable expectations are objectively derived: BCE Inc., at para. 62. The prohibition on a director who is also a shareholder taking assets in priority to, and to the prejudice of, unpaid creditors is a statutory one. The appellants should have an opportunity to amend to address that deficiency.

[42] The allegations otherwise set out an arguable case that a personal remedy against Ms. Ross would be fit. She is alleged to have stripped value in priority to unpaid creditors and thus misused corporate powers to her own benefit, arguably making a personal remedy a fair way of dealing with the situation. The allegations arguably satisfy the other Wilson criteria for a personal remedy as well. Any lack of particularity should also be addressed by amendment.